Agenda Item No. 10(d)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 1 MARCH 2017

 

REFERENCE FROM CABINET:  20 FEBRUARY 2017

 

C3467         TREASURY MANAGEMENT AND INVESTMENT STATEMENT 2017/18 (L) (SCRUTINY COMMITTEE – CORPORATE PERFORMANCE AND RESOURCES) -

 

Cabinet was provided with the interim report on the Council’s treasury management operations for the period 1 April, 2016 to 31 December, 2016 and the proposed 2017/18 Treasury Management and Annual Investment Strategy.

 

The Welsh Government (WG) provided the Council with a General Capital Funding grant and the Authority was also advised of a level of borrowing that WG was prepared to fund via the Revenue Support Grant Settlement. If the Council wished to borrow in excess of this level to increase its capital expenditure, then it could. However, it would either have to find the additional costs of borrowing through savings in other services or increase Council Tax.

 

In order to manage the increased flexibility, Part 1 of the Local Government Act 2003 required local authorities to have regard to the Prudential Code, which had been developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) as a professional code of practice.

 

The key objectives of the fully revised Prudential Code were to ensure that the capital investment plans of local authorities: 

• Were affordable;
• That all external borrowing and other long term liabilities were within prudent and sustainable levels;
• The treasury management decisions were taken in accordance with professional good practice.

In March 2012 the Council adopted the CIPFA Treasury Management in the Public Services: Code of Practice 2011 Edition (the CIPFA Code), which required the Council to approve a treasury management strategy before the start of each financial year.

 

The Code of Practice and legislation required the Council to set out its Treasury Management Strategy and to prepare an Investment Strategy. The Welsh Government (WG) issued revised Guidance on Local Authority Investments in April 2010 that required the Council to approve an Investment Strategy before the start of each financial year and stated that authorities may produce a single strategy document, covering both the requirements of the CIPFA Treasury Management Code and WG's guidance.

 

The proposed Treasury Management and Investment Strategy for 2017/18, was attached at Appendix 1 to the report. The Treasury Management Strategy itself covered a rolling period of three years and was intended to link in to the Medium Term Financial Planning process. The Investment Strategy covered the next financial year. The document also included a number of statutory Prudential Indicators that could be used to support and record local decision-making.

 

Proposed Strategy 2017/18

 

As at 31 December, 2016 the Authority had placed all of its investments with either the 'Debt Management Account Deposit Facility' (DMADF) of the Bank of England which were guaranteed by the UK Government, or with UK Local Authorities.

 

The Authority would continue to use credit ratings from the three main rating agencies Fitch Ratings Ltd, Moody’s Investors Service and Standard & Poor’s to assess the risk of loss of investments. The lowest available credit rating would be used to determine credit quality. In addition, regard would be given to other available information on the credit quality of banks and building societies.

 

Interim Report

 

In so far as the Council’s Treasury Management operations entered into for the period 1 April, 2016 to 31 December, 2016 were concerned, all activities were in accordance with the Council’s approved strategy on Treasury Management. The following table set out the monies borrowed / repaid during the period.

 

Loan Type	Opening Balance	Received	Repaid	Closing Balance
	01/04/2016			31/12/2016
	£’000	£’000	£’000	£’000
PWLB	151,211	0	(812)	150,399
Other Long Term Loans	6,000	0	0	6,000
WG Concessionary Loan	2,100	0	0	2,100
Temporary Loans	100	0	0	100
Total	159,411	0	(812)	158,599

 

Loans borrowed from the Public Works Loan Board (PWLB) were intended to assist Local Authorities in meeting their longer term borrowing requirements. The above loans were all at fixed rates of interest. The rate paid on each loan was largely dependent upon the original duration of the loan and date taken out.

 

Other long term loans represented those non-PWLB loans that were repayable at least one year or more from the date they were advanced. The bulk of this debt was represented by two market loans of £2,000,000 and £4,000,000.

 

In the 2016/17 accounts the Council recognised a £2.1M interest free loan from WG which was repayable in 2025.

 

Temporary loans represented those loans that were borrowed for a period of less than one year, borrowed on notice.

 

The Council’s investments for the period to 31 December, 2016 were set out below;

 

Borrowing Institution	Opening Balance	Received	Repaid	Closing Balance
	01/04/2016			31/12/2016
	£’000	£’000	£’000	£’000
Local Authorities	48,000	128,150	-111,150	65,000
Debt Management Account Deposit   Facility	30,600	1,371,350	-1,393,150	8,800
Total	78,600	1,499,500	-1,504,300	73,800

 

Interest at an average rate of 0.28% and amounting to £229,432 had been received from maturing investments for the first 9 months of 2016/2017.

 

At the meeting, the Leader noted that there was a typographical error in Paragraph 20 of the report, which stated that: “the Council has concluded that a 4% charge in line with the CFR Method is sufficient to ensure prudent provision for supported borrowing”. This should instead refer to the “Regulatory Method” and he requested the report be amended before it was presented to Council for final approval.

 

This was a matter for Executive and Council decision

 

Cabinet, having considered the report and all the issues and implications contained therein

 

RESOLVED –

 

(1)       …………….

 

(2)       T H A T Cabinet recommend to Council the policy for making Minimum Revenue Provision in 2017/18 be approved.

 

(3)       T H A T Cabinet recommend to Council that the proposed 2016/17 Treasury Management and Investment Strategy be approved including the following specific resolutions:

 

• The Authorised Limit for External Debt be set at £192,500,000 for 2016/17, £214,700,000 for 2017/18, £214,400,000 for 2018/19 and £220,300,000 for 2019/20.
• The Operational Boundary for External Debt be set at £185,600,000 for 2016/17, £200,300,000 for 2017/18, £199,200,000 for 2018/19 and £205,700,000 for 2019/20.
• The Section 151 Officer be granted delegated authority within the total Authorised Limit and Operational Boundary as estimated for individual years to effect movement between the separately agreed limits for borrowing and other long term liabilities.
• An upper limit be set on its fixed interest rate exposures of £161,100,000 for 2016/17, for 2017/18 of £190,400,000, for 2018/19 of £190,100,000 and for 2019/20 of £196,000,000 of its net outstanding principal sum on its      borrowings / investments.
• An upper limit be set on its variable interest rate exposures of £0 for 2016/17, 2017/18, 2018/19 and 2019/20 of its net outstanding principal sum on its investments.
• An upper limit of £5,000,000 for 2016/17, £10,000,000 for 2017/18, £5,000,000 in 2018/19 and 2019/20 be set for total principal sums invested for over 364 days.
• The amount of projected borrowing that is fixed rate maturing in each period as a percentage of total projected borrowing that is fixed rate for 2017/18 be  set as below:

 

	Upper Limit	Lower Limit
Under 12 months	20%	0%
12 months and within 24 months	20%	0%
24 months and within 5 years	30%	0%
5   years and within 10 years	40%	0%
10 years and above	100%	0%

 

• The Prudential Indicators set out in Appendix 1 be approved.
• The Treasury Management Policy set out in Appendix 2 be approved.

 

Reasons for decisions

 

(1)       …………….

 

(2)       To agree the basis of the Minimum Revenue Provision calculation for 2017/18.

 

(3)       The Treasury Management and Annual Investment Strategy was prepared as required by the Local Government Act 2003.