Agenda Item No. 11(b)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 28 FEBRUARY 2018

 

REFERENCE FROM CABINET:  19 FEBRUARY 2018

 

C227              Treasury Management and Investment Statement 2018/19 (l) (Scrutiny Committee – Corporate Performance and Resources) -

 

Cabinet was provided with an interim report on the Council’s treasury management operations for the period 1 April, 2017 to 31 December, 2017 and the proposed 2018/19 Treasury Management and 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 (supported borrowing).  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 increases in Council Tax.

 

In order to manage this 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 are within prudent and sustainable levels;
• The treasury management decisions are taken in accordance with professional good practice. 

In March 2012 the Council adopted the CIPFA Treasury Management in the Public Services: Code of Practice 2017 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 requires 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 states 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 2018/19, 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 may be used to support and record local decision-making.

 

Proposed Strategy 2018/19

 

In 2018/19 the Authority would continue to place 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.

 

At the time of writing the report Northamptonshire County Council had filed a Section 114 notice to indicate that it was unlikely to submit a balanced budget within statutory timescales. The Council had no investments with Northamptonshire Council and had been advised by their Treasury Management advisors not to make any new investments with them. There had been extensive discussion in the press surrounding the potential for other English Local Authorities to be in a similar position although there had been no indication that any Local Authorities were likely to default on their loan repayments.

 

If a Local Authority that the Council had investments with was to default on a loan repayment the Council would have recourse under the Local Government Act 2003 to collect any outstanding sums. Given the emerging nature of the picture in relation to Local Authority investments the Treasury Management section would set a maximum period of 6 months for investments made from the date of this report. A further update on this position would be brought to Cabinet as part of future Treasury Management monitoring reports.

 

The Council would pursue the possible use of other investment tools, i.e. Treasury Bills & Money Market Funds during 2018/19 and may introduce these investment tools once relevant appraisals had been undertaken. However the continuing uncertainty in the financial markets would continue to dictate that the importance of capital security still outweighed the importance of financial performance at present.

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.

 

The proposed Treasury Management and Investment Strategy was attached at Appendix 1 to the report.

 

Interim Report

 

In so far as the Council’s Treasury Management operations entered into for the period 1 April, 2017 to 31 December, 2017 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.

 

Treasury Management

Loan Type	Opening Balance	Received	Repaid	Closing Balance
	01/04/2017			31/12/2017
	£000	£000	£000	£000
PWLB	148,999	0	(1,807)	147,192
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	157,199	0	(1,807)	155,392

 

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.

 

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

 

The Council’s investments for the period to 31 December, 2017 were set out below;

 

Treasury Management

Borrowing Institution	Opening Balance	Received	Repaid	Closing Balance
	01/04/2017			31/12/2017
	£000	£000	£000	£000
Local Authorities	65,500	172,350	(172,350)	65,500
Debt Management Account Deposit   Facility	4,250	1,398,650	(1,398,500)	4,400
Total	69,750	1,571,000	(1,570,850)	69,900

 

Interest at an average rate of 0.30% and amounting to £144,140 had been received from maturing investments for the first 9 months of 2017/18.

 

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)       ................

 

(3)       T H A T Cabinet recommend to Council that the proposed 2018/19 Treasury Management and Investment Strategy be approved including the following specific resolutions:

 

• The Authorised Limit for External Debt be set at £203.681M for 2017/18, £216.031M for 2018/19, £226.060M for 2019/20 and £226.292M for 2020/21.
• The Operational Boundary for External Debt be set at £175.441M for 2017/18, £195.637M for 2018/19, £199.906M for 2019/20 and £206.012M for 2020/21.
• 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 £149.265M for 2017/18, for 2018/19 of £154.046M for 2019/20 of £159.482M and for 2020/21 of £165.362M of its net outstanding principal sum on its borrowings / investments.
• An upper limit be set on its variable interest rate exposures of £0 for 2017/18, 2018/19, 2019/20 and 2020/21 of its net outstanding principal sum on its investments.
• An upper limit of £5M for 2017/18, £5M for 2018/19, £2M in 2019/20 and 2020/21 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 2018/19 be set as below: 

Projected Borrowing

	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 attached to the report be approved.
• The Treasury Management Policy set out in Appendix 2 attached to the report be approved

Reasons for decisions

 

(1)       ................

 

(2)       ................

 

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