Agenda Item: 17
THE VALE OF GLAMORGAN COUNCIL
CABINET MEETING: 7TH FEBRUARY
2007
REPORT OF THE DIRECTOR OF FINANCE, I.C.T. AND
PROPERTY
TREASURY MANAGEMENT
Purpose of Report
1.
To provide an interim report on the Council’s treasury management
operations for the period 1st April 2006 to
31st December 2006 and to submit for consideration the
proposed 2007/08 Treasury Management and Annual Investment
Strategy.
Background
2.
On 1st April 2004, new capital finance regulations came
into force. Under the new regulations, the Welsh Assembly
Government provides the Council with a General Capital Funding
grant and the Authority is also advised of a level of borrowing
that the Assembly is prepared to fund via the Revenue Support Grant
Settlement. If the Council wishes to borrow in excess of this
level to increase its capital expenditure, then it can. However, it
will either have to find the additional costs of borrowing through
savings in other services or increases in council tax.
3. In
order to manage this increased
flexibility, Part 1 of the Local Government
Act 2003 requires local authorities to have regard to the
Prudential Code, which has been developed by the Chartered
Institute of Public Finance and Accountancy (CIPFA) as a
professional code of practice.
4.
The key objectives of the Prudential Code are to ensure that the
capital investment plans of local authorities:
§ are
affordable;
§ all external
borrowing and other long term liabilities are within
prudent and
sustainable levels;
§ the treasury
management decisions are taken in accordance with good professional
practice.
Relevant Issues and Options
5.
The introduction of the Prudential Code and new legislation
requires the Council to set out its Treasury Strategy for Borrowing
and to prepare an Annual Investment Strategy. The investment
guidance issued by the Welsh Assembly Government states that
authorities may combine the Treasury Strategy and Annual Investment
Strategy into one statement.
6.
The proposed Treasury Management and Annual Investment Strategy for
2007/08 – 2009/10, is therefore, attached at Appendix ‘A’. The
Treasury Management Strategy itself covers a rolling period of
three years and is intended to link in to the Medium Term Financial
Planning process. The Investment Strategy covers the next financial
year. The document also includes a number of statutory Prudential
Indicators that may be used to support and record local
decision-making.
7.
In so far as the Council’s treasury management operations for the
period 1st April 2006 to 31st December 2006
are concerned, all activities were in accordance with the Council’s
current approved strategy on Treasury Management. The following
table sets out the monies borrowed during the period.
|
Loan Type
|
Opening Balance
|
Received
|
Repaid
|
Closing Balance
|
|
|
01/04/2006
|
|
|
31/12/2006
|
|
|
£’000
|
£’000
|
£’000
|
£’000
|
|
|
|
|
|
|
|
PWLB
|
93,075
|
3,000
|
632
|
95,443
|
|
|
|
|
|
|
|
Long Term Loans
|
6,026
|
0
|
0
|
6,026
|
|
|
|
|
|
|
|
EIB
|
1,054
|
0
|
502
|
552
|
|
|
|
|
|
|
|
Temporary Loans
|
1,086
|
0
|
996
|
90
|
|
|
|
|
|
|
|
Totals
|
101,241
|
3,000
|
2,130
|
102,111
|
· Loans
borrowed from the Public Work Loans Board (PWLB) are intended to
assist Local Authorities in meeting their longer term borrowing
requirements. The above loans are all at fixed rates of
interest. The rate paid on each loan is largely dependent upon the
original duration of the loan and date taken out.
· Long term
loans represent those non-PWLB loans that are repayable at least 1
year or more from the date they are advanced. The bulk of
this debt is represented by two market loans of £2,000,000 and
£4,000,000. The balance of this debt are local bonds. These total
£26,700 and are made up of small individual sums that are invested
with the Council for a number of years by members of the
public.
· The
European Investment Bank (EIB) loan was transferred to this
Authority, on reorganisation, from South Glamorgan County
Council. Interest is paid at the rate of 9.95% and the debt
will be extinguished in August 2007.
·
Temporary Loans represent those loans that are borrowed for a
period of less than 1 year. They are borrowed for a fixed
term or on notice.
8.
External interest at an average rate of 5.68% and amounting to
£4,371,719 has been paid on these loans for the first 9 months of
2006/2007.
9.
The Council has made the following investments for the period as
set out below:-
|
Borrowing
Institution
|
Opening Balance
|
Invested
|
Returned
|
Closing Balance
|
|
|
01/04/2006
|
|
|
31/12/2006
|
|
|
£’000
|
£’000
|
£’000
|
£’000
|
|
|
|
|
|
|
|
Council’s Bank
|
1,950
|
642,920
|
641,770
|
3,100
|
|
|
|
|
|
|
|
Local Authorities
|
1,000
|
|
1,000
|
0
|
|
|
|
|
|
|
|
Other Approved Banks
|
51,250
|
84,555
|
79,905
|
55,900
|
|
|
|
|
|
|
|
Fund Manager
|
17,616
|
548
|
0
|
18,164
|
|
|
|
|
|
|
|
Totals
|
71,816
|
728,023
|
722,675
|
77,164
|
10.
Interest, at an average rate of 4.71% and amounting to £2,392,374
has been received from these investments during the first 9 months
of 2006/2007.
Resource Implications (Financial and
Employment)
11.
Money is borrowed for capital purposes and interest is charged to
revenue accounts.
Legal Implications (to include Human Rights
Implications)
12.
Compliance with the Local Government Act 2003 and CIPFA’s
“Code of Practice for Treasury Management in the Public Services”
is mandatory.
Crime and Disorder Implications
13. There are
no crime and disorder implications resulting from this report.
Equal Opportunities Implications (to include
Welsh Language Issues)
14.
There are no equality implications resulting from this report.
Corporate/Service Objectives (to include
stakeholder consultation & voluntary sector implications)
15. This meets the objective
to provide effective treasury management. This is linked to the
corporate objectives generally in that any savings made can be used
to assist other services in meeting their objectives.
Policy Framework & Budget
16.
Approval of the proposed Treasury Management and Annual Investment
Strategy for 2007/08 is a matter for decision by Council.
Consultation
17.
None.
Relevant Scrutiny Committee
18. Corporate
Resources.
RECOMMENDATIONS
THAT:
(1) The Treasury
Management interim report for the period 1st April to
31st December 2006 is noted.
(2)
The proposed 2007/08 Treasury Management and Annual Investment
Strategy be referred to Council for approval
including the following specific resolutions as set out in the
Strategy Action Plan:
(i)
The Authorised Limit for External Debt be set at £142,049,000 for
2006/07, £147,041,000 for 2007/08, £153,033,000 for 2008/09 and
£159,025,000 for 2009/10.
(ii)
The Operational Boundary for External Debt be set at £125,049,000
for 2006/07, £130,041,000 for 2007/08, £134,033,000 for 2008/09 and
£140,025,000 for 2009/10.
(iii) The
Director of Finance ICT and Property be given 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.
(iv) An upper limit is
set on its fixed interest rate exposures for 2006/07 of
£114,000,000, for 2007/08 of £111,000,000, for 2008/09 of
£116,000,000 and for 2009/10 of £121,000,000 of its net outstanding
principal sum on its borrowings / investments.
(v)
An upper limit is set on its variable interest rate exposures
for
2006/07 of (£90,000,000), for 2007/08 of
(£84,000,000), for 2008/09 of (£70,000,000) and for 2009/10 of
(£65,000,000) of its net outstanding principal sums on its
borrowings / investments.
(vi)
An upper limit of £13,000,000 is set for total principal sums
invested for over 364 days for 2006/07, 2007/08, 2008/09 and
2009/10.
(vii)
The amount of projected borrowing that is fixed rate maturing
in
each period as a percentage of total projected
borrowing that is fixed rate be set as below:
|
Maturity Structure of New Fixed
Borrowing During 2007/08
|
Upper Limit
|
Lower Limit
|
|
Under 12 months
|
50%
|
0%
|
|
12 months and within 24 months
|
20%
|
0%
|
|
24 months and within 5 years
|
30%
|
0%
|
|
5 years and within 10 years
|
30%
|
0%
|
|
10 years and above
|
100%
|
0%
|
(viii)
The Prudential Indicators set out in this Strategy be approved.
Reasons for Recommendations
(1) The
Treasury Management Interim Report is prepared as required
by
(2)
The Treasury Management and Annual Investment Strategy is
prepared as required by the Local Government Act 2003
Background Papers
CIPFA’s “Code of Practice for Treasury
Management in the Public Services” and “The Prudential Code”
Contact Officer: Robert Ingram ,
Principal Accountant.
Tel (01446 709252)SIAN DAVIES
SIAN DAVIES
DIRECTOR OF FINANCE, ICT AND
PROPERTY