Agenda item

The Acting Assistant Head of Finance introduced the Treasury Policy and Strategy Report 2020/2021 prior to presentation to Council on 11^th March 2021. Following presentation of the report, questions were asked as follows:

·         A Member praised the team for completing this very technical work and noted that pooled investments had been more successful than some other investments.  It was queried if there is scope to increase this approach. It was confirmed that pooled funds have yielded a good return on investment for a small additional risk, noting that they are long term investments with a capital element and approximately 3-4% interest returned consistently.  The limits this year are £6m maximum. The authority is planning to increase this to £10m investments in pooled funds to reflect the minimum investment threshold to be maintained in the long term to meet the requirements of the Markets in Financial Instruments Directive (MiFID 2) legislation.  The intention is to diversify over a number of pooled fund managers to spread the risk as much as possible to provide security.

The Chair asked what proportion of the money invested or on deposit the £10m represented and was informed that during the current year investments have ranged between £13m-£33m.  The number of grants received due to Covid 19 has had an impact on balances. On average there is £20m - £23m during a year so the proportion would be in the region of 50%.

·         A Member asked about the borrowing strategy as rates are low.  Referring to the report, the authority currently owes £171m in loans rising to £176m next year with an upper loan limit £225m.  It was questioned how close the authority should proceed to the limit, if this is a prudent approach or should the authority consider reducing loans from the current level and if there are ways to do this. It was questioned if the investments are an attempt to “balance the books”.  It was explained that it is a complicated situation due to the current economic outlook.  It should be noted that the authority’s  borrowing requirement is driven by the need to finance its capital programme which is not funded by grants or internal resources. 

Appendix 5 sets out prudential indicators for the year that provide a statutory limit to the amount of debt that can be borrowed (Next year is £246.5m) without receiving approval from Council.  There is also an operational boundary to measure borrowing against at any one time.  The authority currently uses internal resources first (reserve balances, working capital) to fund day-to-day expenditure before drawing down external loans. Short-term loans (e.g. 6 months) are 0-1% interest and are being utilised.  Longer-term loans are higher (e.g. 2% for 15 year loan) at present.  The position will require careful management to ensure the authority’s long-term loan requirements are not impacted by rising interest rates.

·         In response to a question from the Chair, it was confirmed that the costs of borrowing are set to reduce as a proportion of total spending over the next four years.  The total authority revenue budget will increase year on year whereas treasury costs are more static so the proportion would be expected to reduce over the medium term.  In the latter years (2023/24 and 2024/25) the capital investment plans may still be in infancy so borrowing costs may increase as time progresses due to further borrowing once the authority’s capital investment plans are more certain.

·         A Member queried if the frequency of reporting is adequate for Committee Members to keep track of progress.  Regarding twice yearly reporting to Audit Committee on treasury performance, it was explained that the costs of borrowing proposed for the year and returns on investments are included in the revenue budget monitoring reported to Cabinet three times a year. Also, non-treasury investments (commercial portfolio) are monitored by the Investment Committee.

·         It was queried how Arlingclose was appointed as Treasury Advisers, what its cost is and if it has performance indicators to provide evidence that the authority experiences benefit.  It was explained that the Arlingclose contract is close to ending with an option to extend for a further year; this is likely to be taken up. The cost of the contract cannot be divulged as a tender process will be entered into during the next financial year.  In terms of performance, Committee Members were assured that regular meetings are held to discuss Arlingclose’s performance and approach to the advice provided; technical information and advice provided daily is significant.

The recommendations as included in the report were acted upon as follows:

1)         That Audit Committee considers and endorses for onward circulation and approval by full Council the draft Treasury Management Strategy 2021/22 (Appendix 1) including the:

•           2021/22 Treasury Management policy statement

•           2021/22 Minimum Revenue Provision Policy Statement

•           2021/22 Investment & Borrowing Strategies

2)         That Audit Committee continues to review the Council’s treasury activities on behalf of the Council by receiving the mid-year treasury management report and year-end report.