Agenda item

The Treasury Outturn Report was presented by the Assistant Head of Finance.

The Council’s treasury management activity is underpinned by CIPFA’s Code of Practice on Treasury Management (“the Code”), which requires local authorities to annually produce Prudential Indicators and a Treasury Management Strategy Statement on their likely financing and investment activity.

Key aspects at outturn were as follows:

External borrowing

                                    £m                   £m

                                    April 16            Mar 17             Average Rate

Short Term                  26.6                 19.5                 0.6%

Long Term                  68.2                 69.8                 4.5%

Total Borrowing           94.8                 89.3

Investments

Short Term &              11.4                 4.5                   0.35%

Cash & Cash                                                               Avg investment

Equivalents                                                                 period 3 days @

                                                                                    31/3/17

Net Borrowing             83.4                 84.8

Capital Financing Requirement                                  £m

31 March 2017                                                            134.6

1 April 2016                                                                 114.1

Movement                                                                   20.5

It was confirmed that treasury consultants, Arlingclose, will provide training on treasury policy for new members in October 2017.  Members were invited to reflect on the CIPFA self-assessment return prior to the next meeting, to assess the skills level of the Committee and development needs to influence the training content.

Having received the report, Members made the following observations:

 A Member questioned, if the authority is undertaking structural change, could costs be assigned as a capital expense and then borrow against the capital expense as opposed to cash flow.  It was replied that capital definitions related to assets are subject to 3 stringent tests (whether it enhances its value, its life or its use) and restructuring doesn’t normally fall into these categories.  (There is a specific exemption in the Welsh Government’s capital directive that excludes the capitalisation of redundancy costs where there is a proven case).  Whilst this could be done, historically the capital programme is restricted and provides little headroom to use in this way.  The biggest priority has been the provision of two secondary schools in the county.

A Member questioned the term “Bail ins” and the explanation was provided that it means government regulations to avoid banks being taken into government control when running into difficulty.  Under regulations, private investors’ funds are protected to a limit of £85,000 however institutional lenders such as LAs would be required to bear a proportion of the risks and costs of a failed bank.  Therefore, it would not be prudent to place large amounts of funds with weak banks.  Consequently, cash investments are restricted, hence the preference to use internal borrowing and utilisation of our cash to avoid borrowing from fragile banks.  It was added that it is increasingly difficult to identify banks that meet with the ratings requirement set in the treasury strategy. 

 A Member commented that the Capital Financing Requirement (CFR) has increased by £20.5m and asked for additional information.  It was answered that this is the element of capital expenditure funded by borrowing.  Projects funded by capital receipts or specific grants don’t increase the CFR.  It is important to pay a Minimum revenue Provision (MRP) and a percentage of the CFR; a prudent measure to ensure the CFR isn’t too high.  The Council decides what to add into the capital programme and in 2016/17 it was agreed to increase Future Schools spending, to invest in solar farms and to replace vehicles at the end of their useful life raising the CFR by £20.5 M.  Whilst not imprudent, the ability to sustain MRP payments is monitored and currently it is a sustainable prospect.

A Member observed that, on the latest information, the solar farm investment is a worthwhile investment as it is producing significant amounts of electricity.

Members agreed the recommendations to note the results of treasury management activities and the performance achieved in 2016/17.