Issue - meetings

The Cabinet is requested to consider the agenda report and its four appendices in the agenda supplement and to make the following recommendations to the Council:

That the Council approves:

(1)  The Treasury Management Policy and Treasury Management Strategy Statement for 2018-2019 as contained in appendix 2 of the agenda report.

(2)  The Investment Strategy 2018-2019 as detailed in the Treasury Management Strategy Statement.

(3)  The Prudential Indicators and Limits for 2018-2019 included in appendix 2 of the agenda report.

RECOMMENDED TO THE COUNCIL

(1)  That the Treasury Management Policy and Treasury Management Strategy Statement for 2018-2019 as contained in appendix 2 of the agenda report be approved.

(2)  That the Investment Strategy 2018-2019 as detailed in the Treasury Management Strategy Statement be approved.

(3)  That the Prudential Indicators and Limits for 2018-2019 included in appendix 2 of the agenda report be approved.

The Cabinet received and considered the agenda report and its four appendices in the agenda supplement. The third agenda supplement gave details of an amendment to Table 1: Investment Portfolio Position – 31 December 2017 in appendix 2 on page 84 of the agenda supplement. 

This item was introduced by Mr Wilding.

Mr Catlow was in attendance for this matter.

In commending the recommendations in para 2.1 of the report, which were supported by CDC’s Corporate Governance and Audit Committee (CGAC) at its meeting on 25 January 2018, Mr Wilding explained that the Council was required each year to approve a Treasury Management Strategy (TMS). The main regulatory reforms which affected the TMS were (a) the new Code of Treasury Management Practice issued by CIPFA early in 2018 and which updated government guidance on investments (expected imminently and in the light of which the TMS would be reviewed and brought back to the Cabinet and the Council later in 2018 if required); (b) CIPFA’s recent adoption of IFRS9 into the 2018-2019 Accounting Code of Practice (this had been before the Council on 23 January 2018) - unless the government was persuaded to issue a statutory override in relation to certain accounting aspects of IFRS9, changes in the market value of CDC’s external pooled fund investments could affect the General Fund and this ‘Fair value risk’ was probably the most significant change in risk faced if CDC’s risk appetite statement remained appropriate; and (c) European Money Market Fund reform. Notwithstanding the aforementioned changes in particular, the recommended risk appetite statement was unchanged ie CDC remained fundamentally risk adverse but accepted a modest degree of risk. He highlighted the following key updates to the TMS in appendix 1 as being of particular importance: (i) Treasury Management Practices (TMP1) (appendix 3 on page 104); (ii) the increase in the lowest credit rating proposed for CDC from BBB+ to A- (table 5 in appendix 2 on page 89); (iii) the proposed increase in the maximum that could be invested in non-property fund pooled investments from £10m to £15m (table 7 in appendix 2 on page 93).

Mr Catlow responded to comments by Mr Dignum with respect to (a) CDC applying the appropriate risk criteria to position itself on the right side of prudent while seeking an appropriate return on its investments; (b) the increase in the lowest credit rating; and (c) CDC’s external fund investments were of a kind which could be realised if suddenly required.

Decision

The Cabinet voted unanimously on a show of hands to make the recommendations to the Council which are set out below. 

RECOMMENDED TO THE COUNCIL

(1)  That the Treasury Management Policy and Treasury Management Strategy Statement for 2018-2019 as contained in appendix 2 (as amended) of the agenda report be approved.

(2)  That the Investment Strategy 2018-2019 as detailed in the Treasury Management Strategy Statement be approved.

(3)  That the Prudential Indicators and Limits for 2018-2019 included in appendix 2 of the agenda report be approved.

The committee is requested to consider the Treasury Management Policy Statement, the Treasury Management Strategy Statement, the Investment Strategy and relevant Prudential Indicators for 2018-19 and to recommend these to Cabinet and Council for approval.

The committee considered the report attached to the agenda. Mr Catlow presented the report.

Mr Catlow reminded members of the workshop held with Arlingclose in December and gave the committee a brief description of the treasury management (TM) areas where the council’s risk had increased. Page 30 of the report described the council’s risk appetite and the strategy, practices and procedures all related back to that risk. He took members through the key amendments which had been made to the 2018-19 Strategy and TM practices.

The committee made the following comments and received answers to questions as follows:

·             The glossary was well received and found to be very useful.

·             Clarification that the floating £5m would only be invested if we had a statutory override that would not reflect on the fair value balance. This was not being recommended at present but it was allowed for within the next 12 months pending the outcome as to whether the Ministry of Housing, Communities and Local Government (MHCLG) would be overriding the accounting requirement in the code.

·             Discrepancy between figure in the table and later on page 31 – it should read £61.6m in penultimate paragraph.

·             Concern at the circular manner between the risk appetite and the council’s investment objective and the lack of guidance for the team in practice. Tables 5, 6 and 7 contain the detail on limits that is used operationally and which transposes to the TM software.

·             Queried the move to using banks with strong A- credit ratings (from the weaker BBB+ rating) and whether the strategy should provide leeway to invest in something prudent with a bank rated BBB+ or potentially be faced with the need to seek authority from the committee to review the strategy in that event in future. If banking credit rates fell again we would have headroom in money market funds but would need to convene the committee to review the strategy in any event. Since 2008 we had had a changed environment in terms of bail-in arrangements. There was flexibility to go elsewhere if a major crisis occurred. Using other local authorities or central government via the Debt Management Office was the general direction of travel.

·             The chart at page 31 showed an investment return of 1.67% with local authority pooled funds achieving 4.88%. Queried whether we had a target for external pooled funds and whether we could target a return closer to inflation? We had a target of 0.54% for our overall return on internal investments which related to the top half of that table. The committee had previously requested that officers think about how we report in terms of performance of these funds. Some progress has been made. We did not have a specific target for external pooled funds. But if they fell significantly we would look to put the investment elsewhere.

·             Queried the benchmarking which took place with other local authorities? The workshop held with our TM advisors Arlingclose in December 2017 had a chart which showed that over the  ...  view the full minutes text for item 173