See report (Agenda Item 6. Pages 45-78) to Cabinet on 26 January 2016. The recommendation below may be subject to amendment, which will be reported orally at the Council meeting.
DRAFT RECOMMENDATIONS
(1) That the following be approved:-
(a) The Treasury Management Policy and Treasury Management Strategy Statement for 2016-17 as contained in appendix 1 of the report.
(b) The Investment Strategy 2016-17 as detailed in the Treasury Management Strategy Statement (appendix 1).
(c) The Prudential Indicators and Limits for 2016-17 to 2020-2021 as detailed in appendix 2 of the report.
(d) The Minimum Revenue Provision (MRP) Statement contained within appendix 2, which sets out the Council’s policy on MRP.
(2) That the 2015-16 Treasury Management Strategy and Investment Strategy be amended as set out in Appendix 5.
Minutes:
Mrs Hardwick, (Cabinet Member for Finance and Governance), seconded by Mrs Taylor, moved the recommendations of the Cabinet.
She pointed out that this item involved the investment of very large sums of money.
The Corporate Governance and Audit Committee and the Cabinet had reviewed the proposed strategy, in the light of the current economic situation and the Council’s spending plans, with advice from the Accountancy Services Manager.
The Council had no plans to borrow, so its main considerations were the choice of investment vehicles and the selection of counterparties in order to manage the risks associated with the treasury management function.
Since last year the Council had pursued a strategy to try to manage the portfolio in relation to the bail in risk, by increased diversity, reduced maximum investments limits with counterparties depending on their credit rating and whether funds were unsecured or secured investments. This could have some effect on yield, by limiting the unsecured investments, so a higher proportion of funds had been placed with other local authorities (under the Government limit) which tended to realise slightly lower rates of return.
The proposed strategy for 2016/17 had two main changes:
(1) Extending the permitted periods for investments with high credit rated counterparties in relation to secured investments and specific sector counterparties; and
(2) The use of the Local Authority Property Fund
One reason for these changes was the depressed interest rates. This meant low estimated returns on the surplus funds available for investment by the Council, which were forecast to be only 0.75% for 2016-17 reducing from the estimated rate of 0.80% for the current financial year 2015-16.
Secondly, to help counteract the bail in risk for unsecured investments, use of an alternative secured investment opportunity given by the local authority property fund would improve the overall expected rate of return. So the strategy for 2016-17, and also as an amendment to the current year’s strategy, was to now include the approval to use the local authority property fund up to an investment limit of £10m.
The aim of the 2016-17 strategy was to seek alternative longer term secured investments opportunities, whilst trying to minimise the impact on yield.
All the rules for investments were set out in Table 4 of the Strategy (page 57 of the Cabinet papers) including the maximum time limits for the different credit rating criteria when selecting institutions. The principle applied was that the lower the credit rating, the shorter the period funds could be placed. This table also set out the maximum sums allowed to counterparties. These generally remained unchanged from the current strategy.
A number of members expressed welcome for the move to invest in property. Mrs Belenger (Accountancy Services Manager) answered questions on the operation of the local authority property fund. Mrs Hardwick reported that a Task and Finish Group would start work in March to consider use of the Council’s new investment opportunities reserve.
RESOLVED
(1) That the following be approved:-
(a) The Treasury Management Policy and Treasury Management Strategy Statement for 2016-17 as contained in appendix 1 of the report.
(b) The Investment Strategy 2016-17 as detailed in the Treasury Management Strategy Statement (appendix 1).
(c) The Prudential Indicators and Limits for 2016-17 to 2020-2021 as detailed in appendix 2 of the report.
(d) The Minimum Revenue Provision (MRP) Statement contained within appendix 2, which sets out the Council’s policy on MRP.
(2) That the 2015-16 Treasury Management Strategy and Investment Strategy be amended as set out in Appendix 5.
(3) That the Head of Finance and Governance Services be authorised, following consultation with the Cabinet Member for Finance and Governance, to update paragraph 5 (Economic background) of the Treasury Management Policy and Treasury Management Strategy Statement (Appendix 1) to take account of changed economic circumstances since the Strategy was drafted.