Chichester District Council
Agenda item

Agenda item

Treasury Management Strategy, Policy and Prudential Indicators 2018-2019

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.

Minutes:

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 last two years the council had moved from mid-way on the table to one of the top performers. It is a challenge for local authorities to achieve a real rate of return because of the priority for security. The real rates of return were on investments with risk attached.

 

A full discussion was held on the IFRS9 financial standard and the risk this placed on the council. It was considered that perhaps it had been introduced due to the need for Government to keep an eye on the poorer performing councils which, with no reserves and huge capital losses, were below the Government’s radar at present and which could go into receivership. This council was performing better than others and the risks to the council had not changed therefore it was felt that we should be more open about having a large reserve and deal with the change transparently in the financial model and accounts.  

 

We should not assume the override would happen but start working on what mechanism we would use to handle the fair value undulations. The mitigation on page 53 of the report to the risk of a fall in the fair value of external pooled funds is the nub of how this should be dealt with.

 

Mrs Belenger explained that perversely the IFRS9 standard might push councils to stop investing in those pooled property funds where the risk is spread evenly and to start investing directly in property e.g. the Spelthorne investment which could be seen as a higher risk. The council’s property fund was a long term investment to ride out the capital change and the Council was benefitting from an income stream. The Brexit vote resulted in a downturn in the economy. Officers were doing everything to manage those risks and hopefully going forward we would still have adequate balances to override any losses in fair value, however we may not undertake any new investments affected by IFRS 9 in the near future.

 

RECOMMENDED TO CABINET

 

That the Treasury Management Policy Statement, the Treasury Management Strategy Statement, the Investment Strategy and relevant Prudential Indicators for 2018-19 be recommended to Council for approval.

 

Supporting documents:

 

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