Issue - meetings

To review treasury management performance in the current year and to recommend to the Council a Treasury Management Strategy and related documents for 2016 -17 and changes to the current year’s strategy.

RECOMMENDED TO COUNCIL

(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.

RESOLVED

That the investment performance for the second and third quarters of 2015-16 (appendices 3 and 4) be noted.

This item was considered at this point in the meeting. The Cabinet considered the report circulated with the agenda (copy attached to the official minutes).

Mrs Hardwick introduced the report, explaining that the Treasury Management Strategy had been amended and updated for the forthcoming financial year. The Strategy reflected the general expectation in the market that the first rise to the UK’s Bank Base rate, from the current low rate of 0.50%, was expected sometime in the second half of 2016, or possibly 2017.  Any base rate rises were expected to be slow, and markets were only expecting a normalised rate of between 2 to 3%. The global economy continued to be affected by the slowdown in China, and growth in the UK was due to domestic demand which might not be sustainable in the long run.

Mrs Hardwick drew attention to paragraph 9 (page 54), which set out how much was invested, where and for how long and the substantial sums involved. The rate of return being achieved in the current financial year was set out in paragraph 7 of the report (page 48) and appendices 3 & 4 (pages 68 to 71) which showed the annualised rates at the quarter dates were 0.61% and 0.72%. This reflected the low rates of return achieved in the traditional money market. However, if the council’s own investment property portfolio was also taken into account, the annualised return achieved 1.09% and 1.13% for the quarters reported.

Mrs Hardwick summarised the key points as follows:

1. As the Council was debt free, the main consideration was the investment strategy, what funds will be available to invest and where can they be placed.

2. The management of risk associated with the treasury management function was set out in detail in the Treasury Management Practices (TMP’s) No.1 (pages 75 to 78 in Appendix 6).

3. The main changes in the 2016-17 strategy were to extend the periods for medium to long term investments as set out in Table 4 (page 57) for the secured investments and to add the use of the local authority property fund as an approved counterparty up to a limit of £10m.

4. Other key prudential and treasury management indicators had been updated.

5. For the investment strategy, consideration should be given to the items set out in paragraph 5.8 of the report on the use of advisers, training, and borrowing in advance of need.

The 2016-17 strategy was again seeking to manage counterparty or credit risk by increasing the diversity of the investment portfolio in the changes put forward for approval. The strategy also considered the interest rate risk, and how best to deal with the current very low rates available even for new longer term investments, but still ensuring the security of the initial capital investment.

She explained that the changes being put forward for the 2016-17 Strategy in relation to table 4 for counterparty selection and investment periods were also being sought for the current 2015-16 treasury management and investment strategy, especially in relation  ...  view the full minutes text for item 131

That the committee considers the Treasury Management Policy Statement, the Treasury Management Strategy Statement, the Minimum Revenue Provision Policy Statement and the Investment Strategy for 2016-17 and recommends these to Cabinet and Council for approval.

The committee considered a report from the Accountancy Services Manager (copy attached to the official minutes).

Mr Curbishley was concerned about penalties which may be incurred for moving investments to better deals. Mrs Belenger replied that the Council manages its investments and cash flow in a controlled manner. When fixing funds we are not looking to take them out prior to maturity. Decisions on proposed investments over 364 days need to be signed off by senior officers. These are Mr Ward (S151 Officer) and Mrs Belenger (Deputy S151 Officer).  Mr Jackson is the temporary Group Accountant with a new member of staff starting in January and four members of staff on the day to day arrangements.

Mrs Hardwick questioned the extract from the current Financial Strategy under paragraph 10 Borrowing Strategy. Mrs Belenger advised it was a matter of timing but that the principles and wording from the Financial Strategy would be updated in this document if the Financial Strategy was approved by Council.

Mr Jarvis asked whether the payment period of invest to save projects under this section was ever longer than the life of the asset. Mr Ward advised that it ties in with the Financial Strategy principle with ‘any project requiring funding being subject to a business plan, however he agreed that an amendment to the sentence ‘the payback period for invest to save projects should must be shorter than the life of the project’.

Mr Jarvis had received a letter from his bank regarding bail in arrangements advising that the sum had been reduced from £85,000 to £75,000. Mrs Belenger informed him that this was due to the euro exchange rate against the pound, due to the strength of the pound, and as this compensation scheme was Europe wide it had been reduced accordingly. She advised that the Council was not part of this scheme. Arlingclose Ltd, in their training session, had been through the implications of the bail in arrangements. Table 4 in the strategy shows the limits recommended for secured and unsecured investments.  All current investments in banks and building societies by the council are unsecured; and are limited to a maximum under the 2015/16 strategy and this limit will continue in the 2016-17 strategy. The Council is looking to use covered bonds with a lower rate of return but with increased security. A raft of information on counterparties is considered on a day to day basis helping the team make informed decisions.

Mrs Graves wanted to know the ratio of other local authority investments to others. Mrs Belenger advised that this had been covered at the training session and would let Mrs Graves have the relevant slide. Mrs Belenger later confirmed during the meeting that 66% of the investments were placed with other local authorities on the data supplied to Arlingclose for the training presentation.

Mrs Hardwick was concerned that the £10m cash limit for pooled funds was perhaps too high for this new type of investment as the Council was at risk  ...  view the full minutes text for item 36