Agenda item

The Commitete is requested to consider the report and its appendices and make the following resolution and recommendation:

 

1.    That the Committee considers the Treasury Management Policy Statement, the Treasury Management Strategy Statement, the Investment Strategy, and relevant Indicators for 2024-25; and,

2.    That the documents in 2.1 are recommended to Cabinet and Council for approval.

Mrs Belenger introduced the item and advised Members that the Council is required by the Chartered Institute of Public Finance and Accountancy’s (CIPFA) and by the Department of Levelling up Housing Communities (DLUHC) to approve a Treasury Management and Investment Strategy each year.

 

As the Council is compliant with the Code of Practice 2021, this has resulted in only a small number of changes to the strategy this year. Mrs Belenger confirmed that the Draft Strategy is fully compliant with the Treasury and Management Code, and the most recent revisions to this code in 2021. The key focus behind these changes was to reinforce the matters of proportionality, risk management and the skills and governance framework necessary, given the ever-increasing complexity of treasury and investment matters.

 

Mrs Belenger confirmed that the treasury and commercial investment sections of the strategy are relatively unchanged and have been updated in line with the latest position statement. There are no fundamental changes which have altered the general approach taken by the Council in previous years.

 

Mrs Belenger advised that the document also outlines the requirement for Members to receive training, the most recent training sessions being held during December 2023.

 

This document, in addition to the Corporate Plan and Capital Investment Strategy, all work in cohesion as part of the Council’s risk management and governance function.

 

Cllr Ballantyne highlighted the behavioural aspect of governance, stating that it’s important for governments to behave ethically.

 

Cllr Ballantyne asked what measures are in place to ensure that Members behave ethically and to take this into consideration when making financial decisions.

 

Mrs Belenger advised that the Constitution plays a key role in setting out the rules, functions and authority by which the Council operates as a public sector organisation. There are also financial regulations within the Constitution, such as s.4.8, which sets out the rules of delegation to Officers and what Chief Officers are allowed to do. In addition to this, each Council’s Chief Finance Officer has specific responsibilities relating to spending plans, as per Section 25 Declaration of the Budget Report regarding Section 25 of the Local Government Act 2003. In this report, Mr Ward is confirming that the spending plans included are robust, affordable and sustainable.

 

Mrs Belenger added that it’s also important to ensure the appropriate agreements are in place between the Council and external organisations, an example of this would be the s.101 agreement between the Council and South Downs National Park in relation to the Council acting as their agent for planning. These agreements set out clear roles, responsibilities, and procedures for all the relevant parties.

 

Cllr Ballantyne asked if there is any risk that the Council’s reputation can be damaged due to financial mismanagement, such as is the case with Birmingham Council.

 

Mrs Belenger advised that every action carries inherent risks, certainly in relation to financial management. As the Council is currently in a surplus cash position, members and staff must be careful to maintain this position and their choice of counterparties.

 

Mrs Belenger stated that Chichester District Council does have investments with Birmingham City Council. Their s.151 officer has given assurances to Mr Ward that the money invested will be returned and that they will adhere to their contractual obligations.

 

As there are several local authorities at financial risk, it’s prudent for the Council to conduct additional checks. These checks include reviewing whether the authority has declared a s.114. The Council now has additional in-house analysis on balance sheets, which the Council can use to assess the authorities’ financial capability. If the Council in question has not published their 2022-23 accounts, Chichester District Council will not invest in these authorities. These extra measures have been implemented as a result of the issues other Councils have experienced in the last 6 months.

 

Cllr Chilton noted that similar asset-based finance has been added to the list of methods on page 57 of the Committee papers that are not classed as borrowing, but may be classed as other liabilities.

 

Cllr Chilton asked why this method has been added to the list.

 

Mrs Belenger confirmed that advisors have made this recommendation to Council, to ensure that the full range of options are included. As an authority which has not borrowed, this has been included for this reason only.

 

Cllr Chilton referred to page 57 of the agenda, where it states that PWLB Loans are no longer available to local authorities planning to buy investment assets primarily for yield.

 

Cllr Chilton asked for clarification on whether this means that public work loans are not available to local authorities who use these loans to buy investment assets, or rather that the local authority using another source of finance to buy investment assets can no longer claim a public works loan.

 

Mrs Belenger advised that PWLB have tightened their lending criteria for local authorities, this has subsequently removed the ability to borrow from them to invest in commercial activities. DLUHC and CIPFA are trying to prevent authorities using this public source of borrowing to fund riskier activities.

 

Mr Ward added that PWLB take other factors into account when lending, as they will review the Council’s Capital Programme and if the Council is using its internal resources to finance a potentially commercial operation. If this is the case, they will not lend money for any other purposes.

 

Cllr Brown asked whether Councils are allowed to invest their own money for commercial purposes.

 

Mr Ward advised that Councils are allowed to invest their own money, but there are several checks that must be met to ensure that there is a robust business case and justification for doing so. Councils cannot access government borrowing to undertake commercial ventures.

 

Mrs Belenger added that in addition to this, the Council also has an investment protocol, which is linked to the Council’s finance and estates services. The Treasury Management Report presented to Members sets out the key issues regarding these commercial activities and highlights proportionality. The income from these commercial activities must be set at a level which is appropriate for the size of the District Council, to further minimise the risk to the taxpayer in the district.

 

Cllr Brown stated that the Council has historically invested for commercial returns.

 

Cllr Brown asked if it’s acceptable to retain these assets, and whether it’s strictly new investments which are discouraged.

 

Mr Ward advised that new commercial investments are not what is being discouraged, but new commercial investments where an authority is asking the government for funding. The Council has its own reserves, so if there is justification to pursue commercial investments then it is free to do so, but the Council cannot access Government debt in order to pursue these commercial investments.

 

Cllr Brown asked if the Council were to use its own reserves for commercial investment, would this prevent the Council from borrowing public money for a completely non-commercial purpose.

 

Mr Ward confirmed that this would prevent the Council for borrowing money for a non-commercial purpose, as the PWLB would review the Council’s Capital Investment Programme. If there are any activities that are commercial in nature, the PWLB would withhold funding for any other activities.

 

Cllr Brown asked the Senior Officers whether the PWLB would deem this to be the case with Chichester District Council, due to the Council’s existing commercial investments.

 

Mr Ward stated that he does not believe this to be the case, as there are no new commercial only activities in the Council’s current capital programme. The Council has conducted capital acquisitions in the past, however PWLB would not review historic decisions, but monitor current and future decisions made by authorities.

 

Mrs Belenger confirmed that page 65 onwards of the agenda details the commercial investments and risks that the Council is managing. Income from commercial investment is set to remain below 10% of the Council’s net revenue stream. Page 68 of the agenda sets out the proportionality of the Council’s current investments.

 

The Chairman referred to the section of the report that states that property can be difficult to convert to cash at short notice and noted the property market’s current volatility.

 

The Chairman asked Mr Gillett if the Council should need to sell any of its existing investment properties, in the event that the properties are vacant for a prolonged period, how the Council determines the appropriate time to sell those properties and whether there’s been a loss in their value.

 

Mr Gillett advised that whether the loss is recovered is largely determined by the sale and purchase prices at the time of transaction. If a property is vacant, this will be detrimental to the value of that property. Potential investors would also review how long it takes to re-rent that property.

 

Mr Gillett noted that it also depends on market conditions at the time, highlighting that there are a variety of commercial investments, and each of these perform differently throughout different points in time. Each of these factors would be reviewed when determining whether it’s an appropriate time to sell and whether to absorb potential losses.

 

The Chairman asked Mr Gillett how many of the properties owned by Chichester District Council in Chichester are currently vacant, or where he could access this data.

 

Mr Gillett advised that this data is reported quarterly against performance indicators. At present, there are 5 units vacant from the Council’s investment portfolio. Mr Gillett added that there are other units present as part of the Council’s other property holdings and that he will confirm these figures following the Committee.

 

The Chairman stated the current vacancy level on the high street in Chichester can seem alarming and although these may not be commercial properties owned by the Council, it would be prudent to assist in regenerating the city.

 

The Chairman asked Mr Gillett whether the Council considers reducing the rent due when a property is vacant.

 

 

 

Mr Gillett confirmed that this is one of the key factors that the Council considers when marketing a property. There have been several premises that have been difficult to utilise, and the Council have employed agencies to look for tenants. Historically, the Council has preferred to search for tenants inhouse, however, this change is necessary in the current, difficult market. Mr Gillett noted that adjusting prices is also key to adapting.

 

RESOLVED:

 

The Committee is requested to consider the report and its appendices and make the following resolution and recommendation:

 

1.    That the Committee considers the Treasury Management Policy Statement, the Treasury Management Strategy Statement, the Investment Strategy, and relevant Indicators for 2024-25; and,

2.    That the documents in 2.1 are recommended to Cabinet and Council for approval.