Agenda item

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 of investment managers making the right decisions. Mrs Belenger confirmed that property funds were included under the pooled arrangement and advised that if members were minded to change this limit it would need to be amended under Table 4 as well. Property funds were new and therefore any investments go through a rigorous approval process. Any new instrument put forward in the Strategy is proceeded with caution. Mr Ward said pooled property funds are investments in property which are asset backed and therefore there is a degree of protection. Mrs Hardwick was concerned that with the six months’ notice period we could end up with a capital loss. £10m was quite high at a third of the estimated £35m being invested at any one time. Mr Ward advised that if members were concerned, then he was quite happy to reduce the limit to £5m and consider it again in a year’s time once we have had 12 months experience.

Mr Hicks reminded the committee of possible US interest rates increase rise in December which may have an impact on mortgage rates and property values in the UK. He thought it prudent to go for £5m limit and consider again next year.

Mr Jarvis was concerned that this new way of operating was a risk. Mr Ward advised that we collect monies in advance and pay it out to precepting bodies throughout the year and in full by February/March each year. Property funds are still liquid funds which you can withdraw if required; there is a relatively low risk provided you don’t put yourself in a position with a need to withdraw it during a downturn in the property market. Mrs Belenger gave some figures on the Local Authority property fund – the fund figure had grown to £500m, there were 125 investors with the minimum investment being £25,000 and the largest £30m. Mrs Hardwick was reassured at the size of the fund and the good returns received and therefore suggested it should be left at £10m and monitored for 12 months.

The Chairman advised that the type of investment we would make would be in commercial property so not as volatile as residential property. She was inclined to leave the limit at £10m and allow Cabinet to make the decision. The healthy debate on this subject at this committee would be reported as a concern of the risk involved.

RECOMMEND TO CABINET AND COUNCIL

That the Treasury management Policy Statement, the Treasury Management Strategy Statement, the Minimum Revenue Provision Policy Statement and the Investment Strategy for 2016/17 be approved.