Agenda item

Report of the Chief Operating Officer to present the Treasury Management Strategy Statement and Prudential Indicators for 2017/18 – 2019/20 to this Committee for scrutiny before it is presented to Corporate Committee and then Full Council for final approval. 

The Committee considered the report on the Treasury Management Strategy Statement (TMSS) 2017/18, introduced by Oladapo Shonola, Head of Finance, Treasury and Pensions. It was noted that the strategy covered borrowing to cover capital expenditure, investment principles and the prudential indicators. The Council’s strategy complied with guidance from the CLG, the CIPFA Prudential Code and the CIPFA Treasury Management Code of Practice. It was noted that there was broadly no change to the previous TMSS as economic conditions remained much the same as they had been, and the Committee was advised that the only proposed change to the TMSS was in relation to the Minimum Revenue Provision, which had been revised in order to better reflect the rules set out in the prudential code and government guidance and which would have a positive impact on the Council’s finances.

The Committee asked about the borrowing expected for the coming year, what this was for, the length of term and whether such borrowing was prudent in the current financial climate. The Head of Finance - Treasury and Pensions, advised that the Council’s Capital Programme, approved by Cabinet, established the borrowing required and that some borrowing may also be required for the refinancing of maturing debt. It was noted that all borrowing was provided for in the Council’s revenue budget, and was therefore considered prudent; in particular, the refinancing of any maturing debt would be at a much lower interest rate than the existing loans and would therefore be positive for the Council. With regards to the term of any proposed borrowing, it was confirmed that the maturity rate would be spread in line with the indicators set out in the strategy, in order to minimise risk to the Council.

The Committee noted the section on bail-in legislation within the TMSS, which meant that depositors would carry the risk of any bank failure, and asked whether a risk assessment was undertaken to ensure that the Council was able to deal with the implications of any such event; it was confirmed that this was taken into consideration in the formulation of the limits that the Council set for itself within the TMSS. The Committee asked about the implications of Brexit on the Council’s Treasury Management strategy, in particular where current guidance was based on EU legislation. The Head of Finance – Treasury and Pensions, advised that it was not anticipated that Brexit would have a material impact on the areas of activity covered in the TMSS, and that a briefing would be provided for Members on the potential implications for the Council’s Treasury Management arrangements arising from the decision to leave the EU.

Action: Head of Finance - Treasury and Pensions

The Committee asked whether loans taken out by the Council were secured against Council property. The Head of Finance – Treasury and Pensions advised that this was not the case, and it was agreed that this would be confirmed outside the meeting and a briefing circulated to Members.

Action: Head of Finance - Treasury and Pensions

The Committee was pleased to note that there had been no breach of the Council’s prudential indicators in the previous year, but expressed concern at the significant difference in the approved reserves/revenue contributions and projected out-turn for 2016/17, as set out in Table 4 of the TMSS relating to capital financing and asked for an explanation of the discrepancy. While it was noted that this was outside the scope of the TMSS report, it was agreed that Members would be provided with a briefing on this, covering how the difference arose and any implications for the Council. It was noted that this would also form part of the forthcoming Budget reports to Cabinet and Full Council in February.

Action: Deputy s151 Officer, Head of Finance - Treasury and Pensions

The Committee asked for an update on the position with the Council’s Lender’s Option Borrower’s Option (LOBO) loans and it was agreed that an update on this would be provided. It was noted that the position remained largely unchanged; the Council’s external auditor had been asked to review the process by which these loans had been taken out back in 2007-8 and had come to the conclusion that this was a reasonable decision to have been taken at that time. It was noted that a legal ruling was awaited in respect of whether there had been a technical breach of the Council’s treasury management limits at the time when the loans were taken out, which related to whether these loans should have been classified as variable or fixed borrowing, and that it was not possible for the auditors to finally sign off their opinion until a decision was made on this point. It was not felt, however, that this would make a difference as to whether the decision had been a reasonable one.

Action: Head of Finance - Treasury and Pensions

The Committee discussed paragraph 4.9 of the TMSS in respect of LOBOs, and whether the wording of the final sentence should be amended to read “No further LOBO loans will be considered”, removing the option of any further such loans being taken into after discussion with the Corporate Committee. The Head of Finance – Treasury and Pensions advised against removing the option of considering such products altogether, as there was the chance the Council could miss out on a favourable borrowing option in future, but suggested that the wording could be amended such that the approval of the Committee was required in order to undertake any such borrowing. The Committee discussed the proposal to amend the wording of this section at this stage, and agreed that this was an issue that the Committee would discuss in greater detail later on during the year.

RESOLVED

i)             That the Committee recommend the Treasury Management Strategy Statement for 2017/18 to Full Council for approval.

ii)            That briefings for Members be provided in respect of: the potential implications for the Council’s Treasury Management arrangements arising from the decision to leave the EU, whether Council loans were secured against property, an explanation of the discrepancy between the approved reserves/revenue contributions and projected out-turn for 2016/17 and the implications of this, and an update on the Council’s LOBO loans.

Cllr Wright, Chair of the Overview and Scrutiny Committee, gave an update to the Committee on the views of the Overview and Scrutiny Committee in respect of the TMSS, which they had considered the previous day. The Committee noted that as a result of the discussion of the Overview and Scrutiny Committee, the following actions were being taken forward:

i)             A meeting was to take place between the Chairs of the Corporate and Overview and Scrutiny Committees in order to manage the arrangements for the monitoring of the Council’s treasury management activity and avoid duplication of effort;

ii)            Corporate Committee had been asked by the Overview and Scrutiny Committee to keep the LOBO position under review and to take action where appropriate to reduce any risk to the Council;

iii)           Corporate Committee had been asked by the Overview and Scrutiny Committee to maintain a focus on monitoring the risks associated with Council borrowing, particularly borrowing undertaken on a joint basis, as it was felt that there was likely to be an increase in joint ventures in the coming years and it was important for the Committee to have sufficient oversight of the controls in place to manage this.

The Committee noted the points made by the Overview and Scrutiny Committee and felt that it would have been useful for the Committee to have received these in writing in advance of their own discussion of the TMSS. It was noted that the Chair of the Overview and Scrutiny Committee had attended to present the Committee’s comments in person due to the meeting having taken place the previous day, but the Committee’s concerns regarding the comments not having been available at an earlier juncture were acknowledged and it was confirmed that this would be taken into account when planning the process for future years.