Issue - meetings

The Council has adopted the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice (the CIPFA Code) which requires the Council to approve a treasury management strategy before the start of each financial year. This report fulfils the Council’s legal obligation under the Local Government Act 2003 to have regard to the CIPFA Code.

Mr Tim Mpofu, Head of Finance (Pensions and Treasury), introduced the item and stated that the Overview and Scrutiny Committee had recommended for an interest rate sensitivity to be included as part of the budget and something that had already been captured in the in the MTFS budget papers that the Director of Finance was preparing.

The meeting heard that:

·      In response to a query regarding if the report had been agreed by the Cabinet Member for Finance and Local Investment, the meeting heard that the Cabinet Member had been consulted on the report, but the report was be scheduled to be formally adopted by Full Council.

·      A query was raised regarding the financial situation across the country and how this was taken into account locally. The meeting heard that higher inflation, higher interest rates and a slowing economy presented a challenge and this was compounded by local authorities having issues with funding. This had been considered in relation to the budget, which members had been consulted upon. Where Treasury Management was involved in the process was articulating what interest costs would be given the Council’s spending plans. Given the framework and given the budget process for the Council, there had to be risk management and control in terms of how those in-year decisions were made. There was a budget which Treasury Management had to adhere to. There were also risks that could occur when making investments, such as loss of investment. The report tried to build in controls in relation to this. There were limits in terms of how much could be placed with different institutions, but there was also consideration of the relative expense of borrowing. The approach in the Treasury Strategy was acknowledging that interest rates were higher, but there had to be a framework in terms of how certain  decisions during the course of the year would be taken. This was assessed through the affordability of the budget setting process that was set through the Council. When the report was submitted to the Full Council meeting, it would be an appendix to the main budget.

·      A query was raised regarding page 15 of the report, which stated that the Council may utilise banks and building societies which were unsecured and registered providers which were unsecured. In response, the meeting heard that in recent years, the Council had never placed any deposits or any arrangement with the bank. Barclays was used for day-to-day cash flow management, but the Council never secured deposits with any other bank. It was included in the strategy because there were times when the bigger banks could offer more attractive rates. However, the focus for the strategy was to work with the safest counterparties which was considered to be the UK Government through the Debt Management Office followed by money market funds, which were usually AA rated - the highest investment grade rating possible. If the Council had excess liquidity (more money than it normally would to complete the three-month payments), then  ...  view the full minutes text for item 6

The Council has adopted the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice (the CIPFA Code). This code requires the Council to approve, at a minimum, treasury management semi-annual and annual outturn reports.

Mr Tim Mpofu, Head of Finance (Pensions and Treasury), introduced the report.

The meeting heard:

·      A query was raised regarding why the Council’s rating was categorised as AA- whilst other local authorities had been allocated as A+. In response, the meeting heard that AAA was the best rating that could be awarded by a rating agency. The only counterparty that previously had this rating was the US Government. However, this rating had been downgraded to AA+ earlier in 2023.  The Council’s strategy was to mainly invest with the UK Government, which had an average rating of AA-, but the money market funds also had a similar rating. This averaged out to around Aa2. Generally, the ‘A’ category was considered to be investment grade. The ‘B’ category was more challenging in terms of the recovery rate if a counterparty was to go out of business and they were due money or deposits had been made. This highlighted the Council’s strategy was lower risk in relation to other strategies and this was partly because the Council had not deposited with other financial institutions which had lower ratings.

·      A query was raised regarding the appendix which discussed the maturity structure of borrowing. As the Council had a budget and there was some difficulty regarding the Council’s capital spend (some of which would be reliant on borrowing). Some decisions had been made in relation to freezing some of the spend due to the issues relating to borrowing. Although there was a balance that needed to be struck, the Council needed to make use of its financial resources. In response, the meeting heard that the primary aspect the Council was trying to balance was the cost certainty. Once the loans had been taken out, then it would be clear how much the loans would cost and for what period of time. This would allow the budget setting process to be more clear. This would be monitored closely considering the Council’s situation. The issues with borrowing in the current climate, given the rates, was that it was possible to borrow and deposit the money into the bank, but this meant that the money would not be deployed. At the same time, interest would have to be paid on the money borrowed. For loans taken out for a 50 year period, should schemes not be delivered in the first five years, then there would be a cost of carry. This meant that the Council was paying interest on money taken out which was not bent spent. One of the key things the Council looked for was the cash flows and how this was progressing over the course of the year. Earlier in the year, the Committee was informed about the amount of cash the Council had in the bank (around £70 million). This was enough for the Council’s needs and also limited the need to borrow money. At that time, a longer term loan would have been at the rate of 6%. Towards the end of  ...  view the full minutes text for item 9