Agenda item

To consider the Council’s Treasury Management Strategy Statement before its final approval by Full Council.

The Committee considered a presentation on the Council’s responsibility for treasury management. Members were responsible for setting the rules for the borrowing and the investment of the Council’s cash. This treasury management role included:

• Following  CIPFA guidance,
• Setting prudential indicators (limits for borrowing and investing),
• Taking an assessment of the risks
• Having a strategy for borrowing,
• Deciding the types of investments the Council will make to keep money accessible but   with a return at the same time,
• Monitoring and setting investment limits relating to surplus cash,
• Dealing with maturing debt in a cost effective way.
• Deciding on a list of counterparties that the Council will invest with(The Council will obtain external advice from treasury management advisors when compiling this list) 

The Corporate Committee were responsible for formulating the Treasury Management Strategy and had decided at their meeting in January that they wanted further information on the non UK banks proposed for investment  in and a wider picture on the use being made of existing counterparty institutions.

 In response to the presentation the following information was provided to members of OSC:

• The national line is that Councillors need to be more informed about the treasury management activities of the Council and there are specialist advisors to provide advice and guidance when recommendations are being compiled for members to consider. The Council’s advisors for the past 3 years have been Arlingclose.  As, part of obtaining this role, they had been able to demonstrate previous advice provided to their clients on the need to withdraw monies from the Icelandic banks in 2008.  Apart from monitoring credit reference agency ratings, there were also a number of other practical methods used to assess the credit worthiness of financial institutions. These were: Credit Default Swap Prices, Share Prices, Macro-economic indicators, Net debt as % of GDP for countries, Sovereign Support Mechanisms and Corporate Developments.

• The current policy was to make good effective use of the Council’s cash balances through investment in Money Market accounts and borrowing from other local authorities as these offered a higher rate of return than savings accounts.

• As yet there were not recommendations formulated on how the Council would take forward borrowing for housing stock in the future. Although, the Council were to have £232m of HRA debt written off, in return it was anticipated that the Council and other local authorities my not get future subsidy for housing.

• Understanding on the Corporate Committee’s position to withhold lending to non UK counterparty institutions was sought and comparisons between the Council’s and other local authority treasury management activities.  It was noted that not all local authorities had the same strategy for lending and borrowing and there were too many different examples to make a comparison. The Corporate Committee had asked officers to withhold investments in non UK banks until March so that they could consider a report on the banks and money markets accounts used in the last 12 months. This was to enable them to get a better picture of the scale of money invested on a daily scale and give the Committee more understanding about the exposure to risk.  This approach by the Corporate Committee was not detrimental to the investment policy of the Council as there was sufficient flexibility allowed for by the use of Money Market accounts. Following Corporate Committee’s consideration of the use of banks in March there was still the opportunity to go back to full Council, later in March, to update the strategy.

• In response to the question on the Council’s ratio of borrowing to income the MRP (minimum revenue provision) was the amount of money the Council needed to set aside each year to pay off debt and this was externally set.

RESOLVED

That the report & presentation be noted and the following actions be delegated to the appropriate directorate/ officers:

• It was agreed that the Assistant Director  for Finance would check what the credit  rating of the Icelandic banks had been before they had became insolvent and provide this information to the Committee.(Action 93.1)Cllr Ejiofor

• It was agreed that the Assistant Director for Finance provide all Members of the Council a briefing note, in plain English, containing guidance on the lines of responsibility for treasury management policy and, in particular, any personal or collective liability that Members may have for making decisions on counterparty financial institutions to invest money in. This should be distributed before the Council meeting on the 28th February.  (Action 93.2) Chair/Cllr Browne