Agenda item

Report of the Chief Operating Officer to present the Treasury Management Strategy Statement and Prudential Indicators for 2016/17 to 2018/19 to this Committee for review prior to seeking approval from Full Council. 

The Committee considered the report on the Treasury Management Strategy Statement (TMSS), introduced by George Bruce, Head of Finance – Treasury and Pensions. The report set out the draft TMSS, which outlined the strategy for Council borrowing and investment over the coming three years. Responsibility for formulating the strategy lay with the Corporate Committee under its terms of reference. However, the strategy was also reviewed by the Overview and Scrutiny Committee and needed to be formally approved by Full Council.

It was noted that the Capital Programme was the primary driver of the Council’s borrowing strategy and that the figures in the TMSS would therefore be kept under review until such time as the Capital Programme was finalised. In formulating the TMSS, it was noted that the Committee’s role was not to look at the Capital Programme itself but to ensure that the borrowing required in order to deliver the programme was affordable. The Committee noted that a continuation of very low short term interest rates compared to medium and long term rates was expected to continue for 2016/17 and that it was therefore proposed to continue with the previous year’s strategy of keeping cash balances low and invested short term and to use local authority borrowing to cover temporary liquidity requirement. In respect of the ratio of financing costs to new revenue stream as set out on page 5 of the TMSS, it was noted that the projected increase in the percentage for 2017/18 and 2018/19 was largely a reflection of the reduction in the Council’s revenue rather than an increase in the cost of borrowing.

The Committee noted that the Overview and Scrutiny Committee had highlighted the issue of risks associated with a strategy of short term borrowing. However, it was felt that, compared with the uncertainty in respect of the Council’s borrowing needs in the long term and the likelihood that interest rates would not rise significantly in the short term, this was the most appropriate strategy for the Council.

The Committee noted the lending list of counterparties for investments, as set out in appendix 5 to the TMSS, which included those banks with the strongest credit ratings from the countries with the highest credit ratings. The Committee noted that the number of banks on list of counterparties had been increased, and the maximum investment in any single bank had decreased, and that this should help to ensure a diversified portfolio, and reduce the overall level of risk.

The Committee noted that the number of non UK banks as set out on page 22 of the TMSS should be amended to read seven, and not six as currently drafted.

The Committee asked about pension funds as a source of short term borrowing, and what impact new arrangements such as the London Collective Investment Vehicle (CIV) might have in this respect. Mr Bruce advised that in future the CIV may be used to borrow from other local authority pension funds, but not Haringey’s own pension fund. In response to a question from the Committee regarding linking advance borrowing to specific projects, it was clarified that borrowing needs were considered as an aggregate and there was no requirement to link borrowing directly to a specific project, although it was noted that there may be certain circumstances where the Council might decide to do this.

RESOLVED

That the proposed Treasury Management Strategy Statement for 2016/17 to 2018/19 be agreed and recommended to Full Council for approval.