Agenda item

The Committee received the Treasury Management Strategy Statement for 2019/20-2021/22 for comments, following its submission to Overview and Scrutiny Committee and before it was presented to Full Council for approval. The following was noted in response to the discussion of the statement and the accompanying cover report:

1. The Committee sought clarification about who the Council borrowed money from and the interest rate that was being paid. In response, officers advised that the £670m forecast borrowing over the next three years would be done through a combination of loans from the Public Works Loan Board (PWLB) and loans from other local authorities. Officers advised that new loans from the PWLB were budgeted at an average interest rate of 3%, while loans from other local authorities were 1%. However, loans from other local authorities were only taken out for 1 year and effectively had a variable interest rate, whereas loans from the PWLB were up to 50 years in length and a fixed rate. In response to a further question, officers advised that the length of a PWLB loan would be partly determined by the spread of existing debt and the date at which those loans matured. 
2. The Committee requested that future treasury management reports be broken down by the capital spend allocated to each service area. (Action: Thomas Skeen).
3. In response to a query, officers advised that around the majority of newly introduced capital schemes were self-financing, i.e. the net cost to the Council was neutral, either because there was a revenue generated to offset the interest or because it generated a saving elsewhere.
4. In response to a question around the potential for the Council to pay off its LOBO loans, officers advised that it was ultimately the decision of the Section 151 Officer as to whether this was in the Council’s interest. Finance officers were continuing to monitor the situation but had not yet received an acceptable offer. In response to concerns about what would happen if the lender suddenly increased the interest rate, officers advised that it was not in the interests of the lender to do so unless interest rates rose significantly, as the Council could refinance the debt using another provider.
5. In response to a question around recent cases where local authorities had taken particular lenders to court in relation to LOBOs, the Committee was advised that these court cases were in relation to a specific type of LOBO which linked the interest rate to the LIBOR rate. The case related to taking specific banks to court who had been found guilty of manipulating the LIBOR rate. The LOBO loans that the Council had taken out were different and therefore not related to the legal cases in question. Officers advised that it was very unlikely that the Council would be able to walk away from its vanilla LOBO loans and suggested that the interest rate paid was similar to the rate that would have been available from the PWLB at that time.
6. From an external audit perspective, BDO advised the Committee that their role was to assess whether the LOBOs were legal and whether the decision to take them out was rational. BDO advised that the loans were both legal and rational, and that including the repayment holiday the LOBOs may have been cheaper that an equivalent PLWB loan.
7. The Committee sought assurances about whether the Council had a strategy in place to ensure that it held a diverse range of income streams across the borough. In response, officers advised that the Council maintained a significant commercial property portfolio. The Chair enquired about whether the Council could play a greater role in community wealth building through loans and investment in local enterprises. In response, officers acknowledged that the Council had a role to play but cautioned that from a finance perspective the primary concern would be that any default on loans or investments would result in a direct cost to the Council’s General Fund.
8. In relation to a query about the relationship between forecasts and borrowing limits, officers advised the Committee that the Council could only afford to borrow what it was able to repay through its revenue budget. The Committee was advised that the Council was well within its debt ceiling for each of the years covered by the strategy.
9. In relation to a question around PFI, officers reiterated that the permissible level of borrowing was determined by the overall operational boundary and advised that boundary included PFI and leases. The Committee was advised that there was only one historical PFI, with Jarvis, in relation to a secondary school and that the Council was not looking to take out any further PFIs. Upon further discussion the Committee was advised that the Building Schools for the Future programme subsumed the PFI and that it had basically been converted into straight forward borrowing debt. The Council no longer paid any maintenance costs on the school as part of a PFI.
10. The Committee sought clarification as to whether the borrowing costs were included in the figures for the capital programme. In response, officers advised that borrowing costs were reflected in the overall MTFS but that they were not itemised on a line-by-line basis. Officers set out that capital schemes had three types of funding; external funding (such as grants), self-financing or the Council had to borrow money to fund them.
11. The Committee suggested schemes that were self-funding contained the greatest element of risk. Officers advised that each of those schemes would involve a business case and the risk would be reflected in the complexity of the business case.
12. In response to a question, officers advised that borrowing was staggered to ensure that capital funding was available when it was needed. Otherwise, the Council would have a lot of cash that it would need to invest somewhere.
13. In response to a question around whether the Council’s Minimum Revenue Provision for pre 2008 expenditure at 2% was sufficient, officers advised that it was not dissimilar to other council’s and that they were satisfied with the level.
14. The Committee confirmed that they endorsed the Treasury Management Strategy Statement and agreed for its submission to Full Council for approval.

RESOLVED

That the proposed Treasury Management Strategy Statement 2019/20 – 2021/22 was agreed and recommended to Full Council for final approval.