The chairman welcomed Cllr Schofield, Executive Member for Finance and Jocelyn Convey, the council’s Head of Finance, to the meeting.
There were two advance questions received in relation to this item, responses to which had been circulated to the members of the committee and were tabled at the meeting.
At the chairman’s invitation, Cllr Schofield introduced the Draft Treasury Management Strategy 2018/19 report and thanked the Treasury Management Panel and their advisors for their contributions to the process. The committee was advised that there had been recent updates to the guidance surrounding treasury management and that, whilst the strategy reflected these where practical to do so, the late publication of the changes meant that not all aspects of the changes would be reflected in current strategy. The strategy was therefore noted to be in accordance with the 2011 guidelines, with a forthcoming comprehensive reassessment to be incorporated into the 2019/20 strategy.
There were noted to be three annexes to the report, detailing the Investment Strategy, Borrowing Strategy and Cash Management Strategy components of the overall strategy respectively. Following the Treasury Management Panel, there was noted to be a minor amendment to the Investment Strategy, updating the minimum ratings for investments with UK banks for 3-5 years Fitch minimum rating to AA- on page 29, in line with the same criteria in appendix 1 on page 22. The Borrowing Strategy and Cash Management Strategy were noted to be unchanged.
The committee was advised that the Treasury Management Panel was satisfied with the draft report, subject to the minor amendment noted above.
The committee thanked the Executive Member, the Treasury Management Panel and their advisors for their work. There were a number of questions and comments on the report, relating to the following topics:
• The significance and implications of the guidance changes to the strategy. The committee was advised that the guidance changes were intended to reflect the increasing appetite for investment among local government organisations, in response to the reduction in available funding from traditional sources. The committee was advised that each organisation faced a unique set of financial circumstances, and that future treasury management strategies and investment decisions would seek to identify the actions that would best support the work and financial sustainability of the council, and then ensure that that the identified actions were in line with the requirements of the guidance.
• Investments outside of the borough. The committee was advised that the guidance updates were understood to recommend that investments by local government organisations took place within the organisations’ areas of economic influence, unless a compelling reason was identified for making investments further afield. It was therefore anticipated that future investments would be likely to be either within the borough or surrounding local areas, except where particular opportunities were identified.
• The capital expenditure programme and labelling of projected future expenditure. A query was raised regarding the projected capital expenditure identified under the heading of organisational change in Table 1 of the Borrowing Strategy. This projected expenditure was clarified to represent expenditure on investment opportunities to support the financial sustainability of the council which were yet to be identified, which was therefore recorded under a general heading. It was suggested that more informative titling and identification of the components of the table would be beneficial, and it was agreed that this would be reflected in the final strategy.
• The borrowing requirement and labelling of projected future borrowing. A query was raised regarding the projected borrowing requirements identified in Table 2 of the Borrowing Strategy and the labelling of the categories within the table. The projected borrowing requirement identified under cashflow was clarified to be a standing component of the strategy to ensure organisational cashflow availability around the collection and receipt of council tax income. The other projected borrowing requirements were clarified to represent the potential use of borrowing as part of a balanced approach to investments and cash management in order to best support the financial sustainability of the council.
The committee was advised that the council’s future investment strategy would consider the best balance between the council’s current low yield, low risk cash investments and potential alternatives, and that the Borrowing Strategy therefore made accommodation for potential future actions resulting from this evaluation. It was identified that the council had no current borrowing commitments, and that none were anticipated in the next several months.
The committee was advised that any significant decisions regarding borrowing and investment would continue to go through the usual consideration, decision making and scrutiny process. It was again suggested that more informative titling and identification of the components of the table would be beneficial and it was again agreed that this would be reflected in the final strategy.
• Guidance regarding investment vehicles used by local government organisations. A query was raised regarding if there were anticipated to be any prohibitions placed upon the investments vehicles used by local government organisations, potentially due to an assessment that such organisations lacked the requisite expertise for properly utilising such vehicles. The committee was advised that there were not expected to be any forthcoming prohibitions which would significantly restrict the investment options available to the council. This was assessed based on the necessity for local councils to be able to engage in a wide range of projects which benefited their local area, and on the significant skill based possessed by many local government officers. It was therefore not expected that the guidance would seek to prevent investments by local government organisations which were proportionate to the requirements and resources of the organisation.
It was therefore anticipated that the council would be able to pursue those investments which were identified to best support the work and financial sustainability of the council. It was noted that the guidance appeared to be primarily concerned with those local government organisations which had committed heavily to a single investment and were therefore faced with a substantial risk to their financial sustainability in the event of the loss of that investment.
• How dependent the council was upon individual officers for key areas of its organisational skill set. The committee was advised that whilst the council was fortunate to have a number of officers with significant expertise in key areas, there were also a range of other officers and advisors with related skill sets who contributed to all areas of the council’s activities, and that the council was therefore not considered to be dependent upon any given officer for the maintenance of its organisational skill set.
• Changes to guidance regarding Minimum Revenue Provisions (MRP). A query was raised regarding changes to guidance regarding MRP, particularly with regard to estimated life of financial assets. The committee was advised that this was an aspect of the guidance which would be considered as part of the ongoing financial management process, but which had not yet been fully reflected in the Treasury Management Strategy due to the late release of the updates to the guidance. It was identified that as the council did not currently have any borrowing commitments, it therefore also had no current MRP requirements, but that any borrowing policy developed would reflect the guidance requirements.
i) That the Draft Treasury Management Strategy 2017/18, including the identified amendment to the Investment Strategy, be noted; and
ii) That the comments of the Overview and Scrutiny Committee be noted for consideration by the Executive.