Issue - meetings

To consider the half yearly Treasury Management performance.

RECOMMENDED that the Treasury Management Performance for the year to date (2019/20) and the updated prudential indicators be noted.

Councillor T. Schofield, Deputy Leader and Executive Member for Finance, explained that the purpose of the report was to provide an update on the performance of the Council’s treasury management activities. The Executive was informed that this formed part of the formal reporting requirements of the CIPFA Code of Practice on Treasury Management.

Councillor Schofield informed the Executive that the treasury management performance, up to Period 6, showed that overall the projected outturn was better than budget. This was primarily due to the long term borrowing facility not being utilised to date.

The following points were noted:

-       Short-term borrowing of £12 million was undertaken in February and March 2019, for cash flow purposes, and was fully repaid in May and June 2019.

-       There had been no further borrowing for the period 1 April to 30 September 2019.

-       It was anticipated that borrowing of up to £41.5 million would be undertaken during the second half of 2019/20 in order to fund delivery of the Council’s Capital Programme.

-       Borrowing limits remained unchanged from when the Treasury Management Strategy was adopted by Full Council in April 2019.

-       Annex 1 to the report provided an update on economic conditions and expected movements in interest rates. This information had been provided by the Council’s advisors, Link Treasury Services.

In response to questions, it was explained Capital Programme delivery timing and expenditure plans had been updated for the period October 2019 to March 2020. As a result, the borrowing and investment forecasts had been refreshed. It was also highlighted that the treasury forecasts set out in the report reflected the £25 million that had been delegated to the Commercial Ventures Executive Sub-Committee for commercial investments and £100,000 for delivery of the Merstham Recreation Ground project in 2019/20.

It was noted that the Overview and Scrutiny Committee had considered the Half Yearly Treasury Management Report for 2019/20 on 17 October 2019. The Leader of the Council thanked the Committee for its questions and highlighted a number of observations that had been circulated to the Executive by the Chair of the Overview and Scrutiny Committee ahead of the meeting. This included feedback and questions on a variety of matters relating to: public sector borrowing, treasury investments and the unexpected rise in Public Works Loan Board interest rates. The input from the Committee was welcomed and it was noted that these observations had been fully captured in the minutes from the meeting.

RECOMMENDED that the Treasury Management Performance for the year to date (2019/20) and the updated prudential indicators be noted.

Reason for decision: To comply with the requirements of the regulatory framework for treasury management and to meet the Council’s reporting requirements.

Alternative options: To accept the report but ask Officers to provide more detail on some specific issues contained in the report.

To consider the Half Yearly Treasury Management Report for 2019/20 and make any observations.

Members considered the Half Yearly Treasury Management Report for 2019/20. This progress report updated Members on the performance of the Council’s treasury management activities including the latest investment and borrowing position and updated prudential indicators and policies.

The Portfolio Holder for Finance, Councillor T. Schofield, said the current forecast of the treasury management performance was on track and would be presented to the Executive on 7 November 2019. Performance was better than assumed in the budget as long term borrowing had not been necessary to date. It was anticipated that borrowing of up to £41.5m would be undertaken during the second half of 2019/20 to fund delivery of the approved Capital Programme. As the Capital Programme expenditure plans became more certain, the supporting borrowing and investment forecasts had been refreshed. The treasury forecasts in the report also reflected the £25m that had been delegated to the Commercial Ventures Executive Sub-Committee (CVESC) for commercial investment.

It was noted that the update on expected movements in interest rates in the report, provided by the Council’s advisers, did not anticipate the recent announcement from the Treasury of a 1.0 per cent increase in the Public Works Loan Board (PWLB) loan interest rate.

There were a number of questions in the discussion that followed:

·       Capital Expenditure and Financing (Table 1 in the report) ­­– Members asked for follow-up information about the £1.704m actual spend on capital expenditure.

·       Public sector borrowing ­– Members asked what the impact would be on the Council’s investment plans because of the unexpected rise in the PWLB interest rate rise. It was noted that this added 1.0 per cent to all borrowing interest rates irrespective of the loan term. It was reported that the CVESC and finance teams were looking into the impact on capital expenditure plans and revenue expenditure forecasts. It does not have any impact on the Minimum Revenue Provision charge but, as PWLB interest rates are now 3.0 to 3.5 per cent, it will reduce the forecast return on new commercial investments.

Members asked how the interest rate rise might affect cash flow and how best to mitigate the cost to the Council.

·       Treasury Investments – it was noted that the total treasury investments were £36m at 30 September 2019. Members asked if some of these funds could be used instead of borrowing money. It was identified that the Council was required under treasury rules and regulations to keep minimum balances. If it falls below a certain limit (£10m) then this restricts the types of investment the authority may make with consequent impacts on investment returns. An updated Treasury Management Strategy for 2020/21 would be presented to Members early next year and a key factor will be to confirm the minimum balance required going forward.

·       Brexit – the commentary in the report on the impact of Brexit was noted, along with subsequent recent developments. Updates on the outcome of Brexit on the economy and investments would be reflected in future reports.

·       Investment portfolio – non-Treasury investments –  ...  view the full minutes text for item 5