The Finance Manager introduced his report setting out the draft Treasury Management, Investment and Capital Strategies for 2022/23.  It was

noted that:

·  The Strategies were based upon the proposed Capital Programme which totalled £233m over the next five years and would be discussed at the meeting of the Policy and Resources Committee on 19 January 2022.

·  The proposal for next year was to utilise balances as far as possible and to increase short-term and long-term borrowing to support the Capital Programme.

·  The Capital Programme was escalating, and potential external borrowing would increase over the next five years to approximately £216m with a capital financing requirement of £274m.  It was anticipated that next year’s borrowing would increase by £20m and the operational and authorised limits for external debt were set at £57m and £67m respectively.  The Council was also looking into forward borrowing options due to low interest rates in the borrowing markets.

·  Treasury investments were likely to fluctuate between £10m and £55m next year.

·  Investments would be short-term, but there was provision in the strategy to invest £2m for over a year if rates became favourable and the funding was available at the time.

·  There would be a balance of £1.2m at the end of 2022/23 in respect of service loans, including provision of £1m for Maidstone Property Holdings Limited to undertake refurbishments to various properties it currently leased from the Council.

·  In response to a question at the last meeting, it was considered that using the Government’s Debt Management Office (DMO) in place of money market funds would be more of an administrative burden for no extra financial gain.  The DMO did not offer accounts which would allow the Council to recall funds daily to meet its cash flow liabilities.  Fixed term deposits were required.  Rates were around 0% while money market funds were gradually increasing.  Money market funds were AAA rated funds whilst the DMO was currently AA-.

In response to questions, the Director of Finance and Business Improvement advised the Committee that:

·  He would be happy to meet with Members to discuss the Strategies in more detail.  The length of the report reflected the additional requirements put on Councils regarding the reporting of treasury management following the Icelandic banking crash.  However, he would look at how the information might be summarised in an easily digestible form in future.  Table 2 on page 111 of the agenda showed how it was planned to fund capital expenditure in each year as projected from 2022/23 onwards, including the use of the Council’s own resources and external borrowing.  The Council was obliged to ensure that any borrowing was sustainable so, for example, in the case of the affordable housing programme, which was the biggest component, the Officers would be putting a business case to Members showing how the borrowing could be supported through the revenue generated from that housing.

·  There were no plans to show as separate figures the self-financing elements of capital projects.  The risk associated with the deliverability of the Capital Programme was acknowledged and it was now given a higher rating in the risk assessment of the Budget Strategy.  The Officers were looking at measures to mitigate the risk.

·  The difficulty associated with the main source of borrowing (the Public Works Loan Board) was that it was only available at the point that it would be delivered and there was a stipulation about not borrowing in advance of need.  However, there were alternatives in the market, such as pension funds, which were being actively explored; types of entity that would be interested in fixing the rate today without the Council having to draw down the funds until some point in the future.  This would also provide the opportunity to lock into current interest rates.

·  Rather than placing money with just one counterparty, it was safer to spread the risk across several counterparties.  He did not consider this to be a time-consuming exercise for the Officers.

·  When preparing budget projections for the Medium-Term Financial Strategy, the Officers did test different scenarios, including one addressing the risk of continuing high inflation.

·  Whilst the further investment at Lockmeadow did generate a financial return, it was intended to boost the economy of the Borough in line with the Council’s strategic objective of making Maidstone a thriving place.

·  The minimum revenue provision was the minimum amount the Council must charge to its revenue budget each year for repaying external borrowing.  It was treated like depreciation in the preparation of the accounts but from the perspective of debt repayment.

·  In terms of the implications of the revised CIPFA Treasury Management and Prudential Codes, there were implications such as ESG issues within the Capital Strategy which needed to be addressed, but most requirements/amendments were covered already.

·  It was for the Council to set its counterparty limits having regard to the advice of its Treasury Management advisors and credit ratings did provide a good starting point for the assessment of financial risk.

·  When drawing up the Capital Programme, the Officers made provision for possible future spending but decisions about individual schemes would be made by Members.

·  The Council was borrowing more than it needed in order to keep a cash float for liquidity purposes.  The proportion of financing costs to the net revenue stream was set out in table 9 on page 17 of the Capital Strategy, rising to 18.5% in 2026/27.  20% was probably the maximum in terms of gearing.

Arising from the discussion, the Finance Manager undertook to:

·  Amend the table set out in section 3.1 of the Treasury Management Strategy summarising the Council’s forward projections for borrowing to include an extra line to cover the minimum revenue provision; and

·  Amend table 1 set out on page 3 of the Investment Strategy relating to loans for service purposes to update the approved limit for local charities in 2022/23.

RESOLVED:

1.  That subject to the minor amendment arising from the discussion, the Treasury Management Strategy for 2022/23, attached as Appendix A to the report of the Finance Manager, be agreed and recommended to the Council for adoption subject to any amendments arising from consideration of the Capital Programme by the Policy and Resources Committee at its meeting on 19 January 2022.

2.  That subject to the minor amendment arising from the discussion, the Investment Strategy for 2022/23, attached as Appendix B to the report of the Finance Manager, be agreed and recommended to the Council for adoption.

3.  That the Capital Strategy for 2022/23, attached as Appendix C to the report of the Finance Manager, be agreed and recommended to the Council for adoption.