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Decision details
Treasury Management Performance for 2009/10
Decision Maker: Cabinet.
Decision status: Recommendations Approved
Is Key decision?: Yes
Is subject to call in?: Yes
Purpose:
To agree Treasury Management performance for
2009/10 and to consider revisions to arrangements for 2010/11 in
accordance with the CIPFA Code of Practice on Treasury
Management
Decision:
1. That the review of the financial year 2009/10 which has been compiled in accordance with the Code of Practice on Treasury Management as adopted by this Authority be noted.
2. That no amendments be made to current procedures as a result of the review of activities in 2009/10, with the exception that the prudential indictors be amended to incorporate the adjustment reported by the Head of Finance regarding Long Term Liabilities and detailed in the revised Appendix A attached.
Reasons for the decision:
The Council has adopted and incorporated into its Financial Regulations, the CIPFA Code of Practice on Treasury Management in Local Authorities. This Code covers the principles and guidelines relating to borrowing and investment operations.
In February 2009 the Council approved a Treasury Management Strategy for 2009/10. The strategy was based upon guidelines in CIPFA’s Code of Practice on Treasury Management. The Code requires that a report be presented reviewing the strategy that was approved, the previous year’s activities and endorsing or amending current procedures for the forthcoming year.
The Strategy for 2009/10 set out the following objectives:
a) Keep investments short term (up to 1 year) to help fund the existing capital programme when needed and to make funds available to invest if rates increased;
b) The counterparty list was amended due to the banking structure changing with nationalised and part nationalised banks, banks with Government backing and Sovereignty stability coming under attack for bailing out the banking industry;
c) There was to be no planned borrowing, other than for short term cashflow purposes. The Council is currently debt-free.
d) That the prudential indicators detailed in Appendix C to the Record of Recommendation of the Cabinet was approved;
e) That the Head of Finance had been given delegated authority consultation with the Cabinet Member for Corporate Services) to make use of alternative investment instruments should it be considered prudent to do so and should it be of advantage to the Council;
f) That the Council’s Treasury Management Practices be amended to reflect those decisions.
Since
the adoption of the Treasury Management Strategy for 2009/10, CIPFA
has published a revised code which incorporates guidance on
additional reporting of activities to Cabinet, Audit Committee and
Council. This revised code is in
operation for the 2010/11 strategy and will be used for year end
reporting of 2009/10 activity.
2009/10
Overview
Economic Overview – The Bank of England cut its base rate
to 0.5% over 2008/09 and it has remained at this level
since. Despite the low base rate, the
Bank of England has found it necessary to provide
“quantative easing” to the market in order to maintain the
economy. Inflation was not a major
concern during 2009/10 although it increased dramatically in the
last quarter. RPI increased to 3.5%
following the reinstatement of a 17.5% VAT rate. Since that time it has continued to
increase. At April 2010 it was
5.3%. The Bank of England forecasts it
to fall back to below 2% by the end of 2010.
MBC
Overview – The revenue and capital outturn position of the
Authority was reported separately. The
overall theme of these reports is that,
notwithstanding the fact that some projects have been contractually
committed or are near to implementation. The amount of slippage within this financial year
has reduced which means that balances are being spent and less
funds, along with the low interest rates, has led to low investment
income.
All
investments have been on a short-term basis in line with the
Strategy.
Throughout 2009/10 the level of investments had an average
balance of £23.5m invested over the course of the
year. This covers investment of
balances, capital receipts and other balance sheet
assets. However it is higher than
anticipated as a consequence of slippage in both revenue and
capital expenditure, as reported to Cabinet in various budget
monitoring reports.
Investments at the start of the year totalled £23m, and
the Treasury Management Strategy for 2009/10 anticipated year end
investments of £7m. However, the
actual year end investments totalled £8.7m. The main differences between the estimated and
actual outturn figures are summarised below:
Reason |
£000 |
Additional Capital Slippage (over assumption) |
500 |
Fleming Claim VAT Re-imbursement |
1,200 |
Compliance with Treasury Limits
The
Treasury Limits were agreed at Cabinet in February 2009 and by
Council in March 2009. The outturn for
Prudential Indicators was shown at Appendix A of the report of Head
of Finance. The Council operated within
these limits through 2009/10. A revised Appendix A was distributed
at the meeting by the Head of Finance detailing an adjustment to
the prudential indicator for external debt. This indicator includes
the value of other long term liabilities and was estimated at
£100,000 for the year 2009/10. On advice from the External
Auditor, the Council intends to account for the works at the
Leisure Centre as a long term financing arrangement which is an
arrangement that should be measured by this indicator. The long
term liability created by the Leisure Centre arrangement is valued
at £6.4m as at 31st March 2010 which is
significantly above the approved level for 2009/10. This value will
require amending in the approved indicators for 2010/11.
Debt
Management
At
1st April 2009 the Council had no outstanding long term
borrowing. The only borrowing during
2009/10 was for short-term cashflow purposes only.
Cash
Management
The major element of the Council’s Treasury Management function is the management on a daily basis of the cash requirements of the Council. The policy objectives in this respect are:-
a) The minimisation of the daily credit bank balance, subject to the clearance of monies overnight;
b) Interest earned on investments should be maximised subject to the security of the funds being paramount;
c) Interest paid on borrowing should be minimised;
d) Adequate funds should be available to meet precept payments and other payments as they fall due;
e) Cash management activities are carried out in accordance with the agreed Treasury Management Strategy.
As
detailed above, the Council continues to have a positive cash flow
pattern which has resulted in the investment activities detailed
below during 2009/10. All investments
made were in accordance with the agreed Treasury Management
Strategy.
Institution |
Number of Transactions |
£m |
Building Societies |
47 |
56.1 |
Call/Notice Accounts/Money Market Funds |
174 |
136.8 |
TOTAL |
221 |
192.9 |
There
was continued use made in 2009/10 of Call/Notice Accounts and the
Money Market Fund Account. These
accounts continued to offer short term competitive rates in
comparison with those on the money market, as well as offering some
improved flexibility in terms of cashflow management.
No
alternative investment instruments were utilised in
2009/10.
The
average interest rate received during 2009/10 on short term
investments (less than 1 year) was approximately 1.87%. The average interest rate on call/notice deposits
was approximately 0.65%. The overall
rate achieved on all investments was 3.69%. This compares with the average seven day rate in
2009/10 of 0.45% and the average three monthly rate of
0.73%.
The
financial benefit from investment income of £735k was partly
secured by the long term investments made at higher rates in prior
years and the remaining Eurosterling
Bond taken out in 2004, which had matured within the
year. The decline in short term rates
throughout the year was effectively controlled by this.
Approved Lending List
The
criteria adopted in the investment of surplus funds are the
security of the capital and the avoidance of risk which can be
associated with maximising returns.
For
2009/10 Members had approved a lending list to govern the
investment policy of the Authority and had stipulated that a
maximum of £4m be lent to any one institution from resources
temporarily available. The current
approved lending list covers British clearing banks and their
wholly owned subsidiaries (including the HSBC Bank which is owned
by a foreign institution) and the top 30 building societies (ranked
by asset size). A decision was taken by
the Head of Finance to reduce the risk of exposure to Building
Societies by reducing the lending list from top 30 to top
20. This was decided after market
intelligence advised that the continued problem with the housing
market and the downgrading of building societies within the ratings
may have a detrimental effect. Local
Authorities and a selected list of overseas institutions were also
included.
There
is also a maximum limit of £10m to be lent to any one
institution from resources available to be invested for periods
greater than one year. This covers
issuers of Eurosterling Bonds and the
UK Government.
The
primary criteria for assessing the suitability of an institution to
be on the list are its credit rating and the rating of its
Sovereignty, which is supplied by the Council’s Treasury
Management advisors. Part and wholly
Nationalised Banks were also included along with banks that had
taken up the offer of Government backing.
Current
Issues
The
CIPFA Prudential Code was introduced on April 1st
2004. In broad terms, the code allows,
subject to prudential, sustainability and affordability issues,
authorities to borrow whatever resources they need to fulfill their capital spending
priorities. This has now been updated
by CIPFA’s Code of Practice on Treasury Management 2009
(Revised). There is no current plan to
borrow at the present time, however, the option of borrowing will
be reviewed at least annually in planning to fund key priority
spending and will possibly have an impact in the medium
term.
There
continues to be the potential for future developments in terms of
accounting for investment instruments, as well as the introduction
of new and alternative instruments into the market. The likely impact of these will continue to be
monitored in conjunction with the Council’s Treasury
Management advisors.
External Fund Managers
The
Council does not currently use external fund managers.
Delegation
The decisions on the investment and borrowing activities described in the report of the Head of Finance have been performed under authority delegated to the Director of Regeneration and Communities (formerly the Director of Resources and Partnerships).
Alternative options considered:
It would be possible for the Council to amend its practices to enable investment at higher rates by increasing the number of institutions on the approved lending list. This action would increase risk by reducing security of the capital sums invested. Such a change to the strategy would require approval of Cabinet, Audit Committee and Council and is contrary to the recommendations of CIPFA and is therefore not recommended.
Reason Key: Expenditure > £250,000;
Wards Affected: (All Wards);
Details of the Committee: Previous reports to the Cabinet on Treasury Management, especially the Treasury Management Strategy 2008/09. CIPFA Code of Practice on Treasury Management in Local Authorities. Accountancy Summaries of Loans and Investments.
Representations should be made by: 30 April 2010
Other reasons / organisations consulted
Internal
Consultees
Management Team and Heads of Service
Contact: Email: paulriley@maidstone.gov.uk.
Report author: Paul Riley
Publication date: 11/06/2010
Date of decision: 09/06/2010
Decided: 09/06/2010 - Cabinet.
Effective from: 19/06/2010
Accompanying Documents:
- TreasuryManagementPerformance200910_revisedAppA
PDF 44 KB View as HTML (1) 10 KB
- Cabinet, Council and Committee for Treasury Management Performance for 2009/10
PDF 82 KB View as HTML (1) 64 KB
- Cabinet, Council and Committee for Treasury Management Performance for 200910 enc. 1
PDF 40 KB View as HTML (2) 10 KB