Agenda item

Treasury Management Strategy 2016/17


In accordance with CIPFA’s Code of Practice on Treasury Management, the Committee considered the report of the Head of Finance and Resources setting out the draft Treasury Management Strategy for 2016/17, including the Treasury and Prudential Indicators.  It was noted that:


·  The Strategy for 2016/17 was consistent with the requirements of CIPFA and the Department for Communities and Local Government, and it had been developed in line with currently endorsed spending and financing proposals.


·  In 2012, the Council approved in principle expenditure of up to £6m through prudential borrowing for the acquisition of commercial property, the acquisition of property to alleviate homelessness and action to enable stalled development to progress.


·  To date, the Council had not borrowed to finance the Capital Programme as the value of borrowing was outweighed by the benefit of using the Council’s own resources due to the variance between borrowing and lending rates of interest.


·  The Policy and Resources Committee, at its meeting scheduled to be held on 27January 2016, would consider a Capital Programme for the period 2016/17 to 2020/21.  This Programme proposed a significant increase in prudential borrowing to support the regeneration and commercial objectives of the Council.  The prudential borrowing proposed over the life of the Programme amounted to £38,950,000 which, if approved, would necessitate amendments to the prudential borrowing limits set out in the draft Strategy and the Prudential Indicators.


In response to questions by Members, the Officers confirmed that:


·  If the Council was to borrow to fund the Capital Programme, the affordability of the Programme would need to include an assessment of the cost of borrowing compared with the return on investments.


·  Other funding streams proposed in the development of the future Capital Programme included the use of New Homes Bonus grant.


·  The proposed Strategy allowed maximum investments with certain single institutions of £8m.  This related to secured banks and the UK Government.  Investment in other banks was limited to £3m per institution.


In considering the draft Treasury Management Strategy for 2016/17, the Committee expressed concern about the risks associated with prudential borrowing of the magnitude proposed including:


a)  The potential interest rates for long term borrowing in the future;


b)  The initial cost of borrowing during the period leading up to the receipt of a return on the scheme as this would not be financed by the scheme at the time it required payment;


c)  The scheduling of the demand for prudential borrowing over the period of the Capital Programme as the indicative figures showed a significant increase in the early years of the Programme.


The Head of Finance and Resources advised the Committee that mitigation would be considered on a scheme by scheme basis and individual business cases should address these risks in line with the principles set out in the Medium Term Financial Strategy for capital.


The Head of Finance and Resources also explained that it was normally the case that the Committee would consider the Medium Term Financial Strategy in January.  The Committee’s remit was with regard to risk management and it would consider the operational risk assessment of the budget that was produced by the Finance Team as part of its service planning work each year.  This year, due to the late and significant change in the Strategy brought about by the Local Government Finance Settlement, the operational risk assessment was not complete in time for it to be included on the agenda for this meeting. The risk assessment would be reported to the March meeting of the Committee to enable Members to take a view on the completeness of the assessment and the soundness of the proposed mitigations.


During the discussion, Members asked that the ratio of capital financing costs to the net revenue stream (revenue budget) be quantified in the Treasury Management Strategy and Indicators.




1.  To RECOMMEND to the COUNCIL:  That subject to typographical amendments identified during the discussion, the Treasury Management Strategy for 2016/17, including the Treasury Management and Prudential Indicators attached as Appendices A and C to the report of the Head of Finance and Resources, amended as appropriate to reflect (a) the decision of the Policy and Resources Committee in relation to the schemes to be included in and the funding of the Capital Programme and (b) the quantification of the ratio of capital financing costs to the net revenue stream (revenue budget), be adopted.


2.  That details of the schemes included in the proposed Capital Programme 2016/17 onwards be circulated to all Members of the Committee.


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