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Agenda item

Treasury Management Strategy 2017/18


In accordance with CIPFA’s Code of Practice on Treasury Management, the Committee considered the revised report of the Director of Finance and Business Improvement setting out the draft Treasury Management Strategy for 2017/18, including the Treasury Management and Prudential Indicators.


The Finance Manager explained that:


·  The Strategy was based upon a revised Capital Programme for 2017/18 to 2020/21 which would be discussed by the Policy and Resources Committee on 18 January 2017, and might be subject to amendments.  In line with advice received from Arlingclose, the Council’s Treasury Management advisers, the Council would continue to run down balances to fund the Capital Programme until such time that prudential borrowing was needed.  The Council currently had sufficient reserves to fund the Capital Programme during 2017/18, but borrowing might be required during 2018/19 if the Programme ran to plan.


·  The maximum principal sums to be invested for a period exceeding 364 days had been reduced from £8m to £5m.  This was consistent with the borrowing strategy to utilise cash balances rather than loan debt to finance the Capital Programme in the short term due to low investment returns and high counterparty risk in the current economic climate.


·  The Council would endeavour to further diversify its portfolio, as far as it was operationally feasible, ensuring that a combination of secured and unsecured investments was considered.


·  The expected level of investment income had been revised downwards in light of the current economic outlook and interest rate forecasts.  This was reflected in the revenue budget proposals being reported to Service Committees.


·  Upon the advice of the Council’s Treasury Management advisers, the table for Maturity Structure of Borrowing set out in the Treasury Management Strategy Statement would be amended to reflect the availability of cheaper borrowing in the shorter term.


In response to questions, the Officers confirmed that:


·  In an earlier presentation, the Council’s Treasury Management advisers had introduced a potentially different approach to treasury management and raised the issue of the risks associated with lending to banks on an unsecured basis.  It was envisaged that there was sufficient flexibility within the Treasury Management Strategy to work with Arlingclose on their recommendations.


·  The ratio of financing costs to net revenue stream showed the proportion of the net revenue stream (revenue budget) that was attributable to the financing costs of capital expenditure.  Negative figures indicated more investment interest than prudential borrowing interest (2016/17 – 2018/19).  Positive figures indicated the opposite (2019/20 – 2020/21).


·  In terms of the ratio of financing costs to the net revenue stream, 2.6% of £18.9m (£491k) in 2020/21 was a relatively low figure.  This sum would be used to fund prudential borrowing to pay for projects that would generate a return for the Council.


·  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 and appropriate provision would need to be built in to the Medium Term Financial Strategy to cover the cost.


·  Having regard to financing costs and counterparty risks etc., the Council would only borrow as and when required.


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


Having considered the responses to its questions, the Committee:


RESOLVED to RECOMMEND to the COUNCIL:  That subject to (a) any potential amendments arising from the Policy and Resources Committee’s consideration of the Capital Programme and (b) the amendment of the table for Maturity Structure of Borrowing, the Treasury Management Strategy for 2017/18, including the Treasury Management and Prudential Indicators, attached as Appendices A and C to the report of the Director of Finance and Business Improvement, be adopted.


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