Agenda item

Treasury Management, Investment and Capital Strategies 2021/22


The Finance Manager presented his report setting out the draft Treasury Management, Investment and Capital Strategies for 2021/22.  The Finance Manager explained that:


·  The focus next year was on running cash balances down to the point at which further borrowing was required.  Currently, the Council had short-term borrowing of £9m with other local authorities to fund its Capital Programme.  The Council would be looking for a mix of short and long-term borrowing going forward due to interest rates being low and to spread the risk of refinancing debt.


·  The investment balance as at 31 December 2020 was £24.19m.


·  The Council had made third party loans to Kent Savers and the Cobtree Manor Estate Charity.  A loan might also be offered to Maidstone Property Holdings Limited in relation to the refurbishment of rental properties.


The Finance Manager then drew the Committee’s attention to the urgent update which had been circulated earlier that day relating to the Treasury Management counterparty limits.  It was noted that:


·  As part of the report increases were proposed to some of the counterparty limits within the current Treasury Management Strategy.  The rationale behind this was that over the past financial year the Council’s cash balances had, at certain intervals, been significantly higher than anticipated prior to the onset of the COVID-19 pandemic and associated Government interventions.  The key reasons for this were the up-front payments received for Section 31 grants (to compensate for reductions in Business Rates income payable by ratepayers) and COVID-19 Business Grants which, although only held by the Council for a short time before being paid out to businesses, were significant in terms of value.


·  If agreed by the Audit, Governance and Standards Committee and the Council on 24 February, the increased limits would come into effect from 1 April 2021.


·  In advance of the proposed increases in counterparty limits, the Council had unavoidably breached some of the limits within the existing Strategy.  The breach had arisen from receipt at short notice of the latest tranche of COVID-19 Business Grants funding (£12.4m was received from the Government on Friday 15 January).  This would shortly be paid over to businesses, but in the meantime the surplus cash had been allocated to counterparties in accordance with the limits proposed within the new Strategy, and with reference to existing principles on managing credit and counterparty risk.  All investments were held with highly rated institutions and money market funds, with most of the cash being held in instant access accounts. 


·  It was anticipated that cash balances would reduce after payments relating to COVID-19 Business Grants, Housing Benefit and the Kent Business Rates Pool left the Council’s bank account on Monday 18 and Tuesday 19 January.  Balances held with the counterparties would return to within the current limits on Tuesday 19 January, other than one which was subject to 35 days’ notice.


·  There was a possibility that limits might be breached again between 15 and 22 February following receipt of Housing Benefit subsidy and further Section 31 grant payments.


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


·  As to whether the breach of the counterparty limits was unavoidable, the grant received was a significant amount.  The funding would be paid over to businesses shortly, so it would not have made sense to use it to pay other suppliers in advance.  However, the funds had to be held securely until the time they were due for payment.  As other local authorities would have received similar allocations, the scope for short term lending to other Councils was extremely limited.  Alternative options were to either retain the cash in the Council’s current account with Lloyds or to allocate it to lower rated counterparties.  These options were rejected to avoid the over concentration of risk in one area or compromising on the security of the Council’s cash deposits.  There had been a breach of the counterparty limits, but with a very low risk.


·  Increased counterparty limits were proposed in the Treasury Management Strategy for 2021/22 in anticipation of this type of situation arising in the future.


·  Link Asset Services had been appointed as the Council’s Treasury Adviser and provided valuable professional advice on treasury management issues and a useful sounding board.


·  It was made clear in the papers that the information set out in Appendix 5.3 to the Treasury Management Strategy (Economic Background) was a report provided by the Council’s Treasury Advisers as at 1 December 2020.


·  Reference was made in the Investment Strategy to the Council lending money to its employees.  These loans would be for a specific purpose such as the purchase of a car if one were needed by the employee to carry out their job.


·  The Five-Year Capital Programme 2021/22 – 2025/26, included within the Capital Strategy would be checked and any rounding errors corrected.




1.  That the Treasury Management Strategy for 2021/22, attached as Appendix A to the report of the Finance Manager, be agreed and recommended to Council for adoption together with the increased counterparty limits, subject to any amendments arising from consideration of the Capital Programme by the Policy and Resources Committee at its meeting on 20 January 2021.


2.  That the Investment Strategy for 2021/22, attached as Appendix B to the report, be agreed and recommended to Council for adoption.


3.  That the Capital Strategy for 2021/22, attached as Appendix C to the report, be agreed and recommended to Council for adoption.


4.  That the situation regarding the unavoidable breach of existing counterparty limits, as set out in the urgent update, be noted.


Supporting documents: