Agenda item

The Finance Manager introduced his report setting out details of the activities of the Treasury Management function for the 2020/21 financial year in accordance with CIPFA’s Code of Practice on Treasury Management in Local Authorities and in the context of the economic environment over the past 12 months.  It was noted that:

·  The Treasury Management Strategy Statement for 2020/21 was approved by the Council on 26 February 2020.  One of the key elements of the Strategy was 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.

·  During 2020/21, the Council’s investment balances ranged between £5.24m and £48.6m.  The average investment balance for the year was £22.385m.  The Council held investments totalling £16.160m as at 31 March 2021, an increase on the previous year due to postponement of certain projects in the Capital Programme and the influx of Government grant funding due to COVID-19.

·  In January 2021, the Council had unavoidably breached some of the counterparty limits agreed within the Treasury Management Strategy for 2020/21. The breach had arisen due to the receipt at short notice of a tranche of COVID-19 Business Grants funding.  As other local authorities would have received similar allocations, the scope for short-term lending to them was extremely limited.  The options were to either retain the cash in the 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 cash deposits and it was agreed by the Section 151 Officer that the funds be spread over a number of counterparties using the limits proposed in the Treasury Management Strategy Statement 2021/22.  All counterparties are highly rated institutions and in money market funds where the majority of the cash can be accessed instantly.

·  The breach was reported to the Policy and Resources Committee and to the Council which agreed to adopt the new counterparty limits in advance of the previously envisaged adoption date of 1April 2021.

·  In terms of borrowing activity, the total amount of loan debt as at 31 March 2021 was £11m.  All of the Council’s loan debt was short term.  The option of locking into longer-term funding was discussed with Link Asset Services, the Council’s Treasury Advisers.  As interest rates on short-term funding are at an all-time low and funding is readily available, it was decided to continue with short-term debt throughout 2020/21.  This decision would be kept under review during 2021/22 as borrowing was likely to increase along with spend.

·  All Prudential and Treasury Indicators had been complied with throughout the year.

In response to questions, the Finance Manager advised the Committee that:

·  From discussions with the Council’s Treasury Advisers, it did not appear that they believed interest rates would increase significantly over the next three years and the Council had been advised to keep any borrowing short term at present to take advantage of the short-term rates which were lower than they had ever been.  The Officers were in constant communication with the Treasury Advisers so if the market situation changed, the Council would be able to respond as quickly as possible.

·  In terms of borrowing now to take advantage of low interest rates, very strict guidelines about borrowing ahead of need had been put in place by the Public Works Loan Board.  There were also issues relating to the cost of carry and counterparty risks if those funds were not being spent.  Capital spend was being monitored closely and it was likely that the Council would start borrowing more towards the end of this calendar year.

Members were mindful that capital projects had been identified and considered that the Council should be taking advantage of low interest rates to fund them.  Concerns were expressed that a sudden increase in the cost of borrowing would have an impact on the viability of projects.

The Director of Finance and Business Improvement assured the Committee that:

·  The Officers were monitoring the situation closely.  They did not rely on just one adviser but looked at what was happening in the market as well.  He would report back regularly to the Committee with the most up to date information.

·  It was recognised that with treasury management, it was necessary to act quite quickly so operational treasury management decisions were delegated to Officers.  He would take into account what Members had said and that would inform decision making.

RESOLVED:

1.  That the review of the financial year 2020/21 in accordance with CIPFA’s Code of Practice on Treasury Management and the Prudential and Treasury Indicators be noted.

2.  That no amendments to the current treasury management procedures are necessary as a result of the review of activities in 2020/21 with the proviso that the Officers will take into account Members’ concerns regarding borrowing rates in their treasury management activities.