Cabinet Member for Finance
At its meeting on 6 February 2019, Cabinet considered Paper BCa/18/64 and accepted the recommendations as set out in the report:
Recommendations to both Councils
That the following be approved:
The Joint Capital Strategy for 2019/20, including the Prudential Indicators as set out in Appendix A.
The Joint Investment Strategy for 2019/20, as set out in Appendix B.
The Joint Treasury Management Strategy for 2019/20, including the Joint Investment Strategy, as set out in Appendix C.
The Joint Treasury Management Indicators as set out in Appendix D.
The Joint Treasury Management Policy Statement as set out in Appendix G.
The Joint Minimum Revenue Provision Statement as set out in Appendix H.
That the key factors and information relating to and affecting treasury management activities set out in Appendices E, F, and I be noted.
104b.1 Councillor Ward introduced the report as approved by Cabinet earlier this month. Councillor Ward informed Council that following consultations last year, CIPFA published its 2017 editions of the Treasury Management Code of Practice and the Prudential Code and MHCLG published its 2018 Investment Guidance. The Council was now required to determine separate Capital, Investment and Treasury Management Strategy statements and Prudential Indicators annually before the start of each financial year. Both the Capital Strategy and the Investment Strategy were new this year.
104b.2 Councillor Ward then explained each appendix to Council as follows:-
Appendix A - The new Capital Strategy – summarised the capital expenditure and financing requirements of the full capital programme, for both GF & HRA, the details of which were in the Budget Report. This appendix sets out capital expenditure and capital investment decisions and the associated risks and rewards along with how risk is managed for future financial sustainability. It included Prudential Indicators which demonstrated that the investment plans the Councils had were affordable, prudent and sustainable, and decisions were made according to good practice. It also illustrated that capital expenditure planned for 2019/20 was £51.88m for Babergh [and £43.27m for Mid Suffolk] (table 1 of the report) and most of it will be funded by borrowing (table 2 of the report).
Appendix B - The new Investment Strategy – this detailed those expenditure items in the capital programme that were specifically related to assets bought/owned by the Councils to generate a return, for regeneration or development of the local area. In this context “Investments” meant those non-treasury management activities.
There were 2 types of these “Investments” -
· Service Provision – where the Councils lend to or buy shares in organisations that provide a service
· “For profit” Commercial Investments which generated a return – such as the council owned companies CIFCO and Gateway 14
It explained how each investment contributed to the Councils’ priorities, and their security, liquidity and risk. Both Councils were now developing their property and commercial portfolios either by purchasing them directly or through the Councils’ investment companies.
Appendix C – Treasury Management Strategy 2019/20, sets out the Councils borrowing requirement, and borrowing and treasury management investment strategies. This also included the list of Approved Investment Counterparties and limits.
Appendix D – Treasury Management Indicators, which were used to measure and manage the Councils exposure to treasury management risks.
Appendix E – Economic update and interest rate forecast, there was still a lot of uncertainty around the decision to leave the EU, affecting the value of the pound, growth and inflation, as well as changes overseas. Arlingclose, the Council’s treasury advisors, were forecasting the UK bank rate was likely to rise two more times during 2019 taking the rate up to 1.25% in the medium term (1-2 years).
Appendix F –Current investment and debt portfolio, reflected the position at 30th November 2018. The borrowing for Babergh sat at £95.05m, of which £86.05m was PWLB and £9m short term. [For Mid Suffolk the level was £115.94m, £90m was long term rate, and mostly PWLB with a small amount with other councils and £26m is short term.] On the investment side Babergh has £14.72m [and Mid Suffolk has £12.76m], this includes CCLA, funding circle, UBS and Schroders.
The Council has continued the policy of withdrawing funds from funding circle, as loans drop out, nor has the Council invested any new money.
Appendix G – Treasury Management Policy Statement, underpined the strategy and set out both Councils’ regard to the monitoring of risk and performance, primary objectives remain security of capital, then liquidity followed by return.
Appendix H – Minimum revenue provision statement, which shows where the Council puts aside the resources to repay debt in later years.
Appendix I – Institutions meeting high credit ratings criteria
Appendix J – Glossary of terms
104b.3 Councillor Ward said that the most important thing to take away from this report was the information provided in table 6 of Appendix A, The Joint Capital Strategy, on page 41of the report . The Capital Financing Requirement, the total borrowing need, was larger than the actual external borrowing, with a headroom of £17.88M for 2019/20. Moreover, all the indicators and tables within the report were based on the capital programmes described in the General Fund and HRA Budget Reports that have just been approved.
104b.4 Councillor Ward then MOVED the recommendations in the report which Councillor Lawrenson SECONDED.
104b.5 Councillor Rose asked a question relating to the Sudbury prospectus and whether there had been a rush of partners wanting to join the Council?
104b.6 In response Councillor Ward stated that there had been a lot of expressions of interest which promoted a sense of confidence in Sudbury, so there would be a beauty parade of potential developers to see what was viable.
104b.7 Councillor Rose asked if there were any timescales on this?
104b.8 In response Councillor Ward stated that it was hoped to be having meetings with potential developers in the next two or three months and because there would be a new Council in May there would not be any decisions made until after this.
104b.8 Councillor Arthey asked why there was no mention of Angel Court in the capital programme.
104b.9 In response Councillor Jan Osborne confirmed that this was because Angel Court would be funded by the HRA.
104b.10 Councillor Arthey queried where the original capital purchase was made from?
104b.11 In response the Section 151 Officer confirmed that the original purchase was made from the General Fund, but the purchase of the units would be through the HRA fund, hence why it was not included in this report.
104b.12 Councillor Ward then MOVED the recommendations in the report which Councillor Lawrenson SECONDED.
It was Resolved:-
(i) That the Joint Capital Strategy for 2019/20, including the Prudential Indicators, as set out in Appendix A be approved.
(ii) That the Joint Investment Strategy for 2019/20, as set out in Appendix B be approved.
(iii) That the Joint Treasury Management Strategy for 2019/20, including the Joint Annual Investment Strategy as set out in Appendix C be approved.
(iv) That the Joint Treasury Management Indicators as set out in Appendix D be approved.
(v) That the Joint Treasury Management Policy Statement as set out in Appendix G be approved.
(vi) That the Joint Minimum Revenue Provision Statement as set out in Appendix H be approved.
(vii) That the key factors and information relating to and affecting treasury management activities set out in Appendices E, F, and I be noted.