Owen, Finance Manager, introduced his report setting out the draft
Treasury Management Strategy for 2018/19, including the Treasury
Management and Prudential Indicators.
·The Strategy was based upon a proposed Capital
Programme for 2018/19 to 2022/23 which would be discussed by the
Policy and Resources Committee on 24 January 2018, and might be
subject to amendments.
·The Council had not changed its stance from 2017/18
and would continue to run down balances to fund the Capital
Programme until such time that prudential borrowing was
needed. On the assumption that the
Capital Programme would be fully spent, the Council might be in a
borrowing position by the end of 2018/19.
·Most investments would be short term (less than a
year), but there was a provision for longer term investments
(£5m) if rates were appealing.
·Upon the advice of Arlingclose, the Council’s Treasury
Management advisers, he wished to make the following amendments to
the Treasury Management Strategy Statement (Appendix A) and the
Prudential Indicators (Appendix C):
Appendix A– Pages 15-16 –
Table showing Non-Specified Investment Limits – Amend second
line to read:
investments without credit ratings or rated below A- except UK Government and Local Authorities -
Appendix A– Page 16 – Table
showing Investment Limits – Increase the cash limit in
respect of negotiable instruments held in a broker’s nominee
account from £5m to £10m per broker.Arlingclose felt that
this restricted the Authority when using different financial
instruments these provide.
Appendix C– Amend to include
reference to the Gross Debt and the Capital Finance Requirement
Indicator. The purpose of this
indicator was to ensure that borrowing required was only used for
the Capital Programme and not for revenue purposes. The Gross Debt should not exceed the Capital
·CIPFA had revised the Prudential Code which took
into account non-treasury investments and had changed the wording
of Treasury Management Practices which would require an amended
Strategy to be reported to the Committee probably mid
the ensuing discussion, Members drew attention to the following
typographical errors in the Treasury Management Strategy
– Amend the figure in the first line of the second paragraph
to read £5.547m.
– Amend the second word of the second line of the penultimate
paragraph to read “forgone”.
response to questions, the Officers explained that:
·The capital expenditure prudential indicator was a
summary of the Council’s capital expenditure plans that were
known about at this stage. The capital
expenditure forecast of £5.025m as at 2021/22 would increase
nearer that time.
·The interest rate forecasts provided by Arlingclose did have upside and downside
risks. The assumption was that interest
rates would remain constant for a period of time, but they could go
up. The Council was currently
maintaining an under-borrowed position.
This meant that the Capital Financing Requirement had been funded
using cash supporting the Council’s reserves, balances and
cash flow as a temporary measure rather than through loan
debt. This strategy was prudent as
currently borrowing rates were higher than investment
·Local authorities were not allowed to borrow in
·In terms of limits to borrowing activity, the
operational boundary was the limit which external debt was not
normally expected to exceed. In most
cases it would be a similar figure to the Capital Financing
Requirement which was a measure of the Council’s borrowing
need to fund the proposed Capital Programme. A negative amount showed the Council had more
funding than capital expenditure. The
authorised limit for external debt represented a control on the
maximum level of borrowing in any particular year.
·The ratio of financing costs to net revenue stream
indicator showed the proportion of the revenue budget that was
attributable to the financing costs of capital
expenditure. The estimated 2.9% in
2021/22 was a very low figure compared to commercial
·The Medium Term Financial Strategy assumed that the
Council would be able to borrow from the PWLB at competitive rates,
but there was a risk that this might be subject to restrictions in
future. However, recent Government
consultations and announcements did not indicate a direct impact
for the Council’s spending plans.
·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.
·The Medium Term Financial Strategy inflation
projections were based on the Government’s 2% target, but
this could be higher.
·Other funding streams proposed in the development of
the Capital Programme included the New Homes Bonus Grant (revenue
funding). No major capital receipts
the discussion Members expressed concern about the risks associated
with unexpected changes in interest rates, exchange rates and
inflation. The Director of Finance and
Business Improvement undertook to keep Members up to date with
developments in these areas.
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;
(b) the amendments to the Treasury Management Strategy Statement
(Appendix A) and the Prudential Indicators (Appendix C) made by the
Finance Manager at the meeting; and (c) the correction of the
typographical errors identified at the meeting, the Treasury
Management Strategy for 2018/19, 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