Agenda item

This report gives an overview of treasury management activity during 2013/2014.

Discussion:

The Finance Support Manager introduced the annual Treasury Outturn Report that provided an overview of treasury management activity during 2013/2014.

Members were advised that there had been a continued historically low base rate and dropping of market rates during 2013/2014, which was reflected within performance. Despite this, it was noted that overall the Interest and Financing Budget had made a surplus over its targeted budget of £43,000.

Officers highlighted that £10 million of debt had been repaid in 2013/2014 and not replaced. This was a continuation of the policy of not replacing loans as the cost of borrowing greatly exceeded the yield from investments. As a consequence of this policy and the funding of capital from cashflow a drop in total investments from 2013 to 2014 was also noted.

The Committee was also referred to the benchmarking information contained within the report. This showed that the council’s treasury costs per £million invested was more expensive than the average benchmarked cost by circa £31,000.  It was noted, however, that in 2013/2014 the Council had ceased using Investec, whose fees had been £30,100 for the year; without this cost the Council would be in line with the average.

The Finance Support Manager reported that the In-House team had achieved a return of 1.02% on investments whereas Investec only achieved 0.22%, this brought Medway’s total earnings down to 0.78%.  This was reflected in Graph 5 of the report, showing that on average the Council had performed below average. The Committee was advised however, that without Investec the Council would have achieved 1.02%, which was above the average of 0.85%

It was also reported that the Council’s average debt costs were marginally below the average benchmarking costs. Furthermore, as at 31 March 2014, the Council was performing marginally above the expected level of yield.

The Finance Support Manager referred Members to the Capita benchmarking that was included in the report, which accounted for risk, and that, as at 31 March 2014, the Council was performing marginally above the expected level of yield.

Members discussed the contents of the report and officers provided further clarification on the:

·        operation of Lenders Options, Borrowers Options (LOBO) debt – it was explained that this instrument permitted the lender to nominate a revised rate at periodic reset dates, and let the borrower decide whether to pay the rate or redeem the debt;

·        reported breach of treasury limits. It was noted that an investment had been made that, whilst not breaching the counterparty limits contained within the Treasury Management Strategy, exceeded more stringent internal criteria. This technical breach had had no adverse impact Council’s portfolio and was reported to the November 2013 meeting of the Committee;

·        Capita benchmarking data and the performance of other authorities as shown on their risk-adjusted model;

·        Council lending to other AAA rated local authorities for periods of up to 5 years. This was seen as a means to increase the yield whilst not increasing the risk inherent within the council’s portfolio.

Decision:

The Audit Committee, in accordance with the CIPFA Code of Practice, approved the Treasury Management Outturn Annual Report.