Agenda item

This report gives an overview of treasury management activity during 2015/16.

Discussion:

The Principal Accountant introduced this report which gave an overview of treasury management activity during 2015/16.

Members also considered two addendum reports. One advised Members of an error in the original report issued, i.e. the wrong Public Works Loan Board graph in paragraph 7 of the original report and the second updated Members on developments following the UK referendum held on 23 June 2016.

A Member asked what the effect would be on the Council if the Bank of England was to reduce interest rates following the EU referendum. Members were advised that a reduction was expected, which would reduce the Council’s return on its investments. However, most of the £20m lent to local authorities was at a fixed rate until the loans matured so would not be affected. The Council was in a net borrowing position so a fall in rates would be marginally beneficial to the Council. A Member queried the extent of EU grants to the Council. The Committee was advised that there were no longer any significant EU grants as they had all come to the end of their natural life. 

A discussion took place about the need in 2016/17 to temporarily borrow £25m from other Councils largely as a result of government rescheduling of grant payments which meant the Council had less liquid cash. Some concern was expressed that the Council was in this position. The Chief Finance Officer advised that the announcement about the change in how grant payments were scheduled had been included on the provisional settlement but unfortunately this had been missed amongst the detail. However, it was only likely to affect the beginning of the financial year and did not see this as a major problem. Concern was expressed that this announcement had not been noticed given it had led to temporary borrowing which inevitably came at a cost to the Council. An assurance was sought that this would not happen again and also the cost of borrowing £20m over three months was queried. The Chief Finance Officer advised that the cost was approximately £30,000, but this should be seen in the context of strong treasury management performance overall. He added that going forward the revenue support grant would decrease so he did not see this change in how grant payments were scheduled as a major risk for the future.  In response to a question about how long  temporary borrowing would continue, Members were advised that this was expected to continue for a considerable period given interest rates on long term loans were so much higher than for temporary borrowings. A Member queried whether the Council was unusual in the extent of its temporary borrowing or whether this was part of a wider trend amongst councils. The Chief Finance Officer undertook to provide comparative information.

A Member queried the £342,000 of the adverse variance on treasury expenses caused by a payment to HMRC in respect of output VAT on charges to HM Prisons. The Chief Finance Officer commented that there was a small possibility, dependent on decisions by the Prison Service and HMRC,  that the VAT may be returned to the Council.

Members congratulated the treasury management team on the strong performance in terms of the investment outturn for 2015/16.

Members discussed the addendum report on developments following the referendum. A Member asked if any thought was being given to changing the Strategy in terms of what levels of risk were now considered appropriate in the current volatile situation. He did not consider there was a need to amend the Strategy in light of the referendum result, noting investment in properties were relatively modest. The Chief Finance Officer commented that the update report only looked at the impact on treasury management. He expected austerity to continue and doubted whether the current 4 year settlement from the Government could continue.

Decision:

The Committee agreed:

a)        in accordance with the CIPFA Code of Practice, to note the reports and recommend them to Cabinet, and;

b)        to request a briefing note on the use of temporary borrowing, including comparative data.