Agenda item

This report presents the mid year review of the Treasury Management Strategy 2016/17.

Discussion:

Members welcomed the report and congratulated the team on their performance in achieving the returns set out in the report.

A Member referred to the increasing risk in the local government sector of, at some point in the near future, a council being unable to set a balanced budget. Noting that the Council had invested approximately £19.5m with other local authorities, he asked what the implications were if one of these authorities was unable to set a balanced budget, clarifying that he was not suggesting any of them was actually in that situation. The Chief Finance Officer advised that under S.114 of the Local Government Finance Act 1988, the S.151 officer was required to report to the Council if there was, or was likely to be, an unbalanced budget. The S.151 officer would then have powers to curb expenditure that went significantly beyond the voluntary moratoriums imposed by the Council in recent years. However, the authorities that the Council had invested in would still have a contractual obligation to pay the agreed interest on the loans. Therefore he did not see this as a particular risk but undertook to look into the issue in more detail and give a fuller response. In response to another question, officers advised that the Council had not taken out counterparty insurance in respect of these loans.

Referring to the Council’s investments in the CCLA property fund a Member asked how these investments were split in terms of location, whether the fund itself had a credit rating, what the risk rating was and whether Capita as the Council’s advisor had been involved in recommending that the Council should invest in the fund. Officers advised that the fund did not have a credit rating and investments were in properties across the country including some in large commercial properties as the fund had grown in size considerably since the decision had been taken to invest in the fund, resulting in better returns. Although the capital value of the units invested in were a potential risk, the Council’s £3m investment was relatively modest in the context of the overall portfolio and the Chief Finance Officer was pleased with the performance to date. The Chief Finance Officer advised that Capita, as part of its regular discussions with the Council, had suggested the Council should diversify into property funds but the decision to invest in the CCLA property fund had been taken by the Council without help from its advisors.  A Member asked what the Council’s exit strategy from the fund was and the Chief Finance Officer confirmed that the Council was able to liquidate its investments at short notice.

Referring to the Council’s borrowings of £190.378m against a capital financing requirement of £257.978m, a Member asked whether the gap between borrowings and the ceiling was narrowing quickly. Officers advised that the gap was fairly stable with no dramatic movements as there had been no new long term borrowing recently.

Decision:

The Committee agreed to note the report and the undertaking from the Chief Finance Officer to provide more information about what would happen in the event that a council in which the authority had made an investment was unable to set a balanced budget.