Agenda item

This report provides details of the mid-year review of the Treasury Management Strategy 2018/19.

Discussion:

Members considered a report regarding the mid-year review of the Treasury Management Strategy 2018/19.

The Head of Financial Strategy reported that, since the report had been published, the Council had taken out a 10 year loan totalling £5m with the Public Works Loan Board and also a £10m loan over 2.5 years with Barking and Dagenham London Borough Council. This was a start of a process to smooth out the maturity profile of its long term debts.

Members were also advised that the Cabinet, at its meeting held on 25 September 2018, had congratulated treasury management staff on their performance including, in particular, their success in achieving a significantly higher weighted average rate of return on the Council’s investment portfolio in comparison to other local authorities and had asked that these comments be referred to the Audit Committee.

A Member queried whether the Council would now not be lending money to other Councils. The Head of Finance Strategy advised that the Treasury Management Strategy still provided for this but the priority was to achieve the highest returns possible and, at present, that was not with local authorities.

The Chief Legal Officer commented that the Council had recently invested in a £6.4m distribution network which would yield approximately £200,000 pa income for the Council. A Member asked for clarity with regard to commercial investments whether there were any areas the Council would not invest in order to prevent a conflict with the organisation’s priorities or policies. The Chief Legal Officer advised that there were criteria for investments and a commercial strategy had recently been drafted with the initial aim of investments which would yield around 6% pa. This included the possibility of residential investments but this needed further work. He was happy to look at developing a policy on avoiding conflicts of interest regarding commercial investments.

A Member expressed concern about councils speculating on the housing market given the financial crash 10 years ago which followed speculation on housing and which led to several councils suffering a financial loss. The housing market produced big returns but that was because the risks were higher. The recent warning from the Governor of the Bank of England that withdrawal from the European Union could lead to a 30% fall in house prices should be seen as a real concern and the Council should be cautious about future speculation in the housing market. Medway Development Company (MDC) also exposed the Council to this risk on another front. In response the Chief Legal Officer advised that the MDC business case had been developed with the help of external advisors and factored in what would happen if the market dropped. For each scheme the financial viability of the project was tested at 4 different stages. In addition investments were typically over a 5-10 year period.

Other Members commented that, compared to the 2008 financial crash, the Council was investing in physical assets that could be understood. Also if the Council’s cash remained in bank accounts then any devaluation in the currency would also pose a risk. Decisions about investments were based on evidence which gave some assurance to Members.

Decision: 

The Committee agreed to note the report.