Agenda item

This report gives an overview of treasury management activity during 2019/20.

Discussion

The Committee considered a report that provided an overview of treasury management activity during 2019/20. Capital expenditure had exceeded the level set out in the Treasury Strategy that was approved by Committee in January 2019. The capital financing requirement had been higher than in 2018/19. External borrowing had risen but by less than the amount predicted within the Strategy. The amount of cash held had been boosted by borrowing at the end of the year with net and gross borrowing being below the capital finance requirement. It was noted that local authorities were only permitted to borrow to fund capital expenditure rather than revenue expenditure. A consultation was due to end on 31 July 2020 in relation to use of Public Works Loan Board (PWLB) borrowing. It was hoped that this would lead to interest rates being reduced as the relatively high rates at present had made this form of borrowing prohibitively expensive. Returns on investment had fallen, although performance compared to peer local authorities had improved in 2020/21.

It was questioned why the forecast general fund borrowing, at £41,964,000, was significantly below the actual requirement of £55,251,000; how the Capital Financing Requirement (CFR) was produced and whether it was expected to increase. The Finance Business Partner - Corporate Services advised that the capital programme was constantly evolving with extra schemes being approved by the Council during the year. It was, therefore, sometimes necessary to revise forecasts. In relation to the commentary set out at paragraph 4.4 of the report about CFR reduction, the Committee was advised that this was an explanatory note rather than a proposal. The Chief Finance Officer added that the Capital Strategy set out the Council’s investment aspirations. This had been agreed in September 2019 and it was inevitable that some slippage would occur. It was clarified that the report presented was not advocating the use of capital receipts in order to reduce CFR.

In view of treasury investments having increased prior to Covid-19, it was asked what was anticipated in the future and in relation to property fund investment, it was asked what was expected to happen to this income. Commentary was requested on why the Council did not have cash balances to place deposits for more than one month. It was also asked how it would be ensured that short term borrowing would be minimised in the future. It was further asked whether consideration had been given to the Council issuing its own bonds now that this was permitted.

The Finance Business Partner - Corporate Services said that £15m extra had been borrowed towards the end of the year to ensure that the Council had sufficient cash, with a view to the emerging pandemic and that this borrowing distorted investment figures. In relation to property funds, there were some funds which could not be redeemed immediately, however this provided some protection to the Council by preventing other investors getting an unfair advantage by withdrawing at the current time when it was difficult to value the underlying assets.

Valuations provided in the report were as of 31 March 2020, with capital values having fallen but with dividend levels still being good. The authority did not normally maintain significant cash balances in order that net borrowing could be kept as low as possible. The aim was to move to more long term, rather than short term loans. However, the viability of this depended on PWLB interest rates being reduced. In relation to the possible issuance of Council bonds, this was not currently being considered as bond issues lacked flexibility and the minimum amount of bonds that would need to be issued being significant at around £50 million. The Chief Finance Officer said that some short-term loans had been taken out due to the PWLB rates currently being relatively high and with the expectation that these would reduce in the future.

Decision

The Committee approved the treasury management outturn annual report.