Agenda item

This report presents the Council’s Treasury Management Strategy for the 2021/22 financial year. The Treasury Management Strategy incorporates within it the Treasury Management Policy Statement, Annual Investment Strategy and Minimum Revenue Provision Policy.

Discussion:

This report provided details of the Council’s Treasury Management Strategy for the 2021/22 financial year. The Strategy incorporated within it the Treasury Management Policy Statement, Annual Investment Strategy and the Minimum Revenue Provision Policy.

The Finance Business Partner – Corporate Services advised the Committee of the key issues in the report, highlighting the overall aim of the Strategy which was to keep borrowing as low as possible, therefore cash balances would also be relatively low, limiting the scope for long term treasury investments i.e. investments of cash balances rather than capital expenditure in pursuit of council objectives. He referred to Table 1 in paragraph 3.7.2 of the Strategy which showed the capital programme and funding up to 2023/24 as currently approved.

He provided a detailed explanation of the Capital Financing Requirement (CFR) and the Minimum Revenue Provision (MRP). He also made reference to the schedule of debt repayments highlighting the spike in 2022/23 which had been caused in the main by the Public Work Loans Board (PWLB) hike in interest rates in 2019 and the Covid 19 pandemic which had led to some short term borrowing.

Members then raised a number of questions and comments which included:

Member priorities – in response to a question, the Head of Finance Strategy confirmed that that there was one scheme currently being undertaken (St Mary’s Amateur Boxing Club - £40,000) within this element of the Capital Programme.

Borrowing – in response to questions on borrowing, the Finance Business Partner – Corporate Services confirmed that the Council would use its own sources of funding (for example, reserves) for borrowing rather than borrow funds externally, when this was possible. He explained that the Council had borrowed some funds at the beginning of the Covid 19 pandemic for cash flow purposes given the uncertainty at the time regarding how the Government might provide financial support to local authorities.

He also explained that with regards to long term borrowing, the Council would no longer take out any more LOBO loans (unless this became an attractive option), such loans would now be sought, in the main, from the PWLB. He referred to the split between long term and short term loans, stating that the aim was to keep a short term cash flow of £10m with £25m available in borrowing and he also explained that the purchase of the Pentagon Centre had been financed by a number of long term loans.

In response to a question as to whether the Council had needed to borrow £45m at the beginning of the Covid 19 pandemic, and the implications arising from this decision, the Head of Finance Strategy advised that this figure related to two sums of funding which had been conflated back in March 2020 when the Council had acted to ensure businesses and local residents could be supported and cited examples of suppliers being paid on immediate terms and care places being provided to facilitate the transfer of patients from hospital in accordance with the Government’s announcements to provide assistance but before any Government funding was provided, which had necessitated an increase in cashflow. The Chief Finance Officer had made this decision in accordance with the Covid 19 governance framework. She further advised the governance framework for decisions taken as part of the emergency response had been reported to the Cabinet and she would provide this information to the Committee.

In response to a question seeking confirmation on the LOBO rates, it was confirmed that these had not changed.

In response to a question regarding funding to cover Covid and HIF, the Head of Finance Strategy confirmed how funding for these matters had been provided, in particular the Council would initially incur costs regarding spend on the HIF programme and claim the costs back from Government.

Property funds – in response to a question, the Finance Business Partner – Corporate Services explained that dividends had held up quite well and one of the funds had increased its capital value in the last quarter, but overall, the investments had reduced in value. The Head of Finance Strategy advised the Committee that these were long term investments and that property was still a safe asset over the long term. It was clarified that the purchase of the Pentagon Centre was capital expenditure and did not represent a treasury investment.

The Finance Business Partner – Corporate Services provided details of the Government’s short term dispensation which benefitted the Council’s by allowing any dividends to be paid into the Council’s revenue account whilst any capital fluctuations (currently negative) could be treated in reserves. This dispensation was due to end in 2023/24 but could be extended by the Government.

Local Government reorganisation debt – in response to a question regarding the average cost of debt, the Finance Business Partner – Corporate Services explained that the figure of 4.579% was provided to him by Kent County Council and the Council had no control over this particular matter.

Negative interest rates – in response to a question, the Finance Business Partner – Corporate Services explained that any long term borrowing would still be determined by the market’s view on borrowing across the overall period. He advised that the current position meant that the Council would earn very little on cash investments.

Capital Financing Requirement (CFR) – in response to a question regarding debt repayments during 2021/22 and 2022/23, the Finance Business Partner – Corporate Services explained that the £45m repayment due in 2021/22 will be refinanced during that year as a consequence of the rates imposed by the PWLB to discourage commercial investments by Local Authorities. He explained that the expected change in debt in 2021/22 (£104,683m) was a function of the capital expenditure it was expected to borrow.

He referred the Committee to table 4.1.5 in the Strategy and explained the reasons for the spike in 2021/22.

Loans provided to wholly owned subsidiaries – in response to a question as to how safe the Council’s loans were to the Council’s wholly owned subsidiaries, the Finance Business Partner – Corporate Services confirmed that a loan agreement was currently being drawn up with Medway Development Company Ltd (MDC) to ensure the Council’s security over the assets. The Head of Finance Strategy advised that MDC was being loaned money to enable MDC to carry out the various tasks to deliver property and that whilst the risks sat with MDC they would also provide substantial assets. She also advised that the Cabinet received frequent reports from the subsidiaries, therefore, the Council was being informed of outputs and performance.

In response to a question regarding the value and the level of risk of these companies, the Chief Legal Officer advised that the Council had sought specialist legal advice in 2017 when the Council had decided to establish MDC, it had sought further specialist tax advice and was currently obtaining further specialist legal advice on the loan agreement to protect the Council’s position.  The Chief Legal Officer referred to the level of risk which would increase over time given the activities of MDC, however, the closer to the selling of the asset, the level of risk would start to decrease. Reports would continue to be submitted to the Cabinet and, as appropriate, to this Committee. He assured the Committee that the legal, tax and governance frameworks were in place to ensure that the risks would be mitigated as best as possible.

The Chief Legal Officer also provided details of the current investment which had been committed by the Council (£120m) for the first five projects with Mountbatten House scheduled as the next project subject to planning permission. He confirmed that the Cabinet had been informed of the spend so far, noting that spend would increase significantly given the works which were about to be undertaken, and the Committee would be apprised as developments were progressed.

During discussion, it was stated that the Committee should receive reports on a regular basis which set out the value and risk associated with the developments being undertaken by MDC.

In response to a question regarding how the debt was being underwritten, the Chief Legal Officer confirmed that the loan arrangement between the Council and MDC would include reference to the asset and the right for the Council to get its money back if necessary. The Council was treating MDC as if it had a short trading history and this was reflected in the loan rate.

Decision:

The Committee considered the report, noted its contents and passed the comments set out above to Cabinet.