Agenda item

This report presents the Council’s Treasury Management Strategy for the 2022/23 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 2022/23 financial year. The Treasury Management Strategy incorporated within it the Treasury Management Policy Statement, Annual Investment Strategy and Minimum Revenue Provision Policy.

The Finance Business Partner – Corporate Services advised the Committee that the overall aim of the Strategy was to keep borrowing and cash balances as low as possible, thereby limiting long term treasury investment in cash. He also advised the Committee that the Strategy had been produced in accordance with the CIPFA 2017 Prudential and Treasury Management Codes, however at the time of writing CIPFA had just issued revised 2021 Treasury Management and Prudential Codes and future versions of the Strategy would be based on these.

He highlighted a number of issues within the Strategy including the capital programme, the capital financing requitement (CFR), minimum revenue position (MRP) policy, long term and short term borrowing, the operational boundary, debt rescheduling and treasury management practices.

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

Capital finance requirement (CFR) – in response to a question on how the CFR was set given it was increasing every year, the Finance Business Partner – Corporate Services advised that the CFR was a function of the Capital Programme, which was approved by Members. He made reference to the Ratio of Financing Cost to Net Revenue Stream indicator shown in Appendix 3 as a demonstration that the programme is affordable. There was a wider discussion on the size of the Council’s Capital Programme to which it was stated that this was a matter for Members, when making decisions.

Short term borrowing – in response to a question in relation to increases in interest rates and whether short term borrowing would remain sensible, the Finance Business Partner – Corporate Services advised that whilst it was not expected for interest rates to increase significantly, he would take advice from Link (the Council’s external advisors) and the Chief Finance Officer as required.

Money markets – in response to a question on investment in the money markets, the Finance Business Partner – Corporate Services advised that the Council would have very little money to invest in this area and would not make significant yields.

Direct financing – in response to a question on whether the Council could enter the money markets direct, the Finance Business Partner – Corporate Services advised that the reason for anyone entering the market directly would likely be to borrow a significant amount of funding, e.g. in excess of £50m. In Medway’s case, he advised that long term borrowing would be sought from the PWLB (Public Works Loan Board) or other local authorities for short term borrowing. He advised to enter the money markets would require the Council to have a credit rating and to borrow a significant amount of money.

Quantative easing (QE) – in response to a question on the potential impact of QE, the Finance Business Partner – Corporate Services advised that where the Bank of England had been buying gilts, this would lead to an increase in the price of gilts and therefore, a reduction in the yield. As QE was reduced, the reverse could be expected, creating an upward pressure on rates. These types of factors would be included in Link’s advice to the Council. He also advised that it was a matter of judgement as to when to decide to consider long term borrowing and cited the historical LOBO borrowing, which when taken out, it had not been anticipated that interest rates would have subsequently fallen.

Member training – in response to a question relating to Member training, the Finance Business Partner – Corporate Services advised that he would take this up with the Chief Finance Officer and Head of Finance Strategy.

Officer attendance – a Member expressed concern that it was not possible for the officer to attend this meeting remotely.

Use of borrowing in lieu – in response to a question where concern was expressed about borrowing in lieu of future monies, for example, business rates, capital receipts and S106 (table 1 in the Strategy), the Finance Business Partner – Corporate Services advised that table 1 had been split out to reflect prudential borrowing (long term borrowing) and he referred to other borrowing such as in lieu of capital receipts, giving the example of the flats being built at Chatham Waterfront, which would yield capital receipts once sold, for which MRP would not be provided. He explained that borrowing in lieu of future business rates was revenue funding, therefore, MRP would be provided whilst S106 (developer contributions) would not require MRP as the contributions would be used to provide for debt repayment.

Concern was also expressed about such matters like business rates where there might be changes to this regime in the next 5 years and the impact that this could have on Council borrowing and the risks associated with this.

Member priorities – in response to a question, the Finance Business Partner – Corporate Services advised that Member priorities were a relatively small part of the Capital Programme funded by capital receipts.

Investment in property funds – in response to a question around commercial property and the possible impacts of Covid, the Finance Business Partner – Corporate Services advised that investment in property was riskier than putting money in the bank, however, these returns had been doing quite well recently despite Covid. He advised that risk was taken account of as part of the diversification of the Council’s investments.

Kent County Council reorganisation debt – in response to a question regarding the Kent County Council (KCC) reorganisation debt, and what the penalty would be to settle this debt, the Finance Business Partner – Corporate Services advised that whilst this had been looked at in the past, it would not be cost effective as KCC would demand a premium to settle the debt.

Decision:

The Committee considered this report, noted its contents and passed its comments on to Cabinet.