Agenda item

In accordance with the requirements of the Council’s reporting procedures, Members gave consideration to a report which set out the treasury activity during 2018/19 and the actual Prudential Indicators for 2018/19.

The Leader of the Council presented the report and in doing so advised the report had previously been considered by Corporate Policy and Resources Committee

This report was a requirement of the regulations issued under the Local Government Act 2003 and was in compliance with the CIPFA Code of Practice on Treasury Management and the Prudential Code for Capital Financing.

It was best practice that Full Council received three reports each year and this was the final report which set out what had been actually achieved against the original budgeted position.

The Leader indicated he was pleased to advise that: -

·         Treasury management activity had been undertaken within the approved Prudential Indicators.

·         The average investments of £15.975m had generated a£246k income, at a weighted average rate of 1.57%

·         Expenditure on capital investments had totalled £21m for the year

In respect of financing capital investments from borrowing, this was reflected in the Capital Financing requirement of £23m (cumulative).  The Authority had borrowed £11m from the Public Works Loans Board and had utilised £12m of internal borrowing from cash balances.

In respect of our Non-treasury investments in commercial property, expenditure on the Portfolio as at 31 December had totalled £15.984m with the portfolio generating a 7.27% gross yield and resulting in £0.662m contribution to the costs of running council services. 

The Council took a risk based approach to acquisitions and financial management and whilst the Authoirty did not charge an Minimum Revenue Provision, set-aside in the Valuation Volatility Reserve was a minimum of 5% of purchase price, to mitigate against any loss of investment upon future sales.  In addition, a Commercial Contingency budget of £200k was included within the base budget to mitigate any shortfall of in year income targets.  This was considered a prudent approach and in concluding his introduction the Leader moved the report.

Debate ensued and Members posed a number of questions to Officers expressing concern at the variation of the figures within this report when compared to the Statement of Accounts document.

In responding Officers confirmed that the 7.2% yield referred to was a gross yield not a net yield and apologised that this had not been corrected.

Addressing the variances within the figures, the 18/19 figures in relation to income were a part year figure.  When preparing Business cases, the full year impact was based on the part year figures. 

The 660k contribution was in fact the contribution after all investments costs had been deducted and as such the 7.2% yield related to a much bigger return.

Regarding the variation between the figures in this document and the Statement of Accounts the Executive Director of Resources offered all Members a workshop on the matter.  Given the importance of the two documents it was important Members thoroughly understood the Statements.  Members welcomed this opportunity, especially given the number of new members

The Financial Services Manager also advised Members it was important to note the commercial investments referred to within this report were investments bought under the specific policy.  The Statement of Accounts would include all property investments some of which would fall outside of this specific policy and therefore account for the differing amounts.

Members asked further questions specifically in respect of the “fair value price” having reduced and whether this would continue.  There had previously been concerns raised regarding the out of district investments and if returns were low it was suggested maybe the Authority should invest locally and seek social returns.

Officers responded advising, the different in valuation reflected the cost of acquisition.  The fairer value would not continue to fall, but reflected the costs incurred of buying properties.  When the properties were valued independently at the end of the year the acquisition price had to be ducted hence the reduction in value.

The value would not fall further.  Values had been based on the leases in place and were in fact a multiple of the return the property would make.  All leases had a minimum of 10 years to run and as such had considerable “life” within them.  Provision had been made should there been any reduction in these incomes however assurance was offered that this was not expected.  It was also stressed the value did not affect or impact the income generated.  In terms of the investment split the portfolio was a balanced one, with no one sector, or geographical area being flooded with investments, again to mitigate risks, however the policy did state all investments must be with a two-hour drive of West Lindsey.

The low returns referred to within the report related to the treasury management investments.  As such the authority had invested £3m into the CLA fund which returned around 4% to mitigate the low returns offered by other treasury investments.  It did not relate to commercial property investments. 

It was stressed that the combination of investments was what created the best returns.

In response to questions as to whether this split and policy would continue, Officers advised that there were changes afoot in terms of CIPFA guidance which Officers would need to give cognisance to and which may have an impact.  The Corporate Policy and Resources Committee had allocated a £30m fund for investments, £15.9m had been spent, a further property was in process but may not materialise.  However, if it did the spend would total in excess of £20m and the future of the fund and policy would be a matter for the Corporate Policy and Resources Committee to determine.

Assurance was also offered that the Authority did invest in District for Social Regeneration and Economic Regeneration.  This report looked at properties which met the policy and criteria set out by the Corporate Policy and Resources Committee where a commercial business case could be made.  However, there were plenty of investments the Authority had made from its reserves that were purely about Gross Value Added to the District and the community, one recent example being the Saxilby business units which were expected, if all leased, to just about cover their costs.

The Chairman of the Governance and Audit Committee advised that Commercial Acquisitions were no longer to be a matter for the Annual Governance Statement going forward and thus should give Members some assurance that the Council’s activity in this area was considered robust.

Furthermore, he advised that Statement of Accounts Training was being held on 23 July at 12pm.  Whilst this was mandatory for Governance and Audit Committee Members all Members were welcome and he strongly encouraged them to attend.

In conclusion the Leader of the Council indicated that historically investment returns for internally managed funds had been around 0.42% when he joined the authority and these were now substantially higher and he offered his congratulations to the finance team for their endeavours.  He also suggested the 2 September, given the cancellation of Council, may be an opportune date on which to hold the previously mentioned workshop.

RESOLVED that the Annual Treasury Management Report and actual Prudential Indicators for 2018/19 be approved.

Note:         Councillors Young, Rollings and Darcel requested that their vote against the above decision be recorded.