Members considered the Draft Treasury Management Strategy 2022/23, Prudential indicators and Minimum Revenue Provision (MRP) Policy, introduced by the Section 151 (S151) Officer, and presented to the committee for scrutiny prior to being presented for approval by Full Council in March.
The Strategy incorporated the requirements of the 2017 CIPFA Prudential Code. A new Code had been issued in December 2021 for implementation by 2023/24. However, some elements were already incorporated into the Treasury Management and Capital Investment Strategies. For the Authority, new Prudential indicators were included which reflected the Borrowing Liability Benchmark which illustrated the lowest risk level for borrowing, and Commercial income as a percentage of Net Revenue Expenditure.
The Treasury Management Strategy brought together a number of strategies and policies, these being:
· The Borrowing Strategy, which would ensure consideration was given to affordability and sustainability for the repayment of debt.
· The Annual Investment Strategy which was to provide security of the investment, consider liquidity and cashflow requirements, and finally yield, all of which were considered in the context of the Authority’s risk appetite.
· The MRP policy page which determined how the Authority would repay prudential borrowing on an annual basis.
· The Committee was also requested to consider the Capital Investment Strategy, which was the framework by which capital investment and financing decisions would be made.
Draft prudential and treasury indicatorswere calculated in November. They would therefore be updated based on the final Capital Programme and Medium-Term Financial Analysis and would be further updated for the final version laid before Council. The S151 Officer also brought attention to the Non-Treasury Investments.
There was one change of note in relation to the Minimum Revenue Provision Policy, and in accordance with expected changes in legislation:
· A Minimum Revenue Provision charge is to be made on an annual basis to reduce the level of borrowing attributed to commercial investment properties. This is rather than the existing policy of a voluntary MRP reviewed on an annual basis.
In relation to the Authority’s investment property portfolio, recent changes to the conditions for borrowing from the Public Works Loans Board excluded borrowing for commercial purposes that had the primary objective of securing a yield.
This meant that any additional property acquisitions (subject to legal advice) would need to be funded from the Authority’s resources. However, borrowing was allowed to effectively manage the portfolio, such as for a replacement asset, should a property be sold.
The Authority would continue to ensure it acted reasonably, that Members understood the policy, and it was discussed at the recent Councillors’ training session on Treasury Management that any decisions should be prudent and that any investments should be proportionate.
In addition, whist the counterparties for investment had not been amended, the authority would consider investment opportunities which promoted Environmental, Social and Governance investing where possible.
The S151 Officer then updated the Committee on Treasury Management practices. Advising that the Treasury function was carried out in line with the Treasury Management Code of Practice and the Prudential Code.
The 12 treasury management practices set out how Treasury Management was managed within the Finance Team. Whilst the schedules were reviewed annually there had been a number of changes, these were detailed at Section 1 in the report.
The Treasury Management Function was last audited in 2020/21 and had been given a high assurance Audit rating in relation to its procedures and risk management. Scrutiny and approved changes were stated as the recommended practice.
There had been Treasury Management training open to all Members of the Council held online in the week before the meeting. However, some concerns were raised that not all Members were able to fully access the materials. Officers had undertaken to resolve any access issues.
The S151 Officer was thanked for her work and for the report. The Members of the Committee then asked a number of further questions and gave statements.
Members heard that the COVID-19 pandemic, and the policies enacted to manage it impacted on the Authority’s commercial investment properties, though it was highlighted as small on its’ impact. The S151 Officer stated that the spread of risks had been mitigated. It was stated that tenants had been paying their rent. It was mentioned that the Travelodge’s Company Voluntary Arrangement (CVA) was ending, with rents going to back to normal levels. Also, there had been no further additions to the Authority’s commercial investment portfolio since the start of the pandemic.
The Security, Liquidity, and Yield (SLY) attributes of the commercial investments were the top priority. Some Members expressed a desire for Environmental, Social, and Governance (ESG) to be a future priority, since they were currently below SLY in importance. It was commented by one Member that the benchmarking for ESG rating for assets should be included in future reporting. It was also noted that sometimes, AAA rated funds were ESG.
Members enquired about the Voluntary Minimum Revenue Provision (VMRP) and learnt that it would not become an overpayment and would be a surplus if the Authority was to sell off its commercial investment. It was stated by the S151 Officer that there would need to be reborrowing to purchase another investment if the Authority was interested in doing so, should the original investment be sold.
Members also heard that the level of borrowing would be lower due to the £24 million of reserves. The S151 Officer noted that the cash reserves were saving the Authority money, with estimated savings of £350,000 to £400,000 from the interest rates.
Enquires were made about the definition of ‘Socio-economic’, and whether the local authority had a set definition. The S151 Officer responded that there was not a set definition by the council, and that a generic one was understood to be used. The main aspect of change, particularly social regeneration, came from the UK Government’s Levelling Up agenda.
Having been moved and seconded on being put to the vote it was
a) Having reviewed, commented on, and scrutinised the Treasury Management Strategy, Prudential Indicators and the Minimum Revenue Provision Policy 2022/23, it be RECOMMENDED to Council for approval.
b) The Committee had reviewed, and scrutinised the Capital Investment Strategy in conjunction with the Treasury Management Strategy.
c) Delegated authority be granted to the Chief Financial Officer in consultation with the Chair of the Governance and Audit Committee, to make any changes to the Capital Strategy and Minimum Revenue Provision (MRP) Policy and Prudential Indicators prior to the final strategy presented to Full Council on 7 March 2022.