Agenda item

Members considered the Draft Treasury Management Strategy 2023/24, Prudential indicators, Minimum Revenue Provision (MRP) Policy, and the capital investment strategy, introduced by the Financial Services Manager and Deputy Section 151 Officer, and present to the committee for scrutiny prior to being presented for approval by Full Council in March.

Prior to the Officer’s presentation, the Chairman sought assurance from the Section 151 Officer with regard to the training requirements. The Officer confirmed that five of the Members sitting on the Committee had received or participated in the required training, in line with constitutional requirements.

The Strategy had been devised against a back drop of economic uncertainty with high levels of inflation and high interest rates not seen for many years. The Authority’s Treasury position was impacted by this in two principal ways, namely he amount it received on invested funds was increasing but the cost of holding debt was higher when it was re-financed. The decisions of when to invest and when to borrow were key to maximising returns and limiting interest costs. The Council’s Treasury Advisers predicted that interest rates would increase in the short term and then reduce in the mid-term. This meant if borrowing was required then it should be undertaken on a short-term basis, allowing refinancing at lower rates. The Strategy contained details of the current economic picture at Appendix C.

The Strategy incorporated the requirements of the new 2021 CIPFA Prudential Code.  For the Authority, new Prudential indicators had been included which reflected the Borrowing Liability Benchmark and which illustrated the lowest risk level for borrowing, Commercial income as a percentage of Net Revenue Expenditure and due consideration was now required to be given to environmental, social and governance (ESG) factors where possible when investing.

The Treasury Management Strategy brought together a number of strategies and policies, these being:-

·       The Borrowing Strategy, which ensured consideration is given to affordability and sustainability for the repayment of debt.

·       The Annual Investment Strategy which was to provide security of the investment, considered liquidity and cashflow requirements, and finally yield, all of which were considered in the context of the Authority’s risk appetite.

·       The MRP policy 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 is the framework by which capital investment and financing decisions will be made.

Draft prudential and treasury indicators were calculated in December 2022. These would therefore be updated based on the final Capital Programme and Medium-Term Financial Analysis prior to the final version being submitted to Full Council in March 2023. There was one change of note in relation to the Minimum Revenue Provision Policy, and in accordance with expected changes in legislation, namely:

·       A Minimum Revenue Provision charge was to be made on an annual basis to reduce the level of borrowing attributed to commercial investment properties. This was rather than the existing policy of a voluntary revenue position reviewed on an annual basis.

In relation to the Authority’s investment property portfolio, changes to the conditions for borrowing from the Public Works Loans Board, excluded borrowing for commercial purposes, where the primary objective was to secure a yield. This meant that any additional property acquisitions (subject to legal advice) would need to be funded from the Authority’s own resources in the future.

With regards to investments, the counterparty list within the Strategy was the latest information supplied by Link asset services but would be updated when new information was available or if ratings changed. The Treasury function was carried out in line with the Treasury Management Code of Practice and the Prudential Code. The Treasury Management Function was last audited in 2020/21 and was given a high assurance rating in relation to its procedures and risk management.

Debate ensued, and Members of the Committee asked a number of further questions, and made statements. During the debate, Members raised multiple points related to the Levelling Up fund (LUF) programme. Members heard from the Section 151 Officer that the capital expenditure prudential indicator was rising due to the delay in the receiving of the relevant grant. It was also learned that the three million pounds put aside for the commercial activities was for another property outside of the LUF consideration.

Following the discussion about the LUF programme, Members heard from the Financial Services Manager about the history of the Minimum Revenue Policy and policies in other local authorities that had seen high risk ventures back fire.  The Strategy proposed by West Lindsey District Council was that the new indicator of “amount of commercial income in percentage of net revenue expenditure.” gave assurance that the level of borrowing was not exposing the taxpayers to unnecessary risk and protected against any potential volatility.

There were several queries about the borrowing facilities employed by the Authority. The first was about who the Authority borrows from, which Members heard was from the Public Works Loan Board for longer term debt concerns. The Authority looked at other local authorities for short term borrowing up to a year. This was due to the rates  afforded and when those rates started to fall, the Officer explained that a conversion of the short-term debt into long-term debt was possible.

A Member queried whether the reserve in the Minimum Revenue Provision would be reduced over the medium term to reflect the implementation of an annual minimum Revenue provision. The Financial Services Manager explained that the provision set money aside, and reduced the Authority’s capital financing requirements, or when that debt had matured and need to be repaid. The voluntary revenue provision would only assist in paying off just the debt. The current debt rate was between 1 - 2% due to the timing of the rates.

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 in future capital investments. The Financial Services Manager assured Members that investment products that had ‘green’ credentials would be part of the decision in investments. The Section 151 Officer further explained that investments were using council taxpayers’ funds, and so careful consideration using the ESG would be done in the same way as SLY investments, which focused on safe opportunities but security of the investment had to be the paramount consideration

Having been moved and seconded on being put to the vote it was

RESOLVED that:

a)         having reviewed, commented on and scrutinised the Treasury Management Strategy, Prudential Indicators and Minimum Revenue Provision (MRP) Policy 2023/24, it be RECOMMENDED to Council for approval; 

b)         the Committee had reviewed, commented on and scrutinised the Capital Investment Strategy in conjunction with the Treasury Management Strategy.

c)         delegated authority be granted to the Director of Corporate Services (Section 151 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 being presented to Council in March.