Agenda item

The Assistant Head of Finance presented the report to the Committee.

In line with the agreed Treasury Management Strategy, the Council continued to be both a short-term investor of cash and borrower to manage day-to-day cash flows. Current forecasts indicated that, in the future, temporary borrowing may be required to fund normal day-to-day cash flow activities and longer-term borrowing would increase to fund commitments in the current capital programme, as well as the impact of reduced capacity for ‘internal borrowing’. However, symptomatic of the extraordinary funding received in the previous year, the Council was anticipated to remain a net investor of funds in the short term (£50m at end of September), and this continued to cause an unusual variance and noncompliance against the performance indicator that monitors exposure to interest rate

changes.

Up to end of September 2022, the Council’s net borrowing was £140.6m, a decrease of £1.5m on 31 March 2022 levels.  The liability benchmark graph in the report broadly suggested the Council would need to borrow in the next year.

Comments of committee:

Dr Barry mentioned that it was a good paper, which gave confidence in the treasury management of the authority and it was good to see that the net borrowing had decreased.  With regard to loans to developers at £10.6M, bearing in mind that some developers within Newport had folded recently, how secure was money to be received from developers. The Assistant Head of Service advised there £10M was spread across a few developed and all loans were secured and would also ensure security.  There was no guarantee that the loan would be repaid but the Council could satisfy itself that the security was in place. 

Secondly, borrowing was at £140.6M and the maximum was £141.9M and a borrowing headroom of £2.391M would we exceed the maximum figure and how did it relate to the head room regarding Table 4, page 119 within the report.  The Assistant Head of Finance advised that there were two authorisation limits required as standards in terms of indicators.  The one was called the authorised limit and was the absolute max borrowing at any single point, then there was the operational boundary which was effectively the cap in terms of borrowing in relation to our capitol programme. We therefore might need to undertake short term borrowing to manage cash flow requirements. In terms of borrowing head room that was in terms for borrowing that the council had allowed for in our capitol programme but had not been allocated to a specific scheme.

Councillor Jordan asked how much of the grant money was the council holding, where would it go to if not used.  The Assistant Head of Finance was not able to provide a figure, as it was  more of a theme.  The repayment grants had terms of conditions and a final timescale in which it the funding would need to be used.

Councillor Mogford referred to the return on investments and what was take on ethical investments.  The Assistant Head of Finance advised that this theme was becoming more common.  The Council were not investing in any Russian schemes, but if there were schemes that the Council did not want to invest in, Treasury Advisors in place and we would not invest in these schemes.  As part of our climate change investor, we ensure that these were ethical as well as pension investments.

Councillor Horton mentioned that there was a lot of information within the document and  people may struggle to understand the context, would it therefore be possible to have it simplified to make clear to members and break the information down into simpler terms. The Assistant Head of Finance would take it on board these comments and see what could be drawn out of the report.

Councillor Cocks referred to page 108 where further internal borrowing had diminished and sought clarification on how this would impact on the Council. The Assistant Head of Finance mentioned that those reserves would be used for their intended purpose, most of which would be used over a short time frame. Should the internal borrowing be diminished, external borrowing would need to be considered.  Some of the existing loans were taken out in the 1990s when interest rates were very high.  Therefore, it may be cheaper to take out a newer loan as interest rates compared far more favourably by comparison.

Cllr Mogford asked, as a point of clarification, were the reserves ringfenced.  The Assistant Head of Finance advised that the were general reserves and there were also ear marked reserves for specific purposes, for example, civil parking/road infrastructure could only be used for highways.

D Reed referred to the comments of the chief financial officer: I have the delegation authority to borrow as needed to manage cash-flows and manage Treasury activity risk. If this power was used, would it be reported back to the Committee.  The Assistant advised that because it was a delegated authority it would be reported in the following year.

The Chair referred to Councillor Horton’s point was valid and thanked the Councillor for comments.

Resolved:

The report was noted by the Governance and Audit Committee on treasury management activities during the first half year period of 2022-23 and the Governance and Audit Committee was offered an opportunity to provide feedback on this situation in the subsequent report to Cabinet/Council.