Agenda item

Members considered a report on treasury activities undertaken during the period to 30 September 2018 and confirmed that all treasury and prudential indicators had been adhered to in the first half of the financial year.

The Council continued to 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 would continue to be required to fund normal day to day cash flow activities.  All borrowing and investments undertaken during the first half of the year was expected and within the Council’s agreed limits.

As shown in Appendix B, during the first half of the year the amount of borrowing had reduced by a small amount of £0.7m to £146.8 m.  This related to loans which had been taken out on an interest and principal repayment basis.

No further long term loans had been taken out in the first half of the financial year.  However, it was anticipated that the Council would need to undertake additional borrowing on a short term basis for the remainder of the year in order to cover normal day to day cash flow activity.  With current estimates it was not expected that any additional long-term borrowing would be required in this financial year.  However, the £40m stock issue was maturing on 10 April 2019, therefore it was deemed beneficial to do so with advice from the Council’s external advisors that borrowing would be taken out early if the cost of carry was favourable.

Appendix B summarised the Council’s debt position as at 30 September 2018.  The changes in debt outstanding related to the raising and repaying of temporary loans.

With regards Investments Activity/Position the Council’s strategies were (i) to be a short term and relatively low value investor and (ii) investment priorities should follow the priorities of security, liquidity and yield, in that order.

Appendix A outlined the underlying economic environment during the first half of the financial year, as provided by the Council’s Treasury Management Advisors Arlingclose.

The Authority had complied with the Prudential Indicators for 2018/19, set in March 2018 as part of the Treasury Management Strategy.  Details of the treasury-related Prudential Indicators were found in Appendix B (Tables 5 and 6).  The economic outcomes such as Brexit had been touched upon in the report.  There would be more discussion around the risk in connection with Brexit in the Budget Strategy Report in December 2018 and the Treasury Management Report in January 2019.  Finance would welcome any comments which would be taken to Cabinet before going to Council.   

Comments from Members included:

·         Page 90 Appendix B, Table 2 – the net borrowing figures in Tables 1 and 2 appeared to be different – The Assistant Head of Finance responded that Table 1 included cash and cash equivalents and was based purely on capital borrowing for capital purchases.  Table 2, however, included everything. The true net borrowing figure was £123.3m.  It was suggested that this be clarified in the tables.

·         Page 92 Table 6 – (Debt Limits) – On 30.9.18 the operational boundary total debt was £192m.  What was the Council’s preferred debt level? – The Assistant Head of Finance responded that the debt level was at the minimum level – a mix of capital expenditure and borrowing. The Council was borrowing to a minimum to deliver the capital programme.  The operational boundary was based on the estimate for capital expenditure to the end of the year.  It was inevitable that the Council would undertake more borrowing and in the future there would be an increase in the pressure of borrowing.   The Capital Strategy would soon be produced which would address borrowing over the longer term.  The issues the Council would be concerned about in terms of borrowing were whether it was prudent, affordable in the current climate and over a longer term (20/30 years) and ratios around debt and expenditure.  It was currently 6% excluding PFI 9%. 

·         The Council has one of the highest reserves in Wales.  How much of the reserves was identified to be used as spend? -  The Assistant Head of Finance responded that there was very little that was not earmarked for specific purposes. The reasons for the high reserve was PFI.  There was £45m in reserves to fund PFI in the future.  If the reserves were utilised for anything now it would put a pressure on future generations.  There were a number of invest to save reserve and general reserves (£6.5m).  Invest to save reserve was in place to facilitate cost savings in the future.  To fund budgets from reserves was not prudent.

·         The PFI was £45m total.  Why was it not possible to pay that off? -  The Council had engaged Treasury Management Advisers to assess whether it was cost effective to do that.  Because of the interest rate on the contract the premium was so significant that it would be costly to do so.

·         What impact would the stock issue release in 2019 have? – The Assistant Head of Finance noted that a decision could be made to go out of the operational boundary earlier if the interest rate rose but the advice from Treasury Management was that the interest rate was not going up.  A number of Local Authorities in England had used reserves to fund budgets and were now finding themselves in difficulties.  The Capital Strategy would address those issues.

Agreed:

To note the report on Treasury Management activities for the period to 30 September 2018