Agenda item

1.         Capital Strategy and Treasury Management Strategy

This ‘Capital Strategy 2019/20 to 2028/29’ was an update of the Council’s capital strategy following the requirement placed on Local Authorities by the ‘Prudential Code for capital finance in Local Authorities (2017)’ to determine a capital strategy. Council was required to approve the strategy and the prudential indicators within it on at least an annual basis to be kept under review, updated and brought to Council as necessary.

The key areas contained were included in the report, such as the five year capital programme to 2022/23 and the longer term projection for capital financing costs.

The programme above was increasing the capital financing costs, included in the Council’s MTFP, which was challenging in the current financial climate.  Costs would continue to increase into the medium to long term.  Compared to comparative authorities, the percentage of the capital financing costs as a proportion to the Council’s total net revenue budget was high.  Further work was planned to inform this issue.

The Council is involved in two types of treasury activity, borrowing long-term for capital purposes and short term for temporary cash flow and investment of surplus cash. 

These activities were controlled by the Council’s Treasury Management Strategy and various measures and limits were set by its Prudential Indicators to regulate/control the implementation of that strategy.

In terms of our borrowing strategy the Council had significant long term borrowing requirements but in recent years the strategy was able to fund its capital expenditure from reducing investments rather than undertaking more expensive additional borrowing, using ‘surplus cash’, known as ‘internal borrowing’. 

The capacity for being internally borrowed was fully used and new borrowing requirements would need to come from new external loans.  In addition, as the Council reduced its reserves, it would need to replace this lower headroom for internal borrowing created, with new external borrowing too.  This was an important and significant issue and again, as the capital strategy recommended, the council needed to maintain a sustainable level of capital spending in order to control new levels of borrowing, this would create and the revenue costs associated with that. 

Given the very low returns from short-term unsecured bank investments, the Authority aims to diversify into higher yielding asset classes during 2020/21.  This is especially the case for the estimated £10 million that is available for longer-term investment and which we are required to have invested in order to maintain our regulatory position.  All of the Authority’s surplus cash is currently invested in short-term unsecured bank deposits and local authorities.  This diversification will represent a change in strategy over the coming year.

The strategies are very comprehensive and the report provided a useful summary of the key messages.

Given the increasing risk and very low returns from short-term unsecured bank investments, the Authority aimed to diversify into higher yielding asset classes during 2020/21. 

The report was seconded by Councillor Jeavons.

Councillor C Evans advised that the Council should lead by example if there were any environmental impacts, as this was paramount.  Additionally it was not made clear whether the Council would invest ethically.

Councillor Hourahine agreed with Councillor C Evans and also mentioned that this was considered the most important document put before council.  The legacy of the Council should be left behind and the new Cabinet Member post for Sustainable Development was a positive move forward. 

The vote was unanimous.

Resolved

         To approve the Capital Strategy (Appendix 2), including the current capital programme within it (shown separately in Appendix 1), its associated Prudential Indicators and the borrowing requirements/limits needed to deliver the current capital programme, noting the increased revenue costs in the MTFP for the increased borrowing.

         To approve the Treasury Management Strategy and Treasury Management Indicators, the Investment Strategy and the Minimum Revenue Provision (MRP) for 2020/21. (Appendix 3).

         To note the comments made by Audit Committee on 29 January 2020 (paragraph 6 and 7).