Agenda item

Councillor Roger Ramsey, Cabinet Member for Value, introduced the report

The mid year report provided members with a review of the Treasury Management Strategy Statement and a review of the Annual Investment Strategy.

The Treasury Management Strategy Statement (TMSS) for 2011/12 had been approved by Council as part of its annual budget setting process. The underlying TMSS approved previously required revision in the light of economic and operational movements during the year.

It was proposed that, subject to statutory powers, the Council make a one off payment to the CLG to remove the HRA from the current housing subsidy system. This one off payment was compensation, ensuring the HRA would no longer make future annual payments to the CLG.  It was expected that the overall impact would be beneficial to the Council.  It was reported that whilst the legislative framework was not yet in place, by agreeing to these revised prudential indicators it would ensure the necessary local requirements were in place before the payment was required on 28 March 2012.

It was reported that as part of the Council’s Annual Investment Strategy, the Council aimed to achieve the optimum return on investments commensurate with the proper levels of security and liquidity.  In the current economic climate, it was considered appropriate to keep the majority of investments short term, and only invest with highly credit rated financial institutions.

The report explained that as a result of the Authorities strict lending criteria, the recent downgrade on 7 October of many of the UK’s leading banks, had meant many of the top UK banks, including the Authorities own bankers were now no longer eligible as approved counterparties. Because of the current economic climate and the uncertainties over many of the European countries, Members were requested to approve the amendment of the investment strategy so that the Authority was able to continue to place deposits with the major UK clearing banks. To allow this, the report proposed that the initial tranche of Institutions covered by the UK Government liquidity guarantee scheme (subject to further market intelligence) be included as an eligible counterparty.

With respect to the Council’s Capital Position, attention was drawn to the changes to the Prudential Indicators for the Capital Financing Requirement (CFR).

It was reported that net external borrowing should not, except in the short term, exceed the total of CFR in the preceding year plus the estimates of any additional CFR for 2011/12 and next two financial years.  This approach permitted some flexibility for limited early borrowing for future years.  It was noted that the Council had approved a policy for borrowing in advance of need which would be adhered to if this proved prudent. The Group Director of Finance and Commerce reported that no difficulties were envisaged for the current or future years in complying with this prudential indicator.

With regards to the Council’s Investment Portfolio, it was reported that the Council held £83.9m of investments as at 30 September 2011 (£81.9m at 31 March 2011) and the investment portfolio yield for the first six months of the year is 1.35% against a budgeted rate of return of 1.06%.

The Council’s Chief Financial Officer confirmed that the approved limits within the Annual Investment Strategy were not breached during the first six months of 2011/12 and that the budgeted investment return for 2011/12 is £853k, and performance for the year to date was £188k above budget.

It was reported that no debt rescheduling was undertaken during the first six months of 2011/12. In the report, it was anticipated that new borrowing would not be undertaken during this financial year excluding any implications of the HRA reform.

Reasons for the decision:

The Council is obliged to review the Treasury Management Strategy Statement and the Annual Investment Strategy 2011/12

Other options considered:

No other options were considered due to the nature of the report.

Cabinet RESOLVED:

1.                  To note the report, the treasury activity and recommend approval of the changes to the prudential indicators (including the changes set out in paragraph 2.2 and 2.3 relating to the HRA reform).

2.                  To recommend approval of the changes to the investment criteria as set out at paragraph 1.2 to full Council.

3.                  To note the expected impact on the capital and treasury plans of the HRA reform measures.

4.                  To note that the decision to borrow to finance the HRA subsidy payment will be made by the Group Director for Finance & Commerce in consultation with the Cabinet Member for Value