Agenda item

Treasury Management Strategy Statement, Prudential Indicators and Minimum Revenue Provision Statement for 2016/17

Decision:

Cabinet approved:

 

1.            The Treasury Management Strategy Statement (TMSS) including the additional text submitted after the agenda had been published.

 

2.            The Prudential Indicators set out in Appendix B of the report

 

3.            The Annual Minimum Revenue Provision statement for 2016/17 set out in Appendix C of the report

 

Minutes:

Councillor Clarence Barrett, Cabinet member for Financial Management, introduced the report

 

Cabinet was reminded that in February 2011 the Authority had adopted the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice 2011 Edition (the CIPFA Code) which required the Authority to approve a treasury management strategy before the start of each financial year.

 

In addition, the Department for Communities and Local Government (CLG) had issued revised Guidance on Local Authority Investments in March 2010 which required the Authority to approve an investment strategy before the start of each financial year.

 

Cabinet was informed that since the report before it had been published, additional information had been received and Members were asked to agree to some additional text – concerning the Housing Development Company – to be added to the report.  The reason for this request was to make clear that the funding arrangements and accounting treatment of the Housing Development Company had been properly reflected in the strategy, though some expenditure made by the Company and supported by the Council, might not fall within the strict definition of “capital expenditure” and the intention of the additional text was to ensure that all of the Company’s activities were reflected in the financial strategy and in particular the TMSS.  The additional text is appended to these minutes.

 

Councillor Barrett added that provision for Capital Expenditure from development and regeneration projects, including those relating to the Housing Development Company had already been reflected in the draft Capital Programme and the TMSS.

 

The report currently before Cabinet fulfilled the Authority’s legal obligation under the Local Government Act 2003 to have regard to both the CIPFA code and CLG guidance

 

The Council was also required to receive and approve - as a minimum - three main reports each year, which incorporated a variety of policies, estimates and actuals. 

 

The Treasury Management Strategy Statement (The current report) – was the first, and most important and covered:

 

·            The borrowing and investment strategies

·            Treasury Management indicators

·            Prudential Indicators

·            a Minimum Revenue Provision Policy (how residual capital expenditure is charged to revenue over time)

 

A Mid-Year Treasury Review – which would provide an update on the prudential and treasury indicators and would include information on the current treasury position.

 

An Annual Treasury Report – which would provide details of a selection of actual prudential and treasury indicators and actual treasury operations compared to the estimates within the strategy.

 

Reasons for the decision:

 

The statutory Codes set out that the Council ought to approve a Treasury Management Strategy Statement, the MRP Strategy and the Prudential Indicators.

 

Other options considered:

 

The CLG Guidance and the CIPFA Code did not prescribe any particular treasury management strategy for local authorities to adopt.  The Chief Financial Officer, having consulted with the Cabinet Member for Financial Management believed that the strategy set out in the report represented an appropriate balance between risk management and cost effectiveness.  Some alternative strategies - with their financial and risk management implications - are listed below.

 

Alternative

Impact on income and expenditure

Impact on risk management

Invest in a narrower range of counterparties

Interest income will vary depending on the counterparties used

Lower chance of losses from credit related defaults, but any such losses will be greater

 

Invest in a wider range of counterparties

Interest will again vary depending on the counterparties used.

Increased risk of losses from credit related defaults, but any such losses will be smaller

 

Invest in deposits with a longer duration

Interest income will be higher

Increased risk of losses from credit related defaults and a reduction in liquidity

 

Invest in deposits with a shorter duration

Interest income will be lower

Decreased risk of losses from credit related defaults and an increase in liquidity

 

Borrow additional sums at long-term fixed interest rates

Debt interest costs will rise; this is unlikely to be offset by higher investment income

Higher investment balance leading to a higher impact in the event of a default; however long-term interest costs will be more certain

 

Borrow short-term or variable loans instead of long-term fixed rates

Debt interest costs will initially be lower

Increases in debt interest costs will be broadly offset by rising investment income in the medium term, but long term costs will be less certain

 

Reduce level of borrowing

Saving on debt interest is likely to exceed lost investment income

Reduced investment balance leading to a lower impact in the event of a default; however long-term interest costs will be less certain and there may be additional costs occurred from restructuring

 

 

Cabinet approved:

 

1.            The Treasury Management Strategy Statement (TMSS) including the additional text submitted after the agenda had been published.

 

2.            The Prudential Indicators set out in Appendix B of the report

 

3.            The Annual Minimum Revenue Provision statement for 2016/17 set out in Appendix C of the report

 

Supporting documents: