The Deputy Head of Finance presented a report, the purpose of which, was to comply with the requirement of the Chartered Institute of Public Finance and Accountancy ‘Treasury Management in the Public Services: Code of Practice’ (referred to as the Code) to report an overview of treasury activities for the preceding financial year, including the Treasury Management and Prudential Indicators for 2018-19, and to highlight compliance with the Council’s policies and practices.

She advised, that as set out in paragraph 3.2 of the report, the Council is required to operate the overall treasury function with regard to the Code and this was formally adopted by the Council in February 2012. This includes a requirement for the Council to approve a Treasury Management Strategy (TMS) before the start of each financial year which sets out the Council’s and Chief Financial Officer’s responsibilities, delegation and reporting arrangements. Council approved the TMS 2018-19 at its meeting on 28 February 2018.

Paragraph 3.2 also explained that late in December 2017 CIPFA published new editions of Treasury Management in the Public Services: Code of Practice and the Prudential Code for Capital Finance in Local Authorities. However, the TMS 2018-19 and this report has been produced using the 2011 Codes, as due to the late publication of the 2017 Codes, they were not implemented until the TMS 2019-20.

Paragraph 3.4 of the report reminded Council, that Members approved a revised Minimum Revenue Provision policy for 2018-19 on 19th September 2018, which amended the method of calculating the amount to charge to revenue to repay capital financing costs.

All other investment activities not covered by the Code, such as property investments, would be subject to normal Council approvals and need not comply with the Treasury Management Strategy. The current value of these investment properties was £4.635 million.

Section 4.1 of the report outlined the Council’s External Debt and Investment Position for 2018-19, with a summary position in Table 1. This shows total external borrowing at year end of £96.87 million, with an average interest rate of 4.69%. This was split between loans from the Public Works Loans Board and Lender’s Option Borrower’s Options (also known as LOBOs). No additional borrowing was taken out during 2018-19. There are also other long term liabilities totalling £17.88 million, the majority of which relates to the Maesteg School PFI scheme.

In terms of investments, the year-end position was total investments of £27.4 million, with an average interest rate of 0.94%, £21 million of which was held by other local authorities. This has reduced since the start of the year when it was £30.4 million as a result of a higher level of investments being repaid than raised. This leads to a total net debt at year end of £87.35 million.

Paragraph 4.1.6 of the report, referred to the review of the treasury management function by both internal and external audit during the year, with an overall view by internal audit that the internal control environment is sound and that substantial assurance can be placed upon the management of risks.

Paragraph 4.1.7 of the report referred to the Authorities Treasury Management advisors Arlingclose. The contract runs for four years and is due to expire in September 2020.

Section 4.2 of the report outlined Treasury Risk Management 2018-19 and details how the Council has mitigated and minimised risks, particularly from the unpredictability of financial markets. The main risks the Council faces are Credit Risk, Liquidity Risk and Market Risk, and in managing its investments the Council gives priority to security and liquidity of its funds before seeing the best yield, or rate of return.

Section 4.3 of the report then gave information regarding the external context in which we were operating during 2018-19. The Bank Rate started the financial year at 0.50% and remained at that rate until 2 August 2018, when the Bank of England’s Monetary Policy Committee increased the rate by 0.25% to 0.75%. The Bank Rate remained at 0.75% for the remainder of the 2018-19 financial year.

Section 4.4 of the report detailed the Borrowing Strategy and Outturn for the year, with the main objective here being long term affordability. The majority of the Council’s borrowing is from the Public Works Loan Board (PWLB) at long term fixed rates of interest, and as reported previously, no additional borrowing was taken out during 2018-19. The Council is currently maintaining an under-borrowed position substituting loan debt with internal cash reserves where possible on a temporary basis.

The Investment Strategy and Outturn information was set out in Section 4.5 of the report, which has been managed taking into account the main risks identified, published credit ratings, and advice from our Treasury Management advisors.  Appendix B to the report, showed the equivalence table for the published credit ratings and explained the different investment grades. The majority of investments in 2018-19 were held as short term investments with UK Local Authorities, banks of high credit quality and in Money Market Funds, which give instant access to funds. A summary of our investment profile by counterparty type was set out in Table 2 within the report, with the maturity profile of the investments in Table 3. The majority of BCBC’s investments mature within 12 months.

Section 4.6 of the report then highlighted performance management by the Council in terms of the adequacy of its treasury function. This showed that the Council’s average rate of return on investments was above that of the average rate of return for Arlingclose’s Welsh Local Authority Unitary clients internally managed investments, for the majority of the year.

The Deputy Head of Finance concluded her report, by stating that the reporting arrangements were set out in section 4.8 and the Council’s Treasury Management and Prudential Indicators were shown in Appendix A (to the report). This reflected that in 2018-19, the Council operated within the limits and indicators as set out in the agreed TMS 2018-19, as well as complying with its treasury management practices.

There were no questions from Members on this agenda item, therefore it was

RESOLVED:                        That Council:

(1)  Approved the Treasury Management activities for 2018-19.

Further approved the actual Treasury Management and Prudential Indicators for 2018-19, against the ones approved in the Treasury Management Strategy 2018-19.