The Interim Group Manager – Chief Accountant presented a report which included the draft Treasury Management Strategy for the above period, including its different components.

He explained, that to ensure effective scrutiny of treasury management in accordance with the Treasury Management Strategy (TMS), the Governance and Audit Committee has been nominated to be responsible for ensuring effective scrutiny of the TMS and policies in accordance with the Treasury Policy Statement and Treasury Management Prudential Indicators.

The report advised that, the Council’s treasury management activities were regulated by legislation, that provided powers to borrow and invest albeit within controlled limits. Such financial legislative requirements also included a requirement for the Council to approve a TMS before the start of each financial year, to set out the Council’s and Chief Financial Officer’s responsibilities, delegation, and reporting arrangements (Appendix A to the report referred).

The TMS 2021-22 at Appendix A confirms the Council’s compliance with the CIPFA Code, which requires that formal and comprehensive objectives, policies and practices, strategies and reporting arrangements are in place for the effective management and control of treasury management activities, and that the effective management and control of risk are the prime objectives of these activities.

The TMS has been updated to reflect the current economic context, not least the holding of interest rates at 0.10% by the Bank of England, but also the challenges of the exit from the European Union and the impact of the coronavirus pandemic. 

The maturity of long term debt has been included, and the forecast is that the Council may need to borrow over the next 2 years to support the Capital Programme.  To date the Council has been able to use reserves to support its capital expenditure, known as internal borrowing. However this position is a short-term one and as reserves are used and balances reduced, it will be necessary to borrow.  This will be closely monitored during the year as changes to the Capital Programme will influence this.

The Interim Group Manager – Chief Accountant advised that, the approved investment counterparties and limits (see Table 6 in the strategy) has been simplified and amended to take account of the latest advice from the Council’s Treasury Advisors, Arlingclose.  In addition there has been a change to the limits for Money Market Funds, which had been increased to £30 million at the mid-year review of the TMS, and approved by Council in November 2020, with the advice now being an unlimited limit.  It is proposed that no more than £6 million would be invested in any single Fund, to minimise any potential impact of default risk to the Council.

The proposed limit to non-Treasury investments has been increased from £1 million to £2 million.  This is to support proposed investment in a Special Purpose Vehicle that is to be established to deliver the proposed Bridgend Town Heat Network.

The TMS would be presented to Council in February 2021 for approval, the Group Manager – Chief Accountant concluded.

The Chairperson pointed out that the Table in the report’s Appendix showing repayments was very clear in terms of these being understood, together when they were required to be made.

A Member recognised the financial strain the local authority was currently under, so she asked what were the key significant financial pressures it was facing as a result of the continuing downward trend in interest rates, in terms of lost income/borrowing.

The Interim Group Manager – Chief Accountant advised that though interest rates were very low ie at 0.1%, a rate that looked set to remain in the immediate future, the Council in terms of its borrowing had managed to secure mostly fixed term interest rates, therefore any reduction in the rate, would not affect these loans. Wherever possible, the Authority looked to maximise interest return it was seeking to obtain, through the likes of Market Money Funds (to maximise any incoming interest).

The Chairperson referred to page 74 of the report and the section on new loan limits up to £2m in non-treasury investments. She considered that the loan for the proposed Special Purpose Vehicle (SPV) supporting Phase 1 of the Bridgend Town Heat Network Project, should be included as a Non-Treasury Investment, as though it may be a Council owned project, it involved a third-party loan. She was also unaware of how long the loan was for nor of the detail regarding the dividends.

The Interim Group Manager – Chief Accountant, advised that the loan for the SPV would be supported by a Financial Plan and would firstly need the approval of Council, for it to proceed. A report was planned for the February meeting of Council, prior to this being considered further. He added that the loan for this would be over a significant period, ie up to 40 years and it was anticipated at this stage, that the SPV would be wholly owned by the Council.

The Interim Group Manager – Chief Accountant advised that this was a valid point and that rather than the SPV being included as a Non-Treasury Investment, it should possibly be classed as a third-party stand-alone investment. He agreed therefore, to place this in a separate section of the Treasury Management Strategy, for clarification purposes.

RESOLVED:                              That the Committee:

(1)  Gave due consideration to the Treasury Management Strategy for 2021-22 at Appendix A to the report.

Agreed that it be forwarded to Council for approval in February 2021, subject to the minor amendment above.