Agenda item

Treasury Management and Capital Strategies 2022-23 onwards


The Chief Officer – Finance, Performance and Change, submitted a report,  in order to present to Cabinet the Treasury Management Strategy 2022-23 (Appendix A to the report), which detailed the Treasury Management Indicators, and the Capital Strategy 2022-23 to 2031-32 (Appendix B), which includes the Prudential Indicators, and the Annual Minimum Revenue Provision Statement 2022-23 (Section 7 of Appendix B), before submitting to Council for approval.


She explained that both treasury management and the control of capital expenditure are regulated by legislation. The legislation provides local authorities with the powers to borrow and invest as well as providing controls and limits on this activity. The Prudential Code For Capital Finance In Local Authorities includes a requirement for the Council to approve a Treasury Management Strategy (TMS) before the start of each financial year which sets out the Councils and Chief Financial Officers responsibilities, delegation and reporting arrangements. The proposed Strategy for the coming financial year was attached at Appendix A to the report.


In addition, local authorities are required to determine a Capital Strategy which demonstrates that the authority takes capital expenditure and investment decisions in line with service objectives and properly takes account of stewardship, value for money, prudence, sustainability and affordability when making these decisions. The proposed Capital Strategy for 2022 - 2023 to 2031 - 2032 was attached at Appendix B to the report


With regard to the TMS, the Chief Officer – Finance, Performance and Change drew Cabinet’s attention to the key points within the document.


The ongoing impact on the UK of the pandemic, together with higher inflation, higher interest rates following the Bank of England’s increase in interest rates in December 2021 and then again more recently in February 2022, together with the impact of the UK leaving Europe, will be major influences on the Council’s Treasury Management Strategy for the coming financial year.


As at the 31st of December 2021, the Council held £96.87 million of borrowing and £77.5 million of investments. The external debt and investment position was shown in Table 1 within the Treasury Management Strategy.


The Treasury Management Strategy highlighted that the Council will have a new borrowing need over the coming three years to fund the proposed Capital Programme. With short term interest rates currently much lower than long term rates, it is it is likely to be more cost effective in the short term to use internal resources to fund our expenditure.


The Strategy is clear that the Authority will take the most appropriate form of borrowing, depending on the prevailing interest rates at the time. The borrowing need will be monitored on an ongoing basis and any new borrowing will be considered alongside any changes in the Capital Programme that may affect the level of borrowing so required. Any significant changes within these proposals will be reported to Cabinet, the Governance and Audit committee and Council, as appropriate.


In November 2020 the Treasury issued revised lending terms for Public Works Loan Board borrowing by local authorities. The Public Works Loan Board would be the major source of any borrowing that the Council undertakes.


The Chief Officer – Finance, Performance and Change, reiterated that at the end of December 2021, the Council had £77.5 million of investments. The Council's main objective when investing money, is to strike an appropriate balance between risk and return, to minimise the risk of incurring losses from defaults and the risk of receiving unsuitably low investment income. The Council may invest its surplus funds with approved counter parties and these are detailed at table six of the Treasury Management Strategy


During 2022-23, Council will receive reports as required in line with the requirements of the code of practice. These include an annual Treasury Management Strategy (as before Members today), a mid-year monitoring report and an annual treasury outturn report.


Appendix B to the report showed the Capital Strategy for the period 2022 - 23 to 2031 - 32. This gives a high-level overview of how capital expenditure, capital financing and treasury management activity contributes to the provision of services. This document is presented as an integral part of the Council's Budget and Policy framework. It links with the Corporate Plan, the Treasury Management Strategy, the Medium Term Financial Strategy and the Council's Asset Management Plan


The plan details how any proposed investments in land and buildings will require the completion of a full feasibility study, to evaluate the practicality of the capital project, and to assess its deliverability before the Council invests time and money into that project.


The Strategy notes that there are a number of significant areas that will need financing going forward, including economic recovery, decarbonisation and homelessness. As was reported to Council earlier this month, there are also other financial pressures arising as a result of the pandemic and Brexit, which are being seen in existing tender prices and it is anticipated this will continue for some time going forward. The pressures also include supply chain difficulties leading to higher prices and delays in schemes being completed.


Tthe Strategy also refers to the changes with regards to the ability to borrow from the Public Works Loan Board and authorities will be asked to confirm that there is no intention to buy investment assets primarily for yield in the current or the next two financial years. Whilst this does not preclude the Council investing in commercial activities, investing in assets solely for yield would prevent the Council from accessing PWLB borrowing. As the Council will need to borrow to support the 21st Century Schools Band B programme and the wider Capital Programme, this will prevent the Council investing in land or property purely to achieve a financial return.


The Chief Officer – Finance, Performance and Change, confirmed that in section three of the Strategy, details are contained which outline the robust process in place to approve, manage and monitor capital projects. As members were aware, quarterly capital monitoring reports are prepared for Cabinet and Council which include details of any variances between projects as well as projections of likely year end spend.


The proposed Capital Investment Programme for the period 2022- 23 to 2031 - 32 is detailed at table two in section four of the Capital Strategy. This outlines how the programme will be funded, which includes the use of general capital funding provided by Welsh Government and the use of capital receipts and borrowing.


Finally, the Chief Officer – Finance, Performance and Change, confirmed that each year the Council must set aside a provision for repaying external debt. This is known as the Minimum Revenue Provision. The MRP needs to be approved by Council before the start of each financial year. The policy statement with regards to this was contained in Section 7 of the Capital Strategy, she added.


The Deputy Leader commended the report which he felt was both open and transparent.


The Leader felt that the report was quite technical in its nature, but one which formed a crucial part of the Medium Term Financial Strategy, as it covered two important components, ie the Capital Strategy and Treasury Management. He asked the Chief Officer – Finance, Performance and Change, if any alternative proposals had been put forward by any other Members in relation to the provisions of the report or its recommendations, or had she had any questions put to her or queries in relation to it, to which she replied she had not.


The Leader added that Treasury Management was a very specialist area of finance with the Council commissioning external consultants to advise on the Authorities funds/finances. It was important to get the balance of this report correct, in order to put in place the adequate monitoring of incoming/outgoing cash flow. He hoped this level of scrutiny would be maintained going forward.


The Chief Officer – Finance, Performance and Change confirmed that the Council’s cash flow was monitored on a daily basis, as this area of finance was heavily regulated with our Advisors giving regular advice on the subject of both long term borrowing and long term investments for the local authority, in order to protect its resources. The Council always remained prudent however, putting security above return, given that it was dealing with public monies.


RESOLVED:                        That Cabinet considered the report and recommended that the following be presented to Council for approval:


·   The Treasury Management Strategy 2022-23 including the Treasury Management Indicators 2022-23 to 2024-25 (Appendix A);


·  The Capital Strategy 2022-23 to 2031-32 including the Prudential Indicators 2022-23 to 2024-25 (Appendix B);


·   The Annual Minimum Revenue Provision (MRP) Statement 2022-23 (Appendix B – Section 7).


Supporting documents: