Agenda item

Treasury Management - Half Year Report 2022-23


The Group Manager – Chief Accountant presented a report updating the GAC on the mid-year review and half year position for treasury management activities and treasury management indicators for 2022-23 highlighting compliance with the Council’s policies and practices, which would be reported to Cabinet and Council.


The Group Manager – Chief Accountant provided the background to the report and explained that the Council had complied with its legislative and regulatory requirements during the period 1 April to 30 September 2022. He outlined the treasury management activities for April 2022 – September

2022 and the current situation as detailed in the report. The key activities and indicators were included in the appendices.


A Member referred to transparency, readability and accessibility for all residents and accepted that this was good standard accounting practice in the way it was laid out but residents without a financial background would struggle to understand it. It should be complimented with more plain English statements around the position. This was currently a hot topic and residents could not understand why the authority had so much money in the bank. He asked how it could be made more understandable and accessible for residents. The Group Manager – Chief Accountant replied that he would take this away and consider what could be done in advance of the next report.


A Member referred to LOBO loans and the high-profile case that was currently ongoing with a local authority that BCBC had lent money to. He was seeking a greater understanding of the process of how that situation arose. There were currently 3 loans outstanding to that authority. There was a process we had adopted on how loans were risk assessed. His understanding was that the advisor had issued advice to all local authorities not to lend any further money to this authority because of the financial position they were in. In October an agreement was made to lend further money to the authority after this advice was received. Under the remit of this committee, he was seeking guidance or any changes that needed to be made to agreed practices that when advice was received from the official advisor not to loan an authority money, that no further money went out after that advice was received. The Group Manager – Chief Accountant clarified that the LOBO loans were completely different and were not loans to other local authorities, but the case that the member was referring to was inter authority lending to other local authorities. Lending to other local authorities was a well-established practice providing a high level of security and a low level of risk. The Treasury Management Strategy, which was brought in draft to this committee in January 2022 and was approved by full Council in February 2022, set out lending options and limits. They could lend up to a maximum of £12 million per authority for up to a period of 25 years in total. In practice, the maximum they tended to lend was around £8 million to any single authority, even though the strategy would allow them to lend up to £12 million, and this was to ensure that they balanced risk across different counterparties or lending options. There were two outstanding deals with that particular authority, agreed prior to the advice received from the Treasury Management Advisors. When they had agreed a contract, they were signed into that contract. They did seek further guidance and the advice was that as they had already committed to make that loan, not continuing with it would be a reputational risk within the sector, going back on an agreed contract. He had never experienced non repayment of any lending to a local authority and he was not aware of any local authority ever defaulting on the payments. The loan represented an extremely low risk and the expectation was that it would be repaid on the due date with the interest due. There were regular audits of treasury management activities and External Audit did it as part of their Annual Statement of Accounts. The last Internal Audit review in February 2020 concluded that the effectiveness of the internal control environment was considered sound. Therefore, substantial assurance could be placed upon the management of risks. As soon as they had the advice, they did stop any further lending in line with the advice from the advisors.


The Member asked who additional advice was sought from and if there were any financial penalties if they refused to honour the contract. The Group Manager – Chief Accountant replied that there could potentially be a penalty if they pulled out of the contract. The Member replied that the situation within the organisation they were lending to was so dire that they faced reputational risk for lending them the money.  His concern was around the principle of low risk, low return, inter authority lending as a principle and how they could react more swiftly to changing circumstances rather than specifics. The Group Manager – Chief Accountant replied that

there was the Bank of England's Money Market Code that they had to comply with and that said that once a deal had been made, they should not really back out of that deal.


The Chairperson explained that they needed assurance that relevant checks and balances were in place. He was reassured by everything that had been said and that independent advice had been taken. They had followed the Code of Practice and reassurances had been given that everything had been done that needed to be done.


The Chief Officer – Finance, Performance and Change said that she hoped that the Group Manager – Chief Accountant had given reassurance that they had worked within the policies and that the money would come in. She added that local authorities who were financially very secure even 6 to 12 months ago, were going to struggle in the coming months. They needed to consider that when reviewing that part of the Treasury Management Policy for next year to protect the authority in a changing environment.


A Member asked that the Committee be updated on this until the loan had been repaid. He also asked for further information regarding the Arlingclose contract including the value of the contract. The Chairperson replied that it was not within the remit of the Committee to request those details. The Group Manager – Chief Accountant replied that he had included in the report, information on all the services provided and there was insurance as well to cover the authority.


A Member asked if there was a narrative on the risk profile and the cost of borrowing as promised at the previous meeting. The Group Manager – Chief Accountant replied that in the table on page 34 of the pack there was a comparison as previously discussed. He agreed to review the discussion at the previous meeting and to report back.


A Member referred to some of the responses received and encouraged officers to think beyond the current policies and to plan for extreme situations and to protect against them.


A Member stated that this authority had lost money in the Icelandic crash and the authority was duty bound to protect where it could. The Chief Officer – Finance, Performance and Change replied that she was not around at the time of the Icelandic crash but the authority did not lose money from it but they did learn lessons. They would review the policy and learn from issues that had already occurred as well as future gazing. 


A Member referred to game planning for extreme scenarios and that this would be a useful technique for the authority.   


The Chief Officer – Finance, Performance and Change explained that a briefing note around treasury management had been sent to members. Some had responded that they understood it for the first time ever. She welcomed any comments on the note as it was about an area under increasing scrutiny dealing with millions of pounds worth of money. This could be used in future reports and in communications with the public. The Chairperson asked for the note to be circulated to the independent members.


A Member added that he had found the document extremely useful and thanked the officers for their work on it. He added that it would be helpful if more information was provided on why a local authority would not necessarily lend to other authorities to gain a return on the investment.


RESOLVED:        GAC noted the Council’s treasury management activities for 2022-23 for the period 1 April 2022 to 30 September 2022 and the projected Treasury Management Indicators for 2022-23.   

Supporting documents: