The Section 151 Officer reported that the Council’s Treasury Management activities were regulated by the Local Government Act 2003 which provided the powers to borrow and invest as well as providing controls and limits on this activity.  The Local Authorities (Capital Finance and Accounting) (Wales) Regulations 2003 as amended, develops the controls and powers within the Act.  The Council is required to    operate the overall treasury function with regard to the CIPFA Code of Practice for Treasury Management in the Public Services.

The Section 151 Officer reported on the treasury position for 2014-15 which showed £19.25m as maturing in 2054 which related to Lender’s Option Borrower’s Option loans.  The Section 151 Officer stated that the long term liabilities figure of £21.58m as at 31 March 2015 included £19.30m for the Council’s Private Finance Initiative (PFI) arrangement for the provision of a secondary school in Maesteg.  Included in this figure is the short term liability of £0.51m included as current financial liabilities in the Council’s balance sheet in the Statement of Accounts.

The Section 151 Officer reported that the Co-operative Bank had announced that they did not wish to support local government banking beyond 2015-16 and therefore a bank retendering exercise was undertaken in 2014 with Barclays bank being appointed the Council’s bankers with effect from 5 January 2015.    

The Section 151 Officer reported that the Treasury Management function had been reviewed by the Council’s External Auditors, KPMG and by Internal Audit during 2014-15, which found many key positives and no areas of concern and one of “substantial assurance” of the areas selected for examination, with no control weaknesses identified and no recommendations were made. 

            The Council’s Treasury Management advisers were currently Arlingclose who provided the services indicated in the report to the Council.  The Section 151 Officer referred to the Treasury Management Strategy which set out the parameters for the management of risks associated with Financial Instruments.  The Council also produces Treasury Management Practices specifying the practical arrangements to be followed to manage these risks.  The Borrowing Strategy for 2014-15 was based on the Bank rate remaining at 0.50% for 2014-15.  Given the significant cuts to public expenditure and in particular to local government funding, the Council’s borrowing strategy continues to address the key issue of affordability without comprising the longer term stability of the debt portfolio.  The uncertainty over future interest rates increases the risks associated with treasury activity with short term interest rates currently much lower than long term rates.  Short term and variable rate loans expose the Council to the risk of short term interest rate rises and are therefore subject to the limit on the net exposure to variable interest rates as shown in the treasury management indicators.  The Council’s primary objective for the management of its debt was to ensure its long term affordability, with the majority of its loans borrowed from the Public Works Loan Board at long term fixed rates of interest, with no long or short term borrowing taken in 2014-15. 

The Section 151 Officer reported on the Investment Strategy and outturn for 2014-15 which set out the policies for giving priority to the security and liquidity of the Council’s Investments.  The Strategy dealt with the credit ratings defined for each category of specified investments, the prudential use of non-specified investments and the liquidity of investments.  The Section 151 Officer informed Council that on a day to day basis, the Council potentially had surplus cash balances arising from cash flow, which was invested on the market via brokers, direct with the counterparty or held in instant access business reserve accounts.  The Council usually invested for a range of periods dependent on cash flow requirements and the interest rates on offer having regard to the Investment Strategy. 

The Section 151 Officer outlined the reporting arrangements which required that the Council report on its Treasury Management as an Annual Strategy and plan in advance of the year, a mid-year review and an annual report after its close to Council.  The Council also produces quarterly monitoring reports which are presented to Cabinet as Information Reports. 

The Section 151 Officer stated that the Treasury Management Code and Prudential Code required the Council to set and report on a number of Treasury Management and Prudential Indicators.  During the financial year 2014-15 the Council operated within the Treasury limits and Prudential Indicators set out in the Council’s Treasury Management Strategy 2014-15.

RESOLVED:                     That Council:-

(1)    Approved the Treasury Management activities for 2014-15;

(2)    Approved the actual Treasury Management and Prudential Indicators for 2014-15.