The Interim Head of Finance and S151 Officer submitted a report, the purpose of which, was to comply with the requirement of the Chartered Institute of Public Finance and Accountancy (CIPFA) ‘Treasury Management in the Public Services: Code of Practice’ to report an overview of treasury activities for the preceding financial year and to report on the actual Treasury Management and Prudential Indicators for 2017-18.

The report is based on the Treasury Management Strategy (TMS) for 2017-18 which was approved by Council on 1 March 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 in late December 2017, however the TMS 2017-18 and this report were produced using the 2011 Codes. Also, in March 2018 the Welsh Government published an amendment to the Local Authorities (Capital Finance and Accounting) (Wales) Regulations, which enables the Council to invest in certain instruments from 2017-18, which were previously treated as capital expenditure, without the potential revenue cost of Minimum Revenue Provision (MRP) and without the proceeds from sale being considered a capital receipt.

She added that the Council’s treasury management advisors are Arlingclose. Their contract runs from 1 September 2016 for 4 years following a tender process and the contract will be reviewed annually and either party may at any time terminate this agreement on 3 months prior written notice.

The treasury management function was reviewed by the Council’s External Auditors, the Wales Audit Office during the 2017-18 annual audit and there were no adjustments for Treasury Management. In addition to the External Audit work, Internal Audit undertook an audit of the treasury management function during 2017-18 and the audit identified that “based on an assessment of the strengths and weakness of the areas examined, and through testing it has been concluded that the effectiveness of the internal control environment is considered to be sound and therefore substantial assurance can be placed upon the management of risks”.

The Bank Rate started the financial year at 0.25% and the Bank of England’s Monetary Policy Committee (MPC) increased this by 0.25% to 0.50% in November 2017. It was significant in that it was the first rate hike in ten years, although in essence the MPC reversed its August 2016 cut following the EU referendum result. The Bank Rate remained at 0.50% for the remainder of 2017-18.

The Council’s external debt and investment position for 1 April 2017 to 31 March 2018 was shown in section 4.1 and table 1 of the report. More detail was provided in Section’s 4.4 and 4.5. The key points to note were:

·         The total gross external debt outstanding at 31 March 2018 was £117.89m

·         The £96.87m long term borrowing at 31 March 2018 is made   of :

a)        £77.62m relating to Public Works Loan Board at fixed   rates (average interest 4.70%)

b)        £19.25m with a maturity date of 2054 relating to Lender’s Option Borrower’s Option loans which may be re-scheduled in advance of the maturity date. The Council approached the LOBO’s lender for potential repayment options in 2017-18,

c)       However, the premium was deemed too excessive to action but the Council would take the option to repay these loans at no cost if it has the opportunity to do so in the future. The current average interest rate for these LOBO’s is 4.65% compared to the PWLB average interest rate of 4.70%.

·                             There was no new long term borrowing taken during 2017-18 and no debt rescheduling was undertaken as there were no significant savings to be made, however, for cash-flow purposes 2 short term loans totalling £4m were taken all of which were repaid in less than a month from being taken with no balance outstanding 31 March 2018.

·                             The £21.02m other long term liabilities figure at 31 March 2018 includes £17.64m for the Council’s Public Finance Initiative (PFI) arrangement for the provision of a secondary school in Maesteg with a remaining term of 16 years. Included in this figure is the short term liability of £0.64m which is included as current financial liabilities in the Council’s balance sheet in the SOA. £2.40m is also included relating to a loan from the WG Central Capital Retained Fund for regeneration works within the Llynfi Valley.

1.    Favourable cash-flows provided surplus funds so the balance on investments at 31 March 2018 was £30.40m (average interest rate of 0.62%) decreasing from £33.75m at the start of the financial year but the average rate increased from 0.55%.The average rate for 2017-18 was 0.49% (same rate as 2016-17). A breakdown of this movement and interest received is shown in table 2 in section 4.5.5 by counterparty type and table 3 details the £30.40m by credit rating, maturity profile and counterparty type.

2.    The Council defines high credit quality as organisations and securities having a credit rating of A- or higher. The pie chart in section 4.5.8 summarises the £30.40m investments by credit ratings and shows this by percentage outstanding. Most Local Authorities do not have credit ratings and the remainder of our investments all had a credit rating of A or above.

3.    Investment decisions are made by reference to the lowest published long-term credit rating from Fitch, Moody’s or Standard & Poor’s to ensure that this lies within the Council’s agreed minimum credit rating in the  Investment Strategy in the TMS. Appendix B shows the equivalence table for these published credit ratings and explains the different investment grades.

·         Performance Indicators for comparator purposes for these rates are shown in section 4.6. The Council’s 2017-18 average rate of return on investments at the end of each quarter  was more favourable compared to the average of Arlingclose Welsh Local Authorities Unitaries clients as shown in 4.6.4 e.g. at 31-03-18, BCBC was 0.62% compared to 0.47%.

The Council is diversifying into more secure and/or higher yielding asset classes and any new instruments used will be in full consultation with Arlingclose. In order to be able to use the majority of these different types of instruments, the Council is required to use a nominee account(s) with a third party for safe custody of such investments (a custody account) as we are unable to deal direct. On 5 September 2017, Cabinet approved the opening of a King & Shaxson custody account. It also delegated authority to the Section 151 Officer, in consultation with the Monitoring Officer, to open additional custody accounts to support delivery of treasury management responsibilities if required. The custody account was used in October 2017 to invest in a £1 million HM Treasury bill which matured in January 2018.

The Council opened a Money Market Fund in August 2017 with the Churches, Charities and Local Authorities (CCLA) Public Sector Deposit Fund which is a pooling of public sector deposits wholly aligned with the principles and values of the public sector. It is UK domiciled, regulated by the Financial Services Authority with an advisory board representing the public sector depositors which ensures strong governance arrangements of the Fund. This is an approved financial instrument in the TMS 2017-18 and provides instant access to the funds. There was no balance outstanding at 31 March 2018.

In 2017-18, the Council operated within the treasury limits and Treasury Management and Prudential Indicators as set out in the agreed TMS 2017-18 and also complied with its Treasury Management Practices. Details of the Treasury Management and Prudential indicators are shown in 4.9 and Appendix A to the report. 

The Deputy Leader thanked the Council’s Finance Officers for prudently managing the Council’s resources and obtaining a very good performance on its returns.

RESOLVED:                That Council:

(1)  Approved the treasury management activities for 2017-18.

Approved the actual Treasury Management and Prudential Indicators 2017-18.