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’s (CIPFA) Treasury Management in the Public Services: Code of Practice (the Code), to provide an overview of treasury activities as part of a mid-year review. The report also provided a summary of the Treasury Management activities from 1 April to 30 September 2018 and reports on the projected Treasury Management and Prudential Indicators for 2018-19.

The report was based on the Treasury Management Strategy (TMS) for 2018-19 which was approved by Council on 28 February 2018.

She explained that 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 2018-19 (and therefore this report) have been produced using the 2011 Codes due to the timing of the changes and there was still some information which had yet to be published when the TMS was produced.

 In March 2018, the Welsh Government also published an amendment to the Local Authorities (Capital Finance and Accounting) (Wales) Regulations which enables the Council to invest in certain instruments which were previously treated as capital expenditure (for example Money Market Funds) without the potential revenue cost of Minimum Revenue Provision (MRP) and without the proceeds from sale being considered a capital receipt.

The Council’s external debt and investment position for 1 April to 30 September 2018 was shown in table 1 within the report, and more detail was provided in section 4.3 of the report, the Borrowing Strategy and Outturn and section 4.4 which explained the Investment Strategy and Outturn.

For Members information the Bank Rate started the financial year at 0.50% and remained at that rate until 2 August 2018, when the Bank of England’s Monetary Policy Committee increased the rate by 0.25% to 0.75%. The current forecast is that there will be a further 0.25% increase in the Bank Rate by March 2019 reaching 1% by the end of 2018-19.

The key points to note in the report, were:

The total gross external debt outstanding 30 September 2018 £117.52m made up of:

·         The £96.87m borrowing made up of :

·         £77.62m relating to long term Public Works Loan Board at fixed rates (average rate 4.70%)

·         £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 (average rate 4.65%)

The Council would take the option to repay the LOBO loans at no cost if it had the opportunity to do so in the future.

Following advice from TM Advisers Arlingclose, the Interim Head of Finance and S151 Officer confirmed that the Council approached the LOBO’s lender for potential repayment options in 2017-18. 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 last time the Council took long term borrowing was £5 million from the PWLB in March 2012 and it is not expected that there will be a requirement for any new long term borrowing in 2018-19.

The £20.65m other long term liabilities figure includes £17.32m for the Authority’s Private Finance Initiative (PFI) arrangement for the provision of a secondary school in Maesteg and £2.40 million relating to a loan from the WG Central Capital Retained Fund for regeneration works within the Llynfi Valley which has not yet commenced.

Treasury Investments outstanding 30 September 2018 £34.30m (average rate 0.81%) made up of

•           £8m Banks average rate 0.85%

•           £1m Building Societies average rate 0.80%

•           £23m Local Authorities average rate 0.80%

•          £2.30m Money Market Fund average rate 0.69% ( provides instant   access)

Table 2 in the report detailed the investment profile from 1 April, £30.40m to 30 September 2018, £34.30m.

Table 3 detailed the £34.30m by counterparty type based on the remaining maturity period at 30 September 2018

As previously reported to Cabinet and Council in 2017-18, the Council opened a Money Market Fund (MMF) in August 2017, which is an approved financial instrument in the TMS and provides instant access to the funds.

The Council set up additional MMF’s in September 2018 (all approved by Arlingclose) as well as also setting-up a web based portal (at no cost to the Council) to simplify and introduce efficiencies to all aspects of MMFs, from account maintenance through to trading and reporting. The new MMF’s and the portal application process were not finalised by 30 September 2018, but are expected to be used from October 2018 once the set-up is completed.

In terms of non–treasury investments, though these were not classed as treasury management activities and therefore not covered by the CIPFA Code or the WG Guidance, the Council may also purchase property for investment purposes and may also make loans and investments for service purposes. For example in shared ownership housing, or as equity investments and loans to the Council’s subsidiaries. Such loans and investments will be subject to the Council’s normal approval processes for revenue and capital expenditure and need not comply with the TMS.

The Council’s existing non-treasury investments relate to investment properties and the unaudited balance outstanding at 31 March 2018 was £4.36 million she explained.

She then gave a resume of the information contained in the Appendices to the report, as follows:-

Appendix A – The Investment Strategy in the TMS 2018-19 defines high credit quality as organisations and securities having a credit rating of A- or higher and this table shows the equivalence table for credit ratings for Fitch, Moody’s and Standard & Poor’s and explains the different investment grades. The pie chart in paragraph 4.4.10 of the report summarised the £34.30m investments at 30 September 2018 by credit ratings and shows this by percentage outstanding. Most Local Authorities do not have credit ratings and the unrated building society was approved by Arlingclose, whilst the remainder of the investments all had a credit rating of A or above. 

Appendix B – Council approved a revised MRP policy for 2018-19 on 19 September 2018 and a revised MRP Statement 2018-19 was shown, which amends the method of calculating a prudent annual amount to charge to revenue to repay capital financing costs. The revision of the MRP Policy 2018-19 for calculating MRP on capital expenditure funded from supported borrowing has resulted in a change from a 4% reducing balance method to a straight-line method over 45 years. The figures in Appendix B have been revised to reflect a minor change from the report approved by Council,

to reflect the more up to date information available and a minor accounting adjustment in 2018-19.

Appendix C - details the Council’s Treasury Management and Prudential Indicators 2018-19 and shows the estimate for 2018-19 (set out in the Treasury Management Strategy approved by Council in February) and also the projection for the year. These show that the Council is operating in line with the approved limits.

The Deputy Leader wished it placed on record, that the report clearly evidenced that even in a very challenging financial climate; he was pleased to note that the Council were still in relatively safe hands due to the dedication and professionalism of Finance Officers.

RESOLVED:                    That Council:-

(1)             Approved the treasury management activities for the period 1 April 2018 to 30 September 2018.

(2)             Noted the projected Treasury Management and Prudential Indicators for 2018-19 against the Indicators approved in the Treasury Management Strategy 2018-19.