Agenda item

Report of Chief Executive (enclosed)

The Committee received and considered the report of the Chief Executive updating Members on the Council’s treasury management strategy. Part of the changes in the regulatory environment, concerning treasury management was a greater onus on Members to scrutinise policy and activity.

The report updated on the Prudential and Treasury Indicators and reported that the return on investments totalled 1.14% which exceeded the benchmark. Details of the borrowings were given and Members were updated on a number of issues that included the conclusion of the situation relating to the Icelandic investments.

The Committee were advised that the Council is required to consider, as a minimum, three treasury reports. In addition the Minimum Revenue Provision Policy for 2014/15 and revised Prudential Indicators were presented to Council in November 2013 as it had been necessary for the Council to approve changes to the MRP Policy and Prudential prior to the purchase of the Market Walk Shopping Centre.

The Council’s Capital Expenditure as at 31 March 2014 totalled £25.615m compared to the revised budget of £26.583m. Of the total, £23.341m was for the purchase of the Market Walk Shopping Centre in November 2013, which was financed by prudential borrowing. Prudential borrowing of £1.323m had also been required to finance other capital investment.

The £0.968m variance from budget at outturn was not an underspend, but due to the requirement to rephase a number of projects to reflect revised delivery timescales and would be added to the 2014/15 Capital Programme.

Estimated borrowing at the end of 2013/14 was £30.263m and surplus cash available for investment was £15.000m, giving an estimated net figure of £15.263m compared to the estimated Capital Finance Requirement of £32.518m. The level of borrowing estimated in the 2013/14 reflected Council approval to purchase Market Walk and to finance the expenditure with £23.341m prudential borrowing.  However, it had proved possible to achieve savings in financing the acquisition by using £10m internal cash balances and taking only £13.341m loans from PWLB.

In response to a query, the Chief Executive explained that this had been a decision that he had taken based upon the business model considered and approved by Council in November. He had felt, that with interest rates for cash investments remaining low, it was better to use cash balances to avoid borrowing at rates that could have exceeded 4%, than to invest at as little as the 0.25% paid by the Debt Management Office. The Chief Executive had been delegated to make these decisions on behalf of the Executive Cabinet.

It was reported that the Council had now reached a conclusion with regards to the Icelandic Investment. At the start of 2013/14, the impaired balance sheet value of the Council’s investment was £0.83m. During the year, the Winding-Up Board had made one repayment of £0.102m, reducing the balance sheet value of investment to £0.728m.

Recovery of the balance of investment had been expected to take several years and would have involved exchange rate losses and incurring of legal fees. To minimise the risks associated with the recovery process, the Council decided to participate in the auction of Landsbanki claims, and received auction proceeds of £0.728m. The total debt recovered was £1.856m (93%) of the original investment.

The Committee were also informed that the Council’s treasury management advisors Capita Asset Services had provided a review of the year and had suggested that the base interest rate would not rise from its historic low level of 0.5% under December 2015.

RESOLVED – That the report be noted.