Agenda item

Report of the Chief Executive (enclosed)

The Governance Committee received a report of the Chief Executive which indicated the Treasury Management performance and compliance with Prudential Indicators in the financial year 2017/18 to the end of July.

It was reported that compared to 2016/17, the main change had been the lower balance available to invest, which meant that it had not been possible to invest for longer periods in order to achieve higher interest rates. There were no changes proposed to the current list of Financial Institutions and Investment Criteria. Officers were not proposing changes to any prudential indicators at present and therefore it was recommended that the report be noted.

The Prudential Code required that borrowing net of investments should not exceed the CFR for the preceding year plus any anticipated increase in the current and next two years. The Treasury Management Annual Report 2016/17 concluded that the net borrowing would not exceed the CFR in 2017/18. It was understood that as there was a large margin between net borrowing and the CFR. The Operational Boundary for external debt was set at a value based on the CFR to allow additional external borrowing should cash balances be depleted, without breaching the Prudential Indicator. However, use for internal borrowing was the most effective use of the Council’s cash balances while available, and so far in 2017/18 no new long term external borrowing had been taken.

The Principal Financial Accountant reported that the average interest earned was 0.18% to the end of July 2017, which exceeded the target of 0.13%. As in 2016/17, cash balances had been used as a source of internal borrowing to minimise external borrowing at higher rates of interest, thereby achieving revenue budget savings. To date the average interest earned had not exceeded the Capita suggested earnings rate of 0.25% for 2017/18.

Compared to the previous interest rates forecast, PWLB borrowing rates were slightly lower than expected. Gradual increases through to March quarter of 2020 were still forecast. If rates began to increase more steeply, it could become advisable to take additional borrowing sooner rather than later to achieve longer term savings.

Members were informed that to continue using regulated products such as money market funds (MMFs), Chorley Council would have to opt-up to Professional Client status. It was estimated that the Council would fail the minimum financial instrument portfolio size test of £10m and therefore would not be able to use MMFs from January 2018. It was anticipated that this would increase the likelihood of having to deposit cash in the Debt Management Office’s Debt Management Account Deposit Facility at a low rate of interest, but with a high degree of security. Other local authorities could offer a slightly higher rate of interest than the DMO for short-term deposits, but there was no certainty of finding a council which required cash at the same time that Chorley Council needed to invest funds temporarily.

The Principal Financial Accountant notified the Committee of proposed changes to CIPFA’s Treasury Management Code and Prudential Code. Several of the proposed changes were inevitably of a technical nature, and those incorporated into the Codes would be explained when implemented. It was agreed that training would be provided to Members of the Governance Committee to address the changes. At present, it was understood that the proposed changes would not affect Chorley Council and the existing capital expenditure plans.

Following queries, Officers reassured Members that the use of the Councils’ Treasury advisors, Capita Asset Services, had many functions and benefits for the council, which included advising on technical accounting and providing recommendations and guidance. It was recognised that bigger organisations were able to employ their own expertise however as a smaller organisation it was advised that Capita were one of the best on the market. Members were reminded that the council set its own policy based on government and CIPFA guidance whilst also being aware of other options available in order to provide alternatives if required. It was understood that the council were under a duty to report to the Governance Committee to get the best benefit from cash balances.

Members discussed other alternatives to PWLB borrowing including approaching other local authorities. Officers held concerns with borrowing from local authorities due to uncertain interest and only providing short-term as opposed to long-term borrowing. It was understood that national figures for expenditure indicated that PWLB was the biggest lender to local government authorities and provided the lowest rate of interest. However, it was agreed that Officers would continue to assess the alternative options available for the council to gain the best value for money.

RESOLVED – That the report be noted.