Local democracy

Agenda item

TREASURY MANAGEMENT POLICY STATEMENT, MINIMUM REVENUE PROVISION STRATEGY AND ANNUAL INVESTMENT STRATEGY 2018/19

The Assistant Director of Finance and Procurement will submit Document “AD” which reports on the Treasury Management Policy Statement, Minimum Revenue Provision Strategy and Annual Investment Strategy for 2018/19. 

 

The report includes the following:

 

·       the capital plans (including prudential indicators);

·       a minimum revenue provision (MRP) policy (how residual capital expenditure is charged to revenue over time);

·       the treasury management strategy (how the investments and borrowings are to be organised) including treasury indicators; and

·       an investment strategy (the parameters on how investments are to be managed).

                                                     

Recommended-

 

That the report (Document “AD”) be noted and referred to Council for adoption.

 

                                                                                    (David Willis – 01274 432361)

 

 

Minutes:

The Assistant Director of Finance and Procurement submitted Document “AD” which reported on the Treasury Management Policy Statement, Minimum Revenue Provision Strategy and Annual Investment Strategy for 2018/19. 

 

The report included the following:

 

·       the capital plans (including prudential indicators);

·       a minimum revenue provision (MRP) policy (how residual capital expenditure is charged to revenue over time);

·       the treasury management strategy (how the investments and borrowings are to be organised) including treasury indicators; and

·       an investment strategy (the parameters on how investments are to be managed).

 

It was reported that the Treasury policy set limits on amounts invested dependant on certain credit criteria. Any bank that fell outside this benchmark was therefore not used.

 

Members were informed that the schools however had their own individual bank accounts spread across the four main UK banks. At 31/03/17 their overall bank balances with Lloyds was £18.8m, Barclays £5.1m, HSBC £2.1m, Nat West £1.1m and £0.8m with Yorkshire Bank. Estimated balances were expected to fall to £26.7m by 31/03/18 and £19.1m by 31/03/19 although this was subject to change dependant on School Academy conversions.

 

It was reported that as this money was controlled by the schools and not the Treasury Manager, there was the risk that reductions to credit ratings may place these accounts outside the preferred credit criteria outlined in the Treasury Policy. The schools had temporary exception in the past (November 2016) due to the expectations of most of the schools converting to academies.

 

Members were informed that since the financial crisis of 2008, legislative changes had been put in place by the Government aimed at strengthening the financial system. One of these reforms was to separate retail banking (ringfenced bank) from investment banking. All of the four major banks have had to go through this process, which had to be finalised by January 2019 but most would be completed before then.

 

It was reported that the school balances would be in the retail or ring fenced part of the bank for Lloyds, Nat West and HSBC but not for Barclays.

 

 

 

 

 

 

 

 

Members were advised that the credit rating agencies were now reviewing the ratings and there would likely be downgrading for the unringfenced part of the bank for Barclays. The addition of this new legislation consequently added another level of uncertainty going forward. This raised the following issues:

 

i) The schools had their own individual balances with the four main banks and could exceed their Treasury policy limits for Barclays.

 

ii)Further more it should be noted that centrally held cash balances had reduced significantly (due to repayment of loans and use of reserves), this meant that the Council’s investment limits maybe reduced in the future.

 

iii)It could also mean that a large percentage of the overall cash held by the council could be in the schools bank accounts, concentrated in a few counterparties.

 

Members were informed that there was a proposal to review school balances and progress on the issue would be reported in the next Treasury report.

 

There was a short discussion on who would be responsible for school deficits if a trust became insolvent.

 

Members discussed the flexible use of capital receipts policy as approved in the Council’s Capital Investment Plan for 2018/19 onwards.

 

It was reported that there were no plans to use the flexible use of capital receipts in 2018/19 financial year but it was possible that the Council may seek approval from the Secretary of State to use capital receipts in this flexible manner in the future.

 

In response to a Member’s question it was reported that the format for calculating capital financing costs was prescribed by regulation and included a cost for items like PFI and finance leases, which were capitalised for the purpose of the statement of accounts.

 

It was reported that the table showing Ratio of Capital Financing costs to the Net Revenue Stream detailed in Council Document “BB” (22 February 2018) showed the impact on the revenue budget of the borrowing for the Capital Investment Plan and would be circulated to Members.

 

Resolved-

 

That the report (Document “AD”) be noted and referred to Council for adoption.

 

Action:  Assistant Director, Finance and Procurement/Interim City Solicitor

 

                                                           

Supporting documents: