Local democracy

Agenda item

TREASURY MANAGEMENT MID YEAR REVIEW UP TO 31 AUGUST 2018

The Assistant Director, Finance and Procurement will submit Document “Q” which is a mid-year report that has been prepared in compliance with CIPFA’s Code of Practice on Treasury Management, and covers the following:

 

  • An economic update for the first part of the 2018/19 financial year.
  • A review of the Treasury Management Strategy Statement and Annual Investment Strategy.
  • The Council’s capital position (prudential indicators).
  • A review of the Council’s borrowing strategy for 2018/19.
  • A review of any debt rescheduling undertaken during 2018/19.
  • A review of compliance with Treasury and Prudential Limits for 2018/19.
  • A review of the Council’s investment portfolio for 2018/19.

 

Recommended-

 

That the details in Section 2.6.1 of Document “Q” be noted and the report be referred to the 16 October 2018 Council meeting for adoption.

 

                                                                        (David Willis – 01274 432361)

 

 

Minutes:

The Assistant Director, Finance and Procurement submitted Document “Q” which was a mid-year report that had been prepared in compliance with CIPFA’s Code of Practice on Treasury Management, and covered the following:

 

  • An economic update for the first part of the 2018/19 financial year.
  • A review of the Treasury Management Strategy Statement and Annual Investment Strategy.
  • The Council’s capital position (prudential indicators).
  • A review of the Council’s borrowing strategy for 2018/19.
  • A review of any debt rescheduling undertaken during 2018/19.
  • A review of compliance with Treasury and Prudential Limits for 2018/19.
  • A review of the Council’s investment portfolio for 2018/19.

 

Members were informed that the bank rate was now standing at 0.75%.

 

It was reported that, there remained much uncertainty around the Brexit negotiations, consumer spending levels and business investment, so it was still far too early to be confident about how strong growth and inflationary pressures would be over the next two years, and therefore the pace of any rate increases.

It was reported that in terms of borrowing the current context was that the Council’s cash balances were reducing and there was a future draw on cash from the Capital Investment Plan. Based on the revised estimate for capital expenditure current projections were that the Council would need to borrow an additional £50m this year.  Cash balances and capital spend would be closely monitored and projected forward. If it was felt that cash balances were getting too low or likely to be too low in the future, borrowing would be undertaken in appropriate tranches. In deciding the appropriate tranches of borrowing, caution would be exercised in projecting forward capital spend.

Members were informed that £9.4m of loans had matured in May and August 2018. However it was anticipated that borrowing would be undertaken during this financial year to finance commitments in the capital plan.

 

It was reported thatBradford schools had their own individual bank accounts spread across the four main UK Banks. At 31 March 2018 the overall bank balances with Lloyds was £17.54m, Barclays £4.89m, HSBC £1.65m and Nat West £1.61m.

 

At the last Treasury report the issue of the UK banks going through legislative changes put in place by the government aimed at strengthening the financial system was raised.  One of these reforms was to separate the retail banking (ringfenced bank) from investment banking (unringfenced). All of the four major banks had to go through this process.

 

The school balances would be in the retail or ringfenced part of the bank for Lloyds, Nat West and HSBC but not for Barclays.

 

This raised the following issues.

 

i)             The credit rating for the Barclays unringfenced part of the bank is lower than for the ring fenced bank.

ii)         If the credit rating was to reduce in the future it could be below the Council’s credit limit.

 

Of the schools with Barclays, 8 out of 32 were expected to convert to academies during 2018-19 (these schools held balances of £1.18m). It was expected that further conversions on an on going basis and for cash balances held by schools in their bank accounts to steadily reduce as a result .Once converted to academies their bank balances no longer counted towards the Council Treasury limits.

 

With the above changes in status for the schools and the reduction in school balances, it was proposed that the school balances continue to have a temporary exemption from the Treasury Policy until the main academy conversion process had finished.

In response to a Members question it was reported that it was up to schools and their governing bodies to decide which bank they used.

The Chair stressed that schools should be advised of the issues relating to the credit rating for the Barclays un-ring fenced part of the bank which was lower than the ring fenced bank.

In response to Members questions it was reported that borrowing rates were still historically very low, but there was still a cost to borrowing in advance of need as investment rates were lower than borrowing costs.

Clarification was sought on capital programmes and the effect on the budget if the schemes were not completed in time.

 

Resolved-

 

That the details in Section 2.6.1 of Document “Q” be noted and the report be referred to the 16 October 2018 Council meeting for adoption.

 

Action:           Assistant Director, Finance and Procurement

 

                                                           

 

Supporting documents: