Agenda item

Report of the Cabinet Member Finance

The Cabinet Member Finance, Councillor Rowena Hay, introduced the report which had been circulated with the agenda. She explained that the council under the CIPFA code must report annually on its treasury management strategy statement and its prudential indicators and the report incorporated the annual investment strategy which is also a requirement.

The Treasury Management Panel (TMP) and Cabinet had recommended that Council approve this report.

The treasury strategy statement was clearly set out in Appendix 2. The council was required to operate a balanced budget, one of the main functions of the treasury operations is to ensure that cash flow is properly planned so that cash is available when needed. Surplus money is invested in low risk counterparties in line with the authority’s low risk appetite making sure that liquidity is adequate before any investment return is considered. Another main function of this service is funding the capital plans, broadly this is managing the longer term cash flow to ensure that capital spending obligations can be met.

The annual investment strategy was set out in Appendix 2. Its aim is to generate a list of highly creditworthy counterparties whilst allowing for diversification but avoiding any single concentration of risk therefore providing secure investment and minimising risk.  

She explained that the Minimum Revenue Provision must follow statutory guidance issued by the department of communities & local government which sets out what constitutes prudent provision, it is proposed that for the years 16/17 & 17/18  to apply option 1 in relation to supported capital expenditure and option 3 in respect of  unsupported capital expenditure. These will be adjusted for 17/18 by using capital receipts to repay debt linked to capital loans as set out in paragraph 24 in Appendix 4.

She gave thanks to council officers and advisors for their achievements. Since the budget monitoring report in September the investment income had improved for 16/17 and was currently showing as a £12,800 surplus above the budget.

In response to a questions from a member  the Cabinet Member explained that Repo was the name for a method of borrowing by taking a different form of collateral using a third party.

She referred a question to the Finance Officer and he confirmed that the investments referred to in the UK, Ireland and Luxembourg were sterling only investments. Historically these companies had been based in these countries for a long time and they were not based there for tax avoidance purposes.

A member questioned the appropriateness of the equity investment for an app which was referred to in the report. The Cabinet Member advised that the council had decided to invest in the pilot scheme which if successful could benefit Cheltenham. The Leader added that Gloucestershire was a retail pathfinder and was attracting government support for this venture. It was not a huge investment but the company concerned had asked the council for some money and therefore it had been sensible for the council to request some equity stake in return so if successful they could benefit from future returns. A sum of £25K had been invested and the credit scheme was being rolled out in Cheltenham, Gloucester and Stroud.

A member raised concern about the use of Repos which he acknowledged he had raised at the Treasury Management Panel but he now wished to bring to all members attention. He requested a separate vote on this particular recommendation.

His concern that it was a complex investment and it would  be difficult for councillors to fully understand it from the explanation given earlier. Counterparty risks were introduced by using custodians as middlemen in the transaction and they would inevitably add costs. In summary he thought they were unnecessary and there was no real value in spreading into this area of complexity.

Councillor Paul Baker, as chair of the Treasury Management Panel, advised that they had had a good debate at their last meeting and were pleased that the strategy was looking at innovative new ways to get the best possible returns from the council's investments with low risk. He added that the TMP had discussed Repos at their meeting but they had supported the officer recommendations and there was full explanation in the report before Members. The council must rely on expert advice from their expert officers and it would be wrong to restrict the options or tie their hands in not recommending legal upfront methods which local authorities have at their disposal.

The Cabinet Member endorsed this view that Treasury Management was a complex area and they relied on the skills of their officers and their expert advisors. The custodians used in the Repo investments were old managing lending companies set up in the 19th century and was a securitised form of lending.

Upon a vote it was 

RESOLVED (unanimously) THAT

The attached Treasury Management Strategy Statement, Annual Investment Strategy for 2017/18 at Appendix 2, 2017/18 Lending list at Appendix 3 and MRP policy statement for 2016/17 and 2017/18 at Appendix 4, be approved  including :

• The general policy objective ‘that Council should invest prudently the surplus funds held on behalf of the community giving priority to security and liquidity’.
• That the Prudential Indicators for 2017/18 including the authorised limit as the statutory affordable borrowing limit determined under Section 3 (1) Local Government Act 2003 be approved.
• Revisions to the Council’s lending list and parameters as shown in Appendix 3 are proposed in order to provide some further capacity. These proposals have been put forward after taking advice from the Council’s treasury management advisers Capita Asset Services and are prudent enough to ensure the credit quality of the Council’s investment portfolio remains high.
• For 2016/17 and 2017/18 in calculating the Minimum Revenue Provision (MRP), the Council will apply a modified Option 1 in respect of supported capital expenditure to repay the debt in equal instalments over 35 years and Option 3

A separate vote was taken on the fourth bullet point which was carried

Voting: For 25, Against 4, Abstentions 6

• The use of Repo/Reverse Repo is accepted as a form of securitised lending.