Agenda item

Report C/19/59 sets out the proposed strategy for treasury management for 2020/21 including Treasury Management Indicators.

Report C/19/59 set out the proposed strategy for treasury management

for 2020/21 including Treasury Management Indicators.

Mr Lee Walker, Capital and Treasury Senior Specialist, provided the following information to members: 

1.    Introduction

·         Requirement for Cabinet to approve a TMSS before the start of each financial year.

·         TMSS based on spending plans in current budget cycle.

2.    Economic Outlook (Section 2 – Arlingclose View)

·         The main influence on the UK economy will be the exit from the European Union, in particular uncertainties around the future trading relationship with the EU.

·         UK growth is currently weak although it is forecast to slowly improve over the coming year as Brexit-related uncertainties gradually dissipate.

·         CPI inflation is currently around 1.4% (December 2019) and is forecast to remain below the Bank of England’s target of 2% during 2020. Commodity prices, in particular oil prices, continue to have a significant bearing on inflation.

·         The Bank base rate is forecast to remain at 0.75% over the next two years with downside risks to this actually happening. Longer term borrowing rates are expected to remain broadly unchanged from current levels but subject to periods of short term volatility.

·         Further detail on interest rates in Appendix 1.

3.    Borrowing & Investment Position (Section 3)

·         Table at 3.1 shows the council’s underlying borrowing need (Capital Financing Requirement) is forecast to rise significantly through to 2023 to £190.2m reflecting the council’s capital investment plans for both the General Fund and HRA.               

·         New borrowing of £52m is expected to be required in 2020/21 to meet the increase in the CFR.

·         Further new borrowing of about £30m per year is forecast to be required in the two following financial years.

4.    Borrowing Strategy (Section 4)

·         PWLB, previously the preferred source for longer term borrowing, increased its borrowing rates by 1% from October 2019 making this option relatively expensive.

·         Alternative lending sources now appear much more attractive, particularly borrowing from other local authorities.

·         Currently more attractive to borrow for shorter periods where interest are much lower than longer term rates.

·         Exposes a refinancing risk but interest rates not expected to change significantly over the medium term.

5.    Investment Strategy (Section 5)

·         With the emphasis on borrowing, investment balances are forecast, on average, to reduce significantly from existing levels.

·         However, the investment strategy remains broadly unchanged from the one currently approved.

·         Priority remains security then liquidity of cash invested before yield.

·         Low interest rate environment continues to erode some capital value over time so the strategy proposes to continue with £15m of strategic investments providing above inflation returns to help mitigate this.

·         Propose to continue to follow Arlingclose’s recommended asset classes, counterparty list and credit quality information when making investment decisions and monitoring the portfolio.

6.    Treasury Management Indicators (Section 6)

·         Requirement of the CIPFA’s Treasury Management Code

·         Designed to help control risk from TM activities.

·         No material change from the current indicators.

7.    Financial Implications (Section 8)

·      The net cost to the General Fund in 2020/21 from the council’s treasury management activities is forecast to increase by £108k compared to 2019/20 budget due to the increased borrowing requirement.

·      However, this does not include the additional interest costs from the extra £100m in prudential borrowing recently agreed for the Otterpool Park scheme. These costs are planned to capitalised and charged directly to the scheme itself while the site is being acquired and infrastructure works are undertaken.

Members commended officers on the report produced and were also keen to show their admiration for Arlingclose’s work. 

Proposed by Councillor Rebecca Shoob

Seconded by Councillor Michelle Keutenius and

RESOLVED:

To receive and note report C/19/59

(Voting: For 9; Against 0; Abstentions 0)