Decision details

Review of Treasury Management performance: The report will set out

·        A summary of the original strategy agreed for 2015/16 and the economic factors affecting this strategy in the first six months of the year.

·        The treasury management activity during the first six months.

·        The performance to date of the Prudential Indicators, which relate to the Treasury function and compliance within limits.

·        The outturn report.

37.1     The report was introduced by the Interim Chief Finance Officer and the Principal Finance Officer (Treasury Management). A new Code of Practice for Treasury Management was introduced following the Icelandic Bank collapses, which requires three areas of Treasury Management activity to be regularly reported. This report combines a review of actual activity in the previous year 2015/16 and a mid-year review for 2016/17.

37.2     The Interim Chief Finance Officer outlined that interest on deposits over the previous financial year (2015/16) had been fairly low, averaging 0.7%, and around £20million of new borrowing had taken place. In the first half of the current financial year a small amount of new borrowing took place to replace debt that had matured. Interest rates on short term investments remain low.

37.3     In formation on the Capital Financing Requirement (CFR) and Minimum Revenue Provision (MRP) are also included in the report. A review of the Minimum Revenue Provision (MRP) is underway and is scheduled to be reported back to the Committee at the December Reconciling Policy, Performance and Resources (RPPR) Board meeting. It is likely that the review will result is a reduced Minimum Revenue Provision (MRP) in future years.

37.4     The Committee asked about the replacement of long term debt; whether LOBO (Lender Option, Borrower Option) loans will be due for redemption soon and; whether the Council will continue to be able to borrow at lower interest rates.

37.5     The Principal Finance Officer (Treasury Management) responded that the Council had repaid some Public Works Loan Board (PWLB) historic debt early, which has the highest interest rates, and replaced it with lower interest LOBO products. The interest on the three LOBO products is on average 4.5%. All LOBO loans are within option and are monitored on a regular basis. 

37.6     The Council’s Treasury Management advisors, Capita, expect the PWLB interest rates to remain relatively low in next two years. They will be monitored with Capita and the advice is to take out loans as the Council needs them and take action when required. It is likely that the PWLB will remain the main borrowing source, but alternative sources such as the Municipal Bonds Agency will offer alternatives which will help to keep PWLB rates lower.

37.7     The Committee were advised that it is not worth redeeming higher rate debt at present due to early redemption penalties, which make redeeming debt early too expensive. New borrowing will only be undertaken when the Council needs the funds due to the high carrying cost of debt (i.e. the interest paid on borrowing is significantly higher than the interest paid on short term investments).

37.8     The Committee RESOLVED to:

1)           note the Treasury Management performance in 2015/16 incorporating the Mid-Year review for the first half of 2016/17; and

2)           to continue the discussion regarding the Capital Financing Requirement (CFR) and Minimum Revenue Provision (MRP) at the RPPR Board.