Agenda item

This report details the Council’s Treasury Management activities for the year 2019/2020 and demonstrates its compliance with the 2017 Prudential Code for Capital Finance.

The item was introduced by the Head of Pensions and Treasury. It was explained that the report was retrospective, looking back at the 2019/20 financial year. Its objectives were threefold: 1) to show compliance with the three strategies governing Treasury Management, 2) to review activity over the year and 3) show compliance with the set of prudential indicators designed to given assurance that capital investment was prudential, sustainable and affordable. It was explained that the report provided a commentary on interest rates and inflation which were seen as the most significant risk to Treasury Management. The Treasury and Investment Strategies were reviewed within the report along with borrowing, capital expenditure and investment. Debt rescheduling was considered but this was not considered financially advantageous over the last period and therefore had not happened. Up-to-date prudential indicators were included along with the outturn report for the treasury function.

A Member posed a question regarding the operational boundary and authorised limit. It was stated that both had raised significantly over the last six years and therefore it was questioned what would happened to them given the Council’s current financial position and anticipated rationalisation. Specifically, the Member wanted to know what would happened should the limits drop below the current borrowing level.

In response, the Head of Pensions and Treasury explained that in practice the operational boundary and authorised limit were always above the borrowing level due to the way they were calculated. However, should they become temporarily inverted this would have to be reported and an explanation provided.  The operational boundary and authorised limit existed to give elected Members an indication of the extent to which capital expenditure and borrowing were within an overall plan. Where the level of capital investment and associated borrowing was being reduced, because The Prudential Indicators were calculated on an aggregation for the previous year, the indicators relating to the levels of debt would operate like a ratchet meaning that they would not decrease. The only way in which they could be eroded would be by contributing more to the minimum revenue provision.

It was the duration of the debt which was significant. The opportunity for this to be repaid as it matured was constrained by the fact that as debt had been taken out, the point of maturity had been spread over a range of dates up to as much as 70 years into the future. The rationale was to have approximately £10 – 20m of debt maturing at any time. It would be at the point debt was maturing that it would be considered whether or not that this should be repaid. However, over the recent period borrowing had been so cost effective that it had not been consider worth repaying. It was described how the cost of the Council’s debt portfolio at the time of the meeting was 2.7%. It was considered remiss for debt to be repaid when it could be replaced with such cheap borrowing. In summary, it was a ratchet mechanism that gave limited opportunities for reducing borrowing. 

In response to a Member question regarding assurance that investment income from the assets comprising the Asset Investment Fund was in excess of borrowing costs, the Head of Pensions and Treasury provided confirmation; investment properties that made up this Asset Investment Fund (the Colonnades, Imperial Way, Victor Way and the Croydon Park Hotel) had provided a £0.8m yield in 2019/20.  This yield was greater than the average long run cost of borrowing. The Director of Finance, Investment and Risk committed to provide Members with a further breakdown of borrowing costs and investment income subsequent to the meeting.

In response to a further Member question, the Director of Finance, Investment and Risk confirmed that there was potential for the Council to dispose of assets. A review of the Council’s asset portfolio was ongoing.

RESOLVED: The Committee AGREED to note the Treasury Management Strategy Statement and Annual Investment Strategy End of Year Review 2019/2020.