Agenda item

(a)       That having reviewed the draft Treasury Management Strategy 2019/20, draft Treasury Management Policy Statement 2019-2022 and draft Treasury Management Practices and Schedules 2019-2022, the Committee has no specific issues to be reported to Cabinet on 19 February 2019; and

(b)       That the Treasury Management 2018/19 quarterly update be noted.

The Interim Finance Manager - Technical Accountancy presented the draft Treasury Management Strategy 2019/20, Policy Statement, Practices and Schedules 2019-2022 for review and recommendation to Cabinet prior to adoption by County Council.  All Members had been invited to a training session on 29 January in preparation for approving the Strategy at full Council in February.  Also presented for information was the quarterly update on matters relating to the Council’s Treasury Management Strategy 2018/19.

There were no significant changes to the overarching Treasury Management Policy Statement and key sections were highlighted on economic and local context, along with investment and borrowing strategies.  Explanation was given on changes such as the separation of the Capital Strategy and Asset Management Plan, and the Council’s approach in relation to broader definition of types of investments, as detailed in the report.

In response to queries from Councillor Peers, it was explained that usable reserves held as cash could be made available for investment.  He said that details of short-term loans reported should be accompanied by the rationale and that investments should generate sufficient income.  He raised a number of queries on the Strategy, such as the need to clear debt rather than investing at low interest rates and to test borrowing against affordability to avoid penalties when restructuring debt.  He went on to question an investment and loan taken out at the same time which equated to a loss in interest.

The Interim Finance Manager explained that details of prudential indicators included in the Capital Strategy demonstrated the cost of borrowing as a percentage of income.  The Corporate Finance Manager confirmed that the percentage was monitored and currently below that of many other North Wales councils.

On other queries, the recent Treasury Management training session had covered in detail the approach to repaying long-term loans at the most appropriate time and short-term borrowing was undertaken to adjust to fluctuations in cashflow levels at any given time, which was normal practice.  Whilst it was acknowledged that the long-term borrowing position reflected many historic decisions, future long-term loans were fixed at a lower rate in conjunction with the advice of the Council’s Treasury Management advisors.  EU legislative requirements through the Markets in Financial Instruments Directive (MiFID) on the retention of cash as investments provided more flexibility in the market, but meant that it was possible for investment and borrowing to be undertaken at the same time.

The Chief Officer (Governance) said that historic borrowing decisions were based on information and interest rates available at that point in time and that there was now increased scrutiny on borrowing.  In highlighting the strategic risk on maintaining school buildings, he spoke about the difficult balance between investing in assets and the cost of borrowing.

The Corporate Finance Manager said that the majority of borrowing in the revenue account was supported by Welsh Government funding for the core capital element.

Councillor Woolley acknowledged the need for essential spend and raised concerns about the limit on the cost of borrowing against a decreasing Council Fund.  In response to questions, a breakdown of the £13.9m total budget for interest loan paid was approximately 40% for the Housing Revenue Account (HRA) and 60% for the Council Fund.  On the affordability ceiling, prudential indicators provided a mechanism for any unsupported borrowing to be considered in the context of the Medium Term Financial Strategy.  Information on schemes funded by supported and prudential borrowing were shown in the Capital Programme along with examples of the effects of borrowing.

Councillor Dunbobbin suggested a bolder approach to investment in view of the financial climate, for example the approach taken by some authorities in England to invest in hotels and buildings which could provide a better return.  The Corporate Finance Manager said that all opportunities for income generation were being explored.

The Chief Officer advised that concerns had been raised in England by the National Audit Office about the extent of commercial investments and that often such investments were outside the geographical area of the council and were for purely commercial purposes rather than any social benefit within the area of the particular council.  Councillor Dunbobbin was advised that such a request for discussion should be directed to the Corporate Resources Overview & Scrutiny Committee.

RESOLVED:

(a)       That having reviewed the draft Treasury Management Strategy 2019/20, draft Treasury Management Policy Statement 2019-2022 and draft Treasury Management Practices and Schedules 2019-2022, the Committee has no specific issues to be reported to Cabinet on 19 February 2019; and

(b)       That the Treasury Management 2018/19 quarterly update be noted.