Agenda item

Prudential Indicators and Treasury Management and Investment Strategy 2014/15 to 2016/17

-           Director of Finance to report.


Councillor Akhtar, Deputy Leader, introduced a report by the Director of Finance, which detailed that, in accordance with the Prudential Code for Capital Finance, the Secretary of State’s Guidance on Local Government Investments, the CIPFA Code of Practice for Treasury Management in Local Authorities and with Council policy, the Director of Finance was required, prior to the commencement of each financial year to seek the approval of the Council to the following:-


·                The Prudential Indicators and Limits for 2014/15 to 2016/17.

·                A Minimum Revenue Provision (MRP) Statement which sets out the Council’s policy on Minimum Revenue Provision.

·                An Annual Treasury Management Strategy in accordance with the CIPFA Code of Practice on Treasury Management including the Authorised Limit.

·                An Investment Strategy in accordance with the Department for Communities and Local Government (CLG) investment guidance.


Following the events of October 2008 and in light of the current and on-going economic and financial climate, the Director of Finance took a series of actions to evaluate the Council’s Investment Strategy and manage the treasury management function.


The Council’s investment policy’s continuing primary governing principle was the security of its investments, although yield or return on investments was also a consideration.


The revised operational guidelines enhanced the weighting towards ‘security’ even further at the expense of yield or return.  Although seeking to minimise investment default risk, it did not eliminate it.  Eliminating risk altogether was only possible if the Council only invested any surplus funds with the Bank of England’s Debt Management Office (DMO).


The Council continued to operate the treasury management guidelines well within the boundaries set by the approved selection criteria so as to minimise the risks inherent in operating a treasury management function during volatile and adverse economic and financial conditions.  To this end, the Council has continued to invest any surplus funds primarily with the Bank of England’s Debt Management Office.


In addition, investment levels over the last twelve months remained low as market conditions still dictated that it continued to be prudent to defer borrowing plans and to fund on-going capital commitments through the use of the Council’s internal cash-backed resources. 


Actual returns on investment opportunities remain subdued when compared to previous years, but have been effectively and prudently managed by significantly reducing expected capital financing costs by delaying borrowing plans.  This enabled the Council to stay within its capital financing budget cash limit and for budget savings to be put forward in support of both the Council’s 2013/14 and 2014/15 revenue budget.  This was a significant achievement given the difficult economic and financial conditions prevailing throughout the current financial year.


The Council’s counterparty list for investments, with whom the Council did business, used the criteria as set out in the report and provided the Council with the opportunity to maximise security of any invested funds by allowing all funds to be placed with the DMO and UK Single Tier and County Councils and reducing the maximum level and time of investments that could be placed with financial institutions that do not meet all the upper limit credit rating criteria.


In terms of the Prudential Indicators it was noted that only schemes in the Council’s approved capital programme were included in the indicators as listed and that there may be further schemes pending approval. Any additional approvals would normally have to be funded from unsupported borrowing as all identified available resources have been allocated. This would impact on the prudential indicators as set out in the report.


There were four treasury prudential indicators, the purpose of which was to contain the activity of the treasury function within certain limits, thereby managing risk and reducing the impact of an adverse movement in interest rates.  The indicators submitted for approval were shown in detail as part of the report.


The limits for interest rate exposures were consistent with those approved within the Mid-Year report on the 2013/14 Strategy; in line with the requirements of the new Code the maturity structure detail had been updated and extended; and the investment limits beyond 364 days have been maintained to reflect the continued investment strategy.


Recommended:-  (1)  That the prudential indicators and limits for 2014/15 to 2016/17 contained in Appendix A to the report be approved.


(2)  That the Minimum Revenue Provision Statement contained in Appendix A which sets out the Council’s policy on Minimum Revenue Provision be approved.


(3)  That the Treasury Management Strategy for 2014/15 to 2016/17 and the Authorised Limit Prudential Indicator (Appendix B) be approved.


(4)  That the Investment Strategy for 2014/15 to 2016/17 (Appendix B – Section (e) and Annex B1) be approved.

Supporting documents: