Meeting documents

Members received a briefing on the Prudential Code which was included in the agenda pack. The briefing sought to make Members aware of the code and to provide an overview of its contents.

During the presentation the Director of Resources highlighted the following issues:-

·       The key elements of the prudential code were the capital strategy and the treasury management strategy.and its relevance to major capital projects.

·       The objectives of the Prudential Code were to provide a framework for local authority capital finance and treasury management that would ensure for individual local authorities that capital expenditure and investment plans were affordable and all external borrowing and other long term liabilities were within prudent and sustainable levels. Treasury management and other investment decisions should be taken in accordance with professional good practice.

·       Prudential indicators were designed to demonstrate the impact of investment decisions on the Council’s future financial position and were forward looking.

·       Key indicators for the Council would be the ratio of financing costs to net revenue stream, which indicates the affordability of debt. Estimated capital expenditure and estimated capital financing requirements would be the key indicators for prudence.

·       The role of Members was to understand the Capital Strategy and the Treasury Management Strategy so they could effectively scrutinise them and be satisfied they reflected their overarching aims. The Capital Strategy must be clear and easy to understand. In particular if commercial investments form part of the strategies Members must understand the risks and how they would be managed. The Council has a number of large scale projects such as the Gerrards Cross Police Station and car park.

·       There was no external debt yet but this could change.

·       Statutory advice would be given by the Section 151 officer.

·       With the Treasury Management Strategy higher returns brought higher risks and reduced liquidity. This would be approved by Members at the February Council.

A Member commented that they understood the risks and were happy with the information they received from officers to make informed decisions. However, with bigger decisions such as setting up Consilio it was important that Members understood the impact of these decisions and were able to probe deeper so that they could make an informed decision in an open and transparent way. The Director of Resources reported that the business case should include a financial analysis on the return on investment over a certain time period and this had been shown for the car park and police station project so Members could make a judgement that the return on investment was acceptable which could also include non-financial benefits.

Another Member commented that it was important to look at value for money on a case by case basis and there was a range of different criteria to look at for investment decisions which should meet an agreed standard. The Director of Resources used Consilio as an example which was an investment vehicle and it was useful to have some kind of benchmark and what the Council would expect to see before they financed a particular investment. The Council would look at each individual project on its own merit.

Reference was made to figures changing in projects during the course of the decision making process which made it difficult to make an informed decision. The Director of Resources commented that figures would change whilst it was a draft business case but there would be certainty before the final business case was accepted.

In terms of the contractual basis of loans the prudential indicators would come into play with a financial analysis as part of the final business case, being undertaken to understand the impact on capital financing and the capital expenditure ratio and the cost of borrowing. A further question was asked about restrictive covenants. The Director of Resources reported that the Council was investing in property not just buildings and the Council had to be satisfied that the investment and risks could be managed appropriately. The Section 151 Officer would advise Members that he was satisfied that the risks to the Council were acceptable.