Meeting documents

Including the prudential indicators and the revised Minimum Revenue Position (MRP) Policy. To be presented by Cllr. David Watson, Julie Edwards, Pensions and Investments Manager and Elspeth O’Neill, Projects and Financial Accountancy Lead.

The Chairman welcomed Mr D Watson – County Councillor, Ms J Edwards – Pensions and Investments Manager and Ms E O’Neil – Projects and Financial Accountancy Lead to present the report.

Ms Edwards explained that a key point to note was the reduced cash balance as a result of the payment of £240m in respect of the Energy From Waste Plant.

Ms O’Neil presented the Minimum Revenue Position (MRP) – Revised Policy Statement and explained the following:-

·         The MRP was an appropriate amount of money set aside each year to repay debt; it was not the actual amount of money that might be used.

·         The MRP was calculated using the underlying need to borrow for capital that was not covered elsewhere e.g. through cash balances or short term borrowing.

·         The proposal was to change the MRP policy from the current 4% reducing balance basis to a straight line basis over 50 years in respect of unfunded capital expenditure incurred prior to April 2008 and that the policy change was possible due to changes in regulations and guidance in 2012.

·         It would be beneficial to the Council to make the change as it would provide consistency and although from 2033/34 the new policy would become more expensive, it was a more prudent approach as all debt would be repaid in the next 50 years.

·         The policy change would not affect the flexibility to repay debt as it related only to the amount of money that had to be set aside to repay debt not the amount that was actually repaid nor would it impact on interest payments which were based on how actual debt was structured.

In response to a question about the use of money from selling capital assets Ms O’Neill explained that there were plans to use capital sales receipts to re-invest rather than pay off debt.

In answer to a question about the impact of on any new unitary authority, Mr R Schmidt said that the accounting policy would have to be re-determined by any new authority in future.

Ms O’Neil went on to discuss the proposed change to increase the authorised boundary for external debt included within the prudential indicators and highlighted the following:-

·         The approved capital programme of £254m for 2016/17 had been revised upwards to £311m to take account of around £14m carry forwards and slippage and the £42m property investment programme agreed by Cabinet in September.

·         The revised capital programme amount would lead to the Capital Financing Requirement having to be increased from the £319m approved in February to £365m

·         The new property investment programme meant that there was a need to increase the authorised borrowing limit to allow for the potential to take advantage of future opportunities: existing projects were already covered in the current limit.

·         The capital financing requirement of £365m was the total amount the Council could borrow. Based on all current requirements the projected amount that the Council would need to borrow was £222m which was within the current authorised limit of £250m. However, raising the authorised limit to £275m would give the Council scope to look at other opportunities around its commercial property strategy.

·         There was an error noted in column 1 of table 3.2.1 – the figure for "Authorised Limit for Total External Debt" should read £290m not £265m

Mr R Schmidt commented that the authorised borrowing limits were set based on the best judgement at the time but there was no guarantee that they might not need to be adjusted in future.

RESOLVED

That the Committee AGREED to recommend to Full Council:-

1.    The Treasury Management Update Report and the Prudential Indicators for 2016/17to 2019/20.

2.    A change to the authorised boundary for external debt within prudential Indicator 3.2 from £250m to £275m in 2016/17.

3.    The proposed change to the MRP policy from a reducing balance basis to a straight line basis over 50 years from 1 April 2016