Agenda item

Members considered the Treasury Management Strategy 2022/ 2023 at Appendix 1. The strategy was expected to be agreed by full Council at its meeting on 23 February 2022. It was noted that the Council was required to approve a treasury management strategy before the start of each financial year.

The Committee was informed that the strategy for 2022/23 covered the current treasury position, treasury indicators which limit the treasury risk and activities of the Council, prospects for interest rates, the borrowing strategy, policy on borrowing in advance of need, debt rescheduling, the investment strategy, creditworthiness policy and the policy on use of external service providers.

The treasury management function ensured that the Council’s cash was organised in accordance with the relevant professional codes, so that sufficient cash was available to meet service activity and the Council’s capital strategy. This involved both the organisation of the cash flow and, where capital plans required, the organisation of appropriate borrowing facilities. The Council was asked to approve the borrowing activity detailed for the following:

-          The operational boundary (limit beyond which external debt was not normally expected to exceed – figures at paragraph 1.8 of the report.

-          The authorised limit for external debt (key prudential indicator and represented a control on the maximum level of borrowing – figures at paragraph 1.9 of the report.  Estimates were provided for years from 2021/22 to 2024/25.

-          Maturity structure of borrowing (gross limits set to reduce the Council’s exposure to large, fixed rate sums falling due for refinancing, with required upper and lower limits), figures at paragraph 1.10 of the report.  The time periods mentioned were from under 12 months, up to 40 to 50 years.

The report also provided information on the types of investment instruments that the treasury management team were authorised to use.  The maximum exposure to non-specified treasury management investments was £100m. 

Following a competitive tendering process, Link Treasury Services Limited (Link) were appointed as the Council’s treasury advisor with effect from 1 August 2021. This appointment had resulted in the TMSS being presented in an alternative way to that which Members may have been used to in the past. Changes to the TMSS included introducing the definition of specified and non-specified investments. Specified investments were those with a high level of credit quality and subject to a maturity limit of one year or had less than a year left to run to maturity if originally they were classified as being nonspecified investments solely due to the maturity period exceeding one year. Nonspecified investments were those with less high credit quality, may be for periods in excess of one year, and/or are more complex instruments which require greater consideration by Members and officers before being authorised for use.

The Council had also determined that it will only use approved counterparties from the UK and from countries with a minimum sovereign credit rating of AA- from Fitch (or equivalent), previously the minimum sovereign credit rating was AA. The cash limit for AA+, AA and AA- sovereign rated foreign countries is £10m per country. The cash limit for AAA sovereign rated countries is £20m per country. In addition, no more than a total of £40m will be placed with any non-UK countries at any time.

Amendments to be made to the covering report prior to it being presented to Full Council included:

-          Page 155, paragraph 1.5 the line should read ‘no more than £40m’ as opposed to £50m

-          Page 159, the line in the table for ‘Local authorities (sector limit £75m)’, should read ‘sector limit £150m’. As at 31 March 2021 there was £98m and this figure allowed additional headroom.

During discussion, comments and questions raised by Members included:

-          It was clarified that investment into other local authorities was permitted, although local authorities were not rated in the same way as financial institutions. However, these investments were guaranteed by Government. It was noted that there was not the ability to foresee or speculate as to whether an authority may issue a section 114 notice. Where a local authority that the Council had invested in then subsequently issued a section 114 notice or was given a capitalisation directive, then this would be reported to the Audit and Governance Committee at the earliest opportunity. Members heard that opportunities to make these investments often arose over a short period of time and required decision making to be relatively quick.

-          Ethical investing when investing in non-UK banks was discussed as Members noted that this was a different approach to that used by the Council’s previous advisors. It was explained that political issues were not taken into account as the sovereign credit ratings system was used when assessing countries and these ratings were factual. Members commented that as a public body there were reputational and ethical risks to the Council were it not to take into consideration wider issues, such as political and human rights issues within countries. It was discussed that ethical views varied from person to person so judgment on this could be difficult. Member suggested that a further reputational risk assessment should be undertaken and added into the final report and agreed that for this coming year, investments should be limited to AAA rated non-UK banks subject to a review the following year.

ACTION LOG: A revised report to be circulated electronically for the Committee to agree prior to publication of the Full Council agenda for the meeting on 23 February 2022.

-          Some of the language used in the report could be interpreted as promotion for the new advisors and in the interest of brevity some of the questions raised within the document, as on page 175 of the reports pack, were not necessary.

-          All treasury investments were in GBP to avoid currency exposure.

-          It was discussed who would propose this report to full Council and the Committee was advised that in the past this had been the Cabinet Member whose portfolio had responsibility for the TMSS, in this case, the Cabinet Member for Finance, Resources, Property and Assets.

RESOLVED –

That full Council be recommended to:

(1)   Agree the Council’s Treasury Management Strategy Statement (TMSS) for 2022/23.

(2)   Agree the operational boundary for external borrowing, the authorised limit for external borrowing, the maturity structure of borrowing and the upper limit for principal sums invested for longer than 365 days, as detailed in the TMSS.