This matter is the responsibility of Executive Councillor Ross Henley
Report Author: John Dyson, Corporate Finance Manager (Interim)
The Corporate Finance Manager introduced the report and gave a presentation. The following points were raised:
· The report included the capital strategy, investment strategy and the treasury management strategy. It also included the Minimum Revenue Provision (MRP) Policy Statement, Prudential and Treasury indicators and laid out the Council’s parameters for treasury management and borrowing.
· The report was a legal requirement of the Local Government Act 2003. It was made in line with the CIPFA Codes of Practice.
· The purpose of the report was to define how the capital programme was affordable and fit for purpose, to map investments and to control how treasury management activities were conducted within the Council.
· The report and the strategies would need Full Council approval.
· The strategies aligned with the revenue budgets, Housing Revenue Account (HRA) business plan and the capital programme.
· The report was produced as part of an annual cycle.
· Internal borrowing was used by the Council as part of treasury management to reduce risk exposure for the Council.
· It was clarified that within the report short-term borrowing was classed as borrowing under a year in length, whereas long-term borrowing was borrowing which was for a period greater than a year.
During the debate the following points were raised:
· It was asked what provision was in place for hyper-inflation. Officers responded that there was no specific provision for hyper-inflation as at the time the report was written it was not a possibility. Where borrowing was undertaken by the authority it was sought to be undertaken at a low rate which protected against rising interest rates and inflation.
· It was suggested that it was good that CIPFA rules had been tightened and it was raised that it seemed likely CIPFA rules would tighten further and that auditors would become stricter at year end.
· Concerns were raised about the impact of sudden changes in interest rates on borrowing.
· It was asked how many staff within the finance team were CIPFA trained. It was responded by the Section 151 (S151) Officer that the Council was very fortunate in terms of the number of staff within the finance team who were CIPFA trained. Team members regularly attended training and kept up with government guidance.
· It was asked how the risk register would be managed going forward regarding borrowing. Officers responded that there was a live risk register across the authority, which was regularly updated and reviewed, including reports being taken to the Audit and Governance Committee on a quarterly basis. The Council had treasury management advisors who would contact the Council as soon as they believed there was something the Council should respond to.
· It was asked about the complexity of the borrowing model now due to sources of borrowing having increased and whether this meant managing borrowing took greater officer time. Officers responded that it did take more officer time and that great care was taken in the management of the borrowing portfolio. The officer time invested paid off as it allowed better rates to be secured through research.
· It was raised that there was a drop predicted in the investment portfolio income in two years' time and it was asked what the factors were that had led to that decrease being predicted. It was responded by the S151 officer that the net income reduced as the cost of financing those investments increased due to increased borrowing costs.
· It was asked what proportion of the debt was serviced on long-term loans. It was responded by officers that at present 28% of borrowing was short-term, 72% long-term. Most of the long-term borrowing was for the HRA. At present more short-term borrowing was being done than previously to keep options open for the new Unitary council.
· It was asked whether there was also medium-term borrowing taken out by the Council. Officers responded that this was the case but that for the purpose of the report borrowing had been separated into short-term and long-term borrowing.
· Officers work thus far was commended and it was asked that officers continue to consider opportunities for obtaining good, affordable borrowing.
· It was asked what was in place to help those who were struggling to pay their council tax due to the rise in living costs. Officers responded that the Council was very aware of the impact the current national situation would have on some residents. The best thing anyone who was struggling could do was to contact the Council and speak to officers. The £150 payment from government for all residents in council tax bands A-D would hopefully be going out in early April.
· It was asked about the impact of Local Government Reorganisation on borrowing. Officers responded that reviewing and planning for borrowing was part of the workplan for the Finance Workstream which officers were working on as part of the transition work to the new authority.
· It was asked what the risk of the commercial investment portfolio was as a result of increasing interest rates. It was responded by officers that there was a risk and officers would continue to regularly review the situation as was normally done with all risks. However, the Council’s borrowing would decrease each year so this would help to balance out rises in interest rates.
· It was raised that due to some of the commercial investment portfolio only having been completed in December 2021, only one quarter’s worth of rent had been received from some properties in the current financial year.
· It was asked what interest was charged on internal borrowing. Officers responded that as interest was lower than borrowing costs currently, internal borrowing cost the Council less than external borrowing would as well as reducing risk to the Council. Interest was charged on borrowing between the HRA and General Fund and the interest was calculated at year end.
· A discrepancy in the report was highlighted. Officers responded that they would correct this ahead of the report progressing further through the democratic process.
· It was raised that in the current financial year, 21% of the Council’s net revenue was spent on interest, next year it would be 23.1% of the Council’s net revenue and by 2024/2025 it would be 38%. This raised a question of long-term sustainability of borrowing. Officers responded that the equivalent gross figures were predicted to be £4.03m (4.02% of turnover) in the current year, £3.93m (5.04% of turnover) the following year and £5.99m (7.37% of turnover) in 2024/25.
Cllr Buller left the meeting at this point, 19:36
· The Chair thanked officers for their report.
Councillor Whetlor left the meeting and then returned during the item so could not vote on the item.
The Committee resolved to note the recommendations in the report;
2.1 Full Council is recommended to approve the CIT Strategies and MRP Statement for adoption with effect from 1 April 2022.
Cllr Firmin left the meeting 19:39.