The Head of Financial Services submitted a report which sets out the Council’s treasury management activity and performance for the financial year 2016/2017.

Recommendation: That the City Executive Board resolves to note the report.

The Head of Financial Services submitted a report which set out the Council’s treasury management activity and performance for the financial year 2016/2017. He spoke to the report which reflected a positive picture of the Council’s investments.

The City Executive Board resolved to:

Note the report.

The Head of Financial Services said that the Council’s investments totalled in the region of £90m-£100m at any one time.  Returns had reduced slightly to 1.05% but  had  remained  above  the  target  for  the  year.    Council  borrowing  had remained within limits and the Capital Financing Requirement showed that the Council had used internal borrowing rather than market borrowing to finance capital expenditure.  The Council had external borrowing from the PWLB at fixed rates totalling £198.5mm, which had enabled the Council to retain ownership of its social housing stock.   Interest paid on this external debt totalled £6.5m in

2016/17.

The Panel noted in discussion that the HRA financing costs ratio (Table 7) had improved as a result of additional income from temporary accommodation and fewer than expected Right to Buy sales.

A report may follow.

The Scrutiny Officer presented the report and welcomed the positive response to the recommendation.

Cllr Turner, Board Member for Finance, Asset Management and Public Health said that the Council was always prepared to look at housing investments when opportunities existed.

The Head of Financial Services has submitted a report which outlines the performance of the treasury management function for the 6 months to 30 September 2016.

Recommendations: That the City Executive Board resolves to:

1.    Note the performance of the treasury management function for the six months to 30 September 2016

The Head of Financial Services submitted a report which outlines the performance of the treasury management function for the 6 months to 30 September 2016.

Cllr Turner, Board member for Finance, Asset Management and Public Health presented the report.

The City Executive Board resolved to:

1.    Note the performance of the treasury management function for the six months to 30 September 2016

The Panel noted that the Council’s investment performance at the end of September 2016 was above the starting target despite the Bank of England decision in early August to lower the base rate from 0.5% to 0.25%.  An overachievement of £179k from investment income is forecast for year end and property fund investments were the primary driver of this good performance.

In response to a question, the Panel heard that a planned additional investment of £10m in homelessness property acquisitions (to be funded by £3m of Right to Buy receipts and £7m of prudential borrowing) would not count as a non-specified investment because the Council would be going directly to the market.  The £5m already committed did count as a non-specified investment because it had been invested in a fund.

The Panel noted that the Treasury Management Strategy allowed for non-specified investments to total no more than 25% of the previous year’s average investment portfolio.  In the current year the limit was £18m, of which £15m had already been committed, leaving £3m of headroom.  The Panel heard that the Council would soon be making decisions about providing loans to the housing company and the OXWED development vehicle and that these cash resources could be used to offset the need for external borrowing (which incurs costs) through internal borrowing. 

The Panel questioned whether returns from non-specified investments would more than offset the costs of external borrowing and what the risks of doing so would be.  The Head of Financial Services advised that 50 year loans are available on 2.5% interest rates and that property funds were providing returns of 4-5% per year.  The Council could also benefit from unit price increases upon withdrawing from property funds but these were long-term investments.  The risks were from reduced liquidity, reduced returns due to lower occupancy rates and decreases in asset values.  The Panel suggested that consideration should be given to how the £3m available for unspecified investments should be utilised and whether there was a case for increasing investments in property funds, for example, given the relatively low cost of borrowing from the market as a substitute for internal borrowing.

The Panel agreed to make one recommendation to the City Executive Board:

1.    That consideration is given to how the remaining £3m of cash resources available for non-specified investments in 2016/17 can best be utilised and whether there is a case for maximising unspecified investments given the relatively low interest rates available on external borrowing as an alternative to internal borrowing.