The report sets out the Council’s Treasury Management activity and performance for the financial year 2018/2019.

Nigel Kennedy, Head of Financial Services, and Anna Winship, Management Accounting Manager, will present and be available to answer any questions.

Cabinet on 11 September 2019 will be recommended to Note the report.

The Panel considered the Treasury Management Strategy: Annual Report and Performance 2018/19.

The Head of Financial Services introduced the report, drawing specific attention to the £96.2 million of investments held by the Council, the fact that interest income from loans of £3.12 million had exceeded targets of £2.91 million, the full impairment of £1.17 million of land values at Barton Park, the size of the Council’s debts to the Public Works Loan Board of £198.5 million and the source of that debt as the buy-out of the Housing Revenue Account in March 2012. The other measures referenced in the report were stated as showing that the Council had no major variances and that the report was in compliance with its legal requirements around reporting.

Noting the significant preference for fixed interest investments the Panel discussed the optimal balance of the Council’s investment portfolio. It was noted that a significant majority of funds were invested in fixed term investments, yielding over 3% less per annum than the Council’s property fund investments. The Head of Financial Services underlined that the order of priority when assessing investment strategy and allocation was security, followed by liquidity, followed by yield. Nevertheless, it would be possible within those guidelines to invest more in non-fixed term investments and that he was exploring with other local Councils in Oxfordshire and Gloucestershire the potential for investing in social impact bonds, which fund projects such as solar farms, and which pay a regular coupon as well as the return of capital at the end of a specified period. The level of the Council’s reserves would allow the loss of liquidity arising. Alternatives to social impact bonds were also being explored, including additional investment in new or existing property funds on that basis that these were more, if not totally, liquid than social impact bonds. Use of investment to enhance the local environment was also explored but it was confirmed that the Council would be looking at making investments in property (primarily offices and industrial units) locally within the Budget and that funding to do so would be made through borrowing. This was welcomed on the basis that it would dilute the Council’s retail focus thereby reducing risk.

Councillor Simmons left the meeting at this point.

Regarding borrowing, the Panel sought clarification as to the nature of the external loans referred to on p.19, item 24. It was explained that the loans repaid included loans to the Public Works Loans Board, short-term loans and financing. Further clarifications were sought regarding the nature and working of the Operational Boundary Limit referred to on p.18 item 23. The Boundary Limit was explained to be a self-imposed borrowing limit designed to be a control mechanism to prevent excessive borrowing by requiring Council approval to breach. In light of the changes to the Housing Revenue Account which enables Councils to borrow prudently for housing, the Panel sought information on the theoretical borrowing limit. The Head of Financial Services confirmed that work was already being undertaken to determine the figure, but that by virtue of the need for borrowing to be prudent assessments of the income generation capacity of schemes were necessary, making it a complex process. The current estimate of additional borrowing available to the Council through the Housing Revenue Account would be around a further £200 million.

The Panel spent significant time discussing the £1.17 million impairment of land value at Barton Park as referenced on page 14. Councillors questioned how land valued at over a million pounds at one point could be judged to be valueless later, and whether the Council had therefore incurred a significant loss. It was explained that due to changes to the specification of the Barton Park joint venture the land in question had been independently valued by the valuer to have zero value, and that the write down in value was necessary in accounting terms to reflect this. However, it was explained that the Council had not lost out as the changes made at Barton Park which lay behind the impairment had formed part of a wider deal under which the Council purchased houses built at a preferential rate. This trade-off had been net positive for the Council.

Following on from discussions on impairment at Barton Park, the Panel also sought clarification on the level of risk of something similar occurring with the Council’s contribution of land to the OxWED development. It was confirmed that the value of the land had recently been adjudged to be the same as its purchase price and that there had been no impairment.

On a more general note, the Panel sought an explanation of actions being taken following the circumstances leading to the late filing of the Council’s accounts. The Head of Financial Services confirmed that the auditors of Oxford Direct Services, Mazars, and the Council, Ernst & Young, were currently blaming one another but that he was holding both to account for the delay.

The Panel also requested an update on the progress of the Project Management Office function launched by the Council in relation to its capital expenditure. The Head of Financial Services confirmed that new projects were being subjected to a far higher amount of rigour, and that legacy projects were being retrofitted in terms of business cases and feasibility studies rather than being cancelled, even though this was a more challenging approach to take. It was requested by the Panel that a distinction in reporting be made between those projects that had been commenced under the auspices of the Project Management Office and legacy projects which had been taken over.