Nigel Kennedy, Head of Financial Services, will attend the meeting to present the Cabinet report on the Treasury Management Strategy for 2020/21 together with the Prudential Indicators for 2020/21 to 2023/24. The Committee is asked to consider the report and make any recommendations accordingly.

The documentation for this item will follow as a late paper pending full sign off.

The Head of Financial Services introduced the report, noting that the scale of prudential borrowing planned over the coming years was considerable for the Council; exceeding £500m in 2024/25. The revenue consequences of borrowing were contained in the General Fund and Housing Revenue Account budgets. At present the Council’s only external borrowing was £198.5m for the acquisition of the Council’s housing stock but it was inevitable that further external borrowing would be undertaken over the coming year as the scale of the capital programme was too large to be wholly financed from internal resources. The Council would look at the market as external borrowing was required and although the Council could benefit from preferential rates from the Public Works Loan Board, rates on offer elsewhere may be more attractive.

Current investments totalled £110m, which was a fairly typical level, and were mainly held in banks, building societies, local authorities and money market funds. £10m was also held across two property funds and a further investment of £10m was planned in a multi asset fund, which would help to diversity risk. Treasury management investment interest generated an annual revenue return of c. £1m. The Council was looking to diversify its investments away from banks and building societies and was looking at social bonds and other alternative vehicles. The Council’s ethical investment policy was still in force and had influenced investments decisions.

In discussion the Panel noted that:

·       Capital receipts were scarce and no forward projections had been made for capital receipts.

·       Borrowing on the HRA would rise to £300m to fund the purchase of affordable dwellings.

·       The Council could afford to purchase all the planned affordable dwellings within the HRA while retaining some borrowing power for regeneration and retrofitting schemes.

·       Depending on the nature of schemes coming forwards, any surpluses could be used to increase borrowing further but regeneration schemes did not tend to produce surpluses.

·       Any construction cost overruns within the Housing Company would eventually affect returns to the Council although contingencies were built into schemes and the initial risk sat with the company.

·       General fund borrowing was projected to increase from £0 to £200-300m; this borrowing was not capped but needed to be prudent and affordable.

·       The Council’s external advisors provided daily information about credit ratings and areas to invest in.

·       Treasury mid-year reports would state where investments were held and name the individual local authorities the Council had invested in.

·       The Municipal Bonds Agency was considered to be a better proposition as a source of borrowing compared to when it first launched but the Head of Financial Services was not enamoured with the joint and several liability requirement.

·       Considerable due diligence would be undertaken in respect of social impact bonds and the Council had engaged external advisors for this purpose.

·       A decrease in the Bank of England base rate would negatively impact treasury income and would not help with borrowing costs at a time when the Council was only borrowing internally.

·       The Council’s net investment interest shown in paragraph 66 of the covering report was actually a positive figure and this should be explained in the report.

The Panel requested the following:

·       A note setting out the positives and negatives of alternative investment vehicles that the Council has not yet taken advantage of.

·       A discussion with the Council’s investment advisors at an Audit and Governance Committee meeting early in the next Council year.

·       A report on Brexit impacts when the shape of the negotiations between the UK and EU about the future relationship starts to become clear. This could form part of, or be considered in parallel with, the Treasury mid-year report expected in December 2020.