The Committee considered a report on the 2022/23 Treasury Management Strategy,
Annual Investment Strategy, Prudential and Treasury Management Indicators and Minimum Revenue Provision Statement.
The Treasury Management (TM) Strategy was one of the ways in which the Council managed its financial planning, risk management, and governance processes. The TM Strategy placed controls over where, and in what, the Council could invest and borrow and ensured adequate planning for the cash flow requirements of the capital and revenue plans agreed by Members. The TM Strategy set out the framework each year for the Council’s treasury operations and had to cover capital issues and treasury management issues. The Committee agreed to recommend the Council’s Treasury Management Strategy as set out in the report and the Annual Investment Strategy at Appendix ‘C’ to the agenda which maintained the principle of prudent investment with regard to protecting security and liquidity before making returns or yield.
The Council had adopted both the CIPFA Treasury Management and Prudential Codes and new versions of these Codes had been published just before Christmas 2021 and the Committee noted the implications for the Council of those Codes. The key objectives of the Prudential Code were to ensure, within a clear framework, that the capital investment plans of local authorities were affordable, prudent and sustainable; that treasury management decisions were taken in accordance with good professional practice; and that local strategic planning, asset management planning and proper option appraisal were supported.
The new Prudential Code applied immediately, with the exception of the reporting requirements which did not take effect until the 2023/24 financial year, although early adoption was recommended. Officers had incorporated some of the new requirements in the Council’s Capital and Treasury Management Strategies and would look to enhance all future reports with the new reporting requirements once the associated guidance notes had been received.
One area required by the Code that needed addressing was training for Members with responsibility for treasury management. The last Member training on treasury management had been carried out in November 2017. Plans for further training in June 2020 had to be delayed as a result of the pandemic and had been planned to take place in November 2021. However, CIPFA’s draft Code amendments proposed a “Treasury Management Knowledge and Skills Framework” for officers and Members, including a learning needs analysis to support it, so this training had been deferred again until later in 2022 in order to ensure that the new requirements were met.
The Council’s Treasury advisors had provided a section in the report on the economy and prospects for interest rates. Current projections showed that the Base Rate would climb to 0.75% by the end of the next financial year and the Council’s financial plans and MTFS had been based upon these projections. The 2022/23 estimate for investment income and debt interest was noted. There were no proposed changes to the Council’s borrowing strategy for next year. In general the Council would borrow for one of two purposes – to finance cash flow in the short term or to fund capital investment over the longer term. It was noted that the large majority of the Council’s borrowing was for fixed rates so that it could be sure of its costs and in order to protect itself against any interest rate increases that had not been forecast.
The new Prudential Code stated that an authority must not borrow to invest for the primary purpose of commercial return. In order to gain access to Public Works Loan Board funding, local authority Chief Finance Officers now had to certify that their Council’s capital spending plans did not include the acquisition of assets primarily for yield. The Government’s current requirement for local authorities holding commercial assets was that local authorities should seek to divest themselves of these assets where appropriate. As a result of responses received to consultations, the Government had moderated its original intention which was to require local authorities to sell commercial assets.
The Committee agreed to recommend the Prudential and Treasury Management Indicators for 2022/23 as set out in Appendix ‘D’ to the agenda. This included a total authorised limit for external borrowing by the Council in 2022/23 of £720,710,000. These indicators were designed to support and record local decision making. They were not performance indicators and were not comparable between authorities. All of the indicators for next year included a provision for the effects of the introduction of a new Reporting Standard on Leases (IFRS 16). This standard would come into effect on 1 April 2022 and brought all leases onto the Council’s Balance Sheet as a debt liability for the first time.
The Council was required to pay off an element of the accumulated General Fund capital spend each year (the Capital Financing Requirement – CFR) through Minimum Revenue Provision (MRP) which was a charge to revenue in order to have sufficient monies set aside to meet the future repayment of principal on any borrowing undertaken. The Council was required to approve an MRP statement in advance of each year. In November 2021, the Government had begun a consultation exercise on proposed amendments to the MRP regulations to take effect from 1 April 2023. Whilst it was not something that the Council had ever done, there was a sentence in the Council’s current MRP Policy which stated that “Where schemes require interim financing by loan, pending receipt of an alternative source of finance (for example capital receipts) no MRP charge will be applied”. This course of action appeared to be contrary to the amendments which were the subject of the consultation exercise. As it would have no effect on the Council’s current operations or plans, therefore the Committee agreed to recommend the MRP Policy for 2022/23 as set out in recommendation iv) below which did not include this sentence.
Recommend to Full Council on 10 February 2022 that -
i) the proposed Treasury Management Strategy as set out in the report encompassing the Annual Investment Strategy, as reported, be approved;
ii) the Prudential and Treasury Management Indicators for 2022/23, as reported, be approved;
ii) the authorised limit for external borrowing by the Council in 2022/23, be set at £720,710,000 (this being the statutory limit determined under Section 3(1) of the Local Government Act 2003); and
iv) the Council’s Minimum Revenue Provision (MRP) Statement for 2022/23 be agreed as follows:
The Council will use the asset life method as its main method for calculating MRP.
In normal circumstances, MRP will be set aside from the date of acquisition. However, in relation to capital expenditure on property purchases and/or development, we will start setting aside an MRP provision from the date that the asset becomes operational and/or revenue income is generated.
Minutes:
Council considered a recommendation from the Corporate Management Committee which had met on 20 January 2022 regarding the 2022/23 Treasury Management Strategy, Annual Investment Strategy, Prudential and Treasury Management Indicators and Minimum Revenue Provision Statement.
The Overview and Scrutiny Select Committee had concurred with the recommendations, but also recommended that Member training on treasury management be held every two years. Council was supportive of the training initiative and it was-
RESOLVED that -
i) the proposed Treasury Management Strategy as set out in the report encompassing the Annual Investment Strategy as reported, be approved;
ii) the Prudential and Treasury Management Indicators for 2022/23, as reported, be approved;
iii) the authorised limit for external borrowing by the Council in 2022/23, be set at £720,710,000 (this being the statutory limit determined under Section 3(1) of the Local Government Act 2003);
iv) the Council’s Minimum Revenue Provision (MRP) statement for 2022/23 be agreed as follows: -
The Council will use the asset life method as its main method for calculating MRP.
In normal circumstances, MRP will be set aside from the date of acquisition. However, in relation to capital expenditure on property purchases and/or development, we will start setting aside an MRP provision from the date that the asset becomes operational and/or revenue income is generated;and
v) Member training on treasury management be held every two years