Agenda item

The Director of Finance and Information Services (Section 151 Officer)'s report sets out the Council's policies on borrowing, providing for the repayment of debt and investing for 2016/17.

 

The Council's treasury management operation has a cash limit of £23m and therefore can have a significant effect on the revenue available to fund the Council's front line services. In addition the Council has investments with 57 institutions amounting to £385m. If an institution defaulted on one of the Council's investments the loss would have to be borne by the General Fund.

 

The purpose of this report is to obtain the Council’s approval for 2016/17 to the Treasury Management Policy Statement (attached) which includes:

·          Annual Minimum Revenue Provision for Debt Repayment Statement

·         Annual Investment Strategy

 

The detailed recommendations from 3.1a to 3.2(iv) are referred to Council for approval.

The recommendations were supported and forwarded to Council for approval, and are therefore not subject to call-in.

Julian Pike, the Deputy Director of Finance and S151 Officer and Michael Lloyd presented the report and drew the members' attention to recommendations 3(i) b, v, k, p & q in particular regarding the change in the type of investments at a higher risk level than previously invested and regarding the changes to the provision for the repayment of debt.  Recommendations 3(i) suggested extending the time limits for investments and recommendation 3(i)ac suggested limiting investments that track the equity marketed to £70m.

 

Cabinet members raised questions regarding the debt profile and level of anticipated return, for which approximately 8% was anticipated. The Leader welcomed the carefully considered steps that were being taken to increase income through investments which would help to mitigate any future potential cuts and would therefore commend the report's recommendations to the Council.

 

RECOMMENDED to Council that:

 

1a        the Head of Financial Services and Section 151 Officer and officers nominated by him be given authority to lend surplus funds as necessary in accordance with the Treasury Management Policy;

 

1b        the Council adopts a risk appetite statement that permits investments to be made in instruments that do not guarantee that the capital sum will not be diminished through movements in prices;

 

1c        the Director of Finance and Information Services (Section 151 Officer) is given delegated authority to either replace maturing debt or repay it depending on the outlook for long term interest rates that exists at the time

 

1d        the upper limits for fixed interest exposures are set as follows:

 

2015/16          £195m

 

2016/17          £358m

 

2017/18          £446m

 

2018/19          £482m

 

1e        the upper limits for variable interest exposure are set as follows:

 

2015/16          (£265m) – Investments up to £265m

 

2016/17          (£444m) – Investments up to £444m

 

2017/18          (£526m) – Investments up to £526m

 

2018/19          (£555m) – Investments up to £555m

 

1f         the following limits be placed on principal sums invested for periods longer than 364 days:

 

31/3/2016      £286m

 

31/3/2017      £196m

 

31/3/2018      £123m

 

31/3/2019      £90m

 

1g        the City Council set upper and lower limits for the maturity structure of its borrowings as follows:

 

Amount of projected borrowing that is fixed rate maturing in each period as a percentage of total projected borrowing that is fixed rate.

 

	Upper Limit	Lower Limit
Under 12 Months	10%	0%
12 months & within 24 months	10%	0%
24 months & within 5 years	10%	0%
5 years & within 10 years	20%	0%
10 years & within 20 years	30%	0%
20 years & within 30 years	30%	0%
30 years & within 40 years	30%	0%
40 years & within 50 years	40%	0%

 

1h       authority to reschedule debt during the year is delegated to the Director of Finance and Information Services (Section 151 Officer) subject to conditions being beneficial to the City Council;

 

1i         no restriction be placed on the amount that can be borrowed in sterling from an individual lender provided it is from a reputable source and within the authorised limit for external debt approved by the City Council;

 

1j         the principles upon which the apportionment of borrowing costs to the Housing Revenue Account (HRA) should be based are as follows:

 

•           The apportionment is broadly equitable between the HRA and the General Fund, and is detrimental to neither;

 

•           The loans portfolio is managed in the best interests of the whole authority;

 

•           The costs and benefits of over and under borrowing above or below the capital financing requirement (CFR) are equitably shared between the General Fund and the HRA;

 

1k        the Council adopts a Minimum Revenue Provision (MRP) policy based on a straight 2% for pre 1 April 2008 debt and government supported

debt excluding finance leases and service concessions (including Private Finance Initiative schemes);

 

1l         the MRP on finance leases and service concessions including Private Finance Initiative (PFI) arrangements equals the charge that goes to write down the balance sheet liability;

 

1m       the asset life (annuity) method of calculating MRP is applied to post 1 April 2008 self-financed borrowing but excluding:

 

•           Finance leases

•           Service concessions (including Private Finance Initiative schemes)

•           Borrowing to fund long term debtors (including finance leases)

•           Borrowing to fund investment properties

•           Borrowing to fund equity shares purchased in pursuit of policy objectives;

 

1n       the principal element of the income receivable from long term debtors be set aside to repay debt if the asset was financed through self-financed borrowing in order that the repayment of the debt is financed from the capital receipt;

 

1o        the principal element of the rent receivable from finance leases be set aside to repay debt if the asset was financed through self-financed borrowing in order that the repayment of the debt is financed from the capital receipt;

 

1p        that debt resulting from self-financed borrowing to fund investment properties be provided for by setting aside the capital receipt on disposal

 

1q        the Council sets aside the capital receipt to provide for the repayment of the self-financed borrowing in the event of it selling its shares in the Municipal Bonds Agency or Hampshire Community Bank

 

1r         the Housing Revenue Account (HRA) provide for the repayment of the Self Financing Payment over 30 years;

 

1s        that specified investments should only be placed with institutions that have a long term credit rating of at least A- from at least two credit rating agencies except registered social landlords for which a single credit rating will be required;

 

1t         investments should only be placed with institutions based in either the United Kingdom or sovereign states with an AA+ credit rating;

 

1u       the Council's investments are limited to senior debt;

 

1v        the Director of Finance and Information Services (Section 151 Officer) be given delegated authority to invest the Councils funds in structured investment products which follow the developed stock markets but do not fully protect the Council's capital invested;

 

1w       the bodies meeting the criteria of categories 1 to 8 in paragraph 18.17 are approved as repositories of specified investments of the City Council’s surplus funds;

 

1x        that credit ratings be reviewed weekly and that any institution whose credit rating falls below the minimum level stated in paragraph 18.17 of the Treasury Management Policy be removed from the list of specified investments;

 

1y        that institutions that are placed on negative watch or negative outlook by the credit rating agencies be reassigned to a lower category;

 

1z        that non-specified investments in aggregate are limited to the following:

 

	£
Building societies with a BBB credit rating and unrated building societies	81m
Investments in MMD (Shipping Services) Ltd including funds lodged to guarantee the company’s banking limits. MMD is a wholly owned subsidiary of the City Council.	2m
Long term investments	286m
Investments denominated in foreign currencies to hedge against contracts priced or indexed against foreign currencies	5m
Total	374m

 

1aa     the total amount that can be directly invested with any organisation at any time should be limited as follows (see paragraph 20.1):

 

	Maximum Investment in Single Organisation
Category 1	Unlimited for up to 6 years
Category 2	£30m for up to 6 years
Category 3	£30m for up to 10 years
Category 4	£26m for up to 6 years
Category 5	£20m for up to 10 years
Category 6	£20m for up to 6 years
Category 7	£13m for up to 6 years
Category 8	£10m for up to 6 years
Category 9	£10m for up to 2 years
Category 10	£6m for up to 2 years
Category 11	£6m for up to 364 days
MMD (Shipping Services) Ltd including sums lodged to guarantee the company’s banking limits	£2m for up to 364 days

 

 

1ab     the Director of Finance and Information Services (Section 151 Officer) in consultation with the Leader of the Council is given delegated authority to revise the total amount that can be directly invested with any organisation at any time

 

1ac      the following investment limits be applied to sectors:

 

Money market funds	£80m
Building societies	£107m
Registered social landlords	£80m
Investments tracking the equity markets	£70m

 

1ad     the following investment limits be applied to regions outside the United Kingdom:

 

Asia & Australia	£60m
Americas	£60m
Eurozone	£30m
Continental Europe outside the Eurozone	£30m

 

2          the Director of Finance and Information Services (Section 151 Officer) submits the following:

 

(i)         an annual report on the Treasury Management outturn to the Cabinet by 30 September of the succeeding financial year;

 

(ii)        A Mid-Year Review Report to the Cabinet and Council;

 

(iii)       the Annual Strategy Report to the Cabinet in March 2017;

 

(iv)       quarterly Treasury Management monitoring reports to the Governance and Audit and Standards Committee.