Agenda item

This report sets out the monitoring of the Council’s Treasury Management function for the period 1 April 2020 to 31 March 2021.

A surplus of £18k has been achieved through a reduced need to carry out temporary borrowing due to high cash balances generated from funding paid in advance associated with the government’s response to the pandemic.

The report also sets out the Quarter One performance for 2021/22 which forecasts an underspend of £171k due to a lower requirement for temporary borrowing.

Further to the standard update the reports seeks approval to a minor adjustment to the Councils minimum revenue provision policy as well as seeking endorsement to increase our borrowing head room in line with the proposal set out in the financial strategy supporting the proposed 2022/23 budget as endorsed by Cabinet.

Matt Filmer, Acting Assistant Chief Financial Officer presented a report, a copy of which had been circulated to each Member and a copy of which appears as Appendix 'B' to these Minutes in the Minute Book.

The Committee was advised that it was a requirement under the Chartered Institute of Public Finance and Accountancy (CIPFA) Treasury Management Code of Practice that regular monitoring of the Treasury Management function was reported to Members.

Council was required to approve any changes to the prudential indicators based on a recommendation from the Audit & Governance Committee.

This report sets out the monitoring of the Council’s Treasury Management function for the period 1 April 2020 to 31 March 2021.

A surplus of £18k had been achieved through a reduced need to carry out temporary borrowing due to high cash balances generated from funding paid in advance associated with the Government’s response to the pandemic.

The report also set out the Quarter 1 performance for 2021/22 which forecasts an underspend of £171k due to a lower requirement for temporary borrowing.

Members were informed that further to the standard update the report sought approval to a minor adjustment to the Council’s minimum revenue provision policy as well as seeking endorsement to increase the Council’s borrowing head room in line with the proposal set out in the financial strategy supporting the proposed 2022/23 budget as endorsed by Cabinet.

The Acting Assistant Chief Financial Officer reported on the latest economic position.  He reported that interest rates remain historically low at 0.1% with the Council’s Treasury Management consultants not expecting an interest rate increase until late 2023.  The Committee was advised that inflation was the big topic in terms of the global economies and potential risks.  The Acting Assistant Chief Financial Officer reported that inflation as at the end of June was 2.5% with the Bank of England’s target being 2%.  He explained that the inflation levels were causing a split between experts with some taking the view it related to the unlocking of Covid restrictions and the economy opening up with others viewing it as a more engrained inflation rate.  The Committee was advised that this created a risk in particular for Council services with costs increasing and it was possible that the Bank of England may increase interest rates sooner to control inflation. 

The Acting Assistant Chief Financial Officer reported on the treasury management outturn for 2021 as set out in the report. He explained that the underspend was mainly due to the Council having received significant cash balances in terms of Government support and equally where the Council was distributing business grants.  The Committee was informed that borrowing at the end of March 2021 was just over £194m and at year end investments were just over £56m. 

The Committee was updated on the performance for Quarter 1 2021/22 with an underspend of £171,000 which was due to significant Government support as referred to earlier in the meeting.  The Acting Assistant Chief Financial Officer reported on the level of borrowing as set out in table 6 of the report which included a loan for £49m from Phoenix Life.  He explained that this was a loan agreed three years ago at legacy Bournemouth Borough Council with a fixed interest rate and the funds had been drawn down in May this year.  Members were informed that Table 7 set out the investments at the end of June which stood at just over £98m. The Acting Assistant Chief Financial Officer confirmed to the Committee that throughout 2021 and the first quarter of 2021/22 all potential indicators and the treasury management strategy was fully complied with. 

The Committee was referred to paragraph 23 of the report which provided an update on borrowing. The Acting Assistant Chief Financial Officer referred to the report that he had made to the Committee earlier in the year on the Treasury Management Strategy for 2020/21 and the refinancing of the capital programme.  He explained that since the strategy was agreed the Council had continued to explore its ambition to invest as part of the Big Plan which would see significant investment in housing, infrastructure and regeneration which would predominantly need to be funded from borrowing.  The Committee was advised that this would result in the Council owning a greater number of assets.  The Acting Assistant Chief Financial Officer reported that in order for treasury management to support this agenda the finance team had challenged itself to look at where the Council was in terms of its current debt position and how that compared against other upper tier authorities and that was reflected in Appendix 1 of the report.  He highlighted that BCP Council was at the lower end of the spectrum in terms of total debt and also total debt as a proportion of the net budget.  Members were advised of the proposal to increase the head room on debt but equally ensure that it was prudent and affordable and followed the code of practice.  The Acting Assistant Chief Financial Officer reported on the proposal to increase the debt limit by another £212m.  Table 8 of the report reflected the increase in the debt indicators and sought approval of the revised debt indicators for recommendation to Full Council.

The Acting Assistant Chief Financial Officer responded to questions which included the timescale for the payment of extra debt.  He explained that this would depend on the nature of the project but could be up to 50 years.  A Councillor asked why the Council had taken on a debt set up by a predecessor Council.  The Committee was advised of the debt position for the four legacy Councils all who carried debt apart from Christchurch. The Acting Assistant Chief Financial Officer in response to a question on the detail of the £49m from Phoenix Life, the interest rate and early termination, explained that borrowing was driven by cash flow rather than linked to a purchase of an asset and the flexibility to draw down the funds and the early repayment of debts to Public Works Loan Board did not make economic sense as interest rates were so low. Councillor Brown asked if the £49m was related to the purchase of the Mallard Road Retail Park. He also referred to the investment summary in table 7 including asking what was an acceptable level of funds that were held for instant access.  The Acting Assistant Chief Financial Officer reported that instant access was driven by cash flow projections on a daily basis, including maximising the amount of interest that the Council can earn. 

RESOLVED that:-

(a)           the reported activity of the Treasury Management function for 2020/21 be noted;

(b)           the reported activity of the Treasury Management function for April to June 2021 be noted;

(c)           the update on borrowing set out from paragraph 23-29 of the report be noted and endorsed; and

(d)           the revised prudential indicators set out in table 8 of the report and the proposed adjustment to the Council Minimum Revenue Provision policy as set out in paragraph 32 of the report be approved and recommend to Full Council.

Voting: (a), (b) and (c) agreed and (d) agreed with one abstention.

The Chairman reported on discussions with the Chief Financial Officer together with the Leader of the Council to get a good understanding of how these issues were being assessed, dealt with and taken forward. He explained that the reason for his attendance at these discussions was so that he could judge whether there were issues which the Committee may wish to do more work on or more importantly when certain stages in the process were reached if matters needed to be brought to the Committee to enable Members to raise relevant questions.  The Chairman asked if the Acting Assistant Chief Financial Officer could advise the Chief Financial Officer that he had set out the process to the Committee.