Agenda item

The Head of Strategic Finance and Property introduced a report setting out the Council’s treasury management activities for 2020/21 including the prudential indicators.   The report set out the management of the council’s investments, capital expenditure, its borrowing position and the control of associated risks.  Members were reminded that the supporting Appendix to this item had been erroneously attached to the Agenda item 8. 

Councillor Curtis referred to interest rate forecasts and questioned what might happen to bank rates given increases in inflation and the impact this might have in terms of the council’s funds.  He added that rates of return for bank deposits were below inflation and queried whether it was a good idea to have a lot of cash in bank accounts and whether investments in equities and real estate investments might give a better rate of return.

The Head of Strategic Finance and Property explained that the council’s cash balances were reducing as it has been paying capital expenditure and that it now had £12M in liquid funds and £20M in property funds.   There were no proposals to liquidate property funds because of their rate of return in excess of 3%.  He explained that the council might shortly be moving into a position where it will need to borrow.  The Head of Strategic Finance and Property was of the view that interest rates would not increase in December but might in January 2022.  This would be kept under review.  He confirmed that the council was spending cash on the capital programme therefore investments were kept liquid as it was likely the cash would be needed to pay for capital expenditure.  The Head of Strategic Finance and Property stated that it was unlawful for the council to invest in equities as there was no security of capital and this was not permitted under the Prudential Code.

The Chairman referred to short term borrowing, and asked what length of time could that be and the rate of interest compared to the Public Loan Works Board (PLWB).

The Head of Strategic Finance and Property explained that this could be up to 364 days and the rate of interest would between 0.1% and 1% but that the alternative of the PLWB would limit the council to a borrowing period of over one year and at interest rates far in excess of the inter-local authority lending market.  He explained that once capital schemes were nearing completion the council could then take a better view of the council’s debt structure to match when the assets came on line along with accrued levels of Minimum Revenue Provision so that debt could be repaid thus reducing interest costs and creating borrowing headroom to meet future capital programme spending requirements.

Councillor Curtis asked whether there was the possibility to investing in equities index funds as property funds were returning less than inflation.  The Head of Strategic Finance and Property said that the council could not do this as there was no security of capital but that the council could invest in money market funds as this was spread over diverse portfolios, but that the Council did not have the cash to do this and was moving into a net borrowing position.

The Chairman summarised that Members had had an opportunity to examine and comment on the 2020/21 Treasury Management Activity and Prudential Indicators. 

RESOLVED – that the report be considered and received.