Agenda item

Treasury Management Strategy Statement for the Financial Year 2022-23

The Local Government Act 2003 requires the Council to set out its Treasury Strategy for borrowing and to prepare an Annual Investment Strategy, which sets out the policies for managing investments and for giving priority to the security and liquidity of those investments. The Council nominates Audit Committee to be responsible for ensuring effective scrutiny of the Treasury Management Strategy and Policy.  This report sets out the Treasury Management Strategy, Treasury Management Policy Statement, the Annual Investment Strategy for the Financial Year 2022-23, Prudential Indicators 2022-23 to 2025-26 and the Minimum Revenue Provision Policy 2022-23.

Treasury Management Strategy Statement for the Financial Year 2022-23

Members received the report which set out the Treasury Management Strategy, Treasury Management Policy Statement, the Annual Investment Strategy for the Financial Year 2022-23, Prudential Indicators 2022-23 and the Minimum Revenue Provision Policy 2022-23.  Jan Willis, Interim Director of Finance and Section 151 Officer, presented the report.

Members were informed that there was currently a low interest environment and considerable uncertainty as to the economic outlook and inflation was at historic levels.  It was forecast that interest rates would remain relatively low but begin rising over the next 12 months.  It was possible that the Bank of England may look to increase interest rates more quickly if inflation ran ahead of current forecasts.

The County Council had significant cash balances and was under borrowing for the forthcoming year by using its cash balances rather than undertaking external borrowing.  This was beneficial at the moment as there was currently very little return on investments, however, there was a risk associated with this policy, if medium to long term interest rates should increase more sharply.  This area would be closely monitored.

The following comments were made in response to queries from Members:-

·            The MRP was calculated on the basis on expected useful life of an asset.  Various classes of asset had different lifespans, such as the difference between vehicles and a school and this was taken account of when calculating the MRP.  With regard to borrowing, this was aggregated and loans spread in accordance with the strategy to ensure an appropriate maturity profile for that borrowing.

·            There was a jump in the ratio of capital financing costs as a proportion of the net revenue streambecause reserves were being used to make a voluntary minimum revenue provision of £25 million in 2022-23 and then a further £7.8 million in 2024-25.  The front loading of MRP was to ensure that costs associated with financing the additional capital investment did not become a drag on the revenue account and hence increase the savings requirement in future years.  The ratio would fall back in 2025-26.

·            The Council’s Medium Term Financial Plan took account of the risks associated with demand for services and, therefore, future expenditure.  The affordability of the capital programme was a significant consideration when setting the budget and in normal circumstances the Council would not be able to afford to significantly increase the capital programme, however, there was significant flexibility at the moment, due to the high level of reserves and cash balances.

·            With regard to lender option/borrower options (LOBO) and the mitigation of risks should interest rates rise, it was explained that the Council could cope as it was currently in an under borrowed situation.  The Council would have the option to either accept increased interest rates or repay the loan.  In this situation, it was likely that the LOBO loans would be replaced by PWLB borrowing at lower interest rates.

RESOLVED that the County Council be recommended to approve

(1)     the Treasury Management Strategy Statement which included the Treasury Management Policy Statement, the Annual Investment Strategy and Borrowing Strategy for the Financial Year 2022-23.

(2)     the Prudential Indicators (Appendix 4) for four years 2022-23 to 2025-26 to ensure that the Council’s capital investment plans are affordable, prudent and sustainable.

(3)     the Minimum Revenue Provision Policy (Appendix 5) 2022-23.

The Chair commented that several meetings ago the Audit Committee had requested a copy of a report from KPMG which was due to be reviewed.  Mrs Willis explained that it was not possible to release that report as it was evidence in an ongoing police investigation.  She was also unable to give any indication of timescales for when it may be available for circulation to the Committee.