Agenda item

This report sets out the Council’s Treasury Management Strategy for 2024/25, as required, to ensure compliance with the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice 2021 Edition (the CIPFA Code).

Witnesses:

Nikki O’Connor, Strategic Finance Business Partner (Corporate)

Key points raised in the discussion:

1.    The Chairman thanked the Strategic Finance Business Partner (Corporate) and officers for the useful training session on the Treasury Management Strategy (TMS) Statement last week.

2.    The Strategic Finance Business Partner (Corporate) noted that the Committee was asked to approve the TMS Statement which formed Part 4 of the Capital, Investment and Treasury Strategy for 2024/25. The full document was to be scrutinised by the Resources and Performance Select Committee and would be considered by the Cabinet with a recommendation for Council to approve it in February as part of the 2024/25 Final Budget and Medium-Term Financial Strategy to 2028/29.

3.    The Strategic Finance Business Partner (Corporate) explained that the TMS Statement outlined the Council’s approach to managing cash flows and related risks, specifically in respect of the Council’s borrowing strategy and the safeguarding of cash investments. The TMS Statement for 2024/25 continues the Council’s strategy to maximise internal borrowing and to balance the long-term and short-term debt portfolio to manage the ‘cost of carry’. The Minimum Revenue Provision Policy was in line with current guidance. The investment strategy was to keep cash investments low and to utilise Money Market Funds for short term investments, to ensure liquidity and security.

4.    A Committee member referred to Annex 1, paragraph 2.25 on Environmental Sustainability and welcomed that expertise being brought in but asked where the information could be accessed on the reporting of carbon impacts of the Capital Programme, as that could impact the Council’s decision-making process around its investments. The Strategic Finance Business Partner (Corporate) explained that formed part of the work by the Greener Futures team around ensuring that the Council was moving towards that net zero target and would find out where that work is shared.

5.    A Committee member referred to Annex 1, paragraphs 4.25 - 4.27 around the Local Context and asked how the Capital Financing Requirement (CFR) was used regarding balancing internal and external borrowing. The Strategic Finance Business Partner (Corporate) explained that the CFR was a measure of the Council’s underlying need to borrow in relation to the historic capital spend and forecast future capital spend funded from borrowing. It does not represent what the Council’s actual borrowing is or take into account any internal borrowing. Regarding actual borrowing, decisions were based on the TMS and the cash flow forecasts. Table 13 takes that CFR and looks at the Council’s ability to internally borrow - or use its short to medium term cash balances - and tries to maximise that to reduce the revenue cost of actual external borrowing.

6.    The Chairman referred to table 13 mentioned above, querying whether the projected additional external borrowing requirement does not necessarily mean that the Council would be investing more heavily. The Strategic Finance Business Partner (Corporate) explained that the table demonstrates the Council’s ongoing commitment to capital expenditure, the Capital Programme - to be approved - remained ambitious and significant in terms of its capital investment over the next five years and that resulted in an anticipated increase in borrowing. The level of borrowing and the associated borrowing costs are assessed in terms of proportionality to the size of the Council’s revenue budget, to ensure costs remain proportionate. Before borrowing, the actual spend would be reviewed compared to the forecast and as previously mentioned cash flow forecasts and internal borrowing would inform actual borrowing decisions.

7.    A Committee member referred to Annex 1, paragraph 3.18 around the Security, whereby the value of property owned by Halsey Garton Property Ltd was assessed as being £81 million lower than cost which shows a 25% reduction. Concerning the pressures on the retail environment, she asked what risk that posed overall for the portfolio and what was the estimated direction of travel, was it a short, medium or long term trend. The Strategic Finance Business Partner (Corporate) noted that it was only a risk until the point the Council sought to sell those assets, as opposed to when those were owned and were generating an investment return. It was difficult to estimate the direction of travel, it was unusual for property to decrease in value over the longer term, yet post-pandemic there had been many fluctuations. The Cabinet Member for Finance and Resources was unsure how long the market would remain at a low point. Regarding the Halsey Garton portfolios, the exposure to retail was relatively small and the portfolio had performed slightly better than the market overall. Work was underway on options for the old Debenhams site in Winchester and that would likely increase its valuation. The Strategic Finance Business Partner (Corporate) noted that the Council monitored the level of investment income as a proportion of its overall net revenue budget and currently it was less than 2%, demonstrating that it was not overly exposed to risk of fluctuations.

8.    The Chairman referred to Annex 1, paragraph 3.8 around Commercial Investments: Property and specifically Table 7 where the expected gain for Retail was £23 million, compared to the £4 million loss reported last year. The Strategic Finance Business Partner (Corporate) would review the figures in Table 7.

9.    A Committee member suggested that the numbering and lettering of the various annexes be reviewed as it was confusing. The Strategic Finance Business Partner (Corporate) acknowledged that and would review.

RESOLVED:

That the Committee approved the Treasury Management Strategy Statement (TMSS) – Part 4 of the Capital, Investment and Treasury Strategy for 2024/25 including the Prudential Indicators.

Actions/further information to be provided:

1.    A2/24 - Regarding Annex 1, paragraph 2.25 on Environmental Sustainability, the Strategic Finance Business Partner (Corporate) will find out where that work is shared regarding the reporting of carbon impacts of the Capital Programme.

2.    A3/24 - Regarding Annex 1, paragraph 3.8 around Commercial Investments: Property, the Strategic Finance Business Partner (Corporate) will review the figures in Table 7 around the expected gain for Retail.

3.    A4/24 - The Strategic Finance Business Partner (Corporate) will review the numbering and lettering of the various annexes.