Agenda item

Treasury Management Statement and Prudential Indicators

(Report of the Head of Finance & Procurement)


Mr Anthony Thomas (Head of Finance and Procurement) delivered a Presentation on the Treasury Management Statement and Prudential Indicators, which covered the financing and investment strategy for the forthcoming financial year.


The Capital Strategy shown at Appendix A was explained and key updates were:-


Capital bidding forms part of service and financial planning process;


Proposal for early repayment of Burntwood Leisure Centre capital investment of £979k to generate annual savings of £140k – would mean that at the end of March 2021, external debt would temporarily exceed borrowing.  However, over the 3-year period, the Council was compliant;


Refocus in the Investment in Property section from the Property Investment Strategy to enhanced information on the current portfolio;


In line with the action included in the CIPFA FM Code assessment a longer-term capital investment plan has been incorporated; (25 years)


This plan is currently based on “broad brush” assumptions which include population growth and demographics.


Mr Thomas explained following Council approval, the Capital Programme had removed the Property Investment budgets which has a significant impact on the balance sheet and projections but also the treasury management strategy and budget.  The renewal of the waste fleet and the new Leisure Centre would increase the borrowing need, and this was currently being budgeted to be funded through a lease type arrangement and external borrowing.  Graphs illustrated the capital programme comparisons from last year to this year and also capital funding graphs and cumulative borrowing needed to reflect the much lower capital programme recommended.


The Chief Financial Officer’s Assessment was highlighted and although the removal of the Property investment Strategy by the Council means the overall level of risk has significantly reduced there were, in his opinion, still risks and so he has assessed the current risk as a material level of risk.


Mr Thomas explained the Minimum Revenue Provision Statement for 2021/22 at Appendix C which sets out the Council’s policy of using the asset life method for making prudent provision for debt redemption.  He said each year the Council must approve this statement which would include an allowance for finance leases that appear on the Council’s balance sheet i.e.  Waste Fleet was in this category.


The Treasury Management Statement / Annual Investment Strategy at Appendix D & E was clarified and very little had changed from last year, Mr Thomas said the only proposed change was on the investment holding limits based on Arlingclose advice  to remove the overall Money Market fund limit of £21m.  They recommend that this limit be removed because at present the risk of moving into other sectors was higher.  Mr Thomas said the four strategic fund investments total £8m at this time and as there was a prudential indicator for longer term investments of £10m, it was proposed that a further investment of up to £2m to achieve higher returns is made to take the Council up to the £10m limit.  Further strategic investments would only be undertaken after taking advice from Arlingclose and with the agreement of the Cabinet Member.


Balance sheet projections were illustrated, with key messages, and Mr Thomas said although it was projected there would be a large deficit on the collection fund at 31 March 2021 (due to the impact of Covid-19 and the award of business rate reliefs), this would be transferred to the revenue budget over a 3 year period.  The statutory nature of Collection fund accounting was explained and, after taking into account Section 31 grants, should have a minimal impact on the Council’s revenue budget.


Mr Thomas explained that IFRS16 for leases has been deferred until 1 April 2022. He added that the Secretary of State and Government had made a lot of announcements recently regarding the level of commercial income, predominantly to do with borrowing to invest in property.  Basically, Government wanted to see local governments reduce its dependence on commercial income from these sources and so there were a number of initiatives to achieve this aim e.g. the PWLB consultation response which had been announced.  Mr Thomas said we would be asked to confirm there was no intention to buy investment assets that were primarily for yield in the current or next 2 financial years. As S151 Officer he would need to confirm he was content with plans and they were within acceptable use of PWLB.  Local councils could be prohibited from accessing the PWLB if they planned debt for yield activity and Her Majesty’s Treasury could restrict local authorities from borrowing and had powers to issue penalties, suspend access, insist on repayment of loans with penalties or even review the prudential framework in its entirety.  Mr Thomas also said it was announced the previous day there was to be a consultation on the prudential code which was also aimed at strengthening provisions.  It stated clearly that borrowing for debt for yield investment was not permissible which was another indicator that CIPFA and the Government were looking to stop this type of activity.


Prudential and local indicators were illustrated for information and prudence measures.


Questions were received relating to the capital receipt of Leyfields and Netherstowe which had been referenced in the Capital Strategy although its receipt was subject to planning approval being granted.  Mr Thomas said if this sale did not happen, the Capital Strategy/Capital Programme would have to be reviewed and alternatives sought.  Mr Thomas said a recommendation had been included in the Cabinet MTFS report to delegate to the Head of Finance & Procurement and the Cabinet Member to identify alternative funding in the event the land was not sold.


The level of general reserves was discussed as three scenarios had been prepared.   Mr Thomas said the central scenario was, in his opinion, a realistic and deliverable scenario and he was comfortable with the level of reserves.  He also said that within that budget there were a number of risk contingencies built into the MTFS i.e., contingencies for sales, fees and charges and business rate estimates, because of risks around retail rent income.  The retail risks were discussed as the Council owned properties in the Lichfield city centre and the values have reduced quite significantly because of lower income streams and these would need to be subject to ongoing monitoring.  It was highlighted that a number of the Council-owned properties were relatively new which would mean maintenance obligations/liabilities would start to accrue and so these had been built into the plan.


RESOLVED:- That Members consider the Treasury Management Strategy Statement and highlight any changes or recommendations to Cabinet in relation to:

(1)  The Capital Strategy and Capital Programme, outlined in Appendices A & B;

(2)  The Minimum Revenue Provision Statement for 2021/22, at Appendix C, which sets out the Council’s policy of using the asset life method for making prudent provision for debt redemption;

(3)  Treasury Management Strategy Statement for 2021/22 including proposed limits shown at Appendix D.  The only change being proposed is based on Arlingclose advice to remove the £21m overall investment limit for Money Market Funds to manage credit and liquidity risk;

(4)  The plan to undertake a further Strategic Fund Investment up to £2m;

(5)  The Investment Strategy Report (Appendix E) including the proposed limits for 2021/22;

(6)  The Capital and Treasury Prudential Indicators for 2020-25 in the financial implications section;

(7)  The Authorised Limit Prudential Indicator shown within the financial implications section.

And that Members also note:

(8)   The Public Works Loans Board (PWLB) response to the consultation on changes to lending terms.



Supporting documents: