Agenda item

Annual Treasury Management Report

Meeting of Audit Committee, Wednesday, 25th July, 2018 6.00 pm (Item 4.)

(Report of the Head of Finance & Procurement – Anthony Thomas)

Minutes:

Mr Thomas delivered a Presentation on the Annual Treasury Management report and explained that this was the end of year report covering all treasury activity and prudential indicators for 2017/18. A summary of the capital programme performance from the original budget to the actual was explained and reasons were given for the budget reductions from Original to Approved budget together with actual performance to Approved Budget – Affordable Housing projects, Friarsgate projects and the Leisure outsourcing. The Burntwood Leisure sinking fund had now been superseded by the Leisure outsourcing and members were advised the Approved Budget reflected more current circumstances - £759,515 less than the Approved Revised Budget of £3,368.000. The capital receipts comparisons were presented and Mr Thomas explained that the turmoil in the financial markets in May 2018 caused by the results of the Italian election meant we were able to borrow the £1.395m to be used to fund the capital works at Burntwood Leisure Centre at a rate lower than had been provided in the Approved Budget. The level of investments had been pretty consistent to previous years. The Capital Financing Requirement (Borrowing Need) was in line with the Approved Budget, however, this was likely to increase in future years due to the Property Investment Strategy being funded by borrowing and the new leasing standard where more leases will appear on the Council’s Balance Sheet. The liquidity of our investments were highlighted as we had not had to temporarily borrow during 2017/18 to ensure there is sufficient cash available to pay for goods and services and the investments by type were illustrated. Mr Thomas said there were new accounting procedures (IFFRS9) that had come in to force on 1 April 2018 whereby the new standard would see us having to set money aside to reflect any reduction in value of the investment and there was a difference of opinion between the Council and its Treasury Advisors (Arlingclose) and the External Auditors in relation to the accounting treatment for the Property Fund Investment under the new standard. The balance sheet and cash flow statements were presented and explanations provided for significant differences between 31 March 2017 and 31 March 2018.

Concerns were raised around the right to buy receipts in relation to reducing the access to affordable housing by people within the district. Mr Thomas explained that the Council had transferred the former Council Housing in 1997 to a Housing Association and therefore it no longer had any control over the policy on sales. However, the Council still had a role in terms of Strategic Housing through the Local Plan.

The LDC Average Yield figure of 4.8% was questioned as it looked quite high and it was explained that this related solely to the investment in the Property Fund.

The risk section of the report detailed the Council’s plans to dispose of the Bore Street Shops yet it was assumed this was an error and it was agreed to amend this statement because the Council had decided to retain this asset.

Discussions then took place and reassurance was sought about the impact of IFRS9. Mr Thomas said there was a difference of opinion at the moment although it should have no impact in 2018/19 due to the possibility of a Statutory Override (subsequent to the meeting a consultation has been issued). Revised guidance clarifying the accounting treatment and the earmarked reserve that had been set up previously to manage this type of risk. If the standard is applied in a way that is different to that the Council has assumed then any impact on the18/19 financial position will be mitigated by the earmarked reserve. However, the election in our accounts this year is a prudent measure that keeps all options open moving forward. The External Auditor advised that this came in to effect on 1 April 2018 and in her opinion the issue has no impact on the Council’s position for the 2017/18 financial year and so has not affected their opinion.

It was asked if the impacts of the outsourcing of the Burntwood Leisure Centre were presumed for 18/19 and Mr Thomas advised that it was decided to invest in the Burntwood building and to use public sector borrowing to improve the building i.e. improve energy efficiency/expand the size of the health spa. A question was raised regarding why the Council’s average credit score at 31 March 2018 was higher than other Arlingclose clients. Mr Thomas confirmed that Lichfield’s position has always been quite prudent/conservative when comparisons are made with other Authorities but always these figures are done at a spot in time and things could always change the very next day. He said our objective was always where we approve a relatively higher risk investment to have risk mitigation in place as was the case with the Property Fund having an earmarked reserve in place. This was reassuring the members felt.

It was asked what the level of external borrowing was now and Mr Thomas said due to the funding of the capital investment in Burntwood Leisure Centre it would be £1.4m higher than that quoted at 31 March 2018 on page 16.