Treasury Management Policy and Strategy 2013-14 (Agenda item 11)
- Meeting of Treasury Management Policy/Internal Audit Plan (Annual Report), Governance and Audit Committee, Friday, 15th February, 2013 10.00 am (Item 8.)
Report of the Assistant Director of Finance.
Mr Ludlow had tendered questions and observations on various matters in relation to this report and these had been taken into account. Mr Ludlow was thanked for highlighting the amendments/changes; however, such changes would be subject to the Audit Committee’s agreement.
Copies of the amendments were circulated.
The Assistant Director of Finance presented the Treasury Management Policy and Strategy 2013-14 and he highlighted the following main changes and key issues:
a) CIPFA had issued an amendment to the Prudential Code 2011 to replace the net debt indicator with a gross debt indicator. However, this did not affect the Council as it currently had no debt.
b) The Budget report to Cabinet 12th February sets out the key challenges surrounding availability of capital and revenue over the forthcoming budget period. Key challenges for Treasury activities surround the monitoring of Performance Indicators, particularly the availability of capital and monitoring the need to borrow and ensuring that cash was available when needed whilst maximising returns. Audit Committee on 23rd November 2012 approved a wider lending list which was not based purely on credit ratings. This change had been reflected in the 13/14 Strategy and Policy attached to this report.
c) During 2012/13, the advice was not to place money for more than 3 months (other than with the two part nationalised banks on our lending list). On the 11th January 2013, Sector advised that it was no longer necessary to place such stringent limits on duration; however, the Council’s time limits were still guided by their colour coding methodology. Their newsflash also stated that between September 2012 and January 2013, around 40% of counterparties monitored by Sector had their credit ratings reduced to the extent that it would have lowered their standard Sector suggested duration, in other words, the outlook remains mixed.
d) The 13/14 Strategy and Policy still required counterparties to have an AAA rating by Fitch. Sector advised that there was a distinct possibility that the UK may lose this rating. Sovereign issues would therefore be kept under review and should this occur, advice from Sector would be sought and Audit Committee would be kept updated. In addition, whilst the Treasury Strategy and Policy allowed for investing in non UK banks, at this time no non UK investments were being made.
e) MRP policy had not changed
f) The Council’s Treasury advisory contract with Sector was renewed in 2012/13 for one year and expired at the end of November 2013. A new contract for advisory services would be tendered for.
g) Due to the timing of writing this report, all information on the capital programme had been based on the budget being presented to Council on 28th February 2013 which could be subject to change.
Referring to the first point (section (a) above) Members were informed that the budget report would be subject to approval by Full Council on 28 February 2013.
In relation to (d) above, the Assistant Director of Finance stated that Breckland Council needed to be mindful of the UK possibly losing its AAA rating which would affect some of the banks currently on the counterparties list.
Referring to the Minimum Revenue Provision policy (MRP) at (e) above the MRP policy had not changed as the Council was not forecasting any debt for the next two of years.
As far as section (f) above was concerned, the new contract for advisory services would be tendered for in the coming months.
Appendix A of the report sets out how the Council was going to pay for its assets. Many prudential indicators were superfluous as Breckland Council did not carry any debt.
The Chairman queried the credibility of AAA ratings as he remembered the Council putting monies into the Icelandic banks that had been AAA rated at the time. The Assistant Director of Finance advised that the ratings agencies had all reviewed their counterparty ratings and methodologies and all were now a lot more stringent; therefore, the number of banks that the Council was allowed to invest in had shrunk. In response to a question as to whether the pool of counterparties would diminish if the rating was reduced, Members were informed that a number would ultimately fall off the radar/list.
Mrs Jolly asked about the figures presented in the tables on pages 38 and 41. The Assistant Director of Finance explained that the figures took account of slippage of expenditure in the Capital Programme. Money that the Council had budgeted to spend would not be spent in the current year and would be transferred into next year’s Capital Programme and would therefore push up the spend in 2013/14. Investments had reduced from £21m to £11m to reflect this as well as some use of Revenue Reserves.
Mr Ludlow was pleased with the amount of detail within the report but felt uncomfortable with the paragraph on page 45 of the report that highlighted the credit ratings particularly with the flippant remark used about counterparty ratings from one rating agency being marginally lower. The Assistant Director of Finance advised that counterparty ratings were frequently changing and as they were not assigned to a numerical value it was not possible to assign a more distinct value. There were other factors that were also used to determine whether a counterparty could be used.
Mr Ludlow stated that marginally lower to an accountant was a term that did not exist.
It was RESOLVED that:
(1) the Prudential Indicators and Limits for 2013/14 to 2015/16 contained within Appendix A of the report be approved;
(2) the Minimum Revenue Provision (MRP) Statement contained within Appendix A which sets out the Council’s policy on MRP be approved;
(3) the Treasury Management Strategy 2013/14 to 2015/16 and the Treasury Prudential Indicators contained within Appendix B be approved;
(4) the Investment Strategy 2013/14 contained in the Treasury Management Strategy (Appendix B), and the detailed criteria included in Appendix B1 be approved; and
(5) the Treasury Management Policy at Appendix B2 be approved.