Agenda item

The report has been prepared to ensure that the content complies with the requirements of the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Treasury Management 2021.

Section 12 of the Local Government Act 2003 Act provides local authorities with the power to invest for any purpose relevant to its functions, or for the purposes of the prudent management of its finances. Broadly speaking, this means that its cash resources must be invested under the ‘SLY’ principles of Security, Liquidity and then Yield.

[15 minutes]

Upon the invitation of the Chair, the Senior Accountant (Treasury) introduced the report, which was the annual Treasury Management Strategy Statement, and explained there were few changes from the 2023-24 Strategy. It was a requirement of the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Treasury Management that this document be produced and presented to Members each year.

The table on page 150 included an additional column for estimated outturn as per Quarter 3 budget monitoring. There was an increase from 2022-23 largely due to the Bognor Regis Arcade, the Levelling Up Fund, Alexandra Theatre, Sheltered Accommodation and Stock Development.

Paragraph 2.2 on page 150 stated the Council’s Capital Financing Requirement (CFR) could not rise indefinitely, so minimum revenue provision (MRP) charges had to be made to the revenue and HRA budget. MRP was a statutory charge that the Council were required to set aside from the budget to repay loan debt. The table on page 154 showed how much of Arun’s budgets were used for loan repayments. The Councils MRP policy remained unchanged from 2023/24 and was Option 3 as detailed in Appendix 3, page 172.

Page154 - 155 showed the investments and borrowing, which was almost £14m more in December than at 2022-23 year end. This was largely due to: the timing of the precept payment (January); a levy still not paid to WSCC regarding non-domestic rates (awaiting confirmation of when this will be paid); grants totalling £1.1m only repaid in January 2024.

Some investments have been placed with other local councils for diversification, and all investments held at the end of December 2023 could be seen in appendix 4 on page 175.

Page 156, paragraph 3.2 detailed the Operational Boundary and the Authorised Limit. The Authorised Limit represented a legal limit beyond which external debt was prohibited and this limit needed to be set or revised by Full Council and kept under review. For 2024-25 the Operational Borrowing Limit had been set at £78m and the Authorised Limit had been set at £83m. The Authorised Limit must not be breached. These limits were shown in the chart on page 157, paragraph 3.2.3, along with the CFR and borrowing levels which were below the Operational Boundary and the Authorised Limit.

Page 157 - 158, paragraph 3.3 and appendix 5 showed that the treasury management advisors, LINK, still expected interest rates to fall steadily over the next 3 years, from 5.25 to 3%, which theoretically would make borrowing more affordable.

Page 162, paragraph 4.1 explained the Council’s investment order of priorities would be security first, then liquidity and then yield. Appendix 7 on page 179-180 showed the quality counterparties available to invest with.

Paragraph 4.1 on page 163-164 detailed International Financial Reporting Standards (IFRS 9). Appendix 11 (page 184) had been added to this report to provide the valuation positions of the CCLA Diversified Income Fund and Property Fund at the end of December 2023, the current capital losses and the dividends from inception of Arun’s investment with the funds.

Paragraph 4.5 on page 168 detailed some changes from the 2023-24 strategy. These included the addition of State Street Global (Money Market Fund)) as discussed at the last meeting. It also reduced the limits in categories 1-3 as there were less funds available to invest in, and the reduced amounts would encourage better diversification and spreading of any risk of default.

The Council’s investments were set out in Appendices 4 and 6, which gave details about investment limits. This was about spreading the risk and ensuring that the Council has sufficient liquidity. Appendices 7 and 8 listed counterparties and the approved countries with whom we invest with. It also set out their current ratings.

The Group Head of Finance and Section 151 Officer thanked the Senior Accountant (Treasury) for her work on the report. He explained the Treasury Management Strategy set out how the Council managed it’s cash and cash-flow balances. The Annual Investment Strategy detailed who Arun invested with. Within the strategies were the prudential indicators, designed for the Committee to gain reassurance over the cash-flow activities. He explained the borrowing limits were there to ensure that borrowing was kept to a level permitted by Members. Borrowing was nowhere near the Operational Boundary limit at present, however this was something he suggested Members monitored.

The recommendations were proposed by Councillor Wallsgrove and seconded by Councillor Turner.

The Chair then invited questions and debate and the following points were raised:

·       Concern was raised about the graph on page 157, and it was asked whether Arun’s borrowing was increasing. It was confirmed this was not the case and the rising line on the graph showed increased Authorised Borrowing Limit.

·       It was asked whether Officers had information regarding borrowing from the green bonds and local climate bonds (page 161, paragraph 3.7). Officers confirmed Arun did not currently have any external borrowing, and were not currently at the stage of needing to borrow. Due diligence would be carried out prior to entering into any borrowing agreements.

·       It was asked whether investments could be removed from banks that were currently closing high street branches. Officers explained that security, investment, yield and spreading risk were the most important things to consider regarding investments. Removing counterparties made spreading the risk more difficult.

·       Clarification was requested on the relationship between the Municipal Bonds Agency and the Public Works Loan Board (PWLB). Officers confirmed Arun had HRA loans with PWLB, as they offered fairly competitive rates. Arun had Capital Plans which they submitted to the Debt Management Office each year, which enabled a 0.2% certainty rate (discount), on top of that there was an additional 0.2% discount for HRA accounts. The Municipal Bonds Agency (MBA) dealt with organisations with larger borrowing needs, which Arun were unlikely to need unless combined with other local authorities.

·       Page 163, paragraph 4.1 contained a statement that ‘some form of due diligence’ would take place and paragraph 12 contained a statement ‘does not strictly adhere to the advisor's suggested lending list’. It was felt those statements gave the impression the Council were lax. Officers confirmed due diligence was taken very seriously, and this was laid out in the strategy. Advice was taken on board from LINK, however it was not a requirement to take this advice on each occasion. It was suggested next time this be worded as ‘appropriate form of due diligence’ instead of ‘some’.

·       Clarification was requested on the MRP Policy on page 173 and whether this was a deviation from or continuation of the current policy. Officers confirmed this had been the same for a number of years and there had been no change to last year’s policy.

·       The CIPFA self-assessment had been distributed to Members and there was concern Members may not be fully aware of everything they should be scrutinising. A suggestion was put forward that a briefing be provided to Members in advance of Audit and Governance meetings, where time was spent on the key treasury management skills Members should be aware of, and then an update on the areas relevant to the specific report. The Group Head of Finance and Section 151 Officer felt this was an excellent suggestion and was happy to organise such briefing sessions. The Chair also thought this was an excellent suggestion, and felt it would be most appropriate for these briefings to take place virtually over Teams. The Chair agreed to liaise with the Group Head of Finance and Section 151 Officer regarding the setting up of these meetings.

·       There was concern that the United Kingdom was at the bottom of the list for investments on page 181, and it was asked whether Arun would be unable to invest in the United Kingdom should this drop off the list. Officers explained that although this looked concerning, the rating was still very solid, and they would still have confidence investing in the United Kingdom. It was highlighted that the report stated ‘it has been determined that the UK will remain an approved country for investments regardless of its sovereign rating if after careful consideration, it is deemed appropriate to do so’.

The  Committee

 RECOMMEND TO FULL COUNCIL that

1.     The Treasury Management Strategy Statement for 2024/25 be approved and adopted.

2.     The Annual Investment Strategy for 2024/25 be approved and adopted.

3.     The Prudential Indicators within the TMSS and AIS for 2024/25 be approved.

4.     An operational boundary borrowing limit of £78M for 2024/25, as shown in Appendix 2, be approved.

5.     An Authorised Borrowing Limit of £83M for 2024/25, as shown in Appendix 2, be approved.