Agenda item

(To receive a report from Karen Tonge (Treasury Manager), which details the results of the Council's treasury management activities for the financial year 2019/20 and compares this activity to the Treasury Management Strategy for 2019/20)

Consideration was given to a report by the Treasury Manager, which detailed the results of the Council's treasury management activities for the financial year 2019/20 and compared this activity to the Treasury Management Strategy for 2019/20.

Members were informed that short term rates had remained flat over 2019/20 until March 2020, when they were slashed to support the economy during the Covid-19 outbreak. Long term rates had been affected by market uncertainties over Brexit and World Growth in the first half of the year and fell accordingly. Long term rates were increased across all periods by 1% in October 2019 when the PWLB increased the margin it applies to its borrowing. Since then rates drifted downwards to end the year 0.30% lower than October levels.

The Council's risk appetite for its treasury investments was low, as it prioritised security of capital and liquidity over return. The Council had outperformed the benchmark set for this risk level, by 0.37%, which equated to £0.42m in monetary terms. It also outperformed benchmarking comparators whilst having a lower risk profile, primarily by having a longer weighted average maturity of investments.

Liquidity shortfalls were managed during the year by taking short term borrowing at less than investment rate levels, in line with the Strategy.

The Board was advised that the main treasury risks highlighted from the impact of Covid-19 in 2020/21 were Interest Rate and Liquidity Risk. However, Credit Risk was not thought to be a significant factor as the Government supported counterparties during the outbreak.

Capital expenditure and hence its borrowing requirement for 2019/20 were underspent by £17.0m which would be carried forward into 2020/21. The Council took £50m external borrowing from the PWLB during the year at an average cost of 1.848%, bringing total external debt to £501.540m at the year-end.

Chris Scott, Director – LINK Asset Services, advised the Board that the Council's borrowing level was appropriate and sensible. Investment returns were also credible considering current circumstances as the Council had taken a low risk approach to investing. Credit quality that officers had to work within meant that a low risk approach was taken and it was considered important to continue with this approach going forward. All indicators and controls had been complied with and there had been no breaches, therefore overall, the Council's Treasury Management performance was considered credible during a challenging year.

Members considered the report and during the discussion the following points were noted:

·         The Board congratulated officers for maintaining a good level of performance during challenging times and thanked them for their hard work.

·         Due to having limits on counterparties and money market funds, having to hold a lot of liquidity meant that the Council was close to borrowing limits and there would be nowhere else to place funds. Consequently, officers were looking to open more funds, however it had meant a short term cash flow problem. It was explained that Local Authorities were only able to make investments with companies with an AAA money market rating to ensure that assets were of the highest quality. Money Market funds had to adhere to certain rules meaning that they were of the highest quality. To maintain an AAA rating, funds had to maintain the highest assets.

·         Members questioned whether it was appropriate to raise the internal borrowing limit from 15%. Officers explained that the target was an internal target and gave a comfortable level of cash within the authority. It was felt that 15% would give the Council a comfortable level of cash at the current time. The Executive Director – Resources explained that the 15% target was considered a 'soft target' and there was potential for this to increase. Officers welcomed the points made by the Board and would consider whether it was appropriate to increase the target.

RESOLVED:

1.    That the Board had reviewed the Treasury Management Performance for 2019/20;

2.    That a summary of the comments made be passed on to the Executive Councillor for Resources and Communications.