Agenda item

(To consider a report from Karen Tonge, Treasury Manager, on the Treasury Management Annual Report 2020/21)

Consideration was given to a report from the Treasury Manager, on the Treasury Management Annual Report 2020/21. The report had been prepared in accordance with the reporting recommendations of the CIPFA Code of Practice 2017 and detailed the results of the Council's treasury management activities for the financial year 2020/21. The report compared this activity to the Treasury Management Strategy for 2020/21, approved by the Executive Councillor for Resources, Communications, and Commissioning on 20 March 2020.

The report outlined the following matters for the year 2020/21: Economic overview and interest rate review; Treasury investments - Treasury investment policy, risk appetite, treasury activity and return, comparing this with treasury strategy;  Long term borrowing - capital expenditure plans, borrowing requirement and activity, control of interest rate risk, debt rescheduling activity and internal borrowing position, comparing this with treasury strategy.

The main impact of the pandemic on treasury activity in 2020/21 was to cash flows, with normal cash flows disrupted by the injection of Government Support for Covid-19 measures throughout the year and extra Covid-19 expenditure measures taken to support businesses and individuals in Lincolnshire. The uncertainty of cash flow had required a larger proportion of investments to be held in liquidity instruments than normal, which were yielding the lowest return. The Council's risk appetite for its treasury investments remained low, as it prioritised security of capital and liquidity over return.  Both capital expenditure and hence its borrowing requirement for 2020/21 were significantly underspent in the region of £62m. This would be carried forward into 2021/22.

The Board was requested to review the contents of the report and pass any  comments onto the Executive Councillor for Resources, Communications, and Commissioning.

Members discussed the report, and during the discussion the following points were noted:

·    Interest base rates were currently 0.1% and were expected to remain low around this rate for some time due to the current economic situation. Significant rises were not expected in the next two years and any changes during that period were likely to be minimal.

·    Inflation was increasing and this was the direction of travel expected in the future.

·    It had been a rollercoaster year for the pension fund - the value at March 2020 was approx £2.2b and was currently approx £2.8b.

·    Future funding of local government was deemed to be at a higher risk than funding for protected sectors like the NHS for example. It was confirmed that the County Council had a well-established financial planning system in place to take into account a number of variables.

·    Government borrowing had increased during the pandemic and this was seen as not being sustainable in the long term at the current level. The prediction was that borrowing would plateau as receipts started to flow in.

·    Investments had been moved into liquid funds which attracted lower rates due to the uncertainty surrounding the pandemic.

·    In terms of Covid-19 impact on the investment performance, it was noted that Money Market Liquidity Funds returns in March 2020 had been 0.71% and had fallen to 0.10% by March 2021 and had recently dropped to as low as 0.03%. The Council has already started to move funds out of liquid assets in the current year for this reason. The Board was reminded that the Council had received £100m from the government to support the Covid-19 response. This money had been kept in liquid assets due to the need to spend it in the short term during 2020/21.

·    For more information it was suggested that the Board look at the National Audit Office report on the impact of the pandemic on local government finances and the predicted impact in the future.

·    It had been a challenging year with low interest rates however it was noted the Council had a well-managed programme.

Christopher Scott - from Link Asset Services gave assurance that the report met with all the necessary legal and other regulatory compliance requirements.

RESOLVED:

1)      That the report be noted;

2)      That a summary of the comments, as outlined above, be reported to the Executive Councillor for Resources, Communications, and Commissioning.