Agenda item

A report by Jacqueline Mundy, Interim Treasury and Investment Manager

The Interim Treasury & Investment Manager presented the Mid-Year Report on the Council’s Treasury Management Strategy Statement and Annual Investment Strategy.

The report, attached at Appendix A, covered the following areas:

·         A review of the Treasury Management Strategy Statement and Annual Investment Strategy

·         The Council’s capital expenditure (prudential indicators)

·         A review of the Council’s investment portfolio for 2021/22

·         A review of the Council’s borrowing strategy for 2021/22

Attached at Appendix B was an economic update for the first six months of the 2021/22 financial year, provided by Link Asset Services, the Council’s external advisors.  This included the outlook for the remainder of the financial year along with interest rate forecasts. 

The report referred to a key element of the Council’s Governance Framework and, therefore, represented an important contribution to the evidence trail in support of the Annual Governance Statement 2021/22.

At 30 September 2021, the Council held £24.105m in cash investments (£17.690m at 31 March) and £20.711m in property funds (£19.492m at 31 March).

The Council budgeted to receive £1,016,000 in gross investment income in 2021/22 comprising £977,000 from Property Funds (including £215,000 management fees) and £39,000 from cash investments.

As at 30 September 2021, total investment income for the year was estimated to be £946,000 comprising £924,000 from Property Funds and £22,000 from cash investments. Property Fund Management fees for 2021/22 were currently estimated at £215,000.

In 2021/22, cumulatively to 30 September 2021, the Council achieved an average gross revenue return (before deduction of management charges) of 4.46% from the Property Fund holdings, and 3.42% net (after the deduction of those charges).

Treasury (cash) Investments achieved an average rate of 0.9% compared to the benchmark average 3-month LIBID rate of -0.054%.

Borrowing at 30 September 2021 was £16.449m of which £15.449m was from the Public Works & Loans Board. Total borrowing costs for 2021/22 were projected to be £494,000.

Treasury Management continued to require close attention given the current financial climate. Officers would continue to be vigilant and report any significant issues to this Committee.

Members discussed the Council’s cash and property fund investments

It was explained that the Council’s Treasury Management Strategy stated that investments were limited with any one institution to no more than £3m invested per institution, and £5m per counterparty ‘group’. The 28 working days residual balances in excess of the £5m limit were deposited in the Council’s

current bank account (HSBC) for cash flow reasons in accordance with paragraph 7.3 of the Treasury Management Strategy).

The average level of funds available for investment from 1 April to 30 September 2021 was £21.683. Of this, an average of £10.683m was available on a temporary basis, the level dependent on the timing of precept and business rate pool payments, receipt of grants and capital programme spend.

With respect to the property fund investments, it was reported that the difference between purchase price (the amount invested) and fair value reflected premiums paid or discount received against the Funds’ ‘Net Asset Value’ at the settlement date together with the movement in fund valuations since acquisition.  Fair values had increased during the first half of the financial year, by 5.89% since 31 March 2021, largely due to the vaccination process that had helped to combat COVID-19 and the economy rebounding as a result of restrictions lifting.

Members noted that the property funds were long-term investments and there was satisfaction with the increase in fair values since March.

In response to questions, it was explained that although borrowing costs had to be deducted, there was still a healthy return from investments.  Inflation and increases in interest rates were beyond the Council’s control, but it was hoped this was a temporary situation as it was largely due to the pandemic and Brexit.  Officers monitored the situation continuously and Members would receive a monthly finance update.

Efforts were still ongoing to obtain more information about Council’s £1m loan, to move this matter forward.  Payments had been suspended to use as leverage to secure information and some had been provided, but not sufficient.  Members noted that it might not be possible to gain full details of this loan, but that the Council’s property fund investments were performing well.