Agenda item

The Head of Finance and Assets (H:FA) submitted a report (previously circulated) seeking members’ review of the Treasury Management Strategy Statement (TMSS) for 2013/14 and the Prudential Indicators for 2014/14, 2014/15 and 2015/16 prior to approval by Council.  The TMSS had been attached to the report together with the individual Prudential Indicators recommended for approval.

The H:FA reported upon the key elements of the TMSS detailing how the Council would manage its investments and borrowing for the coming year and policies within which the TM function operated.  In guiding members through the report, the H:FA explained each of the issues in detail to aid the committee’s understanding of the complexities involved within treasury management activities and provide a working knowledge of those particular functions.  The TMSS included the following sections –

·         Background and Treasury Position

·         Investment Strategy

·         Borrowing Strategy

·         Debt Rescheduling

·         Minimum Revenue Provision (MRP) Statement

·         Reporting Treasury Management Activity

·         Annex A – E covered: Prudential Indicators; Specified and Non-Specified Investments; Recommended Sovereign and Counterparty List; Interest Rate Outlook and Impact of the Corporate Plan.

During his presentation of the report, the H:FA also updated members on recent developments and clarified issues in response to members’ questions thereon.  Key points of discussion included –

Housing Revenue Account (HRA) – The H:FA advised that the HRA had a negative subsidy paying approximately 25% of income to the Welsh Government for debt.  He explained forthcoming changes to the current system, already introduced in England, which would redistribute that debt directly to local authorities.  The debt was likely to be transferred in 2014/15 and would then appear in the TMSS and show a significant increase in the Council’s debt figure.  However the Council would gain financially as the amount of the debt transferred would be reduced.  Members were disappointed to note that the Welsh Government had excluded Councils from negotiations with the Treasury regarding the debt and had refused to provide any information in that regard.  The H:FA advised that the Welsh Local Government Association had highlighted those concerns directly to the Welsh Government.  Members discussed the likely outcome of the negotiations with the H:FA together with the possibility that those local authorities struggling to meet the Welsh Housing Quality Standard for their Council Housing Stock may benefit from the process at the expense of those close to meeting the Standard.  The possibility of additional borrowing being available for housing refurbishment at the same favourable interest rate was also mentioned.  Despite the uncertainties surrounding the new system members were pleased to note that the Council would benefit financially from the transfer of debt but hoped that the all local authorities would benefit equally as a result of the change.

Ratio of Financing Costs to Net Revenue Stream – The ratio of revenue budget used to pay debt for the next financial year was approximately 6.77%.  Members were advised of minor movements in finances and of grants transferred into the general settlement resulting in a higher revenue figure.  In response to questions, the H:FA advised that approximately 56% of the 2013/14 revenue budget would be ring fenced and protected for schools and social care budgets with more directives from the Welsh Government (WG) about how to spend funding leaving the Council with little control over the main elements.  Little support had been forthcoming from other local authorities to argue against the WG directives.

Reserves – In response to a question from Councillor Stuart Davies, the H:FA advised that approximately £7m was currently held in general balances which had increased in recent years.  The cost of responding to the flooding incident was currently being calculated and an application would be made to the Welsh Government in that regard.  Balances were currently being used to cover associated flooding costs and individual services would not bear any of the cost.  The amount in balances and reserves would be reviewed and would likely be replenished via departmental underspends if necessary. 

Impact of Corporate Plan – Members were advised that the impact on the Corporate Plan had been detailed in Annex E to the report.  Additional information would be included in this section prior to submission of the report to County Council in February detailing the impact on borrowing and financing the Corporate Plan.  Members’ attention was also drawn to changes to the 21st Century Schools Grant and the impact on the Council’s delivery of the programme.  It was now expected that the Welsh Government would provide revenue support for approximately £10m resulting in a further rise in the Council’s debt figure and a perception that the Council’s debt had increased.  Councillor Martyn Holland stressed the importance of making the financial situation clear to the public in order to avoid any misconceptions as a result of the transfer of responsibility.  Members queried whether the provision of revenue support from the WG was guaranteed and the H:FA explained that a notional guarantee had been provided but that the funding was a complex issue and the risk would be transferred to the Council.

Members thanked the H:FA for his comprehensive presentation which provided a greater insight into treasury management activities and had been well received.  Consequently it was –

RESOLVED that, subject to the inclusion of additional information regarding the impact of borrowing and financing the Corporate Plan, the Treasury Management Strategy Statement for 2013/14 and the Prudential Indicators for 2013/14 to 2015/16 be approved for submission to County Council.

At this juncture (11.20 a.m.) the committee adjourned for a refreshment break.