Lancashire Combined Fire Authority

Meeting to be held on 20 February 2023

Treasury Management Strategy 2023/24

(Appendix 1 refers)

Contact for further information:

Keith Mattinson - Director of Corporate Services - Telephone Number 01772 866804

Table 1 Executive Summary and Recommendations

Executive Summary

The report sets out the Treasury Management Policy and Strategy for 2023/24.

The Strategy is based on the capital programme as presented to the Authority elsewhere on the agenda, and the financial implications of this are reflected in the revenue budget, also presented elsewhere on this agenda.

Recommendation

The Authority is asked to:-

• Approve the revised Treasury Management Strategy, including the Prudential Indicators, as set out in the report.

• Agree the Minimum Revenue Provision (MRP) calculation as set out in the report.

• Agree the Treasury Management Policy Statement at Appendix 1.

Information

Treasury Management is defined as “The management of the Authority’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.”

The Local Government Act 2003 (the Act) and supporting Regulations requires the Authority to “have regard to” the CIPFA Prudential Code and the CIPFA Treasury Management Code of Practice to set Prudential and Treasury Indicators for the next three years to ensure that the Authority’s capital investment plans are affordable, prudent and sustainable. The Code also requires the Authority to approve a treasury management strategy before the start of each financial year. The Authority also adheres to investment guidance issued by the then Ministry of Housing, Communities and Local Government (MHCLG).

The definition of investments in the codes is wide raging and includes non-treasury investments for example loans to third parties and the holding of property to make a profit. Where these are held, a separate strategy is required. However, it is not considered that the Combined Fire Authority hold any such assets and it does not propose to engage in any such investments in 2023/24. 

Treasury Management Strategy for 2023/24

This Strategy Statement has been prepared in accordance with the CIPFA Treasury Management Code of Practice. Accordingly, the Lancashire Combined Fire Authority's Treasury Management Strategy will be approved by the full Authority, and there will also be a mid-year and a year-end outturn report presented to the Resources Committee. In addition, there will be monitoring and review reports to members in the event of any changes to Treasury Management policies or practices. The aim of these reporting arrangements is to ensure that those with ultimate responsibility for the treasury management function appreciate fully the implications of treasury management policies and activities, and that those implementing policies and executing transactions have properly fulfilled their responsibilities with regard to delegation and reporting.

This Authority has adopted the following reporting arrangements in accordance with the requirements of the revised Code: -

Table 2 Treasury Management reporting arrangements

Area of Responsibility	Committee/ Officer	Frequency
Treasury Management Policy Statement	Resources Committee/Authority	Annually
Treasury Management Strategy / Annual Investment Strategy / MRP policy – scrutiny and approval	Resources Committee/ Authority	Annually before the start of the year
Treasury Management mid-year report	Resources Committee	Mid-year
Treasury Management Strategy / Annual Investment Strategy / MRP policy – updates or revisions at other times	Resources Committee	As required
Annual Treasury Management Outturn Report	Resources Committee/ Authority	Annually by 30 September after the end of the year
Treasury Management Monitoring Reports	Director of Corporate Services	Quarterly
Treasury Management Practices	Director of Corporate Services	Annually

The Treasury Management Strategy, covers the following aspects of the Treasury Management function:-

• Prudential Indicators which will provide a controlling framework for the capital expenditure and treasury management activities of the Authority;

• Current Long-term debt and investments;

• Prospects for interest rates;

• The Borrowing Strategy;

• The Investment Strategy;

• Policy on borrowing in advance of need.

Setting the Treasury Management Strategy for 2023/24

In setting the treasury management strategy the following factors need to be considered as they may have a strong influence over the strategy adopted:

• Economic position and forecasts;

• Interest rate forecasts;

• the current structure of the investment and debt portfolio;

• Future Capital Programme and underlying cash forecasts.

Economic background:

Key factors to consider in assessing the impact on the Strategy are the expectation for economic growth, inflation and the possible impact on interest rates.

The overall picture for next year is that growth will be weak with the Bank of England’s quarterly Monetary Policy Report (MPR) for November forecasting a prolonged but shallow recession in the UK. The UK economy contracted by 0.3% between July and September 2022 according to the Office for National Statistics, and the Bank of England forecasts Gross Domestic Product (GDP) will decline 0.75% in the second half of the calendar year due to the squeeze on household income from higher energy costs and goods prices. Growth is then expected to continue to fall throughout 2023 and the first half of 2024. The labour market remains tight for now, with the most recent statistics showing the unemployment rate was 3.7%.

CPI inflation is expected to have peaked in the last calendar quarter of 2022 and then fall from early in 2023 partly as a result of previous increases in energy prices drop out of the annual comparison. The Bank of England forecast that inflation will fall sharply and be below the 2% target, in two years’ time and to fall further below the target in three years’ time. With any forecast there is uncertainty and the Bank of England state that the risks are to the upside.

Arlingclose Forecast

The Bank of England (BoE) increased Bank Rate by 0.5% to 3.5% in December 2022. This followed a 0.75% rise in November which was the largest single rate hike since 1989 and the ninth successive rise since December 2021.

The Authority’s treasury management adviser Arlingclose in its latest forecast estimate that Bank Rate will continue to rise in 2023 as the Bank of England attempts to subdue inflation which is significantly above its 2% target. They expect that there will be  further interest rate rises over the forecast horizon despite looming recession. Bank Rate is forecasted to rise to 4.25% by June 2023. (Subsequent to the forecast being produced the base rate was increased to 4% in February 2023).

Yields are expected to remain broadly at current levels over the medium-term, with 5, 10 and 20-year gilt yields expected to average around 3.5%, 3.5%, and 3.85% respectively over the 3-year period to December 2025.

Details of the latest forecast are shown in the table below:

Table 3 Forecast interest rates

	Bank Rate %	3-month money market rate%	5-year gilt yield %	10-year gilt yield %	20-year gilt yield %	50-year gilt yield %
Dec-22	3.50	3.00	3.43	3.47	3.86	3.46
Mar-23	4.00	4.40	3.60	3.50	3.85	3.60
Jun-23	4.25	4.40	3.80	3.60	3.85	3.60
Sep-23	4.25	4.40	3.80	3.60	3.85	3.60
Dec-23	4.25	4.35	3.80	3.60	3.85	3.60
Mar-24	4.25	4.30	3.70	3.60	3.85	3.60
Jun-24	4.00	4.25	3.60	3.50	3.85	3.60
Sep-24	3.75	4.00	3.50	3.50	3.85	3.60
Dec-24	3.50	3.75	3.40	3.50	3.85	3.60
Mar-25	3.25	3.50	3.30	3.50	3.85	3.60
Jun-25	3.25	3.40	3.30	3.50	3.85	3.60
Sep-25	3.25	3.40	3.30	3.50	3.85	3.60
Dec-25	3.25	3.40	3.30	3.50	3.85	3.60

In the above table 'bank rate' refers to the policy rate of the Bank of England. PWLB borrowing rates are based on 'Gilt Yield' and so this is a forecast of long-term interest rates. The Authority can borrow at 80 basis points above the gilt yield, so for example a fixed interest rate to borrow PWLB money for 10 years would be 4.27%, 3.47% plus 0.80%.

Current Treasury Portfolio Position

At the 31 December 2022 the debt and investments balances were: -

Table 4 Debt and Investments balances

Debt	Principal	%
	£m
Fixed rate loans from the Public Works Loan Board	2.000	100
Variable rate loans		-
	2.000	100
Investments
Variable rate investments with Lancashire County Council	20.730	58.0
Fixed rate investments	15.000	42.0
	35.730	100

The level of investments represent the Authority’s cumulative surplus on the General Fund, the balances on other cash-backed earmarked reserves and a cash-flow balance generated by a surplus of creditors over debtors and by grant receipts in advance of payments. There is a net investment figure of £34m.

Borrowing and Investment Requirement

In the medium term the Authority borrows for capital purposes only. The underlying need to borrow for capital purposes is measured by the Capital Financing Requirement (CFR), while usable reserves and working capital are the underlying resources available for investment. The table below compares the estimated CFR to the debt which currently exists, this gives an indication of the borrowing required. It also shows the estimated resources available for investment. An option is to use these balances to finance the expenditure rather than investing, often referred to as internal borrowing. The table gives an indication of the minimum borrowing or investment requirement through the period.

The CFR forecast includes the impact of the latest forecast of the funding of the Capital Programme which currently assumes that there will be no borrowing until 2026/27. A voluntary MRP was made in 2019/20 to take the future loans element of the MRP to nil.

Table 5 Borrowing/Investment Need

	31/03/2022	31/03/2023	31/03/2024	31/03/2025
	£m	£m	£m	£m
Capital Financing Requirement	12.795	12.351	11.868	11.339
Less long-term liabilities (PFI and finance leases)	-12.795	-12.351	-11.868	-11.339
Less external borrowing	-2.000	-2.000	-2.000	-2.000
Borrowing requirement	-2.000	-2.000	-2.000	-2.000
Reserves and working capital	31.571	28.771	22.971	15.871
Borrowing/(Investment) need	33.571	30.771	24.971	17.871

CIPFA’s Prudential Code for Capital Finance in Local Authorities recommends that the Authority’s total debt should be lower than its highest forecast CFR over the next three years. However, the table above shows that the level of loans was above the CFR at 31/3/22. This was the result of the Authority adopting a policy of setting aside additional Minimum Revenue Provision (MRP) in order to generate the cash to repay loans either on maturity or as an early repayment.

The table above indicates that rather than having a need for borrowing it is estimated that the Authority has an underlying need to invest although the available balances are forecast to reduce.

Although the Authority does not have plans for new borrowing until 2026/27 it does currently hold £2.0m of loans as part of its strategy for funding previous years' capital programmes.

Liability Benchmark

The liability benchmark is an indicator required by the CIPFA Code. It looks to compare the Authority’s actual borrowing requirements against an alternative strategy, a liability benchmark, which shows the minimum level of borrowing. This assumes the same forecasts as the table above, but that cash and investment balances are kept to a minimum level of £10m at each year-end to maintain sufficient liquidity but minimise credit risk. In addition, it reflects the latest Capital Programme information which shows a borrowing requirement in 2026/27 and 2027/28. The liability benchmark is shown in the graph below:

Graph 1 showing Liability Benchmark and Borrowing Scenarios

The benchmark shows that from 2026/27 there is likely to be a long-term requirement to borrow but that this does not necessarily have to be at the level of the loans CFR, which represents the maximum borrowing. The borrowing requirement is also reducing over time which may influence the length and type of borrowing to be taken.

Borrowing Strategy

The draft Capital Programme implies there may be a requirement to use borrowing to fund the capital programme in the later years. At this stage it is extremely unlikely that borrowing will be required in 2023/24. However, it is still best practice to approve a borrowing strategy and a policy on borrowing in advance of need. In considering a borrowing strategy the Authority needs to make provision to borrow short term to cover unexpected cash flow shortages or to cover any change in the financing of its Capital Programme.

In the past the Authority has raised all of its long-term borrowing from the Public Works Loan Board, but if long term borrowing was required other sources of finance, such as local authority loans, and bank loans, would be investigated that may be available at more favourable rates.

Short-term borrowing if required would most likely be taken from other local authorities.

Therefore, the approved sources of long-term and short-term borrowing are:

• Public Works Loan Board;

• UK local authorities;

• any institution approved for investments; 

• any other bank or building society authorised by the Prudential Regulation Authority to operate in the UK;

• UK public and private sector pension funds. 

Policy on Borrowing in Advance of Need

In line with the Prudential Code, the Authority will not borrow purely in order to profit from the investment of the extra sums borrowed. However advance borrowing may be taken if it is considered that current rates are more favourable than future rates and that this advantage outweighs the cost of carrying advance borrowing. Any decision to borrow in advance will be considered carefully to ensure value for money can be demonstrated and that the Authority can ensure the security of such funds and relationships.

In determining whether borrowing will be undertaken in advance of need the authority will:- 

• Ensure that there is a clear link between the capital programme and the maturity profile of the existing debt portfolio which supports the need to take funding in advance of need;

• Ensure the on-going revenue liabilities created, and the implications for the future plans and budgets have been considered;

• Evaluate the economic and market factors that might influence the manner and timing of any decision to borrow;

• Consider the merits and demerits of alternative forms of funding;

• Consider the alternative interest rate bases available, the most appropriate periods to fund and repayment profiles to use.

Debt Restructuring

The Authority’s debt has arisen as a result of prior years' capital investment decisions. It has not taken any new borrowing out since 2007 as it has been utilising cash balances to pay off debt as it matures, or when deemed appropriate with the Authority making early payment of debt. The anticipated holding of debt at 31 March 2023 is £2.0m. All the debt is from the Public Works Loans Board (PWLB) and is all at fixed rates of interest and is repayable on maturity. The table below shows the maturity profile and interest rate applicable on these:-

Table 6 Outstanding Loans

Loan Amount	Maturity Date	Interest rate
£650k	December 2035	4.49%
£650k	June 2036	4.49%
£700k	June 2037	4.48%

(Note, this debt was taken out in 2007 when the base rate was 5.75% and when the Authority was earning 5.84% return on its investments.)

Given the change in interest rates, the opportunities for debt repayment/restructuring have been reconsidered.

The level of penalty applicable on early repayment of loans now stands at £0.199m. (As previously reported the level of penalty is dependent upon two factors, the difference between the interest chargeable on the loan and current interest rates, the greater this difference the greater the penalty, and the length to maturity, the greater the remaining time of the loan the greater the penalty. Hence as interest rates increase or as loans get closer to maturity the level of penalty will reduce.)

Outstanding interest payable between now and maturity is £1.228m.

Table 7 Implications of Repaying Loans

Penalty incurred	0.199
Savings on interest payable	(1.228)
Gross Saving	(1.029)

However, as highlighted previously, any early repayment means that cash balances available for investment will be reduced and hence interest receivable will also be reduced. The extent of which is dependent upon future interest rates. It is estimated that if interest rate on investments was at 3.43% over the remaining period of the loan then repaying the loans now will be broadly neutral.  

It is also worth noting that the capital budget does allow for additional borrowing within the next 5 years. Current long-term borrowing rates are 4.85% for a 20-year loan and 4.46% for a 50-year loan, both of which exceed the breakeven position noted above. Hence given the penalties it is considered beneficial to retain these loans.

Investment Strategy

At 31^st December 2022 the Authority held £35.7m invested funds, representing income received in advance of expenditure plus existing balances and reserves. During the year the Authority’s investment balance has ranged between £26.7m and £46.9m. The variation arises principally due to the timing of the receipt of government grants. It is anticipated that there will be reduced cash levels in the forthcoming year, due to a drawdown in reserves to finance capital expenditure.

Both the CIPFA Code and government guidance require the Authority to invest its funds prudently, and to have regard to the security and liquidity of its investments before seeking the highest rate of return, or yield. The Authority’s objective when investing money is to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk receiving unsuitably low investment income.

Therefore, in line with the guidance the Treasury Management Strategy is developed to ensure the Fire Authority will only use very high-quality counterparties for investments.

The Authority may invest its surplus funds with any of the counterparties in the table below, subject to the cash and time limits shown. 

Table 8 Investment Counterparties

Counterparty		Cash limit	Time limit
Banks and other organisations and securities whose lowest published long-term credit rating from Fitch, Moody’s and Standard & Poor’s is:	AAA	£5m each	5 years
	AA+		3 years
	AA		2 years
	AA-		2 years
Call Accounts with banks and other organisations with minimum A- credit rating		£10m	next day
Call Account with Lancashire County Council		unlimited	next day
UK Central Government (irrespective of credit rating)		unlimited	50 years
UK Local Authorities (irrespective of credit rating)		£5m each	10 years
Secured Bond Funds AA rating and WAL not more than 3 years		£5m each	n/a
Secured Bond Funds AAA rated and WAL not more than 5 years		£5m each	n/a

Allowable bond funds are defined by credit rating and weighted average life (WAL). Investing in senior secured bonds backed by collateral provides a protection against bail-in. Although the average life of the securities within the fund will be either 3 or 5 years, funds can be redeemed within 2 days of request but in general these should be seen as longer-term investments.

Regarding the risk of investing with another local authority, only a very few authorities have their own credit rating, but those that do are the same or one notch below the UK Government reflecting the fact that they are quasi-Government institutions. On the whole credit ratings are seen as unnecessary by the sector because the statutory and prudential framework within which the authorities operate is amongst the strongest in the world. In addition, any lender to a local authority has protection, under statute, by way of a first charge on the revenues of that authority. No local authority has ever defaulted to date and this also may be an indication of security. However, when the UK credit rating by the rating agencies has been downgraded those local authorities with a rating saw a reduction in their ratings. Therefore, consideration has been given to reducing the risk associated with the investment with other local authorities. Arlingclose, the County Council's Treasury Management advisor, state they are "comfortable with clients making loans to UK local authorities for periods up to two years, subject to this meeting their approved strategy. For periods longer than two years we recommend that additional due diligence is undertaken prior to a loan being made." On this basis it is proposed that the investments to local authorities are limited as follows:

Table 9 Investment Limits with Local Authorities

	Maximum individual investment (£m)	Maximum total investment (£m)	Maximum period
Up to 2 years	5	40	2 years
Over 2 years	5	25	10 years

The investment in LCC as part of the call account arrangement is excluded from the above limits. The balance on this account is dependent upon short term cash flows and therefore does not have a limit.                                       

Whilst the investment strategy has been amended to allow greater flexibility with investments any decision as to whether to utilise this facility will be made based on an assessment of risk and reward undertaken jointly between the Director of Corporate Services and LCC Treasury Management Team, and consideration of this forms part of the on-going meetings that take place throughout the year.

In respect of banks, taxpayers will no longer bail-out failed banks, instead the required funds will be paid by equity investors and depositors. Local authorities' deposits will be at risk and consequently although currently available within the policy it is unlikely that long term unsecured term deposits will be used at the present time.

Currently all of the Authority's investments are with other local authorities.

The Authority currently has access to a call (instant access) account with a local authority, which pays bank base rate, this is currently 3.5%. Each working day the balance on the Authority's current account is invested to ensure that the interest received on surplus balances is maximised. 

In addition, longer term loans have been placed with UK local authorities to enhance the interest earned. To this end at the following investments are already impacting 2023/24.

Table 10 Current Investments

Start Date	End Date	Principal	Rate	Interest 2023/24
21/03/2022	21/03/2024	£5,000,000	1.50%	£72,945
07/10/2022	06/10/2023	£5,000,000	4.00%	£103,014
27/10/2022	26/10/2023	£5,000,000	3.30%	£94,028

Consideration is given fixing further investments if the maturity fits with estimated cash flows and the rate is considered to be attractive. This will continue to be reviewed. Suggested rates payable by other local authorities indicate:

Table 11 Indicative Interest Rates on Investments with other Local Authorities

3-month investment	3.79 - 3.99%
6-month investment	3.84 - 4.04%
12-month investment	3.94 - 4.14%
3-year investment	3.99 - 4.19%
4-year investment	4.04 - 4.24%

The overall combined amount of interest earned on Fixed/Call balances as at 31^st December 2022 is £0.531m on an average balance of £37.01m at an annualised rate of 1.91%. This compares favourably with the benchmark 7-day LIBID rate which averages a yield of 1.81% over the same period.

In addition to the above, the authority uses NatWest for its operational banking. Balances retained in NatWest are very low, usually less than £5,000. However, if required monies are retained at NatWest this would be in addition to the limits set out above.

Minimum Revenue Provision (MRP)

Under Local Authority Accounting arrangements, the Authority is required to set aside a sum of money each year to reduce the overall level of debt. This sum is known as the minimum revenue provision (MRP).

The Authority will assess their MRP for 2023/24 in accordance with guidance issued by the Secretary of State under section 21(1A) of the Local Government Act 2003.

The Authority made a voluntary MRP in 2019/20 and it is anticipated that the MRP on loans will be nil in 2023/24 this will be the case until capital expenditure is financed by borrowing.

Whilst the Authority has no unsupported borrowing, nor has any plans to take out any unsupported borrowing in 2023/24 it is prudent to approve a policy relating to the MRP that would apply if circumstances changed. As such in accordance with guidelines, the MRP on any future unsupported borrowing will be calculated using the Asset Life Method. This will be based on a straightforward straight – line calculation to set an equal charge to revenue over the estimated life of the asset. Estimated life periods will be determined under delegated powers. To the extent that expenditure is not on the creation of an asset and is of a type that is subject to estimated life periods that are referred to in the guidance, these periods will generally be adopted by the Authority.  However, the Authority reserves the right to determine useful life periods and prudent MRP in exceptional circumstances where the recommendations of the guidance would not be appropriate. 

As some types of capital expenditure incurred by the Authority are not capable of being related to an individual asset, asset lives will be assessed on a basis which most reasonably reflects the anticipated period of benefit that arises from the expenditure. Also, whatever type of expenditure is involved, it will be grouped together in a manner which reflects the nature of the main component of expenditure and will only be divided up in cases where there are two or more major components with substantially different useful economic lives.

Assets held under a PFI contracts and finance leases form part of the Balance Sheet. This has increased the overall capital financing requirement and results in an MRP charge being required. The government guidance permits a prudent MRP to equate to the amount charged to revenue under the contract to repay the liability. In terms of the PFI schemes this charge forms part of the payment due to the PFI contractor.

Revenue Budget

The capital financing budget currently shows that income received exceeds expenditure. This excludes the PFI and Finance lease payments, which are included in other budgets. Based on the Strategy outlined above then the proposed budget for capital financing are:

Table 12 Capital Financing Charges Included in Revenue Budget

	2022/23	2023/24	2024/25	2025/26
	£m	£m	£m	£m
Interest payable	0.090	0.090	0.090	0.090
MRP	0.010	-	-	-
Interest receivable	(0.770)	(1.300)	(1.000)	(0.650)
Net budget	(0.680)	(1.210)	(0.910)	(0.560)

Prudential Indicators for 2022/23 to 2025/26 in respect of the Combined Fire Authority's Treasury Management Activities.

In accordance with its statutory duty and with the requirements of the Prudential Code for Capital Finance and the CIPFA Code for Treasury Management, the Combined Fire Authority produces each year a set of prudential indicators which regulate and control its treasury management activities.

The following table sets out the debt and investment-related indicators which provide the framework for the Authority’s proposed borrowing and lending activities over the coming three years. These indicators will also be approved by Members as part of the Capital Programme approval process along with other capital expenditure-related indicators but need to be reaffirmed and approved as part of this Treasury Management Strategy.

It should be noted that contained within the external debt limits, there are allowances for outstanding liabilities in respect of the PFI schemes and leases. However, accounting standards are likely to change in relation to recording leases. In effect more leases are likely to be included on the balance sheet and therefore will be included against the other long term liabilities indicators. At this stage work is on-going to quantify the impact of the change and therefore the other long term liabilities limits may be subject to change.

Treasury Management Prudential Indicators

 Table 13 Treasury Management Prudential Indicators

	2022/23Revised	2023/24	2024/25	2025/26
	£m	£m	£m	£m
1. Adoption of the Revised CIPFA Code of Practice on Treasury Management (2011)	Adopted for all years
2. Authorised limit for external debt - A prudent estimate of external debt, which includes sufficient headroom for unusual cash movements.
Borrowing	4.000	4.000	4.000	4.000
Other long-term liabilities	30.000	30.000	30.000	30.000
TOTAL	34.000	34.000	34.000	34.000
3. Operational boundary for external debt - A prudent estimate of debt, but no provision for unusual cash movements.  It represents the estimated maximum external debt arising as a consequence of the Authority's current plans.
Borrowing	3.000	3.000	3.000	3.000
Other long-term liabilities	16.000	16.000	16.000	15.000
TOTAL	19.000	19.000	19.000	18.000
4. Upper limit for fixed interest rate exposure
Upper limit of borrowing at fixed rates	100%	100%	100%	100%
Upper limit of investments at fixed rates	100%	100%	100%	100%
5. Upper limit for variable rate exposure
Upper limit of borrowing at variable rates	50%	50%	50%	50%
Upper limit of investments at variable rates	100%	100%	100%	100%
6. Upper limit for total principal sums invested for over 364 days (per maturity date)	25.000	25.000	25.000	25.000
7. Maturity Structure of Debt	Upper Limit %		Lower Limit %
Under 12 months	100		-
12 months and within 24 months	50		-
24 months and within 5 years	50		-
5 years and within 10 years	75		-
10 years and above	100		-

Financial Implications

It is worth noting that the Authority currently utilises Lancashire County Council to undertake its Treasury Management Activities, at an annual cost of £8k, which is built into the current and future budgets.

Human Resource Implications

None

Equality and Diversity Implications

None

Environmental Impact

None

Business Risk Implications

The Treasury Management strategy is designed to minimise the Authority’s financial risk associated with investment decisions, whilst maximising the return on any investments made. As such the adoption of the CIPFA’s Code of Practice on Treasury Management and the monitoring arrangements in place ensure that any risks faced by the Authority are managed. 

However, it must be acknowledged that there will always be a balance between risk and return and hence the strategy does not completely eliminate the risk of any further default on investments in the future. 

Local Government (Access to Information) Act 1985

List of background papers

Paper: CIPFA Treasury Management Code of Practice and Guidance and Treasury Management in the Public Services: Code of Practice  

Date: 2018

Contact: Keith Mattinson

Reason for inclusion in Part 2 if appropriate: N/A

Table 2 Details of any background papers

Appendix 1

Treasury Management Policy Statement

The Fire Authority adopts the key recommendations of CIPFA’s Treasury Management in the Public Services: Code of Practice (the Code), as described in Section 5 of the Code.

Accordingly, the Authority will create and maintain, as the cornerstones for effective treasury management:-

· A treasury management policy statement stating the policies, objectives and approach to risk management of its treasury management activities;

· Suitable treasury management practices (TMPs), setting out the manner in which the Authority will seek to achieve those policies and objectives, and prescribing how it will manage and control those activities.

The Authority delegates responsibility for the implementation and monitoring of its treasury management policies and practices to the Resources Committee and for the execution and administration of treasury management decisions to the Director of Corporate Services, who will act in accordance with the organisation’s policy statement and TMPs, IMPs and CIPFA’s Standard of Professional Practice on treasury management.

The Authority nominates the Resources Committee to be responsible for ensuring effective scrutiny of the treasury management strategy and policies.

Definition

The Authority defines its treasury management activities as: the management of the Authority’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.

Risk management

The Fire Authority regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured.  Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the organisation, and any financial instruments entered into to manage these risks.

Value for money

The Fire Authority acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. It is therefore committed to the principles of achieving value for money in treasury management, and to employing suitable comprehensive performance measurement techniques, within the context of effective risk management.

Borrowing policy 

The Fire Authority greatly values revenue budget stability and will therefore borrow the majority of its long-term funding needs at long-term fixed rates of interest. However, short term and variable rate loans may be borrowed to either offset short-term and variable rate investments or to produce revenue savings. The Authority will also constantly evaluate debt restructuring opportunities of the existing portfolio.

The Fire Authority will set an affordable borrowing limit each year in compliance with the Local Government Act 2003, and will have regard to the CIPFA Prudential Code for Capital Finance in Local Authorities when setting that limit. It will also set limits on its exposure to changes in interest rates and limits on the maturity structure of its borrowing in the treasury management strategy report each year.

Investment policy 

The Fire Authority’s primary objectives for the investment of its surplus funds are to protect the principal sums invested from loss, and to ensure adequate liquidity so that funds are available for expenditure when needed. The generation of investment income to support the provision of local authority services is an important, but secondary, objective. 

The Fire Authority will have regard to the then Ministry of Housing, Communities and Local Government Guidance on Local Government Investments. It will approve an Investment Strategy each year as part of the Treasury Management Strategy. The strategy will set criteria to determine suitable organisations with which cash may be invested, limits on the maximum duration of such investments and limits on the amount of cash that may be invested with any one organisation.