Agenda item

The report set out the Authority’s borrowing and lending activities during 2015/16.

All borrowing and investment activities undertaken throughout the year were in accordance with the Treasury Management Strategy 2015/16, and were based on anticipated spending and interest rates prevailing at the time. 

In accordance with the updated CIPFA Treasury Management code of practice and to strengthen Members’ oversight of the Authority’s treasury management activities, the Resources Committee received regular updates on treasury management issues including a mid-year report and a final outturn report. Reports on treasury activity were discussed on a quarterly basis with Lancashire County Council Treasury Management Team and the Director of Corporate Services and the content of these reports was used as a basis for this report to the Committee.

The Director of Corporate Services confirmed that the report had been written before the outcome of the referendum on the European Union which now meant more uncertainty regarding the economy.  He reassured Members that interest rates would continue to be monitored.

Short term interest rates continued at very low levels since the Bank of England reduced the base rate to 0.5% in March 2009.  Short-term investment levels available in the market remained below 0.6% through the year as illustrated in the report. 

A revised forecast of interest rates, published recently by Lancashire County Council's treasury management advisors, Arlingclose Treasury Consultants was shown in the report.

The Authority's cash investments remained significantly in excess of borrowing requirements and hence the Authority had adopted a policy to set aside additional monies in the form of additional Minimum Revenue Provisions (MRP) in order to reduce borrowing requirements and enable the repayment of debt as it matured as well as reducing credit rate risk.  This policy had seen overall debt reduce from £8.1m in 2009/10 to its current level of £5.8m.  No new borrowing had been taken out in the year, and £0.25m of debt matured in the year. 

During the year the Authority had made a charge to revenue to make provision to pay debt.  This statutory minimum revenue charge was broadly 4% of previous capital expenditure funded from borrowing adjusted to take into account a shorter asset life of some assets.  In 2015/16 the charge was £0.010m.

In addition, during the budget setting process for 2014/15 it was decided that an additional lump sum MRP payments would be made in order to set aside sufficient monies to provide scope to pay off debt in 5 years’ time.  This was reflected in an additional charge of £0.162m in 2015/16. 

The negative borrowing requirement presented in the report would be carried forwards until 2018/19, when the Authority would hold £4.849m after repaying debt as it fell due.  The balance was anticipated to match the level of debt outstanding at 31 March 2019.  An annual review of the penalties due on early repayment was carried out and should they be considered favourable the Authority would consider whether to repay the debt.

Both the CIPFA Code and the CLG 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 was to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk of low investment returns.

Two long term investments were held with UK local authorities as outlined in the report.  In addition, the Authority had access to the call account provided by Lancashire County Council which paid the base rate throughout 2015/16.  Each working day the balance on the Authority's current account was invested in this to ensure that the interest received on surplus balances was maximised.  The average balance in this account during the year was £43.187m accruing interest of £166k.

The overall interest earned during this period was £366k at a rate of 0.69% which compared favourably with the benchmark 7 day notice index which averaged 0.36% over the same period.

All the investments were made in accordance with the current Treasury Management Strategy and the CIPFA treasury management code of practice.

Cash flow and interest rates continued to be monitored by the Director of Corporate Services and the County Council’s Treasury Management team, and when rates were felt to be at appropriate levels, further term deposits would be placed.

In order to control and monitor the Authority’s treasury management functions, a number of prudential indicators had been determined against which performance could be measured.  The revised indicators for 2015/16 were presented alongside the actual outturn position.

RESOLVED: - That the Committee note and endorse the outturn position report.