Agenda item

The report set out the Authority’s borrowing and lending activities during 2018/19. All borrowing and investment activities undertaken throughout the year were in accordance with the Treasury Management Strategy 2018/19, and were based on anticipated spending and interest rates prevailing at the time.   

In accordance with the 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.

Economic Overview

The Director of Corporate Services confirmed that the UK economy had continued to show economic growth with the last annual GDP growth being at 1.4% although this was below recent growth trends. The continued uncertainty regarding the outcome of the discussions to leave the European Union has been impacting on the economy. However, growth had also been affected by world factors.

The continued uncertainty over the economy meant that the Bank of England had continued with its policy of slow and gradual increases in interest rates. Therefore the only change in the base rate came in August when the base rate was increased from 0.50% to 0.75%. The treasury management activity was undertaken with the expectation that interest rates would remain at the historically low levels but that there would be small increases. The latest forecast from Arlingclose, the County Council's Treasury Advisers, was for a 0.25% increase in the base rate in both of the quarters ending March and September 2020.

Borrowing

The borrowing of the Fire Authority had remained unchanged at £2m in 2018/19. The current approved capital programme had no requirement to be financed from borrowing and the debt related to earlier years' capital programmes.  Consideration had been given to repaying the £2m but as reported to the Resources Committee as part of the 2019/20 Treasury Management Strategy the penalties incurred on repaying the loans early would incur significant costs. It was concluded that the repayment was not considered to be financially beneficial at the time. However, the situation was periodically reviewed by the Director of Corporate Services.  The loans outstanding were all with the Public Loans Works Board (PWLB) and the maturity and interest rates were shown in the report.  The total interest paid on PWLB borrowing was £90k which equated to an average interest rate of 4.49%.

Investments

Both the CIPFA Code and the MHCLG Guidance required 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. Throughout the year when investing money the key aim was to strike an appropriate balance between risk and return.

In order to reduce credit risk to the Authority, Lancashire County Council (credit rating by Moodys Aa3) was the main counterparty for the Authority's investments via the operation of a call account. However the Treasury Management Strategy did permit investment with other high quality counterparties including other local authorities. During the year the cash held by the Authority had been positive with the highest balance being £48.7m and the lowest £28.5m. Therefore, given that the expectation was that interest rates would remain low the opportunity was taken to undertake some fixed term investments with other local authorities rather than keeping all the monies in the call account. This aimed to enhance the investment return while keeping the credit risk low.  The Authority held 4 fixed term investments totalling £20m, and investing in these fixed term deposits, rather than leaving the money in the call account, had increased the interest received in 2018/19 by £102k although this did reduce the liquidity of the call account provided by Lancashire County Council paid the base rate throughout 2018/19.

The overall interest earned during this period was £0.358m at a rate of 0.95% which compared favourably with the benchmark 7 day index (Sterling Overnight rate 7 day rate) which averaged 0.66% over the same period.

All of these 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.

Prudential Indicators

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 2018/19 were presented alongside the actual outturn position.

In response to a question raised by CC Martin, the Director of Corporate Services confirmed that when investments matured these were returned to the Authority, at which time he would discuss and agree with Lancashire County Council Treasury Management Team the options for further investment; with security the first priority.

RESOLVED: - That the Committee noted and endorsed the outturn position report.