Agenda item

The report provided a broad view of the economic position.

COVID-19, spread across the globe in early 2020 causing falls in financial markets not seen since the Global Financial Crisis.

In response to the spread of the virus and sharp increase in those infected, the government enforced lockdowns, central banks and governments around the world cut interest rates and introduced massive stimulus packages in an attempt to reduce some of the negative economic impact to domestic and global growth.

The Bank of England, which had held policy rates steady at 0.75% through most of 2019/20, moved in March to cut rates to 0.25% from 0.75% and then swiftly thereafter brought them down further to the record low of 0.1%. In conjunction with these cuts, the UK government introduced a number of measures to help businesses and households impacted by a series of ever-tightening social restrictions, culminating in pretty much the entire lockdown of the UK. With similar impacts being felt around the world.

With the crisis there has been flight to quality in financial markets resulting in  gilts yields to fall substantially for example the 10-year benchmark yield fell from 1% to 0.4%.

Borrowing

The borrowing of the Fire Authority had remained unchanged at £2m in 2019/20. The current approved capital programme had no requirement to be financed from borrowing and the debt related to earlier years' capital programmes.  While the borrowing was above its Capital Financing Requirement (CFR), the underlying need to borrow for capital purposes, this was because the Fire Authority had a policy of setting aside monies in the form of statutory and voluntary minimum revenue provision (MRP) in order to repay debt as it matured or to make an early repayment.  Consideration had been given to repaying the £2m but as reported as part of the 2020/21 Treasury Management Strategy the penalties incurred on repaying the loans early would incur significant costs. Also any early repayment meant that cash balances available for investment would be reduced and hence interest receivable would also be reduced.  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. 

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 £48.0m and the lowest £27.7m. 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.  At the year-end, fixed investments of £10m were in place.  However, during the year other fixed term investments had matured.

The table on page 32 of the report showed there had been 5 different lump sums invested with third parties; all were other local authorities and depending on when the investment had been taken out the interest rate had changed.  In total these investments had generated approximately £100k more investment return in year than if it had been invested in the call account. 

It was highlighted that interest rates had changed significantly since April / May which would impact on any future fixed-term investments. 

The call account provide by LCC paid the base rate throughout 2019/20.  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 £25.8m earning interest of £0.185m.

The overall interest earned during this period was £0.332m at a rate of 0.91% which compared favourably with the benchmark 7 day index (Sterling Overnight rate 7 day rate) which averaged 0.74% 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 2019/20 were presented alongside the actual outturn position.

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