Agenda item

The report set out the Authority’s borrowing and lending activities during 2016/17.

All borrowing and investment activities undertaken throughout the year were in accordance with the Treasury Management Strategy 2016/17, 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 economic situation in the year was largely dominated by the uncertainty about the short and medium term implications of the decision in June 2016 to leave the European Union.  In response to the risk of reduced economic growth, the Bank of England Monetary Policy Committee initiated a cut in bank rate to 0.25%, further gilt and corporate bond purchases and cheap funding for banks to maintain supply of credit to the economy.

The year had seen steady economic growth.  Inflation remained low in the first half of 2016 but there had been signs of this increasing towards the end of the year with inflation measured at 2.3% at March 2017.  Since the referendum vote the value of sterling had fallen and this was a significant factor behind the increase in inflation. 

The year had seen significant volatility in the financial markets as a result of both the UK vote to leave the European Union (EU) and the election of the President of the USA.  As a consequence of the uncertainty gilt yields fell, the UK’s sovereign rated was downgraded to AA and the value of sterling fell.  The impact of the negotiations to leave the EU would be a source of ongoing uncertainty.

Short term interest rates continued at historically very low levels.  In response to a potential reduction in economic growth the Bank of England reduced the base rate from 0.5% to 0.25% in August 2016; a level it remained at throughout the rest of the year.  The expectation during the year was that interest rates would remain low for the rest of the financial year and beyond.

Cash flow and interest rates continued to be monitored by the Director of Corporate Services and the County Council’s Treasury Management team in order to inform future decisions on borrowing and investments.

There had been no new borrowing undertaken in the year in line with the continuation of the policy of using cash balances to fund capital expenditure which had resulted in no new borrowing being undertaken since 2007.  In addition, the Authority had a policy to set aside monies in the form of statutory and voluntary minimum revenue provisions to reduce borrowing requirements end enable the repayment of debt as it matured.  The estimated balance at 31 March 2016 was £5.682m and therefore during the year a maturing debt of £0.250m was repaid.

In response to a question raised by CC O’Toole on whether it would be prudent to use reserves to pay off some of the debt the Director of Corporate Services confirmed that exercises had been undertaken and reported to the Authority previously but that these had concluded that as a result of the premium associated with the early repayment of the debt this was not deemed to be cost effective. 

Members requested the Director of Corporate Services bring a report to a future meeting setting out facts, figures, options and consequences of using reserves to pay off some of the debt.

Investments

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.  Throughout the year when investing money the key aim was to strike an appropriate balance between risk and return.

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 2016/17.  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 £32.4m earning interest of £0.105m.

The overall interest earned during this period was £0.305m at a rate of 0.72% 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.

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 2016/17 were presented alongside the actual outturn position.

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