Agenda item

The purpose of this report is to provide Members with information on the proposed Treasury Management Strategy Statement, Capital Strategy, Minimum Revenue Provision (MRP) Policy Statement and Annual Investment Strategy for 2020/21.

Members considered the Treasury Management Strategy Statement, Capital Strategy, Minimum Revenue Provision Policy Statement and Annual Investment Strategy 2020/21 report presented by Mark Saunders.

Mark Saunders explained that any amendments to this report will be reported to Cabinet and Council on 20 February 2020.

Members asked questions, made comments and received responses as follows;

1.    Councillor J Clark asked how much overview the Corporate Governance Committee will have in relation to the boards associated with the Commercial Investment Strategy (CIS). Mark Saunders explained that there will be separate governance arrangements in place for the investment board and decisions will be taken in accordance with the associated framework.

2.    Councillor J Clark asked for further information on the local authority trading company (LATCO) which is associated with the CIS. Peter Catchpole explained that the LATCO will report directly to the investment board and follow their direction and policy. The investment board will decide how investments are spent based on very detailed business cases and specification.

3.    Councillor Booth asked for assurance on the governance arrangements as neither of these entities will be required to report directly to the Corporate Governance Committee or a separate Audit Committee. He expressed concern in relation to the audit arrangements and asked if there were adequate skills and qualifications within the Council’s internal audit team to undertake this work.

4.    Councillor J Clark asked if the LATCO will be liable for tax and VAT and asked for assurance in relation to the decision making processes of both of these entities. Mark Hodgson explained that whilst there will be no officer involvement the Section 151 officer, Peter Catchpole, will have an overall responsibility for the governance and independence of the decision making process. He added that the LATCO will be subject to a separate audit of its financial statements and the terms of reference for the Corporate Governance Committee may need to be amended to reflect this.

5.    Councillor J Clark stated that the membership of the investment board proposes a quorate of only two members with one being the Leader of the Council. He added that decisions could therefore be made using the provision of the Chairman’s ‘casting vote’ with little member involvement or agreement. Mark Saunders confirmed this but reminded members that the investment board will need to ensure that detailed criteria has been satisfied prior to transacting any investments. There are many stages that must be completed prior to this and all decisions must be signed off by the Section 151 officer and be subject to audit.

6.    Councillor J Clark asked for further information on the shareholders of the LATCO and the arrangements surrounding this company. Peter Catchpole explained that the company will be wholly owned by the Council and subject to all legislation relating to Limited Companies. He reiterated that the investment board will appoint its own auditors for the LATCO and if this is not EY, both auditors will have to work closely with one another to consolidate both the Council and LATCO’s separate accounts.

7.    Councillor J Clark asked if the LATCO will fund its associated costs and charges. Peter Catchpole confirmed this. Mark Saunders added that the associated costs will be included in each investment’s potential yield.

8.    Peter Catchpole reiterated to members that not every project will be delivered via the LATCO and a detailed assessment will be undertaken to ensure the most appropriate delivery vehicle is being used.

9.    Councillor J Clark said he was sceptical about the overall arrangements and due diligence and highlighted the failings of other local authorities high risk investments. He stated that members represent the public and they must have assurance that the appropriate measures are in place. Mark Saunders agreed and stated that many local authorities have had investment strategies in place for a number of years and therefore the Council can assess their successes and failings. He assured members that officers have a professional duty to ensure that the Council is not putting tax-payers money at risk and every project will be assessed carefully before making any decisions.

10.Peter Catchpole explained that the key to the CIS is not being risk adverse but instead managing risks appropriately.

11.Councillor Wicks asked what the associated costs will be in relation to the LATCO. Councillor Benney highlighted that this will not be known until a full assessment has taken place in relation to specific investment opportunities.

12.Councillor Benney reiterated that the security of Council funds will be of paramount importance and he supports the strategy as additional income will lead to an improvement of Council services for the public.

13.Councillor Booth stated that he has endorsed this type of strategy for a number of years however the correct governance arrangements and controls must be in place to ensure the risks are minimised.

14.Members asked that the Corporate Governance Committee’s terms of reference are amended to reflect the overall governance and audit responsibility of the CIS.

15.Councillor Boden thanked members for the opportunity to speak and said he was pleased with member’s comments on this. He stated that this is a new direction for the Council and he is confident that the appropriate controls are in place as each transaction will be scrutinised and assessed throughout the process. He understands members concerns in relation to this and hopes their confidence in the CIS will improve as it progresses and generates positive results. He stated that in his opinion, any tax paid via the LATCO will be seen as a success as it will indicate good performance.

16.Councillor Booth referenced 3.3 of the report and the Council’s creditworthiness policy. He stated that the Council must consider any direct investments into commercial properties and retail premises as there are no mechanisms in place to assess the creditworthiness of these direct investments and therefore they can bring risk.

17.Councillor Booth highlighted that the CIS proposes a budget of £25 million and asked if the Council would be using their own reserves in the first instance before borrowing additional funds. Mark Saunders explained that each project will be assessed to determine the most appropriate funding for the investment. He reminded members that the majority of the Council’s own funds are used to finance the capital programme and therefore borrowing will be necessary. He added that the investment board have member approval to borrow up to £25 million but there is no guarantee this level of funding will be required.

18.Councillor J Clark asked for confirmation that £25 million is the maximum borrowing facility for the CIS. Mark Saunders confirmed this and stated that borrowing will only take place as and when required. Peter Catchpole reiterated that individual business cases will include financing option and a balance will be considered between borrowing and internal resources.

19.Councillor Booth asked for confirmation that if additional borrowing is required above the £25 million limit this will be reconsidered by Full Council. Officers confirmed this.

20.Councillor Booth asked where the figure of £25 million had derived from. Councillor Benney explained that it is sensible of the Council to have this maximum borrowing facility in place as it will allow the CIS to have a fluid approach to borrowing as and when required.

21.Councillor Wicks asked why figures have been provided in the report showing the interest payment for £25 million of borrowing. Mark Saunders stated that this is purely an illustration to show the interest payments if the Council did borrow the maximum amount.

22.Councillor Booth raised concern that the rates of return shown in the report are lower than neighbouring authorities and suggested that the report needs to clearly show the projected rates of return dependent on the investment vehicle. Mark Saunders clarified that different investments do generate different returns and these will be assessed individually. He added that the overall level of returns is shown in the CIS.

23.Peter Catchpole agreed to incorporate a matrix into the report which shows the expected rate of return for each type of investment.

24.Councillor Wicks asked if the proposed borrowing as part of the CIS will be taken out on a fixed term basis with an early redemption clause. Mark Saunders confirmed that there are a variety of loans available via the Public Works Loan Board (PWLB) and the most appropriate one will be chosen.

25.Councillor Booth referenced 8.10 of the report and asked if these limits are set by Government. Mark Saunders confirmed this.

26.Councillor Booth referenced 8.10 of the report and expressed concern that the proposed borrowing is high compared to the Council’s current level of debt.

27.Councillor Booth highlighted that the report does not contain any information on the concentration risk of investments and recommended that this is included. Officers agreed to this.

28.Councillor J Clark queried the figures displayed in 10.5 of the report. Mark Saunders explained that the PWLB report and our treasury advisors display their figures in this way. Councillor Booth added that this is purely banking terminology.

29.Councillor Booth recommended that the report clarifies the difference between treasury investments and commercial investments to avoid confusion. Officers agreed.

30.Councillor Booth asked why the Council have reduced their credit rating criteria. Mark Saunders explained that the Council’s treasury advisors had recommended this.

31.Councillor Booth asked why the Council do not consider investments in Building Societies as they often offer less risk than banks and asked if consideration is given to whether organisations are domiciled in the UK. Mark Saunders explained that the Council receive a document which provides them with criteria and ratings of potential investment companies and confirmed that there are currently 5 building societies on this list.

32.Councillor Booth stated that the report does not accurately capture the purpose of the Council’s Business Centres and recommended that further explanation is required in relation to their commercial return.

33.Councillor J Clark asked for clarification in relation to 4.20 of the report (page 68 of the agenda pack). Mark Saunders explained that following an expansion of Council activities, new guidance has been issued.

34.Councillor J Clark asked for confirmation on the decision making process in relation to borrowing funds for the CIS. Mark Saunders confirmed that the investment board will be responsible for this. Councillor Booth highlighted that the policy allows the investment board to borrow up to £25 million.

(Councillor Booth declared an interest by virtue of the fact that he is a former employee of Yorkshire Building Society).

The Corporate Governance Committee AGREED to endorse the strategy detailed in the report, to be included in the final budget report for 2020/21.