Agenda item

Report of the Deputy Chief Executive (Place)

The Audit and Procurement Committee considered a briefing note of the Deputy Chief Executive (Place) that detailed the latest information in respect of the Council's treasury management activity. Appendices to the report detailed the Council’s lending list along with the most recent list of investments held by the Council.

The current lending list was maintained in line with advice provided by the Council’s Treasury Management advisors, Arlingclose, which based its judgement on information from credit rating agencies.

Since the last report in October 2016, the main change to the lending list was the reduction in the counterparty limits which were based on the expected cash levels for the coming year. As a result of paying three years pension contributions upfront, totalling £93.3m, it was anticipated that the Council’s cash balances would be lower than previous years, therefore counterparty limits had been reduced from £10m to £8m.

Also, three unrated Building Societies and a Bank had been removed from the approved lending lists based on advice from Arlingclose, due to worsening credit metrics. The Council had never dealt with any of the institutions involved.

The counterparty limits had also been adjusted based on school current account balances. The Council took these into consideration when setting counterparty limits as in the event of a bank failure, these balances would be bailed-in as well as Council investments. School current account balances held with Lloyds Bank had increased, therefore, the Councils counterparty limits with Lloyds bank had reduced to £3.4m from £4.4m. The Council currently held an investment with Lloyds bank for £4.4m however, this was within the Treasury Management Strategy because, although it was exceeding the counterparty limit now, when the investment was made it was within the counterparty limit.

There are two instances where the Council’s current investments exceeded the counterparty limit of £8m. The first of these was the 95 day notice account with Santander and the other was the investment in the CCLA property fund. While it was within the Council’s Treasury Management Strategy to hold investments over the current counterparty limit as long as the counterparty limit wasn’t breached at the time of investment, the decision had been made to disinvest £2m from the Santander notice account to bring the investment in line with current limits and the Council were currently serving the notice period before receiving the funds.

A decision was made by Council to adjust the Treasury Management Strategy to increase the maximum investment limit with property funds to £10m to take advantage of the relatively strong returns from the fund combined with the relatively high level security within this type of investment. Details were set out in the lending list in Appendix 1 to the report.

The total level of investment balances held by the Council stood at £110.4m as at 20^th October 2017 compared with £178.9m as at 21^st October 2016. The main reason for the reduction in investment balances over the past 12 months was due to the £93.3m upfront pension contribution payment made in April 2017.

Since the last report no short term borrowing had been undertaken, due to the high levels of investment balances held by the Council.

The counterparty limit with NatWest was only £3.5m due to them having a lower credit rating (BBB+) than other UK banks and some schools had their current accounts with NatWest. On 12/09/2017 the Council exceeded that limit with an end of day balance of £4.6m,which was due to uncertainty surrounding a potential receipt of £4.5m relating to the Whitley South scheme. All dealing needed to be done by 1pm before investment markets closed and so the decision was taken to proceed as if the receipt would not be received, to negate the risk of the Council having an overdrawn balance. However, at 4pm the Council did receive the £4.5m leading to the end of day balance of £4.6m.

Counterparty limits were a notional limit set by the Council designed to reduce exposure to Council investments being bailed-in in the event of a bank failure. As such exceeding counterparty limits carried no penalties other than The Council had an increased exposure to investments being bailed-in if NatWest had defaulted overnight on 12/09/2017. 

The Committee were assured that priority was given to the security of investments prior to consideration of returns. Officers indicated that they were satisfied that investments were appropriate and that reports were received periodically providing details of how the Council’s investments had been used.

RESOLVED that the Audit and Procurement Committee notes the latest position in relation to the Council's treasury management activity.