Agenda item - Treasury Management Strategy 2021/22 & Capital Strategy 2021/22

Agenda item

Treasury Management Strategy 2021/22 & Capital Strategy 2021/22

Report of the Strategic Director of Finance

Minutes:

Clive Heaphy, Strategic Director of Finance, introduced the report on the Treasury Management Strategy 2021/22 and Capital Strategy 2021/22. He gave a presentation outlining the following points:

 

(a)  Treasury management is managed in line with the Code from the Charted Institute of Public Finance and Accountancy (CIPFA) as well as the Ministry of Housing, Communities and Local Government (MHLCG) and includes a number of different, but linked strategies;

 

(b)  The Capital Strategy sets out the framework for delivery of Capital investment and financing decisions. It is a CIPFA requirement to link the Capital Strategy to the Treasury Management Strategy. Treasury Management sets out the Councils approach to cash management, investment, borrowing and debt repayment and funding both the Capital and Revenue strategies;

 

(c)  The Capital Strategy supports the objectives of the Council. The strategy aims to align the ambitions of the Council with spend on assets and compliments revenue spend;

 

(d)  The Strategy works to increase transparency and good governance by establishing a Capital Board, chaired by the Leader, to scrutinise the programme and funding, as well as to look at individual requests for capital spend and monitoring capital programmes. The Board will also monitor borrowing and capital receipts. 100% grant funded and Health and Safety schemes will be prioritised as they do not then create revenue impact for the Council;

 

(e)  The Prudential Code dictates that capital investment must be prudent and affordable, and this is the context in which the Council is funding Capital. Projects will be prioritised to align with Council ambition and the long term financial implications of each project will be assessed;

 

(f)  Good practice dictates that that all schemes have robust business cases and that whole life costing of each scheme is considered, including the revenue impacts;

 

(g)  One of the criticisms from the Non-Statutory Review by MHCLG was that the Council’s overall level of external debt was too high. Current external debt currently costs £56million to service. This is 27% of the Council Budget. This is higher than national comparators and the Capital Strategy aims is to contain and reduce the external debt;

 

(h)  New regulations introduced nationally state that Local Authorities can no longer borrow in order to generate a yield. This means that it is not possible to pursue new invest property opportunities. Investment must be linked to service needs;

 

(i)  The Capital Board will be considering assets that are not being fully utilised where, if they were sold, the receipt could be used to fund capital spend without resorting to borrowing. All capital schemes will be started when Capital receipt has been received, rather than the current practice of starting schemes in anticipation of capital receipt;

 

(j)  The Capital working group are invited to look at the controls in place around the Capital programme, projects, schemes and variances;

 

(k)  The Council is has created a Voluntary Debt Reduction Policy. The recommendations from the Non-Statutory review suggested that the Government should consider putting legislation in place to bar Nottingham City Council from further borrowing, however in discussions they were satisfied that a voluntary policy would deliver the same objectives. Due to commitments already in place there will need to be small amounts of borrowing to continue to fund the existing capital programmes. By 2022/23 there will be nil net new borrowing;

 

(l)  This new policy means that by 2024/25 external debt will be reduced to around £929million which is more acceptable when compared to the peer group;

 

(m)  The vast majority of the debt is fixed term, in line with most other Council authorities. Periods can vary from the short term, 3/5 years, up to 60 years. The average rate on debt is 3.3% which is reasonably competitive;

 

Committee members commented on the presentation and asked a number of questions, the following additional information was highlighted:

 

(n)  Some committee members felt that although not necessarily in the best interests of the citizens of Nottingham the need to reduce debt by ensuring capital receipts before new projects are started is necessary. The Capital programme must driven by outcomes for the City;

 

(o)  If a Voluntary Debt Reduction Policy was not put in place by the Council it was made clear that one would be imposed by Central Government;

 

(p)  The active treasury management strategy will work toward reducing the overall debt of the Council and colleagues are considering a variety of use of resources to this aim. There is a balance to be found between using released funds from debt reduction on revenue services and paying down further debt;

 

(q)  The Council does have a positive yield from the investment portfolio. Consideration will be given to reducing the portfolio to remove the lower yield assets with a view to paying down debt associated with it, assuming that there is no financial penalties;

 

(r)  Net debt is difficult to calculate, all of the measures as part of reporting across Local Government are in gross debt. 27% of net spend is probably the highest in Local government and would suggest that the Council has invested much more heavily in assets infrastructure and property than most other Authorities;

 

(s)  Details on debt fall out will be shared with the Capital working group, as part of more detailed work;

 

(t)  A focus on the control framework is the principle role for Audit Committee, ensuring that an effective control framework in place, is robust, and will lead to a programme that achieves its objectives within an affordable cost envelope. Audit will also look at lessons learned, and reporting mechanisms for correcting this when necessary and when projects do not run favourably;

 

(u)  The Property market is changeable. The Asset Transformation Group work to link the Asset Disposal Programme with regeneration aims of the city to ensure the right assets are being sold to support economic growth in the City and that best value is achieved for those assets;

 

(v)  The Treasury Management report, and the Capital Strategy is intrinsically linked to the Budget setting process. This year the budget process has been difficult. This has been compounded by the impact of Covid 19 and the subsequent need for the in-year budget process. The difficult context in which the budget has been set has led to late filing of this report for this Committee. The process for next year will be set in the context of a medium term financial plan and will be less compressed than this year;

 

Resolved to:

 

(1)  To note the Treasury Management Strategy for 2021/22, attached as Appendix 1 to the published report, and, in particular:

·  the Strategy for Debt Repayment (Minimum Revenue Provision Statement) in 2021/22

·  the Borrowing Strategy including the Debt Policy

·  the Treasury Management Investment Strategy for 2021/22;

·  the Prudential Indicators and limits for 2021/22 to 2023/24; and

·  the Treasury Management Policy Statement

 

(2)  Note the Capital Strategy 2020/21 including the Voluntary Debt Reduction Policy Statement.

 

 

 

Supporting documents: