Agenda item

Treasury Management Annual Review Report 1st April, 2020 to 31st March, 2021

To consider the report of the Chief Officer Resources.


Consideration was given to the report of the Chief Officer Resources.


At the invitation of the Chair, the Chief Officer Resources spoke to the report which provided Members with an opportunity to consider the Treasury Management activities carried out in 2020/2021 financial year, in accordance with the CIPFA Treasury Management Code of Practice.


A summary of the Treasury Management activities undertaken during the year were detailed in paragraph 5.1.6 of the report and these included:


-      £166m in short term loans had been raised resulting in an interest payment on these temporary borrowings of £265,000 at an average interest rate of 0.83%.  This interest rate was lower than the benchmark rate (based on market forces) of 1.00%.


-      £400,000 of short term investments had been made which had generated £8,000 in investment returns.


-      Long term debt outstanding as at 31st March, 2021 amounted to the value of £170m.


-      Short term debt outstanding as at 31st March, 2021 amounted to the value of £65.315m.


-      The debt included the loan associated with the Ebbw Valley Railway project – a specific interest free loan from the Welsh Government.


The Council had complied with the Local Government Act 2003, and in accordance with the CIPFA Treasury Management Code of Practice and Welsh Government guidance in carrying out its Treasury Management activities and in doing so had strived for effective risk management and control, whilst at the same time pursuing best value as far as possible.  In addition, the Authority had effectively managed credit risk throughout the period, thereby ensuring that it had not been subjected to any financial loss as a result of the credit crisis.


The Chief Officer Resources concluded by advising that the Corporate Services Scrutiny Committee had considered the report on 21st September, 2021 and had endorsed Option 1.


Members were then given to the opportunity to raise questions/comment on the report.  These comments were summarised as follows:


-      The Leader of the Labour Group referred to the ‘Operational Boundary for External Debt’ contained in Appendix 1 of the report and alluded to comments and concerns he had made previously relating to the timing of the Ebbw Valley Rail loan.  He pointed out that budgets were becoming increasingly stretched as a result of the pandemic and the effect and the impact that this would have on local government, who had a duty to provide social care, was currently unknown going forward.  In addition, he expressed his concern regarding the Council’s ability to borrow in the future (it was noted that in previous years prudential borrowing had to be used to maintain some of the core services) and asked the Chief Officer whether she was confident that the Operational Boundary limit was appropriate for the authority.


The Chief Officer Resources advised that she was confident that the operational boundary was correct for the authority.  The officer explained that the operational boundary was set by the Council and was regularly assessed and monitored to ensure that the level of borrowing was affordable.  It was noted that the level of estimated borrowing was built into the revenue budget on an annual basis.


The Leader of the Labour Group continued by commenting further as follows:


-      Reference was made to the recent Audit Wales Financial Review of Blaenau Gwent and in particular, the liquidity ratio in term of finances and it was pointed out that Blaenau Gwent had been bottom of the league table (i.e. 22nd out of 22 authorities) for the last 5 years and the Council’s liabilities had increased by 62% during this period.


-      At the time consideration had been given to the Ebbw Valley Rail loan, he had indicated that this burden should have been shared between the relevant authorities –  it had recently been reported in the media that these other local authorities, who were not currently involved would accrue the benefits associated with this project before Blaenau Gwent.


-      The report relating to the liquidity ratio was of concern and this needed to be shared and scrutinised, because it was felt that the loan was a step too far and there was growing concern how the authority would manage going forward in terms of borrowing opportunities.  The authority had received good financial settlements over the last 4 years and during this period should have been planning for the future.


-      Reference was made to the Minimum Revenue Provision (MRP) and concern was expressed that this would be storing up debt for future administrations.  He pointed out that whilst the Audit Wales report had alluded that short term borrowing could be undertaken, the Leader of the Labour Group requested an assurance that the liquidity ratio would not cause any major issues going forward.


The Chief Officer Resources confirmed that Audit Wales had commented that the authority’s liquidity ratio was low in comparison to other local authorities but advised that she did not have any particular concerns relating to this.  The Chief Officer explained that liquidity compared the length of time it took to repay a loan, compared to the length of time it took to receive debt owed to the Council.  The Chief Officer gave an assurance that the Council repaid its debts as quickly as possible to ensure that businesses in the area were not disadvantaged by cash flow difficulties.  This was a measure that would be kept under review and concluded by stating that she had no concerns over the authority’s ability to repay any of its debt.


Other Members commented as follows:


-      Another Member echoed the concerns and comments made by the Leader of the Labour Group and expressed her concern that the £70m rail loan would affect the authority’s ability for long term borrowing (because this was recorded on the Council’s balance sheet) and asked how financial resilient the authority was going forward.  The Member also advised that she had grave concerns that if the income was not generated on £70m loan, this could possibly result in cuts to services to re-pay the borrowing.


The Chief Officer Resources advised that reports had been presented previously (including Audit Wales reports) relating to financial resilience across Wales and pointed out that a recent report from Audit Wales had indicated that the Council’s position in terms of its financial resilience was improving, the level of reserves was increasing and on an annual basis the Council had been able to manage within its annual budget without overspending – these were positive financial resilience measures.


If faced with significant issues whereby further borrowing would be required, this would need to be built into the budget going forward in order that the debt could be repaid.  The Chief Officer confirmed that she had no concerns regarding the Council’s credit rating nor the ability to be able to generate the income to repay the loans and the Council’s balance sheet would support this - the Council was a trusted borrower with the money market and Public Works Loan Board (PWLB). 


It was reiterated that all borrowing had to be re-paid and in order to achieve this the Council would have to prioritise its spending.  An income stream had been agreed as part of the Quadripartite Agreement with Welsh Government and Transport for Wales and the Council would be guaranteed that income to offset the MRP impact of the Ebbw Valley Rail loan.  Therefore, the Council nor council taxpayer would incur no financial liability as a result of this particular loan. 


-      The Leader of the Labour Group said that the ambition of every single administration was to replenish reserves but pointed out that sometimes it was considerably easier than others, particularly this year with the massive help of £12m hardship funding that had been provided to authorities. He added that previously, in the midst of severe financial austerity with £10m savings having to be identified in one particular year, the Council had still managed to increase the level of funding in its reserves.


-      Reference was made to the £235m of outstanding debt accrued and concern was expressed that there would be financial difficulties ahead to recoup the funding that had been spent as a result of the pandemic.


The Chief Officer explained that the figure of £235m was as at 31st March, 2021 and advised that the level of borrowing fluctuated on a daily basis.


-      The Leader of the Labour Group for clarification, advised that he was not debating the issue regarding the Ebbw Valley Rail loan.  The only point he was pursuing was that this particular debt, which had been included on the authority’s balance sheet could have a potential impact on future borrowing and the ability to borrow particularly, with PWLB.  It was noted that the £70m loan accounted for 25% of the balance sheet.


In reply to a question regarding whether interest rates would be affected by the size of the debt, the Chief Officer advised that individual loans were negotiated on a loan by loan basis and would be unlikely to have any impact on the current interest rates. The vast majority of the Council’s borrowing was with PWLB (a proportion with other authorities and the money markets) and those interest rates were applicable to all local authorities.  Whilst the best interest rates were taken at the time a loan was required, interest rates could increase as well as decrease but the amount borrowed on the balance sheet should not impact upon the interest rates paid and would not affect the Council’s credit rating.


The Leader of the Council commenced by stating that he welcomed the concerns that had been raised regarding the liquidity ratio and appreciated that the debate around the Ebbw Valley Railway was not being re-energised because all the assurances that Members had sought relating to this issue had already been provided in the previous two Council meetings.


Whilst acknowledging the concerns raised, he pointed out that he had raised the same questions as part of his portfolio remit and said that Members had to have faith and confidence in the chief officers and the accountants. Whilst borrowing levels and interest rates fluctuated, he was confident that the authority was in good financial position going forward. 


The Leader continued by advising that this particular report sought views whether Members were satisfied with the financial management of the authority for the 2020/2021 financial period and its appropriateness.  The Leader confirmed that he had every confidence in the report and proposed that Option 1 be endorsed.


It was, thereupon, unanimously,


RESOLVED, subject to the foregoing, that the report be accepted and Option 1 be endorsed, namely that the Treasury Management activity undertaken during the 2020/21 financial year be accepted and the record of performance and compliance achieved during the year be accepted.


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