Agenda item

Consider Report by Director Finance and Corporate Governance.  (Copy attached.)

4.1       There had been circulated copies of a report by Director Finance and Corporate Governance on the proposed Treasury Management Strategy for 2022-23 for consideration by the Audit & Scrutiny Committee prior to the Strategy being presented to Council for approval.  The report explained that the Treasury Management Strategy was the framework which ensured that the Council operated within prudent, affordable limits in compliance with the CIPFA Code.  The Strategy for 2022-23 which required to be submitted to Council on 22 February 2022 was detailed in Appendix 1 to the report and reflected the impact of the Administration’s draft Financial Plans for 2022-23 onwards on the prudential and treasury indicators for the Council.  The Director Finance and Corporate Governance, Mr Robertson, presented key highlights of the report including a summary of proposed indicators and significant changes from 2021-22 strategy.  There was a decrease in the Capital Financing Requirement (CFR) in the first two years with increases in later years due to the re-phasing of one primary school and two residential care homes.  Also impacting on the CFR was the anticipated capital borrowing requirements associated with the re-phasing of projects from 2021-22 into future years also impacted the CFR movement as well as movements in the scheduled debt amortisation projections for the year.  There was a reduction in Prudential Indicator PI-6, under-borrowing against the CFR, in the last two years as a result of the increased level of external borrowing required to fund the Capital Plan.  The gap between the ‘operational boundary’ external borrowing limits and projected borrowing maintained an ‘under-borrowed’ position for the next five years.  However, the gap was reducing due to significant programme of works including three new high schools, the Hawick flood prevention works and new care facilities in Tweedbank.  Additional information on revisions to the Treasury Strategy was included in Appendix 1 of the Report but did not need to be formally adopted until 2023-24. 

4.2       There were ongoing discussions on the implementation date of International Financial Reporting Standard (IFRS) 16 which may be extended and work was ongoing to introduce new systems to be able to comply.  Mr Robertson gave assurances that the Council had been working on the IFRS 16 for a number of years and would be ready when it was finally implemented.  The delay to the implementation reflected the capacity of auditors.  With regard to a question about the gilt markets, it was confirmed that daily updates were received from the Treasury advisers, but it was unlikely that any changes would impact on the Treasury Strategy.  Level of borrowing was explained by Mr Robertson as being dependent on progress of the Capital Plan and the requirement to undertake more borrowing to fund it.  Frequency of reviews of the external market took place through the Treasury Management Strategy report and mid-year and year-end reports which assessed the impact of decisions made.  Members discussed movement of the ‘operational boundary’ of external borrowing and that it may not be prudent to adjust these limits.  There would be a peak in spend on the Capital Plan but this would then start to fall.  By that time, eight of the nine secondary schools would be replaced.  Mr Robertson and Pensions and Investments Manager, Ms Robb, provided further explanations on IFRS 16 and Prudential Indicators to 2026-27.

4.3       Mr Robertson then presented highlights of the Treasury Management Strategy contained in Appendix 1 of the Report.  Gross borrowing for the year 2021-22 was £290.3 million which was £136 million under borrowed per the Prudential Indicator PI-6.  In response to a question, Mr Robertson advised that the Council had access to a range of Money Market Funds (AAA) which had been set at £25 million and these were appropriate to current operational needs.    In response to a question from Ms Barnett regarding ethical considerations, Ms Robb advised that treasury investments were made in cash markets rather than equities.  There was further discussion on loan repayments and debt management.

DECISION

*           (a)     AGREED to RECOMMEND to COUNCIL that treasury management activity in the year to 31 March 2021 had been carried out in compliance with the approved Treasury Management Strategy and Policy as detailed in the report and in Appendix 1 to the report, but noted the narrowing of the gap between capital financial requirements and authorised limit for external debt and recommended Council gave full consideration to this.

            (b)     AGREED to congratulate the Treasury Team on their active management of the implementation of the Council’s Treasury Strategy in difficult circumstances.