Agenda item

Purpose: to consider the report that fulfils the legislative requirements to ensure the adequate monitoring of the treasury management activities and that the council’s prudential indicators are reported to council mid year.  The report provides details of the treasury activities for the first six months of 2013/14 and an update on the current economic conditions with a view to the remainder of the year.

The committee considered the report of the Head of Finance that fulfilled the legislative requirement to ensure the adequate monitoring of the treasury management activities and also fulfilled the requirement to report the prudential indicators to council mid year.  The report provided details of the treasury activities for the first six months of 2013/14 and an update on current economic conditions with a view to the remainder of the year.

Mr B Watson, Accountancy Manager (Technical), drew attention to the key points in the report, which included the following:

·        The council had received over £2 million in respect of its claim for £2.6 million against the failed Icelandic bank Kaupthing Singer & Friedlander.  The council had “preferred creditor status” and he expected the council to receive in the region of another £125,000.

·        Total investment income was forecast to be around £2.1 million against a budget of £1.9 million.  The main reason for the increase was that officers had achieved better returns by placing longer-term cash deposits.   

·        The council had no need to borrow during the first six months of 2013/14.

·        The council had entered into a seven year deal with another local authority, which was an investment outside the terms of the treasury management strategy but was permissible under the council's constitution with the permission of the Section 151 Officer/ Head of Finance.

In response to questions, Mr Watson clarified the following:

·        CCLA was the Churches, Charities and Local Authorities property portfolio that the council bought into and which paid slightly below six per cent per annum.

·        The council would hope to catch a rising market if advisors' predictions of increasing interest rates arose.

·        The advantage of entering into a seven-year rather than a five-year deal with Kingston upon Hull City Council was the investment income to be gained over the additional period.  It also ensured that the council had a more balanced portfolio spread of investments.

·        Whilst the UK was experiencing sustained growth, this was not being priced into the interest rates being offered by the markets.  The funding for lending scheme has been withdrawn but this had not yet seen an increase in the rates offered by institutions.  Officers expected to see no change in the base rate of half a per cent until 2015.

·        In spite of the Royal Bank of Scotland's announcements of large losses, Mr Watson was fairly comfortable with investments with the bank as the taxpayer owned 80 per cent of it and therefore had Government support.  He further reported that the council had a dearth of counterparties so the council increased its holdings with government-backed institutions such as Lloyds Banking Group and the Royal Bank of Scotland, which were paying better rates than e.g. Barclays.

·        The lower interest rates in the table in appendix B related to short-term investments. In future the table would include a column detailing the duration of the investment.

RESOLVED:

1. to note the treasury management mid-year monitoring report 2013/14;

2. that the committee was satisfied that the treasury activities were carried out in accordance with the treasury management strategy and policy with the exception of the investment made outside the treasury management strategy referred to in paragraph 20 on page 8 but noted the reasons for the change.