Agenda item

To receive a report of the Deputy Chief Executive and Director of Corporate Resources presenting the Treasury Management Strategy Statement for 2020/21 to 2022/23.

The Committee considered the report of the Deputy Chief Executive and Director of Corporate Resources presenting the Treasury Management Strategy Statement for 2020/21 to 2022/23.

Members heard that:

·         The Capital and Investment Strategy had been presented to Full Council in February.

·         Base rates were predicted to hold at current levels, with a continued period of low interest rate and inflation likely.

·         Capital financing requirement was expected to rise and then fall in line with the Capital Programme.

·         The cost of borrowing from the PWLB had increased, however this was not of significant concern as Hampshire County Council had maintained its strategy to use internal borrowing, if required, to meet the capital programme.

·         Whilst the bail-in risk had increased from 14% to 23% there were mitigations in place to spread any risk. Advice from Arlingclose was that current level of bail-in risk did not present any concern.

·         Pre-payment of pension contributions would deliver £9m of saving over 3 years. Further the positive valuation of the pension fund had allowed the contribution of £15m per year for 3 years into the budget bridging reserve.

·         The Capital and Investment programme allocated £235m to investments targeting higher yields in 2019/20, of which £201m had been invested and the remainder earmarked for investment. Without these investments, Members heard that the income from treasury investments would have been significantly lower.

·         An additional £2m had been added to the Investment risk reserve to mitigate investment risks, including those associated with the changes to the accounting for pooled fund investments introduced under IFRS 9.

Members raised questions regarding the performance of investments and the Council’s approach to risk when making investment decisions. In response it was heard that:

·         The County had benchmarked its investment performance with other local authorities and had generally performed well against others.

·         It was recognised that pooled funds hadn’t delivered significant capital returns, however the investments supported cash-flow management and provided income generation to the revenue budget.

·         The selling of pooled shares was delegated to the Deputy Chief Executive and Director of Corporate Resources to enable the effective management of cash-flow.

·         The savings delivered through pre-payment of pension contributions had been considered against potential cash investment outcomes over the same 3-year period. 

·         Officers would bring back a report to the next Audit Committee meeting providing further information on investment management, potential for enhanced scrutiny by Arlingclose and other possible benchmarks for comparison of investment performance.

A question was also raised regarding how investment opportunities were assessed for their impact on climate change. It was heard that whilst potential return was key in all investments, all pooled investments had been assessed to ensure they had a responsible investment policy.

RESOLVED:

That the Audit Committee notes the following recommendations that have been made to Cabinet:

·         That the Treasury Management Strategy for 2020/21 (and the remainder of 2019/20) be approved.

·         That authority is delegated to the Deputy Chief Executive and Director of Corporate Resources to manage the County Council’s investments and borrowing according to the Treasury Management Strategy Statement as appropriate.

·         That £2m is transferred to the Investment Risk Reserve as part of the Revised Budget for 2019/20.