Agenda item

The Committee received an overview of Treasury Management within the Council. James Lake, Director of Pensions, Treasury and Statutory Accounts explained the importance of treasury management as the backbone of the Council's finances. He explained that Treasury functions are regulated by statute and guidelines from public sector accounting body CIPFA. 

The overview highlighted several key points: 

1.    Definition of Treasury Management: Treasury management involved overseeing the Council's bank accounts, cash flow monitoring, investment, borrowing, and risk management. It was essential for controlling the movement of millions of pounds daily. 

2.    Regulations and Practices: Treasury Management Practices are governed by CIPFA guidance. The Council follows specific codes of practice, focusing on risk management, security, liquidity, and yield when investing funds. 

3.    Capital Financing Requirement (CFR): The concept of CFR was likened to a household mortgage, where the Council's need to borrow is offset by existing reserves and other funding sources. This ensured prudent borrowing and responsible financial management. 

4.    Borrowing and Investments: The Council primarily borrowed from the Government's Public Works Loan Board due to its cost-effectiveness and flexibility. Investments were diversified but focused on secure and low-risk options. The Council employed a mix of fixed and variable rate debt to manage interest rate risks. 

5.    Reporting and Monitoring: The treasury team conducted daily, weekly, and monthly reports to monitor the Council's financial position. These reports underwent multiple checks and approvals, ensuring careful decision-making and adherence to regulations. 

6.    Challenges and Risks: Despite stringent regulations, Treasury management was not entirely risk-free. Economic fluctuations and unforeseen events could impact investments and borrowing decisions, requiring constant vigilance and prudent financial strategies. 

Mr Lake provides reassurances about the cautious approach taken by the Council in managing its finances, even within the established regulations and guidelines. 

Councillor Mathers asked about the agility and strategies employed to cushion unexpected changes, particularly regarding interest rates and inflation. He inquired about lessons learned from recent volatility and how it impacts local government treasury. Mr Lake explained the risk associated with inflation was the erosion of capital value and managing investment returns to offset higher inflation. He mentioned daily monitoring of cash flow, forecasting, and engagement with various departments to ensure cash flows are understood and funds are managed effectively. 

Councillor Banerjee inquired about active management of working capital, including accounts payable, accounts receivable, and inventory and asked if the Council actively interacted with departments to optimise working capital. Mr Lake clarified the minimal inventory the Council holds and explained standard payment procedures and highlighted the focus on ensuring the Council receives what was committed in terms of revenue. He advised that the Treasury function did not directly manage debt collection, but instead monitored actual cashflows with forecasts. Cashflow modelling would be adjusted where necessary. 

Councillor Bhatt raised questions about investment strategies considering economic volatility, the frequency of investment reviews, and the use of external advisors. Also, he inquired about the Council's approach to ethical and sustainable investing, especially concerning fossil fuels. Mr Lake explained the constant evaluation of market conditions, credit ratings, and buffer analysis to ensure safety in investments. He referred to the Council's focus on ethical investments, being predominantly in the separate pensions arena. However, the Council does ensure treasury counterparties align with relevant ethical codes. 

Councillor Sansarpuri asked about the Council's policy on investing in foreign banks and whether there was a shift in strategy. Mr Lake explained that investing in foreign banks was currently not worth the risk due to low interest rates and increased credit risk and hence the preference for investing in the UK Government. 

Councillor Banerjee asked about the possibility of collaboration with other councils to obtain more favourable interest rates and discussed the challenges faced in such collaborations. Mr Lake discussed the challenges related to legal complexities and costs associated with collaborative ventures among local authorities. 

The Chairman thanked Mr Lake for the comprehensive report and the insightful discussion.  

RESOLVED: 

That the Committee note the contents of the report and provide any comments to officers as appropriate.