Agenda item

Resolved: that the report be noted.

7.1      David Austin introduced the report, the following key points were noted:

·         The current treasury strategy was compliant and no changes were proposed.

·         The benchmarking information from the Council’s advisors on its investments indicated that it was in line with the London average.

·         Interest rates remained low, which meant securing return on investment was difficult.

·         There was a variation in the Council’s borrowing figures related to borrowing for Lewisham Homes to ease temporary accommodation pressures. Otherwise, the Council’s borrowing was where it was expected to be.

·         There had also be a restructuring of a LOBO (Lender Option, Borrower Option) loan.

·         Fifty percent of the Council’s borrowing was made up of public and private sources the other half was made up of borrowing for private finance initiatives.

·         Some of the capital spending programme was behind schedule, in particular there had been some delay in spending housing revenue account capital funds. This money had been allocated so it would still be spent.

·         Treasury management practices in local government were being reviewed by CIPFA  (Chartered Institute of Public Finance and Accountancy), which set the prudential code, as well as by the Department for Communities and Local Government, which was carrying out a consultation that closed in December- on the reporting of treasury decisions.

·         Some authorities had been challenged on the level of borrowing they had undertaken for commercial schemes.

·         The European MiFID2 (the second Markets in Financial Instruments Directive) would also have a regulatory impact.

·         The purpose of the directive was to clarify whether investors were retailers or professionals. The Council would default to a retail position, which would limit the products that could be accessed and create new burdens. Therefore, the Council would opt for professional status and officers were currently following the process for gaining approval.

7.2      David Austin and Janet Senior responded to questions from the Committee, the following key points were noted:

·         Both budgets and reserves were means for the Council to spend.

·         The treasury was the money that the Council held to back up spending through its budgets and reserves.

·         The treasury was made up of investment of reserves and borrowing as well as the money that came in to the Council from council tax and revenue support grant from the government.

·         The Council’s cash balances could not evenly be equated with borrowing and investing because there was money held by the Council that had been committed and that which had been paid by suppliers.

·         The Council adhered to the CIPFA financial code for investments, which prioritised investments in order of security, liquidity and return on investment.

·         LOBO borrowing allowed lenders to vary the rates of interest being charged for loans, with options for borrowers to accept or reject the proposed revised rate of interest by repaying the entire loan.

·         Some LOBOs had been referred to as ‘toxic’ because other variables had been built into the loans (including interest rates in derivatives). In some LOBOs lenders had exposed borrowers to the derivative risk. Lewisham did not have any loans with this higher level of risk built in.

·         At the time they were taken out, LOBOs were the most effective mechanism for borrowing.

·         Section 106 accounts were included in the treasury management accounts.

·         Each PFI had a different effective interest rate.

·         When the PFIs were set up, the Council received funding from the government towards the payment of the PFI interest in order to cover the capital costs.

·         The revenue part of the PFI was met by funding allocated to schools from the schools budget but the Council also provided some funding to cover the remainder of the costs.

·         It might appear as though schools were only paying for PFI running costs, but they were also paying capital costs.

·         There were two loans to Lewisham Homes, which were being used for different purposes. Due to the rules around start aid, one loan had an added margin, the other did not.

·         There had been some savings generated from better management of households in temporary accommodation, delivery of extra care schemes and building of new housing.

·         The schools catering PFI in 1999 was focused on revenue expenditure. £4.5m was used to build kitchens in schools but the service element was larger.

7.3       Resolved: that the report be noted.