Agenda item

This Report is prepared in accordance with the requirements of the Chartered Institute of Public Finance and Accountancy (CIPFA) codes of practice in respect of capital finance and treasury management.

The Committee is asked to note the contents of the report.

The Head of Pensions and Treasury spoke to the report which was part of a suite of three. The first report, which was provided in March had set the budgets that had reviewed progress halfway through the year and provided the Committee with evidence that they were compliant with the Prudential Code, Capital Finance, and the Treasury Management Code of Practice.

With regards to the economic forecast and the interest rates forecast, the consensus of opinion was that interest rates would be fairly flat. The economic update was very difficult to capture due to the pandemic. In terms of capital, Members learned that that borrowing was slightly suppressed and as a result, the limit on the amount that was needed to finance was also suppressed. Again this was clearly a response to the current pandemic.

Furthermore, officers shared that the report noted the operational boundary and the authorised limits, which was the mechanism by which the Council controlled the amount of money that was borrowed. At the time of drafting the reports the amount of borrowing held incurred by the Council was £1.4465 billion pounds, which was a large sum, and the average weighted cost of borrowing was 2.89%, which was competitive with other boroughs across London. Each month, the Council carried approximately £82.6 million pounds worth of cash which was the ongoing float invested in the investment instruments described in Appendix D. There had been no opportunities for debt restructuring.

Members thanked officers for the comprehensive report and a helpful overview, and queried the mid-year position, asking officers what their main concerns were in planning of the next six months. Officers responded noting the state of the markets and the impact of Brexit were the main concerns as there would be a more resource demanding process to secure financing and secured debt, which would be harder as it would require more evidence before lending.

Members discussed Appendix D in the report of the investment strategy in more detail and had commented that Croydon had a much higher risk because of the level of debt in place, along with the issues of day to day management. A question about whether other local authorities effectively were treated like a company when they were looking to lend or borrow additional amounts. Officers confirmed that under section 114 notices it highlighted what actions could be taken. Local authorities in this instance understood the whole process of setting budgets and taking hard decisions. Banks were familiar and a set of banks would make a deal with local authorities. With the Public Works Loan Board, for Croydon, they had changed the way they lent, reducing their rates. Although this was good news, they had set much more onerous requirements, such as officers having to provide documentation for the financial director to provide their opinion as to the Council’s affordability in writing. Officers further noted that the Public Works Loan Board changes were across the sector and not Croydon specific.

Other Members asked about the approach to other councils funding Croydon, and noted that within the report in Appendix D that it suggested that all local authorities were treated equally in terms of the savings in short term investments and queried the reality of the investments options and whether there was a process to select between the local authorities. Officers responded that there were different lenders with different appetites for cash, and brokers were aware of the requirements requested, and it was not every local authority that could be approached.

Members had asked about the strategy that needed to be reviewed in light of the section 114 notices, and queried the best indicator of what would be required and when full Council would be asked to vote on this. Furthermore, the report referred to the budget of the 21st September that was to be revised following any updates to the budget, and queried why the inaccurate figures had not been revised. Officers informed that the report was a work in progress that had shown the progress of the capital programme for the year. Though the figures were noted from the report on the 21st September, officers explained that they were the most up to date accurate forecast where the expectation was for the capital expenditure to be suppressed simply because of the current environment, but also because of the demand for notice and reining back on expenditure. More up to date information was to be available for the February reports as part of the budget setting process, and there would be a recasting and rescheduling of the capital programme. Officers reminded Members that a report on the capital programme was to be heard at January’s Cabinet meeting next week with further opportunity to review the draft capital programme for the three years ahead. It also contained changes to the one year capital programme, and was a new report in addition to the normal cycle of reports produced. This was to prepare Members for the budget papers in February. With the issue of the pandemic, there had been a shift in dates for meetings and a delay in this mid-year report being received.

Members reviewed the funding table and noted that there was quite a bit of movement in how funding was sourced in September, with a reduction of approximately £50 million from the borrowing requirement due to other funds, including capital receipts, a slight increase in capital grants, and an increased allocations in terms of section 106. Furthermore, comments were made on the section 106 payments relating to the annual planning monitoring report for 2019-2020 and the Community Infrastructure Levy (CIL) receipts.  Questions were raised asking for the capital receipts that actually enabled that to be applied to the capital, and information on what the CIL in section 106 receipts was at the end of 2019-2020 and how it would help going forward. Officers responded that the section 106 numbers and the CIL numbers in table three of the report was what was being proposed to use in-year to fund the capital programme. This was not the total amount of CIL in Section 106; furthermore officers noted the questions raised for a more detailed written response to the whole committee.

There was a question from a Member asking what would concern officers in future years taking the whole report into account, and officers informed they had reviewed the limits and had set controls to work within those limits. This was to avoid borrowing excessively and beyond what had been agreed by the elected Members. Referring back to the report, there was an average cost of debts which was 2.89%, and having a potential code and a code of practice, structures and procedures would be in place. In addition, monitoring the level of borrowing and cost of debt was essential as without, the absence of what had been adopted would be sufficient to cause concern.

The Chair highlighted information within the report relating to the treasury management strategy statement and annual investment, which noted the approval by full Council on the 2nd March, though there was a possible change. Officers clarified that this was intended to be part of the budget reports as it had to reflect changes to the way in which the Public Works Loan Board worked and the different levels of evidence requested, which included the local regeneration, and Croydon’s ability to invest.

The Chair thanked officers for the report and the question and answer session.

The Committee RESOLVED to note the contents of this report.