Agenda item

Annual Treasury Management Review 2018-19


Members were advised of the treasury management activity during 2018-19 in accordance with the requirements of the Chartered Institute of Public Finance and Accountancy’s (CIPFA’s) revised code on Treasury Management (2017).


The Principal Accountant (Housing & Exchequer) stated that the Council was required to produce a minimum of three reports on Treasury Management every year and under the Local Government Act 2003 had to produce an annual treasury management review of activities and the actual prudential and treasury indicators for 2018-19.


The Principal Accountant (Housing & Exchequer) explained that there were two main funds that were dealt with in finance which Members would receive reports on:


  • General Fund – The General Fund is used to manage day to day services such as income and expenditure relating to frontline services to the public and other council departments with the exception of Council Housing. It is funded through sources such as Council Tax, business rates, grants, fees and charges  


  • Housing Revenue Account (HRA) –The HRA is a ring-fenced account meaning it cannot be subsidised by the General Fund; it accounts for income and expenditure which are directly related to Council housing stock. The HRA generates income through rental incomes and service charges and its expenditure is the cost of the housing department as well repairs and maintenance of the housing stock so that this is maintained to a reasonable standard 


The Principal Accountant (Housing & Exchequer) guided Members through the report giving an introduction to each of the below sections, highlighting the key figures in each:


  • The Council’s Capital Expenditure and Financing – Page 80
  • The Council’s Overall Borrowing Need – Page 80
  • Treasury Management Position as at 31 March 2019 – Page 83
  • The Investment Strategy and Control of Interest Rate Risk for 2018/19 – Page 85 
  • Borrowing Strategy and Control of Interest Rate Risk Rates in 2018-19 – Page 86
  • Borrowing Outturn for 201819 – Page 87
  • Investment Outturn for 2018-19 – Page 87


Following a series of questions regarding the Property Funds and Multi-Asset Funds that the Council holds, on page 88 of the report, the Principal Accountant (Housing & Exchequer) explained that:


  • Only the Property Fund Managers are able to change the weighting of the asset classes within each fund as they react to the economy; JP Morgan have reduced their exposure to the equity market recently due to a sharp decline in the performance of this asset type. GBC have monitored the funds regularly and will continue to have regular meetings with the Managers who hold the Council funds so that the Council is aware of nature of assets held in each investment fund.
  • The Council could chooses to disinvest from a Fund if it was unhappy with the type of assets it was investing in by taking out all or a proportion of its interest out of that Fund; the Treasury Management Strategy allows the Council to invest a maximum of £8 million in a single Property Fund or Multi Asset Fund
  • A Multi-Asset Fund spreads the risk by holding assets in different asset classes such as cash, equity or bonds which are used as an investment
  • Lothbury hold properties mainly in London, with some in Covent Garden which are exposed to the retail market. Lothbury also purchased Property for redevelopment into student accommodation in Oxford
  • Hermes mainly buys properties in London which offer a very good rate of commercial return but can also be used for alternative uses. They have a lot of properties on the Thames and frequently sell properties in their portfolio to residential developers
  • The CCLA Property Fund is only allowed to be used by Local Authorities and they have properties in Manchester; they have a very different strategy which, in the council’s view  is less precise than the other Funds so the Council invested a smaller sum of money with them
  • The Council hired Link Asset Services as their investment advisor and Link helped the Finance Team to design a questionnaire which was sent to all the Asset Managers before any investment was made. Many of the Property Funds were very eager to convince Local Authorities to invest with them.  In addition to the questionnaire, a selection Panel made of GBC officers and Link staff allowed presentations to be given by individual Fund Managers and for questions to be asked and answered. Once the selection Panel had discussed and developed a proposal for investing with the Property Funds, this was taken to the Property Acquisitions cross party working group for further debate and discussion, with the working group advising on the final placing of monies with individual funds.
  • The issues that KCC have recently been facing with their investments in the Woodford Fund are completely different to Gravesham’s situation as the Woodford Fund invested solely in companies whereas Gravesham’s investments were in properties and assets. Disinvesting and receiving money back from failing companies is a lot more difficult than trading assets and selling properties so Gravesham’s investments have a lower level of risk
  • With regards to Capital Loss in the table at 8.5, the Funds sometimes lose a small percentage of the value that was invested into the Property Fund but the investment still provides the Council with an income return; the interest is paid over to the Council so even though the capital value hs lowered, the Council is still making a revenue return on these investments.  These were taken out a long term investments.
  • A copy of the Treasury Management Strategy will be emailed out to all Members after the meeting
  • During the review process, all Property Fund Managers are questioned about ethnical investments and the Council receives assurances that all investments are ethnical


A Member raised concern over the multi-million pound deal with Reef regarding the refurbishment of the St Georges Centre and the Heritage Quarter and asked that more information be given to them so that they could better understand the deal and the lease terms.


The Assistant Director (Corporate Services) stated that she would provide a briefing note, based on that given to the external auditors, regarding the Reef deal to Members and then review the agenda for the upcoming Local Government Finance explained training session and Statement of Accounts training session to see if a more detailed discussion on the matter could be included.


Following a question regarding the NHS occupied second floor of the Civic Centre, the Assistant Director (Corporate Services) advised that she could not comment on the NHS property strategy but their rental income helped to support the General Fund. 


The Principal Accountant (Housing & Exchequer) explained that authorised limit was the maximum level of borrowing that the Council could potentially be exposed to; the operational boundary is the most likely level of borrowing the Council may need to take on to manage its operations; The authorised limit is intended to prevent the Council from borrowing more than is required, but provides some ability to manage unusual circumstances affecting its cash position, such  two payroll runs or two creditor runs being taken from the council bank account. .


Resolved that Members:


  • Noted the contents of the report


  • Recommended to Full Council that:


-       The revised authorised limits and operational boundary figures, as set out in this report are agreed.


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