HARPENDEN TOWN COUNCIL
NON CONFIDENTIAL
COMMITTEE:
POLICY AND FINANCE
DATE:
25 MARCH 2015
REPORT BY:
TOWN CLERK
SUBJECT:
TREASURY MANAGEMENT AND INVESTMENT
STRATEGY 2015-16
1.
Summary
1.1
The Town Council is required to annually approve an Investment Strategy. The
Investment Strategy sets out the framework for any long or short term borrowing
or investments during the forthcoming year.
1.2
Any change to the Town Council’s banking arrangements, such as investments,
requires approval by the Council.
2.
Recommendations
2.1
It is recommended that it is agreed for an external independent review of the
Investment Strategy using professional fees budget of up to £750.
2.2
It is recommended to resolve to recommend to Council the attached Treasury
Management and Investment Strategy for 2015/16.
3.
Background
3.1
The Local Government Act 2003 sets out the requirements for borrowing,
investments and capital finance for Local Authorities.
3.2
Local authorities have the power to invest to enable prudent management of its
financial affairs including those investments which are simply made in the
course of treasury management.
3.3
Local authorities are required to take note of guidance on investments issued by
the Secretary of State. The general policy objective is that local authorities
should invest prudently the surplus funds held on behalf of their communities
and that priority should be given to security and liquidity, rather than yield.
3.4
A local authority, before the start of each financial year, shall draw up an
Investment Strategy, which will distinguish between specified investments
(those offering high liquidity and high security) and non-specified investments
(which involve greater risks) for the following financial year.
3.5
The Investment Strategy and any variations must be approved by Council and
to be made available to the public.
4.
Treasury Management Arrangements
4.1
The Town Council operates a current bank account which has an arrangement
to sweep excess deposits over £2,500 into an interest bearing account. It
currently holds short term fixed rate investments totalling £1,050,000 which are
due to mature within three months, £100,000 on call and a money market
investment totalling £100,000.
4.2
The level of funds held by the Town Council varies during the course of the
financial year and following receipt of the annual precept from the District
Council may total in the region of £2.2m.
4.3
These funds are held in accordance with the counter party list approved within
the 2014/15 Treasury Management and Investment Strategy.
4.4
Three long term loans have been taken out with the Public Works Loans Board
with repayment dates falling between March 2016 and May 2020. Any
additional long term borrowing requires approval by the Secretary of State by
way of the Department for Communities and Local Government.
4.5
The Town Council has no short term borrowing.
4.6
The Investment Strategy allows for up to 75% of surplus funds to be placed in
short term (3 month) fixed rate interest bearing accounts with approved
institutions including the Council’s existing bank. It also allows for short term
investment of this Council’s surplus resources with approved institutions, if
appropriate.
4.7
The Investment Strategy for 2015/16 continues to allow the Council to use a
nominated qualifying money market fund, currently the Public Sector Deposit
Fund (PSDF), provided it is regulated by the UK FSA, and carries a AAA rating.
These funds pool receipts and invest collectively in a range of bonds and cash
based investments in order to help maximise average yields. Whilst they can
maintain a high level of liquidity, it is important that Members are aware that
unlike a bank deposit they can not fully guarantee return of the Councils deposit
in full. The current level of investment with the PSDF is £100,000 and the
proposed Strategy for 2015/16 limits the maximum investment at £350,000.
4.8
The Policy and Finance Committee receives regular reports during the year
updating them on the level and type of investments.
5.
Risk
5.1
The Council does not have and is unlikely to have the level of investment funds
that Principal Councils possess. The relative smaller sums involved mean that
the Council’s options for investment are limited.
5.2
Risk analysis must be considered in relation to all major financial and capital
transactions. The Council at all times must maintain adequate levels of
security, a stable overall financial position, ensure liquidity and balances in
relation to its spending commitments. The Council puts the security and
liquidity of its funds before the level of returns it can achieve.
5.3
The Council has decided to spread its level of risk by ensuring that all its funds
are not deposited in the same bank and by restricting fixed term deposits to a
maximum of 75% of its funds.
5.4
The variances, unpredictability and uncertainties surrounding investments in
stocks, shares, equalities and the like are such that the Council consider the
risks too high and will not use them for investment purposes.
5.5
Short term specified investments provide an alternative to the use of an interest
bearing bank account. Any such investment should be managed to avoid
unnecessary risk and therefore the Town Council would only consider investing
with the following bodies or institutions:
UK Clearing Banks and their 100% subsidiaries;
Other UK Banks;
Public Bodies (including Local Authorities and Police Authorities);
The top UK Building Societies (i.e. those with assets exceeding £3.0bn)
5.6
Any investments in a pooled qualifying money market funds need to provide
easy access and be regulated by the UK FSA. They should also carry a ‘AAA’
rating. Many such money market funds require investment in excess of £1m for
first time investors.
6.
Review
6.1
The Council has been approached by PSDF with regard to the opportunity for
an investment in their Property Fund. This will require approval in a long-term
investment, ideally 5 years or more. Some key facts include:
 Minimum initial investment £25,000.
 Minimum subsequent investments £10,000.
 92 local authorities have invested [January 2015].
 Fund size is £320m.
 The trustee is the Local Authorities' Mutual Investment Trust (LAMIT).
 Can sell at a month’s notice but there is a bid/offer spread of 7.3% if
withdrawn in first 2-3 years (i.e. only realising 93% of the investment).
 Declared yield of 4.63% [February 2015] and expected to rise compared to
the deposit fund of 0.4018% [March 2015].
6.2
The Town Council is also currently investigating the potential sale of land which
will generate a capital receipt.
6.3
As the Town Council does not have the resources to utilise the services of a
credit worthiness advisor, it has previously reviewed the counterparty list with
the Head of Finance of a Principal Authority. However, with the level of
potential sums Members are requested to approve an external independent
review of the Council’s Investment Strategy which could consider; credited
investment institutions, property funds, credit periods, counterparty limits, return
maximisation, risk implications, credit ratings might be appropriate. In the first
instance advice would be sought from Principal Authorities. However, it might
be necessary to use an investment house, which could cost about £750 for a
days work. This would be met from provision in the professional fees budget.
HARPENDEN TOWN COUNCIL
DRAFT TREASURY MANAGEMENT AND INVESTMENT STRATEGY 2015 – 2016
1
Executive Summary
1.1
In accordance with The Local Government Act 2003 local authorities are
required to produce an Investment Strategy each year.
1.2
This document covers potential levels of borrowing and investments.
1.3
The Council will maintain interest bearing accounts for its surplus resources, but
may from time to time invest in short term fixed interest investments. These
investments will be with its nominated bank, Lloyds Bank (previously The Cooperative Bank), or other approved institutions.
1.4
The Council may also invest in a pooled qualifying money market fund. This
may be with an approved bank or with an approved institution regulated by the
UK FSA with an AAA credit rating.
1.5
Investments will normally be made within the limits set out in the Town
Council’s counterparty list at paragraph 5.5, but may be made outside this list
following advice received from a Principal Authority and approval by the Chair
or Vice Chair of Policy and Finance.
2.
Background
2.1
Executive decisions on borrowing, investment and financing are delegated to
the Town Clerk and Responsible Financial Officer, being reported to Council at
the earliest opportunity.
2.2
The Local Government Act 2003 introduced a new prudential capital finance
system from 1 April 2004. Local Councils do not fall under the prudential code
and are required to seek consent for any borrowing from the Secretary of State
at the Department for Communities and Local Government.
2.3
Local authorities have the power to invest to ensure the prudent management
of their financial affairs but must take note of any guidance on investments
issued by the Secretary of State.
2.4
Section 23 of the Local Government Act 2003 requires a local authority, before
the start of each financial year, to draw up an Investment Strategy, which will
distinguish between specified investments (those offering high liquidity and high
security) and non-specified investments, which involve greater risks, for the
following financial year.
2.5
Investments will be made with reference to cash flow requirements and the
outlook for short-term interest rates and the Council’s investment priorities will
be:
 Security; then
 Liquidity; then
 Return.
2.6
The Investment Strategy and any variations are to be approved by Council and
be made available to the public.
3.
Treasury Management
3.1
Subject to any decision by Council, and approval by the Secretary of State to
undertake borrowing, capital expenditure not reimbursed by grant or met from
third party contributions or capital receipts will be financed by means of revenue
contributions.
3.2
Any Council funds will be aggregated for Treasury Management purposes to
minimise external borrowing and investment. Given the current level of
balances it is not anticipated that any additional external borrowing will be
required during this year.
3.3
Levels of external borrowing and investments at the beginning and end of
2015/16 are estimated to be:
Short term borrowing
Long term borrowing (PWLB)
Interest bearing fixed term
Bank Deposits
On call Bank Deposits
AAA Money Market Funds
Net investments
1 April 2015
£’000
NIL
(175)
31 March 2016
£’000
NIL
(138)
1,050
100
100
1,000
100
100
1,075
1,062
3.4
The Council has no proposals to invest sums for periods longer than 364 days.
3.5
Borrowing and investments will only be affected with banks, building societies,
other local authorities, qualifying money market funds regulated by the UK FSA
and the National Debt Office (formerly PWLB). Only institutions and bodies
meeting the criteria laid out in section 5 will be considered.
4.
Security of Investments
4.1
Government guidance differentiates between specified investments and nonspecified investments.
4.2
Specified investments are those offering high security and high liquidity with a
maturity of no more than a year. In addition, short-term sterling investments
must be with bodies/institutions with “high credit ratings”.
4.3
Non-specified investments are usually for longer periods (i.e. more than one
year) and with bodies that are not highly credit-rated. No non-specified
investments are included in the Investment Strategy for this Council as these
investments are not acceptable due to their higher potential risk.
5.
Investment Strategy 2015/16
5.1
The Council will ensure that as a minimum, surplus funds will be aggregated in
an interest bearing bank account.
5.2
The Council will invest in Specified Investments i.e. in sterling investments of no
more than one year with its nominated bank, Lloyds Bank, or other investment
bodies or institutions with high-credit ratings. These investments will be put in
place when funds are of sufficient size to make such investments practical. The
Town Clerk and Responsible Finance Officer will evaluate the funds available
and invest them in line with the approved counterparty list set out at paragraph
5.5 taking into account interest rates available and current credit ratings of
institution.
5.3
No more than 75% of all funds will be in fixed term investments.
5.4
Any investment in an institution not included on the counterparty list, will meet
the criteria set out at paragraph 5.6 and will only be made following approval of
the Chair or Vice Chair of Policy and Finance.
5.5
Approved counterparty list:
UK Bank / Part Nationalised
Bank / UK Building Society
Lloyds Bank – current account *
Lloyds Bank
HSBC
Nationwide Building Society
Co-Operative Bank **
‘AAA’ Rated Money
Fund
CCLA Public Sector
Max. Funds to be
Invested
£250,000
£750,000
£1,000,000
£1,000,000
£250,000
Max. investment
Term
immediate access
3 months
3 months
3 months
immediate access
Market
£350,000
immediate access
*
This limit may be breached to facilitate cash management or when precept
is received.
** As the Council is in the process of changing banking arrangements to
Lloyds Bank this account to be closed when transfer completed.
5.6
The Council will only invest in institutions and bodies meeting the following
criteria:
(a)
(b)
(c)
(d)
(e)
UK Clearing Banks and their 100% subsidiaries;
Other UK Banks;
Public Bodies (including Local Authorities and Police Authorities);
The top UK Building Societies (i.e. those with assets exceeding £3.0bn)
UK FSA regulated qualifying money market funds with a ‘AAA’ rating.
As the Council does not utilise creditworthiness advice services it will
periodically consult with a Principle Authority to review the current credit
worthiness of its counterparty list.
5.7
The Council will have regard to the Chartered Institute of Public Finance and
Accountancy (CIPFA) 2011 publication “Treasury Management in the Public
Services: Code of Practice and Cross Sectoral Guidance Notes” in managing
any investments.