treasury management strategy 2009/10

Treasury Management Strategy 2009-10Including Minimum Revenue Provision Policy Statement, Annual Investment Strategy 2009-10 and Prudential Indicators 25th February 2009

1 Introduction

1.1 The Local Government Act 2003 and supporting regulations requires the Council to ‘have regard to’ the Prudential Code and to set Prudential Indicators for the next three years to ensure that the Council’s capital investment plans are affordable, prudent and sustainable.

1.2 The Act therefore requires the Council to set out its treasury strategy for borrowing and to

prepare an Annual Investment Strategy. This sets out the Council’s policies for managing its investments and for giving priority to the security and liquidity of those investments.

1.3 The Treasury Management Strategy must be approved annually by the Council and covers: Treasury limits for the three years 2009-10 to 2011-12 Treasury management Indicators The current Treasury position The borrowing requirement Prospects for interest rates The Borrowing Strategy Debt rescheduling The investment strategy The Minimum Revenue Provision Policy Statement Prudential indicators Possible implications of an LSVT.

2 RecommendationsCouncil is recommended to:

2.1 Approve the Treasury Limits for 2009-10 to 2011-12 as detailed in section 3;

2.2 Approve the limits to interest rate exposures as set out in section 4.2;

2.3 Approve the upper and lower limits on fixed rate debt maturity structure;

2.4 Note the projected position as at 31/03/2009 as per paragraph 5.2;

2.5 Approve the Borrowing Strategy for 2009-10 as per section 8;

2.6 Approve the Annual Investment Strategy as per section 10 including the investment credit rating criteria and the level of investment in non specified investments;

2.7 Approve the Minimum Revenue Provision policy and method of calculation as per section 11;

2.8 Approve the 2009/10 to 2011/12 Prudential Indicators as per section 12.

Treasury Management Strategy 12/04/2023

3 Treasury Limits for 2009-10 to 2011-12The “Prudential Code” as set out by CIPFA (Local Authority Capital Financing Regulations 2003 reg.(2)) requires the Council to determine its authorised limit and operational boundary for external debt for the next three years.

3.1 Authorised limitThe authorised limit represents the legislative limit on the Council’s external debt under the Local Government Act 2003. The proposed authorised limits for 2009-10 to 2011-12 are set out in Table 1. In accordance with the Act the proposed limit has been set with sufficient headroom above the operational boundary to allow flexibility for planned borrowing to be undertaken, in order for prudent Treasury management decisions to be taken and temporary cash flow fluctuations to be managed.

3.2 Operational boundaryThe proposed operational boundary for 2009-10 to 2011-12 is set out in Table 1. The boundary reflects the maximum anticipated level of external debt consistent with budgets and forecast cash flows. This boundary will be used as a management tool for ongoing monitoring of external debt, and may be breached temporarily due to unusual cash flow movements. However a sustained or regular trend above the operational boundary should trigger a review of both the operational boundary and the authorised limit.

It should be noted that the outcome of the Large Scale Stock Transfer ballot may have an impact on these limits. Once the outcome of this ballot is known the limits will need to be revised. Cabinet is asked to approve the limits set out in the table below as per recommendation 2.1.

Table 1 Treasury borrowing limits for 2009-10 to 2011-122009-10 2010-11 2011-12

£’000 £’000 £’000Authorised LimitBorrowing 459,653 459,653 459,653Other Long term Liabilities 25,000 25,000 25,000Total 484,653 484,653 484,653

Operational BoundaryBorrowing 449,653 449,653 449,653Other Long Term Liabilities 25,000 25,000 25,000Total 474,653 474,653 474,653

4 Treasury management prudential indicators 4.1 Adoption of CIPFA Code of Practice for Treasury Management in Public

Service

One of the prudential indicators in respect of treasury management is that the Council has adopted the CIPFA Code of Practice for Treasury Management in Public Service. This was adopted by the Executive Committee on 18th March 2002 (EDRS ref no 02030031).


4.2 Limits on interest rate exposures

4.2.1 The Council is required to set limits on its exposure to interest rates for 2009-10, 2010-11, 2011-12.

4.2.2 The upper limit on fixed interest rate exposures represents the maximum amount of net borrowing (ie borrowing less investments) which the Council will have at any given time during the period at fixed interest rates. The purpose of this limit is to ensure the Council has flexibility to take advantage of falling interest rates by ensuring a maximum level of variable debt.

4.2.3 The upper limit on variable interest rate exposures represents the maximum proportion of debt the Council will have at any given time during the period at variable interest rates and exposed to interest rate rises. In arriving at these limits Lender Option Borrowers Option (LOBOs) are treated as variable in the years in which options occur and as fixed in other years. The limit should be set in order to maintain a balance between managing the risk of rates rising and allowing sufficient flexibility to take advantage of any falls in interest rates.

The table below sets out these limits, which Cabinet is asked to approve as per recommendation 2.2

Table 2 Limits on interest rate exposures2008-09 2009-10 2010-11 2011-12

£’000 £’000 £’000 £’000100% Upper Limit on Fixed Interest Rate Exposure 100% 100% 100%

20% Upper Limit on Variable Interest Rate Exposure

40% 40% 40%

The reason for the increase in the limit on variable interest rate exposure is to allow the increase in short term borrowing required to take advantage of low interest rates and to achieve the borrowing strategy set out in section 8.

4.3 Upper and lower limits on maturity structure of fixed rate debt

4.3.1 The Council is required to set upper and lower limits for the maturity structure of its borrowings, this is designed to limit the risk of exposure to high interest rates by restricting the level of maturing debt in any given year. The limit represents the amount of projected borrowing that is fixed rate maturing in each period as a percentage of total projected borrowing that is fixed rate.


4.3.2 Table 3 shows the proposed limits, which Council are recommended to approve as per recommendation 2.3.

Table 3 Upper and lower limits on maturity structure of fixed rate debt

2008-09 2009-10

Cumulative Upper Limit

Lower Limit

Cumulative Upper Limit

Lower Limit

15% 0% Under 12 months 30% 0%

15% 0% 12 months and within 24 months 40% 0%

20% 5% 24 months and within 5 years 50% 0%

40% 5% 5 years and within 10 years 50% 0%

100% 40% 10 years and above 100% 40%

The increase in the upper limits for shorter term debt is to facilitate the use of the temporary borrowing as per the strategy set out in section 8.

4.4 Limits for principal sums invested for longer than 364 days

In order for the Council to contain its exposure to the possibility of loss that might arise as a result of its having to seek early repayment or redemption of principal sums invested, a limit is placed on the amount of that can be invested for longer than 364 days. This limit is recommended to be £18m as per section 10 and is in line with the non specified investments level. This would represent 20% of our average investment portfolio and allow a degree of certainty in achieving future years budgets.

5 Current treasury position5.1 The Council’s treasury position consists of long term and temporary borrowings less

treasury management investments and cash balances. These combine to give a net borrowing position.

5.2 Table 4 shows the Councils estimated position as per the 2008-09 strategy, the position as at 30-01-2009, the forecast position at 31-03-2009 and the estimated position for 2009/10 to 2011-12. The 2008-09 strategy forecast a position of £419,433k, if the capital expenditure targets are met the year end position is projected to be £404,913k. Cabinet are asked to note the expected year end position as per recommendation 2.4.


Table 4 Original, current and forecast treasury position

Original Position as

per 2008-09

Strategy

Position as at

30-01-09

Forecast Position as

at 31/03/2009

2009/10 Estimate

2010/11 Estimate

2011/12 Estimate

£’000 £’000 £’000 £’000 £’000 £’000

Long Term Borrowing 441,979 408,152 407,401 407,046 406,695 406,354

Temporary Borrowing 2,000 18,822 46,822 32,901 28,278 28,246

Total Borrowing 443,979 426,974 454,223 439,947 434,973 434,600

Less Temporary Investments (Note 1)

(41,677) (72,830) (51,500) (37,500) (37,500) (37,500)

Add Bank Overdraft less cash

24,574 11,800 9,633 9,600 9,600 9,600

Net Borrowings including Transferred Debt

426,876 365,944 412,356 412,047 407,073 406,700

Less Transferred Debt (Note 2)

(7,443) (7,443) (7,443) (7,045) (6,641) (6,300)

Net Borrowing 419,433 358,501 404,913 405,002 400,432 400,400

Note 1 Temporary investments are planned to reduce due to the low investment rates currently being offered and to accommodate the repayment of temporary borrowing (see section 9).

Note 2 Transferred Debt relates to debt which the Council undertook to manage after the abolition of Greater Manchester Council, on behalf of all the Greater Manchester Authorities.

6 Borrowing requirement6.1 Table 5 sets out the Council’s 2007-08 actual borrowing requirement, 2008-09 probable

borrowing requirement and the estimated net borrowing requirement for 2009 to 2012. It shows the net borrowing requirement is expected to remain static over the course of 2009-10. The borrowing requirement is a key influence over the borrowing strategy as set out in section 8.


Table 5 Net Borrowing Requirement

2007/08 Actual

2008-09 Probable

2009-10 Estimate

2010-11 Estimate

2011-12 Estimate

£’000 £’000 £’000 £’000 £’000

Net Borrowing at 1 April (see Table 4)

349,028 368,739 404,913 405,002 400,432

New Borrowing for Capital Programme - Non HRA

22,975 35,094 8,745 5,996 11,758

New Borrowing for capital programme – HRA

2,247 858 0 0 0

Debt Redemption costs charged to revenue (incl HRA)

(9,114) (11,452) (11,656) (11,866) (11,790)

Reduced/(increased) level of revenue balances

3,603 11,674 3,000 1,300 0

Net Borrowing at 31 March

368,739 404,913 405,002 400,432 400,400

6.2 The Prudential Code states in order to ensure that over the medium term net borrowing will only be for capital purposes, the local authority should ensure that net external borrowing does not, except in the short term, exceed the total capital financing requirement for the current year plus any increase in the two future years. Any reduction is ignored. Table 6 shows the relevant capital financing requirement for 2007-08 to 2011-12, it is clear from this table that the Council’s net borrowing position at Table 5 is well within these limits.

Table 6 Capital Financing Requirement

2007/08 Actual

2008-09 Probable

2009-10 Estimate

2010-11 Estimate

2011-12 Estimate

£’000 £’000 £’000 £’000 £’000

Capital Financing Requirement as at 31 March

425,119 441,445 466,799 462,403 455,048

Movement Current Year 16,326 25,354 0 0 0

Movement Future Year 1 25,354 0 0 0 0

Movement Future Year 2 0 0 0 0 0

Total Capital Financing Requirement

466,799 466,799 466,799 462,403 455,048

Net Borrowing (Table 5) 368,739 404,913 405,002 400,432 400,400


7 Prospects for interest rates7.1 Short term rates

The Council has appointed Sector Treasury Services as treasury adviser to the Council and part of it’s service is to assist the Council to formulate a view on interest rates. Appendix A draws together a number of current City forecasts. The following table gives the Sector view.

Table 7 Sector interest rate forecast as at 06/12/08Q/E1

2009

Q/E2

2009

Q/E3

2009

Q/E4

2009

Q/E1

2010

Q/E2

2010

Q/E3

2010

Q/E4

2010

Q/E1

2011

Q/E2

2011

Q/E3

2011

Q/E4

2011

Q/E1

2012

Bank Rate 0.50% 0.50% 0.50% 0.50% 0.50% 0.75% 1.00% 1.25% 1.75% 2.50% 3.25% 3.75% 4.00%

5 yr PWLB 2.50% 2.25% 2.15% 2.15% 2.15% 2.45% 2.80% 3.15% 3.65% 3.95% 4.20% 4.45% 4.60%

10 yr PWLB 3.10% 2.75% 2.55% 2.55% 2.55% 2.85% 3.25% 3.65% 4.15% 4.40% 4.70% 4.75% 4.85%

25 yr PWLB 4.00% 3.95% 3.95% 3.95% 4.00% 4.15% 4.35% 4.45% 4.60% 4.85% 4.95% 5.00% 5.05%

50yr PWLB 3.85% 3.80% 3.80% 3.80% 3.85% 3.90% 4.00% 4.25% 4.40% 4.70% 4.80% 4.95% 5.00%

Sectors current interest view is that Bank Rate: -

Will fall from current levels because of the intensifying global recession Starting 2009 at 2.00% Bank Rate is forecast to fall to 0.5% in Q1 2009 It is then expected to remain there until starting to rise gently up from Q2 2010 until

it reaches 4.00% in Q1 2012. There is a downside risk to these forecasts if the recession proves to be deeper and

more prolonged than currently expected.

Other institutions including Capital Economics are expecting bank rate to fall to a never before seen 0.00% and to remain at this level until quarter 4 2010.

7.2 Public Works Loan Board rates

7.2.1 Recent weeks have seen the PWLB new borrowing rate for 50 years increase to 4.80%, however the gilts market is still very volatile and reductions are expected in line with the projection above.

7.2.2 The 25 year PWLB rate is currently at 4.83%, again this is expected to fall back in line with the projections above.

7.2.3 The shorter end (upto 5 years) rates are expected to remain between 2.00% and 2.50% until quarter 3 of 2010. They are currently at 2.13%.

7.3 Money market rates

The opportunity for taking money market borrowings is very small in the current economic climate due to the unwillingness of financial institutions to lend. However in the past the rates have been more competitive than the PWLB rates, but this type of borrowing does tend to be at a variable rate and because of the risk attached is limited. (see Table 2).


8 Borrowing strategy8.1 The factors that influence the 2009-10 strategy are: -

The reducing Capital Financing Requirement as per Table 6 The forthcoming possible Large Scale Voluntary Transfer of Housing Stock, if the

ballot is successful the Government will reduce the Councils PWLB debt by an amount that is equivalent to the Housing Revenue Account debt.

Impending Option dates on £33m of LOBO’s in 2009-10 The interest rate forecasts (see Table 7) of low rated short term debt 2009-10 Minimising the revenue costs to keep down Council Tax.

8.2 The net borrowing requirement in Table 5 shows, based on current estimates, we do not need to take out any new borrowing in the forthcoming years. Should this borrowing requirement change due to the outcome of LSVT ballot or changing estimates any new borrowing taken out will be completed with regard to the limits, indicators and interest rate forecasts set out above.

8.3 During 2009-10 £33m of LOBO debt will reach the option renewal date. At renewal date the loans will either:

Move to the option rate of interest, which in all cases will be the same as the current rate or

Be offered at a rate above the option rate, in which case the Authority has the option to repay, this would then require re-financing at prevailing market rates.

Cabinet are asked to approve the above strategy as per recommendation 2.5

9 Debt Rescheduling9.1 The introduction of different PWLB rates on 1 November 2007 for new borrowing as

opposed to early repayment of debt, and the setting of a spread between the two rates (of about 40-50 basis points for the longest period loans narrowing down to 25-30 basis points for the shortest loans), has meant that PWLB to PWLB debt restructuring is now much less attractive than before that date. However, significant interest savings may still be achievable through using LOBOs and other market loans if these become more readily available after the drying up of their supply during autumn 2008.

9.2 Due to short term borrowing rates being expected to be considerably cheaper than longer term rates, there are likely to be significant opportunities to generate savings by switching from long term to short term debt. However, these savings will need to be considered in light of their short term nature and the likely cost of refinancing those short term loans, once they mature, compared to the current rates of longer term debt in the existing debt portfolio. Any such rescheduling and repayment of debt is likely to cause a rebalance of the Councils debt maturities towards a flattening of the maturity profile as in recent years there has been a skew towards longer dated PWLB.

9.3 Consideration will also be given to the potential for making savings by running down investment balances by repaying debt prematurely as short term rates on investment are likely to be lower than rates paid on currently held debt. However, this will need careful consideration in light of premiums that may be incurred by such a course of action and other financial considerations.

9.4 As average PWLB rates in some maturity periods are expected to be minimally higher earlier in the financial year than later on, there should therefore be greater potential for making marginally higher interest rate savings on debt by doing debt restructuring earlier in


the year. Any decisions taken via rescheduling will be in accordance with the strategy position outlined in section 8 above.

9.5 The reasons for any rescheduling to take place will include:

The generation of cash savings and/or discounted cash flow savings Help fulfil the strategy outlined in paragraph 8 above and Enhance the balance of the portfolio (amend the maturity profile and/or the balance

of volatility).

All rescheduling will be reported to Cabinet at the meeting following its action.

10 Annual investment strategy10.1 Investment Policy

10.1.1 The Council will have regard to the ODPM’s Guidance on Local Government Investments (“the Guidance”) issued in March 2004 and CIPFA’s Treasury Management in Public Services Code of Practice and Cross Sectoral Guidance Notes (“the CIPFA TM Code”). In setting its investment policy the Council’s investment priorities are:-

The security of capital The liquidity of its investments.

The Council will also aim to achieve the optimum return on its investments commensurate with proper levels of security and liquidity.

The borrowing of monies purely to invest or on- lend and make a return is unlawful and this Council will not engage in such activity.

Investment instruments identified for use in 2009/10 are listed below under the “Specified” and “Non- specified” investments categories. Counterparty limits will be set through the Council’s Treasury Management Practices – Schedules.

10.1.2 Specified InvestmentsThe table below sets out the specified investments. These are sterling denominated with maturities up to a maximum of 1 year, meeting the minimum ‘high’ rating criteria set in paragraph 10.1.3 where applicable.

Table 8 Specified Investments

Type of Investment Use

Debt Management Agency Deposit Facility Facility availableTerm Deposits – local authorities Occasionally usedTerm Deposits – banks and building societies Extensively usedNationalised Banks(Note 1) Extensively usedCo-op Bank (Note 2) Extensively usedCertificates of deposit issued by banks and building societies covered by UK Government guarantees Not usedCertificate of deposit issued by banks and building societies not covered by UK government guarantees Not usedMoney Market Funds Not previously used. These

will be used in 2009-10.UK Government Gilts Not currently used


Gilts and Bonds Not usedTreasury Bills Not used

Note 1Nationalised banks in the UK have credit ratings which do not conform to the credit rating criteria set out in paragraph 10.1.3. In particular as they are no longer separate institutions in their own right, it is impossible for an individual rating to be assigned for their standalone financial strength. However these banks effectively take on the credit rating of the Government which is the highest rating possible.

Note 2The Co-op bank is currently the Council’s main bank and has at this point in time been given a “no colour “ rating. This is due to:

Part of the ratings are determined by company ownership, a Co operative does not sit neatly into such an assessment. There is only one owner but several thousand members, this reflects in the ratings as a negative.

Moodys recently analysed the bank and commented that the liquidity ratio is one of the best in the UK at over 100%, Moodys commented that they did not feel it appropriate to improve the ratings during the recent review as all other organisations were being marked down however the Co-Op is confident at the next review early in the new year the ratings will improve.

The UK Government has not given a blanket guarantee on all deposits but has underlined its determination to ensure the security in of the UK banking system by supporting eight named financial institutions with a £500bn support package. It is the Council’s intention to continue to use these financial institutions to invest monies with regardless of the credit ratings. The banks are:

Abbey Barclays HBOS Lloyds TSB HSBC Nationwide Building Society RBS Standard Chartered

It should be noted that the support does not extend to any of the bank’s foreign subsidiaries, therefore for investments in these, the subsidiary’s own credit rating will be used to assess their suitability.

It is not proposed to restrict the Council’s investment policy to UK banks and building societies only, however in addition to the credit rating criteria set out in paragraph 10.1.4, consideration will be given to the sovereign rating of the country before any investment is made.

10.1.3 Non specified investmentsThe table below lists the some of the non specified investments (these are detailed in full in the Council’s Treasury Management Practices). The non specified investments are investments other than those detailed above in Table 10.1.2. The total council investments in non specified investments is recommended to be no greater than £18m as per recommendation 2.6


Table 9 Non specified investments

Type of investment OMBC Use

Term Deposits for more than 365 days Occasionally used

Callable Deposits Occasionally used

Term deposits with unrated counterpartys (excluding Co-op Bank) Not used

Corporate Bonds issued by UK banks Not used

Sovereign bond issues other than UK Government Not used

10.1.4 Credit Rating Criteria

The Council’s uses Sectors creditworthiness service to determine its counterparty list which is about a counter party based on Fitch credit ratings. All credit ratings will be monitored on a daily basis via Sector. If an alert is received, via Sector, of a downgrade in criteria below the minimum criteria, its further use for new investments will be withdrawn immediately. If a body is placed on negative rate watch (i.e. there is a reasonable probability of a downwards rating change) it will be treated as if it is the next level down for all future investments until the ratings watch is removed.

The credit rating criteria is attached at Appendix C, institutions are split into Purple, Orange, Red, Green and No Colour. It is recommended that the following limits be put in place to ensure secure investments as per recommendation 2.6

Purple, Nationalised Banks & Government support – Highest rated - £18m for upto 2 years

Orange & Co-op Bank - £10m for upto 2 years

Red - £10m for upto 1 year

Green - £5m for upto 3 months

No Colour – nil

10.2 Investment Strategy

Investments will be made with reference to the Council’s cash flow requirements and the outlook for short-term interest rates The Council looks to achieve a return on its investment of London Interbank Bid Rate multiplied by 5%. The Council will maintain sufficient cash reserves to give it its necessary liquidity and may place investments for upto 2 years if the cash flow forecast allows and the credit rating criteria is met. However as interest rates are expected to remain low throughout 2009-10, the Council will avoid longer term deals while rates are at historically low levels.

The Council currently has investments of £48.5m maturing in 2009-10. These are detailed in table 10.


Table 10 Investments maturing in 2009-10

Amount Maturity Date Rate

Riyad Bank £5,000,000 08-04-09 5.75%

Riyad Bank £3,500,000 16-04-09 6.33%

Ulster Bank £5,000,000 24-04-09 5.76%

National Bank of Abu Dhabi

£2,000,000 05-05-09 5.75%

IIB £5,000,000 06-07-09 6.49%

Cater Allan £5,000,000 18-09-09 6.35%

Cyldesdale Bank £5,000,000 03-11-09 5.73%

Nationwide £5,000,000 03-11-09 5.65%

Cater Allan £3,000,000 09-11-09 6.50%

Bank of Scotland £10,000,000 04-12-09 4.33%

A forward deal has also been completed for 8th April 09 with Cyldesdale Bank for £5m at 3.50% for 12 months.

11 Minimum revenue provision (MRP) policy 11.1 Previously the Council was required by legislation to charge an amount each year to the

Income and Expenditure Account for the repayment of debt. This calculation was prescribed by legislation and was included in the Prudential Code.

11.2 In February 2008, this legislation was amended so that authorities have more freedom and are now required to make a provision for debt repayment that the Council considers to be prudent. The method for determining this provision needs to be decided on and reported to Council each year, and any departure from this method will require Council approval.

11.3 In the light of the new legislation, the method for calculating the MRP will involve a combination of two different options, both of which are approved by the Secretary of State. The method used will depend on whether:

The capital expenditure is funded from Government approved borrowing (this is normally supported borrowing and the revenue effects are included in the Revenue Support Grant received from Central Government),

or it is unsupported borrowing and financed by Council Tax (referred to as prudential borrowing).

11.4 It is recommended as per 2.7 that: For supported borrowing the method used will be the Regulatory Method – this sets

aside 4% each year of the Council’s Capital Financing Requirement less the Housing Capital Financing Requirement less an adjustment for changes to regulations.

For unsupported or prudential borrowing the asset life method will be used. This will be based on the asset’s useful economic life and where this can not be established, the asset life recommended by the Secretary of State in the Guidance on MRP will be


used. The calculation of the provision will be either the annuity method or the equal instalments method depending on which is most appropriate.

11.5 The MRP charge will commence in the year following the incurring of the expenditure except in the case of assets that take more than 1 year to become operational. In this instance a “MRP holiday” will be taken and MRP will commence in the year it first becomes operational.

12 Prudential IndicatorsBelow are the Prudential Indicators, other than those specifically for Treasury Management detailed in sections 3 and 4 above, which are required under the Cipfa Prudential Code. Cabinet is asked to approve the Prudential Indicators below as per recommendation 2.8.

12.1 Capital Expenditure Estimates

Table 11 shows the Council’s current capital expenditure estimates.

Table 11 Capital Expenditure Estimates

2008-09 Forecast

£’000

2009-10 Estimate

£’000

2010-11 Estimate

£’000

2011-12 Estimate

£’000

General Fund 67,284 55,533 45,935 58,998

HRA 8,872 8,281 8,214 7,954

Total 76,156 63,814 54,149 66,952

12.2 Ratio of net financing costs to net revenue stream

Table 12 shows to what extent financing costs (interest payable plus MRP less investment income) associated with external borrowing and long term liabilities are met from government grants and local tax payers.

Table 12 Ratio of net financing cost to net revenue stream

2008-09 Forecast

2009-10 Estimate

2010-11 Estimate

2011-12 Estimate

General Fund excluding DSG* 9.92% 10.04% 9.69% 9.28%

General Fund including DSG* 5.56% 5.69% 5.46% 5.23%

HRA 21.65% 20.68% 20.62% 19.82%

*DSG = Dedicated Schools Grant


12.3 Incremental impact of new capital investment decisions on council tax and rents

Table 12 shows the effect of the totality of the Council’s capital plans currently being considered and on which and show the impact on council tax and housing rents that would result, holding all other things constant. These indicators should reflect the revenue impact of capital schemes, it has been assumed that the revenue costs of supported borrowing will be fully met from revenue support grant.

Table 12 Incremental Impact of new capital investment decisions on council tax and rents

2008-09 Forecast

2009-10 Estimate

2010-11 Estimate

2011-12 Estimate

Increase in council tax (Band D)

£6.74 £13.11 £12.57 £14.40

Increase in housing rent per week

0 0 0 0

The increase in 2009-10 onwards reflects the capitalisation directive for redundancy and associated pension costs. The slight reduction in 2010-11 is due to revenue resources being used to fund capital schemes in 2009-10, which only has a one year impact. The increase in 2011-12 relates to the requirement to fund Building Schools for the Future. There is no impact on housing rents as the HRA capital programme is funded entirely from Major Repairs Allowance and grant.

12.4 Capital Financing Requirement

The capital financing requirement is an indication of how much the Council needs to borrow for capital purposes. This is as a result of not financing capital expenditure “upfront” by means of capital receipts, grants etc and relying on borrowing, which is ultimately repaid and replaced.

Table 13 Capital Financing Requirement

31/03/2009

£’000

31/03/2010 Estimate

£’000

31/03/2011 Estimate

£’000

31/03/2012 Estimate

£’000

General Fund 260,091 255,899 248,759 247,254

HRA 206,708 206,504 206,289 206,277

Total 466,799 462,403 455,048 453,531

13 Large scale voluntary transfer13.1 The proposed future LSVT raises a number of complex and critical decisions which will

need to be considered and planned for in advance of any physical cash transactions taking place. There may be an actual capital receipt, or an overhanging debt payment by government grant. In each case the positioning/structure of borrowing will need to be considered from the outset, along with a strategy that takes account of the risk that transfer may not proceed. If the ballot is successful the strategy may need to be refined in light of information as it becomes available. The treasury management strategy has taken account


of this possible transfer and a degree of flexibility has been built in to the limits, indicators and strategies set out above.

14 Financial implications and Treasurers commentsThe report incorporates all the financial implications.

15 Corporate Human Resources comments

16 Legal comments

17 IT implicationsNone

18 Property implications

19 Environmental and health and safety implications

20 Community Cohesion implications (including crime and disorder implications in accordance with S17 of the Act)

21 Forward plan reference


Appendix A Interest Rate Forecasts

INTEREST RATE FORECASTS The data below shows a variety of forecasts published by a number of institutions. The first three are individual forecasts including those of UBS and Capital Economics (an independent forecasting consultancy). The final one represents summarised figures drawn from the population of all major City banks and academic institutions.

The forecast within this strategy statement has been drawn from these diverse sources and officers’ own views.

1. INDIVIDUAL FORECASTS

Sector interest rate forecast – 6 December 2008

Capital Economics interest rate forecast –19 January 2009


UBS interest rate forecast (for quarter ends) – 12 December 2008

2. SURVEY OF ECONOMIC FORECASTS

HM Treasury – December 2008 summary of forecasts of 23 City and 12 academic analysts for Q4 2008 and 2009. Forecasts for 2010 – 2012 are based on 21 forecasts in the last quarterly forecast – November 2008.


Appendix B Credit Ratings

Short Term Rating: F1+, Long term Rating: AAA, AA+, AA

Individual Rating

Support Rating

1 2 3 4

A Purple Purple

A/B Purple Purple

B Purple Purple

B/C Purple Purple

C

C/D

D

Short Term Rating: F1+, Long Term Rating: AA-

Individual Rating

Support Rating

1 2 3 4

A Orange Orange

A/B Orange Orange

B Orange Orange

B/C Orange Orange

C

C/D

D


Short Term: F1+; Long Term Rating: AAA, AA+, AA, AA-

Individual Rating

Support Rating

1 2 3 4

A Red Red Red

A/B Red Red Green

B Red Red Green

B/C Red Red Green

C Red Red Green

C/D

D

Key:-

Short Term

F1 - Highest Credit Rating

Long Term

AAA - Highest credit quality

AA - Very high credit quality

Individual Ratings

A – Very Strong Bank

B – Strong Bank

C – Adequate Bank

D – Has some weakness

Support Ratings

1 – Extremely high probability of external support should the institution require it

2 - High probability of external support should the institution require it

3 – Moderate probability of external support should the institution require it

4 – Limited Probability of external support should the institution require it


treasury management strategy 2009/10

Documents

treasury limits

treasury strategy

treasury borrowing limits

treasury management

respect of treasury

borrowing strategy debt

authorised limit borrowing

proposed authorised