Agenda item

Treasury Management Strategy 2023/24


The Acting Director of Finance introduced the report and stated that three elements of the government directives linked to the Treasury Management Strategy, and these were: the requirement to update the Treasury Management, Capital, and Investment Strategies; the commitment to reduce the MRP linked to debt; and the requirement of an MRP policy refresh. He explained that the Treasury Management Strategy linked to the capital programme, investments, and how the Council could deliver financial sustainability. He stated that the report presented a holding position which was driven by several assumptions outlined on page 2 of the appendix including the request for EFS, asset disposal, and divestment of investments. He explained that borrowing levels were based on these assumptions and outlined the accounting treatments in the past and moving forward. He stated that the report summarised the changes to investment write-down and divestment, and how this strategy would be delivered. The Acting Director of Finance explained that further reports would be brought back to Members as the level of borrowing may need to increase due to changes with investments, EFS and capitalisation directives.

The Acting Director of Finance explained that the Council’s portfolio of investments had been reassessed and a breakdown of these investments was outlined at table 2, including their impairments and full assessment. He stated that all investments were under constant review, and a new committee was being developed to inform Cabinet and the wider investment group. He added that the team were looking into legal actions to help resolve issues, but these could not be outlined until they had been developed further, as they were still in the early stages of discussion.

The Acting Director of Finance highlighted paragraph 42 in the appendix which set out the current issues, assessments, and proposed actions, and formed a key reset of the strategy. He added that the Strategy would drive how the Council managed future risk and would complement the Capital Programme to ensure appropriate resources and financial sustainability. He described how the report also provided historic financial context, such as the replacement of debt with Public Works Loan Board (PWLB) loans. He added that the MRP policy statements also showed how the Prudential Code had developed, and the Council were now compliant. He added that paragraph 76 of the appendix showed the 20-year life of the capitalisation directives, and how cashflow would be managed to enable a reset of debt in the future. He summarised and stated that the team had taken quick action to completely replace and rewrite the Treasury Management Strategy, whilst seeking advice from commissioners and experts, to ensure the Council met the government’s directives and reduced debt as quickly as possible.

The Chair highlighted paragraph 77 of the appendix and asked why the Council had not applied MRP to its capital investments in previous years. The Acting Director of Finance explained that in previous years the MRP had not factored in issues and impairments with assets, such as the solar farm, and therefore the Council had no protection when the MRP was set on that basis, and was fully exposed. He stated that the MRP now covered issues and impairments, and this reduced the Council’s exposure. The Chair queried if the Council had ever applied MRP to its capital investments in the past. The Acting Director of Finance explained that Thurrock Council had been compliant with the first iteration of the Prudential Code that allowed for Council’s to invest, as without that policy Council’s would not have been allowed to invest. He explained that the second iteration of the Prudential Code had called for a partial change to MRP provisions to reduce exposure for the Council, which the Council had not been compliant with. The Chair queried when the second iteration of the Prudential Code had come into force. The Acting Director of Finance explained that the second iteration had been implemented in 2018/19, but only mandated that an MRP change was made. He explained that the Council were waiting for a new Prudential Code to be announced, which was expected in 2024/25, and the Council were ensuring that they would be forward compliant ahead of the introduction of this Code. He commented that a change to Prudential Codes presented a difficulty for many Councils, who subsequently had to adapt and change their procedures.

Councillor Kent questioned why the MRP was now being paid down over the course of an assets life, and asked if this approach would be successful. He also queried if previous advice given to Members on the MRP had been accurate. The Acting Director of Finance explained that the Council were now pursuing an asset life method of MRP, which meant that debt was written down over the life of an asset, and therefore running in parallel with the asset as a percentage of the debt was written off every year. He explained that in previous years this approach had not been undertaken, which had reduced the capital finance requirements but had not managed risk. He stated that the previous approach had written down an asset’s debt in one go, at one time, and had offered the Council little protection. The Interim Chief Financial Officer echoed these points and stated that a thorough review process for assets was now in place, and this was being supported by the Commissioners. Councillor Arnold queried what advice had been received from external consultants, and what new knowledge and skills was being applied to the MRP. The Acting Director of Finance confirmed that the Council had received advice on the Treasury Management Strategy, but confirmed that the Council did not have any future investments planned. He stated that Thurrock had appointed Link as Treasury Management advisors and training sessions had been provided to Members to give a broader overview and understanding of the sector. He explained that the BVI would focus on the finer points of how decisions regarding investments were taken, and the team would consider these findings in detail when they were released.

Councillor Kent summarised and felt that the report was important as the Council needed to ensure it did not repeat past mistakes. He stated that in 2023/24 debt repayments would cost approximately £49m, which was 3.5x the cost of emptying all bins in Thurrock and two thirds more than the Public Realm budget. 

RESOLVED: That the Committee:

1. Commented on the 2023/24 Treasury Management Strategy for consideration by Cabinet at their meeting on 15 February 2023.

2. Considered the current assumptions (set out on page 3 of the Strategy) underpinning the Treasury Management Strategy and noted that this will be subject to further updates in 2023/24.

3. Considered the strategy in the context of the directions issued by the Secretary of State for Levelling Up, Housing and Communities and specifically the need for a strict debt reduction plan.

4. Noted the increase in the Council’s Capital Financing Requirement (CFR) in 2022/23 as a result of the expected support from DLUHC in the form of a capitalisation direction, as set out in section 3.16.

5. Noted the divestment of investments and the scale of property assets are required to repay the Exceptional Financial Support from DLUHC and this is a key assumption supporting the strategy.

6. Noted the Council’s borrowing level will exceed the CFR in 2022/23 but is planned to be managed within this from 2023/24 and onwards, as set out in section 3.16.

7. Noted the Prudential indicators included within the strategy that show commercial capital investments are generating net losses to the Council in the context of the revised MRP charges and current and projected interest rates, as set out in section 3.6.

8. Noted that the borrowing strategy supporting the commercial investment portfolio will be reset alongside wider revisions to the strategy in 2023/24.

The Committee adjourned at 8.52pm

The Committee reconvened at 8.58pm.

Supporting documents: