Minutes:
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: