129.1 General
- This authority has adopted the key recommendations of CIPFA’s Treasury Management in the Public Services: Code of Practice (the Code), as described in Section 4 of that code.
- Accordingly, the authority will create and maintain, as the cornerstones for effective treasury management:
- A treasury management policy statement, stating the policies and objectives of its treasury management activities.
- Suitable treasury management practices (TMPs), setting out the manner in which the authority will seek to achieve those policies and objectives, and prescribing how they will be managed and controlled.
The content of the policy statement and TMPs will follow the recommendations contained in Sections 6 and 7 of the Code, subject only to amendment where necessary to reflect the particular circumstances of this authority. Such amendments will not result in the organisation materially deviating from the Code’s key recommendations.
- The Cabinet will receive reports on its treasury management policies, practices and activities, including, as a minimum, an annual strategy and plan in advance of the year, and an annual report after its close, in the form prescribed in its TMPs.
- This authority delegates responsibility for the implementation and monitoring of its treasury management policies and practices to the Cabinet, and for the execution and administration of treasury management decisions to the Section 151 Officer, who will act in accordance with the organisation’s policy statement and TMPs and, if he/she is a CIPFA member, CIPFA’s Standard of Professional Practice on Treasury Management.
- The Council adopted the CIPFA Treasury Management Code of Practice from April 2002. . The Code sets out a framework of operating procedures for Members and Officers to reduce treasury risk and improve dialogue about the Council’s Treasury position. Treasury management is defined as: -
“The management of the organisation’s cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.”
- Detailed below is the Council’s Treasury Management Strategy. This covers the requirements of both the Office of the Deputy Prime Minister (ODPM) and the CIPFA code. The strategy covers:
- Current Treasury portfolio position,
- Prudential Code Indicators,
- Interest Rate Prospects,
- Borrowings strategy,
- Investments strategy,
- Debt rescheduling opportunities.
Click here for a copy of the current Treasury Management Strategy.
129.2 Legislative Background:
On 1st April 2004, the Local Government & Housing Act 1989 Part IV will be repealed and be replaced by the Local Government Act 2003. This will introduce the Prudential Code Finance system, which will lead to a rise in the profile of the Treasury Management function.
Under the legislation, authorities are required to have regard to CIPFA’s Prudential Code, which in turn requires adherence to the CIPFA Treasury Management Code of Practice, as well as setting various indicators. This is to ensure that any additional unsupported borrowing, under the Prudential Code, is undertaken on a prudent, sustainable and affordable basis and that treasury management decisions are taken in accordance with good professional practice.
129.3 Prudential Code Indicators:
- Under the new Prudential Code, there are several Treasury Management related indicators, which must be set by Full Council as part of the budget process:
- Adoption of the CIPFA Treasury Management Code of Practice
- Maturity Structure of Borrowing
- Upper limits on Fixed and Variable interest rate exposure
- Proposals for the Council to invest sums for periods longer than 364 days
- Authorised limit for External Debt
- Operational Boundary for External Debt
- The Head of Resources is responsible for ensuring compliance with these limits. Should it prove necessary to amend these limits, the Head of Resources shall submit the changes for approval to Full Council at the appropriate time.
129.4 Investments Strategy:
- The practices for investing surplus funds are governed by the Local Authorities (Capital Finance Approved Instruments) Regulations 1990, made under the Local Government & Housing Act 1989 Part IV. Due to the change in legislation, investments will be covered by ODPM guidance, from 1st April 2004.
- Investments will only be made in line with the final ODPM guidance. This includes:
- Authorities should invest their temporary surplus funds prudently.
- Priority is to be given to security and liquidity rather than yield. It is reasonable to seek the highest rate of interest consistent with the proper levels of security and liquidity.
- The speculative procedure of borrowing purely to invest and make a return remains unlawful.
- New requirements: Identifying the strategy for Specified Investments, Non-Specified Investments, and the Liquidity of Investments.
- The strategy must be approved by Full Council, prior to the start of the financial year and may be varied at any time, subject to approval.
129.5 Specified Investments
- Specified Investments are investments offering high security and high liquidity. The Council’s Approved Counter-parties list was approved on 18th November 1999. Rather than defining broad criteria, this looks at a range of factors/ratings including short-term, long-term, support and individual ratings as well as duration of lending. In addition:
- Specified Investments will be in sterling with a maturity of less than 1 year.
- Ratings frequencies will be monitored on a monthly basis, through monthly Fitch Ratings Global Directory updates.
- No more than 25% of the total investment portfolio may be placed with one institution.
- Investments with Banks and Building Societies will only be made with the institutions identified on the Council’s Approved Counter-parties list, approved as part of the Treasury Management Policy Statement.
- Investments made with the UK Government or a UK Local Authority or Parish Council, automatically count as Specified Investments.
129.6 Non-Specified Investments
- Given the greater potential risk associated with these investments, it is not intended to use any Non-specified investments. Should a particular requirement or opportunity arise, then appropriate professional advice would be sought before undertaking this type of investment.
129.7 Debt Rescheduling
- Debt rescheduling is likely to take place when fixed interest rates are anticipated to be at their highest, when the difference between actual loan rates and the current long term rates are minimal, in order to minimise any debt redemption premia. The situation will be continually monitored in order to take advantage of any perceived anomalies in interest rates. The reasons for rescheduling to take place would include:
- The generation of cash savings at minimum risk,
- To help fulfil the strategy outlined above,
- To enhance the balance of the long-term portfolio
All rescheduling will be reported to Cabinet at the next available opportunity.
129.8Approved Activities of the Treasury Management Operation
The approved activities of the Treasury Management operation cover:
- borrowing;
- lending;
- debt repayment and rescheduling;
- consideration, approval and use of new financial instruments and treasury management techniques.
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