At the Performance and Scrutiny Committee at Surrey Heath Borough Council this evening (Wednesday 13th September), it was outlined how the returns from Treasury Management investments and the levels of prudential, support the previous adopted and approved five-year strategy, and the Council's annual budget.
The investment made by the Council's treasury management service helps to generate revenue that goes directly towards funding services within the Borough, such as the Hope Hub, Camberley Theatre, meals on wheels, and community transport. As was outlined at the committee, the current administration has not altered the previous Council's direction of investing, maintaining the robust treasury management that they took over as this forms as central element of the management of the Council's cash balances.
Whilst the Labour group were concerned on the ethical nature of these investments, reassurance was provided that these investments are restricted in Money Market Funds, which by their nature are triple AAA rated, in addition to other local authority and central Government deposit facilities which are backed by the UK Government's rating.
The quarterly report presented to the committee demonstrated that the Council is complying with the Prudential Framework.
The committee discussed in length the Council's current loans, with total borrowing at £167 million. The Performance & Portfolio Holder, Cllr Leanne MacIntrye, outlined how £100 million of this is in long-term borrowing, with a weighted average interest rate of 2.73 percent, and £73 million in short-term borrowing, with a weighted average interest rate of 3.45 percent.
In March 2023, the Council’s underlying need to borrow for capital purposes, referred to as the Capital Financing Requirement (CFR) for the Council was £208 million. The CFR includes all unfunded capital expenditure – i.e spend where resources have not been specifically allocated. The 2022/23 actual borrowing was £170 million (2021/22 - £185 million).
For this financial year, 2023/24, the Council must not borrow in excess of its prudential indicator, set at budget, which is an upper operational limit of borrowing of £230 million.
When a question was raised at the committee on why the Council has a mixture of the two loan types, Bob Watson, the Council's Strategic Director of Finance & Customer Services and Section 151 Officer, stated:
"The advice that was given at the time, and the time that the report was written, the decision on treasury is always delegated to the Section 151 officer, who is in charge of the Council's treasury function. The advice that was given by the advisors at the time was to actually keep borrowing at low rates because rates were historically low on short term loans and roll it over as long as you can, keep rolling over, was actually more beneficial then locking in 40, 50 years at a higher rate, again a low higher rate, but it was certainly a lot higher in terms of the real borrowing at the time when short-term was about 0.1% and keep re-rolling that over, you're saving a lot of money as opposed to borrowing longer term.
"My own view, and the view that I established when I was at my previous Council was we need to find a trigger point where we felt that rates were either rising or that the long-term debt would come down. When I arrived here, we had already agreed in forward, dealt two long term loans of £50 million, so that gave us a balance of about £100 million in long-term debt at reasonably low rates compared to what we're seeing now and the rest on short term.
"The reason why you need to keep a portfolio that's balanced like that is you don't know whether the opportunity might come along to actually dispose of an asset, and because although we don't link our loans directly to assets like with a mortgage, it's not asset backed loans, we borrow based on our general credit rating which is the same as the UK Government's, we would absolutely like to have the ability to take out some of the debt if we received a capital receipt.
"Now we've locked in 50 year money on all long-term loans and then suddenly you sell some of the assets, because you get that absolute bargain deal it's very difficult to then justify why you've got 50 years of debt and no asset behind it, so you have a mix between long-term and short-term."
In terms of the current Economic and Income development at the Council, the committee was informed that the current team is now fully staffed with twenty officers after an extensive recruitment process in the last twelve months which led to ten recent appointments. With full staffing, this will enhance the capabilities and resilience of the service team.
The key areas for the team continue to focus on the priorities of the previous Conservative administration; regeneration, economic development, office and industrial portfolio, leisure and community facilities, building management, and retail and asset management.
The portfolio holder for this area, provided an update on the London Road block, stating:
"A key challenge for the team has been finding a development partner for the London road block. Following an extensive procurement process and no formal bids received, the officers obtained detailed feedback from 28 developers which has allowed the team to revise a tactical plan to look to progress a developer search which could potentially include a phased approach. This detailed feedback has enabled the team to ensure that the plans for the project are more cost effective."
