Treasury Management – 2017/18 Mid-Year Report

The Treasury Management strategy 2017/18 sets out planned capital spending and how MOPAC will manage its borrowings and investments during this financial year. The GLA Treasury Management team provide the operational support for this function and through the Group Investment Syndicate (GIS) manages all MOPAC investments, to generate financial and risk reduction benefits.

To 30 September 2017 interest income for the first half year was £1m, and is ahead of expected half year budget of £0.65m. At 0.44%, the weighted average yield exceeds the benchmark by 0.26%. Debt management costs for the period are £9.4m, and are forecast to be below the budget of £20.2m at year end. There was no new borrowing in the period.

All investment and borrowing activity during 1 April 2017 and to 30 September 2017 was undertaken within the guidelines and objectives set out in the relevant policy and investment and borrowing strategies.

That the DMPC notes the activity and performance on the Treasury Management function for the first half year 2017/18

1. Introduction and background

1.1. MOPAC approved the 2017/18 Treasury Management Strategy in March 2017, PCD 179. This paper fulfils the requirement for reporting of mid-year performance to the DMPC.

2. Issues for consideration

Borrowing

2.1. There has been no new long term borrowing in the first six months of 2017-18, and due to loan repayments the total borrowing has reduced from £159m to £150m – a reduction of £9m. Borrowing costs for the first 6 months was £9.4m, and are forecast to be £18.8m against a budget of £20.2m.

Investment

2.2. The weighted average yield on investments was 0.44%, compared with the LIBID 3 month benchmark of 0.18%, generating income of £1m. The annual budget for interest receivable is £1.3m, and is forecast to be exceeded due to higher than expected balances and increasing deposit rates.

Prudential Indicators and Treasury Management Limits

2.3. The attached appendix sets out the detail of performance against the prudential indicators and treasury management limits. All transactions undertaken during the year met the criteria for lending to institutions and activity has been within the Prudential Code indicators set out in the TM Strategy 2017-18.

Forthcoming issues

2.4. The Chartered Institute of Public Finance and Accountancy (CIPFA) recently consulted on prudential indicators and the treasury management code of practice. MOPAC were engaged through the Police & Crime Commissioners Treasurers Society. The revised code and indicators are expected to be for application in 2018/19.

2.5. The draft capital programme included in the budget submission envisages new borrowing to meet the further investment proposed. The revenue costs of the additional borrowing are included in the revenue budget. MOPAC currently maintains an under-borrowed position, such that the capital financing requirement has not been fully funded with loan debt but by using the cash supporting MOPAC’s reserves, balances and cashflow. The delivery of the future capital programme, budgeted revenue savings, use of reserves and the phasing of new asset disposals will impact the cashflow, and will be kept under review. Further borrowing to address the under-borrowed position may be required, and will be considered as part of the Treasury Management strategy 2018/19.

3. Financial Comments

3.1. This is a financial report and the details are set out in the body of the report.

4. Legal Comments

4.1. Under Section 1 of the Local Government Act 2003, MOPAC as local authority defined under s23 of that Act, may borrow money for any purpose relevant to its functions under any enactment, or for the purpose of the prudent management of its financial affairs.

4.2. The Mayor is required under s3 of the Local Government Act 2003 to determine how much money the GLA and each functional body (which includes MOPAC) can afford to borrow. In complying with this duty, Regulation 2 of the Local Authorities (Capital Finance and Accounting)(England) Regulations 2003 requires the Mayor to have regard to the Prudential Code for Capital Finance in Local Authorities when determining how much MOPAC can afford.

4.3. MOPAC’s scheme of delegation provides that the Chief Finance Officer, as the s127 officer, is responsible for the proper administration of the MOPAC’s financial affairs.

4.4. An investment strategy statement must be completed as part of risk management and good governance. The report is submitted in compliance with TMSS and DCLG requirements in this regard.

5. Equality Comments

5.1. There are no equality or diversity implications arising from this report.

6. Background/supporting papers

GLA Report Appendix 1