Treasury Management 2018/19

The Treasury Management strategy sets out planned capital spending, and how MOPAC will manage its borrowings and investments. The GLA Group Investment Syndicate (GIS) manages all MOPAC investments, to generate financial and risk reduction benefits. The current MOPAC Treasury Management Strategy makes use of both the GLA Group Investment Syndicate for investment purposes and has the capacity if required to make investments in its own name. This is designed to spread counter party risk.

The external debt and treasury management limits and indicators in Appendix 1 are consistent with the MOPAC medium term financial strategy and 2018-19 budget.

The GLA will continue to implement the MOPAC strategy via the Treasury Management Shared Service arrangement and the Group Investment Syndicate.

That the DMPC approve the 2018-19 Treasury Management Strategy Statement and supporting detail as set out in Appendix 1.

1. Introduction and background

1.1. The Chartered Institute of Public Finance and Accountancy’s Code of Practice for Treasury Management in Public Services (the CIPFA TM Code) and the Prudential Code require that MOPAC adopts a Treasury Management Strategy Statement (TMSS), Treasury Management Policy Statement and Prudential Indicators on an annual basis. The TMSS also incorporates the Investment Strategy as required under the Communities and Local Government’s (CLG) Investment Guidance.

1.2. The Strategy Statement 2018/19 defines the policies and objectives of MOPAC's treasury management activities and roles and responsibilities. There is a requirement within the CIPFA Code to seek approval of the Mayor's Office for Policing and Crime for the Treasury Management Strategy Statement. In accordance with the scheme of delegation and consent it is the responsibility of the Deputy Mayor to approve the policy and strategy each year which are set out at Appendix 1. This provides an opportunity to review the current arrangements, and MOPAC’s risk appetite.

1.3. The GLA Group Treasury services provide the day to day management and delivery of the MOPAC treasury management function.

1.4. In June 2013 MOPAC signed up to the GLA operated Treasury Management shared service as part of the wider GLA shared service agenda. This proposed 2018/19 TMSS includes that all MOPAC investments are made through the GLA Group Investment Syndicate (GIS).

2. Issues for consideration

Strategy Issues

2.1. The MOPAC Treasury Management Strategy, in line with the CIPFA Code of Practice, states that investment priorities are security first, liquidity second and then return.

Borrowing

2.2. The approved 2018/19 capital programme funding includes provision for new borrowing of £179.4m. MOPAC has reserves which are used to help finance the capital programme reducing the need to borrow externally. Borrowing will only be undertaken where necessary and subject to the profile of capital spend, capital receipts and other funding streams.

2.3. 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 continue to be kept under review.

2.4. The proposed strategy includes that if necessary MOPAC borrow temporarily to cover any expected shortfall. This reduces the risks of holding excess balances and the cost of carry. As investment returns are low it is proposed to continue this approach. Where an opportunity to reschedule existing debt is identified this will be undertaken within the limits of this strategy.

Investment

2.5. The primary objective for MOPAC is the security of capital, followed by maintenance of liquidity, with the return on investments being a tertiary consideration.

2.6. DMPC is asked to approve the treasury indicator that outside of externally managed funds or the pooled GIS funds MOPAC will not invest any principal sums for greater than 1 year.

2.7. The proposal is to continue to invest MOPAC funds fully within the GLA GIS. This is providing security whilst generating returns in excess of the 3 month London Interbank Bid Rate (LIBID) benchmark.

2.8. Based on current balances MOPAC’s proportion of the GIS is circa 3%, (although this will change with the changes in MOPAC and other GIS members balances).

Benefits to MOPAC

2.9. The benefits to MOPAC of remaining within the GIS arise from access to a broader range of instruments and greater stability of pooled cashflows. This enables potentially longer deposit periods and higher returns without materially affecting risk. Placing all MOPAC funds within the GIS enables investment to be focussed on the relatively stronger counterparties.

2.10. Historic MOPAC cashflow indicate expected fluctuating cash balances over the next couple of years. Using the GIS, as it operates a more dynamic approach to setting counterparty limits, diversifies credit risk on a continuous basis at all levels of total investment cash, based on a percentage of the total forecast cash.

2.11. MOPAC officers will continue to work closely with GLA colleagues and the Treasury Management advisers to review and improve the strategy where possible, and to ensure that the MOPAC investment priorities of security first, liquidity second and then return continue to be achieved.

2.12. The overachievement of the benchmark for returns MOPAC currently generates is consistent with the other GLA/Functional Bodies using the GIS for all their investments.

2.13. All MOPAC investments are carried out in line with the MOPAC Treasury Management Strategy.

Prudential Indicators and Treasury Management Limits

2.14. Appendix 1C sets out the proposed 2018/19 range of prudential indicators and Treasury Management limits.

Management Arrangements

2.15. The day-to-day management of the treasury function will continue to be undertaken by the GLA Chief Investment Officer and team. It will be the responsibility of the GLA Assistant Director – Group Finance to ensure that the function is adequately resourced and controlled.

2.16. The MOPAC Chief Finance Officer will receive regular reporting from the GLA Chief Investment Officer on risks, performance, progress and strategic financing advice. Treasury Management advice will be provided by Link Asset Services following a re-tender of this service during 2017.

2.17. GLA Group Treasury will liaise with MOPAC/MPS for the management of cash flow

3. Financial Comments

3.1. The cost of borrowing for 2018/19 is currently estimated to be £20.4m for interest payable, £1.3m interest receivable and £21.8m for minimum revenue provision. Budgets for this income and expenditure are included in the MOPAC/MPS budget for 2018/19.

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

6.1. Appendix 1 Treasury Management Strategy 2018/19