Treasury Management and Investment Strategy

Treasury Management Prudential Indicators and Limits on Activity

52. There are four further treasury activity limits, which were previously prudential indicators. The purpose of these are to contain the activity of the treasury function within certain limits, thereby managing risk and reducing the impact of an adverse movement in interest rates. However if these are set to be too restrictive they will impair the opportunities to reduce costs/improve performance. The indicators are:

Upper limits on variable interest rate exposure – This identifies a maximum limit for variable interest rates based upon the debt position net of investments
Upper limits on fixed interest rate exposure – Similar to the previous indicator this covers a maximum limit on fixed interest rates.
Maturity structures of borrowing – These gross limits are set to reduce the Council’s exposure to large fixed rate sums falling due for refinancing, and are required for upper and lower limits.
Total principal funds invested for greater than 364 days – These limits are set with regard to the Council’s liquidity requirements and to reduce the need for early sale of an investment, and are based on the availability of funds after each year-end.

53. The Council is asked to approve the limits:

£m	2010/11		2011/12	2012/13
Interest rate Exposures
	Upper	Upper			Upper
Limits on fixed interest rates: Debt only Investments only	31.000 5.000	31.000 5.000			31.000 5.000
Limits on variable interest rates Debt only Investments only	6.000 32.000	6.000 32.000			6.000 32.000
Maturity Structure of fixed interest rate borrowing 2010/11
		Lower			Upper
Under 12 months		0%			20%
12 months to 2 years		0%			25%
2 years to 5 years		0%			35%
5 years to 10 years		0%			45%
10 years to 20 years		0%			45%
20 years to 30 years		0%			45%
30 years to 40 years		0%			50%
40 years to 50 years		0%			50%
50 years and above		0%			50%
Maximum principal sums invested > 364 days
Principal sums invested > 364 days	£0	£0			£0

Performance Indicators

54. The Code of Practice on Treasury Management requires the Council to set performance indicators to assess the adequacy of the treasury function over the year. These are distinct historic indicators, as opposed to the prudential indicators, which are predominantly forward looking. Examples of performance indicators often used for the treasury function are:

Debt – Borrowing - Average rate of borrowing for the year compared to average available
Debt – Average rate movement year on year
Investments – Internal returns above the Bank of England base rate.

The results of these indicators will be reported in the Treasury Annual Report.

Treasury Management Advisers

55. The Council uses Butlers as its treasury management consultants. The company provides a range of services which include:

Technical support on treasury matters, capital finance issues and the drafting of Member reports;
Economic and interest rate analysis;
Debt services which includes advice on the timing of borrowing;
Debt rescheduling advice surrounding the existing portfolio;
Generic investment advice on interest rates, timing and investment instruments;
Credit ratings/market information service comprising the three main credit rating agencies;

56. Whilst the advisers provide support to the internal treasury function, under current market rules and the CIPFA Code of Practice the final decision on treasury matters remains with the Council. This service is subject to regular review.

Member and Officer Training

57. The increased Member consideration of treasury management matters and the need to ensure officers dealing with treasury management are trained and kept up to date requires a suitable training process for Members and officers. This Council has addressed this important issue by:

a. using our treasury management consultants to provide training for our Members on 25^th January 2010.

Further training will be provided as appropriate, inline with the Code of Practice.

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