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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 07/02/2006
TREASURY MANAGEMENT POLICY



Summary & Purpose
This report is the annual update of Waverley’s Treasury Management Policy which reviews the arrangements and approved limits for the coming year.

APPENDIX F
WAVERLEY BOROUGH COUNCIL

EXECUTIVE – 7TH FEBRUARY 2006
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Title:
TREASURY MANAGEMENT POLICY
[Wards Affected: N/A]
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Summary and purpose:

This report is the annual update of Waverley’s Treasury Management Policy which reviews the arrangements and approved limits for the coming year.
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social/Community implications:

There are no quality of life implications associated with this report.

E-Government implications:

There are no e-government implications associated with this report.

Resource and legal implications:

There are no direct resource implications and the financial areas are covered in the report.
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Background

1. In September 2002, the Council adopted the Chartered Institute of Public Finance and Accounting‘s (CIPFA’s) Code of Practice on Treasury Management in the Public Services. Included within the Policy is that an annual review should be undertaken and reported to the Executive. Waverley had 27 million invested at 1st April 2005.

2. The Prudential Code for Capital Finance in Local Authorities requires that the annual investment strategy includes a set of specific prudential indicators.

Review of the Treasury Management Policy

3. The policy continues to be robust and comply with the latest good practice guidance. The Treasury Management Policy continues to give priority to security and liquidity of investment, rather than yield, although officers will always seek the highest yield provided that the necessary safeguards are in place as required under the Annual Investment Strategy. In November 2005, the Executive approved an update to the Policy to reflect new money laundering requirements.

4. In September 2002, the Executive approved the employment of treasury advisors on a self-financing basis. However, Waverley continues to have a relatively consistent and predictable cash flow and officers regularly monitor this and other factors including the credit ratings of investment organisations and the return on investments. Waverley’s overall return on investments compared well to the other Surrey authorities in 2004-05. For these reasons, officers will keep the option of external treasury advice open but only seek such assistance at the appropriate time.
Annual Investment Strategy

5. The Regulations require the Council to determine a number of limits and guidelines for its investment activity including ‘specified’ and ‘non-specified’ investments. Specified investments are held in sterling with a maturity of no more than a year and must be with the UK Government, UK local authorities or “high” rated institutions. Non-specified investments are any investments that do not meet the above criteria.

6. To meet the requirements of the Regulations, it is proposed that the following policy and limits apply to all of Waverley’s investment activity in 2006-07:

“High” credit rating means AAA rating for sterling money market funds or A and above rating for any banks and building societies
The top 30 building societies, non-rated and below A rated, and any A- rated UK banks are the only non-specified investment that Waverley will invest in.
3million is the maximum investment in any single non-specified organisation at any one time and, 5million for any single specified organisation at any one time.
Credit ratings should be monitored continuously using either Moodys, Standard and Poor’s or Fitch ratings
All new investment institutions should be ratings checked at the outset and a list of potential investors prepared and approved by the Director of Finance before the 1st April each year
The maximum total investment at any one time in non-specified investments is 22 million.
The maximum total investment at any one time that can prudently be committed for more than one year is 10 million.
The minimum total investment at any one time that can be held in short term (less than 365 days) investments is 10 million.

7. These policies and limits update those stated in the approved Treasury Management Policy. They are intended primarily to maximise the security and liquidity of Waverley’s investments but they must also enable flexibility in investment options and allow for the practicalities of day to day investment dealing. Whilst maximising the interest earned on investments is of secondary importance behind security, it is nevertheless a high priority and the limits set must enable both security and high yield to be achieved.

Prudential Indicators

8. The following prudential indicators are required under the Prudential Code for Capital Finance in Local Authorities. This section of the report should be considered in conjunction with the Prudential Code report also on this agenda.

The upper limit on fixed rate investments for 2006/07, 2007/08 and 2008/09 of 100% of net outstanding principal sums
The upper limit on variable rate investments for 2006/07, 2007/08 and 2008/09 of 40% of net outstanding principal sums
The maturity structure of borrowing (as % of overall projected fixed rate borrowing) in 2006-07 is:
- under 12months - upper limit 100%, lower limit, 0%
- between 1 and 25 years – upper limit 100%, lower limit 0%
The upper limit of principal sums invested for periods of more than 365 days is 10 million.

Local Performance Indicator

9. Waverley’s Local performance indicator LOBT3 sets a target rate of return on the Council’ investments. Since 2003-04 this target has been to achieve an average annual rate of return on the Council’s investments of 0.5% above the average seven-day LIBID rate (London Inter-Bank Bid Rate). Market conditions largely determine the rates that the Council can achieve from investing on the money market. Whilst officers seek to achieve the highest rates available, within the investment boundaries set in the annual Treasury Management Strategy, the trend in the last 2 years has shown very little movement in rates across different investment periods and a consistently small margin between average money market rates and the LIBID rate. Waverley’s performance was 0.32% in 2003-04, 0.23 in 2004-05 and the performance in December 2005 was 0.24% which is in line with the average 3-month rate. This is illustrated in Annexe 1.

10. Performance indicators need to be sufficiently demanding but also realistic and achievable. Given the current position with rates and the trend in recent years, it is proposed to reset the performance indicator LOBT3 for 2006-07 to 0.25% above the average seven-day LIBID rate.

Recommendation

It is recommended that the Executive:

1. notes the review of the current policy;

2. approves the annual investment Strategy as set out in paragraph 6;

3. approves the prudential indicators in paragraph 8; and

4. approves the proposed LOBT3 for 2006-07, as detailed in paragraph 10.

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Background Papers (DoF)

There are no background papers (as defined by Section 100D(5) of the Local Government Act 1972) relating to this report.
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CONTACT OFFICER:

Name: Paul Wenham Telephone: 01483 523238
Graeme Clark 01483 523236
E-mail: pwenham@waverley.gov.uk
grclark@waverley.gov.uk


comms/exec/2005-06/265