Agenda item

Report of the Executive Manager – Finance and Corporate Services.

The Financial Services Manager presented the Capital and Investment Strategy Outurn which summarises the transactions undertaken during the 2019/20 financial year, reporting against the Council’s Capital and Investment Strategy for 2019/20 – 2023/24. The report provides information on the Council’s commercial investment ensuring there is transparency and security in terms of treasury and asset investment decisions. The report also highlights issues arising from Covid-19, which have impacted on the Council’s year end investment position and overall budget for 2020/21.

In respect of Treasury Management, the Financial Services Manager referred to tables within the report, detailing the prudential and treasury indicators, and the impact of capital expenditure activities during the year.

The Financial Services Manager explained the Council’s overall borrowing need for capital expenditure, Capital Financing Requirement (CFR), advising that where a positive CFR exists, the Council is required by statute to make an annual charge, Minimum Revenue Provision (MRP) to reduce the CFR based on the life of the assets. This effectively raises cash to help repay loans or replenish internal borrowing.

The total CFR can be reduced by: the application of additional resource, for example unapplied capital receipts or charging more than the statutory revenue charge (MRP) each year through a voluntary revenue provision (VRP).

The Financial Services Manager continued to advise the Group that for the past three year’s the Council decided to set the MRP at £1m, comprising of £0.250m MRP to finance the Arena based on £10m borrowing over a 40 year life, a further £0.750m was provided by way of VRP to meet the Council’s commitment to repay the borrowing early. Prior to 31 March 2020 the Council released an equivalent sum of £1m from the New Homes Bonus (NHB) Reserve to offset any impact of the borrowing charge to the tax payer. The Financial Services Manager explained the Council’s proposal to take the option to reduce the VRP element of the charge, to release the NHB reserves to help meet the budget deficit as a result of Covid-19. By reducing the VRP the council will free up significant resources of up to £730k in 2020/21 and up to £600k each year to 2024/25.

The Financial Services Manager advised the Group of the Council’s Treasury position as at 31 March 2020, in line with the Treasury Management activities approved by the Treasury Strategy. The Financial Services Manager explained that expectation for interest rates within the strategy in short term money markets is anticipated to remain the same in light of uncertainties surrounding Brexit and the global economy. The onset of Covid-19 provides further challenges in terms of cash flow, market volatility and Base Rates. To mitigate any potential cash flow issues the Council’s investments are being placed in short-term liquid asset for quick access, but will affect the level of interest earned on them. Overall, the council has successfully achieved its objectives of ensuring investments were held with relatively secure counterparts; ensuring that there was sufficient liquidity to operate efficiently during these unprecedented times during Covid-19.

In terms of the Asset Investment Strategy, the Financial Services Manager explained that it had been a very uncertain year with the General Election, Brexit and more recently Covid-19 affecting the economy, this has meant some commercial investments not being pursued. At a Cabinet meeting in July 2020 it was approved to carry forward £19.181m capital underspends into 2020/21 including £8.382 on the Asset Investment Strategy, of this £4.554m is the balance committed to investments due to be acquired by September 2020, leaving £3.828m remaining unallocated from the original provision.

In concluding, the Financial Services Manager advised that the Council’s investments, whether treasury or commercial remain fluid, adding that risks remain in the treasury and property markets and also in the Council’s Capital Programme and the legacy of Covid-19 is still to be determined.

Members questioned the £19.181m underspend carried forward to 2020/21 and asked whether there were plans to review this to help fund the gap in the Treasury Programme. The Financial Services Manager explained that items in the Capital programme were being reviewed and a report to Council on 24 September 2020 will provide some clarity. The Executive Manager – Finance and Corporate Services advised that the Council were already committed to the  new leisure centre at Bingham and the Crematorium, both going out to tender and their ongoing financial viability would be under review.

The Chairman reminded members to attend one of the two budget workshops scheduled for the 7 September and 8 September.

It was RESOLVED that Governance Scrutiny Group:

a)    approve the 2019/20 outurn position

b)    approve and recommend to Council in September, the reduction in Minimum Revenue Provision (MRP) and subsequent release of New Homes Bonus (NHB) to either support the budget gap resulting from Covid-19 or to make Voluntary Repayment Provision (VRP) at a later date.