Treasury Management Outturn 2014-15 and Mid-Year Performance 2015-16

DMPC is asked to note the progress and performance of Treasury Management in 2014-15, and to 30 September 2015.

In 2014-15 investment income was £1.76m against budget of £0.8m at an average rate of return of 0.46%.

Debt interest expenditure was £7.8m against budget of £9m due to no new long term debt being undertaken. The weighted average of all long term loans (weighted by size of loan and the rate of interest paid) at 31 March 2015 was 3.84%.

In respect of 2015-16 to 30 September 2015 interest income for the first half year is £1m, and is ahead of the annual budget of £0.8m. Debt management costs for the period are £3.65m, and are forecast to be at the budget of £7.22m at year end.

All investment and borrowing activity during 2014-15 and to 30 September 2015 was undertaken within the guidelines and objectives set out in the relevant policy and investment and borrowing strategies.

The DMPC is asked to note the activity and performance on the Treasury Management function.

1. Introduction and background

1.1. Under the Treasury Management Strategy Statement (TMSS) 2014-15 that the DMPC approved in May 2014 [DMPCD 2014-31] an annual report reviewing year end performance must be considered by the DMPC. Similarly, under the Treasury Management Strategy 2015-16 approved in March 2015 [DMPCD 2015 39] mid-year performance should also be reported to DMPC. This paper fulfils these requirements.

2. Issues for consideration

2.1. 2014-15 Outturn Performance

2.1.1. Investment

The return on investment was 0.46%. This compares favourably with the London Interbank BID (LIBID) 3 month rate benchmark of 0.43%. This resulted in additional income of £1m above the budget of £800k due to both higher cash balances and better returns from utilising the Group Investment Syndicate (GIS).

2.1.2. Debt Management

As planned no new borrowing took place in 2014/15. Temporary loans of £50m were repaid, as was £19.5m of PWLB loan principal and local authority long term loans of £10m.
These repayments of £79.46m of existing loans resulted in the total debt portfolio reducing from £269.84m at the start of the year to £190.38m at 31 March 2015.

The cost of borrowing was £7.8m against the budget of £9m. The weighted average cost of borrowing of all long term loans as at 31 March 2015 was 3.84% (2.92% as at 31 March 2014).

2.1.3. Compliance

All transactions undertaken during the year met the criteria for lending to institutions set out in the TM Strategy 2014-15.

2.1.4. Prudential Indicators

Appendix 1 includes the maturity profile for the borrowing portfolio, and performance against the Prudential Indicators set as part of the 2014-15 TM Strategy. All indicators were met.

2.2. 2015-16 Performance to 30 September 2015

2.2.1. Investment

The average rate of return was 0.60% compared with the LIBID 3 month benchmark of 0.45%, generating income of £1m. The annual budget for interest receivable is £0.8m.

2.2.2. Borrowing

There has been no new long term borrowing in the first six months of 2015-16, and due to loan repayments the total borrowing has reduced from £190.38m to £183.15m – a reduction of £7.2m

Borrowing costs for the first 6 months was £3.65m, and are forecast to be £7.2m against a budget of £7.2m.

2.2.3. Compliance

All transactions undertaken during the year met the criteria for lending to institutions set out in the TM Strategy 2015-16.

2.2.4 Treasury Management Prudential Code Indicators

All activity has been within the Prudential Code indicators – see Appendix 1.

2.3. Treasury Management Strategy 2016/17

Discussions are underway with the GLA and our Treasury Management advisers, Capita, to review the existing strategy to ensure that it remains fit for purpose for 2016/17. DMPC will be asked to consider and approve a 2016/17 strategy in March 2016.

3. Financial Comments

3.1. The cost of borrowing and the minimum revenue provision for 2014/15 were £7.8m and £30.3m respectively and within the 2014/15 budget. Interest received in 2014/15 was £1m above the budget of £0.8m.

3.2. To 30 September 2015 the cost of interest payable was £3.65m and forecast to be £7.2m. The minimum revenue provision is forecast to be within the budget of £28.5m. Interest receivable was £1m and is forecast to be £1.9m, above the annual budget of £0.8m.

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