Treasury Management 2016-17 Outturn Report

The Deputy Mayor for Policing and Crime is asked to note the performance of the Treasury Management function in 2016-17. In 2016-17 investment income was £1.8m at an average rate of return of 0.53%, 0.26% above the benchmark. Debt interest expenditure was below budget at £6.8m. Total external borrowing reduced from £176m to £159.5m by 31 March 2017. The weighted average borrowing rate of all long term loans (weighted by size of loan and the rate of interest paid) at 31 March 2017 was 4.14%.

All investment and borrowing activity during 2016-17 was undertaken within the guidelines and objectives set out in the relevant policy and investment and borrowing strategies, except for a breach in relation to counterparty concentration limits for Lloyds Bank at the start of the year and previously reported.

The Deputy Mayor for Policing and Crime is asked to note the 2016/17 treasury management outturn results.

1. Introduction and background

1.1. The CIPFA TM Code recommends that organisations be updated on treasury management activities regularly (at least a Strategy, Mid-year and Annual performance reports). This report therefore meets these requirements with regard to an annual report, and ensures MOPAC is implementing best practice in accordance with the TM Code.

1.2. The day to day management of the treasury management function is delivered by the GLA Group Treasury team under a shared service arrangement with the GLA. GLA Group Treasury also manages the Group Investment Strategy (GIS), of which the MOPAC Chief Finance Officer is a syndicate director. By being part of the GIS MOPAC’s cash balances are pooled with other funds which allows greater investment options, improves diversification, liquidity and returns.

1.3. The annual report at Appendix 1 has been prepared by GLA Group Treasury, and provides details of performance against the TMSS 2016/17, approved by MOPAC on 17 March 2016 (DMPCD 2016 47), and as amended by DMPCD 2016 58. The report provides a review of investment performance for 2016/17, and reviews specific Treasury Management prudential indicators defined by the Code and approved by the MOPAC in the TMSS.

2. Issues for consideration

Investment

2.1. The average return on investment was 0.53%. This compares favourably with the London Interbank BID (LIBID) 3 month rate benchmark of 0.27%. This resulted in income of £1.8m.

Debt Management

2.2. As planned no new borrowing took place in 2016/17, and as scheduled, borrowing reduced by £16.4m from £175.9m at the start of the year to £159.5m at 31 March 2017.

2.3. The cost of borrowing was £6.8m. The weighted average cost of borrowing of all long term loans as at 31 March 2017 was 4.14% (3.98% as at 31 March 2016).

Compliance

2.4. All treasury activities met the Treasury indicators set in the TMSS, and borrowing was within the borrowing limits set by the Mayor for MOPAC. MOPAC CFO confirms that, based on reporting and assurances from the GLA shared service function, throughout the period all treasury activities have been conducted within the parameters of the TMSS 2016/17, alongside best practice suggested by the CIPFA TM Code and Central Government, except in respect of the period 1 April 2016 to 12 April 2016.

2.5. As previously reported the GIS counterparty concentration limits for Lloyds Bank were exceeded over the period 1 April 2016 to 12 April 2016. No losses arose from this breach of the TMSS. Details of the sums involved, reasons for the breach and amendments to the 2016/17 TMSS were previously reported in DMPCD 2016 58.

Prudential Indicators

2.6. Appendix 1 includes the maturity profile for the borrowing portfolio, and performance against the Prudential Indicators set as part of the 2016-17 TM Strategy. All indicators were met.

3. Financial Comments

3.1. The cost of borrowing and the minimum revenue provision for 2016/17 were £6.8m and £23.3m respectively and within the 2016/17 budget. Interest received in 2016/17 was £1.8m and above the budget.

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.

5. Equality Comments

5.1. There are no equality or diversity implications arising from this report.

6. Background/supporting papers

Appendix 1