Treasury Management - Report of the Treasurer

1. New statutory guidance on local government investments, the third guidance issued under the Local Government Act 2003, took effect from 1^st April 2018.
2. The second edition (in 2010) reflected concerns following the financial crash of 2007/08 and the key areas of focus were:
   • the practice of investing for yield, especially in Icelandic banks;
   • the need for transparent investment strategies;
   • the use of Treasury Management advisors.
3. The need for the third edition arose from changes in local authority behaviour. Some local authorities invest in non-financial assets, with the primary aim of making a profit. Others enter into very long-term investments or providing loans to local enterprises or third sector entities to stimulate regeneration or economic growth. The third edition addressed the following concerns:
   • Local authorities are exposing themselves to too much financial risk through borrowing and investment decisions;
   • Insufficient  transparency re exposure that authorities have as a result of borrowing and investment decisions;
   • Members do not always have sufficient expertise to understand the complex transactions that they have ultimate responsibility for approving.
4. The guidance applies where investments exceed, or are expected to exceed, £100,000 at any time during the financial year. At 31^st March 2020 the Town Council had £140,000 invested with Wyre Forest District Council and also had a bank balance of £31,000 at that date.
5. The key principles in the guidance that have relevance to the Town Council at this time are that:
   •  the authority should, for each financial year, prepare at least one investment strategy.
   • the strategy should be approved by the full Council;
   • the strategy should be publicly available on the authority’s website;
   • the strategy should prioritise security, liquidity and yield in that order.
6.  In relation to the final bullet point above the guidance makes further points. A prudent investment policy will have two underlying objectives:
   • Security- protecting the capital sum invested from loss; and
   • Liquidity – ensuring the funds invested are available for expenditure when needed.
   
   Once proper levels of security and liquidity are determined it will then be reasonable to consider what yield can be obtained consistent with these priorities.
7. The Town Council’s accounts for 2019/20 show interest received of £848. Members will be aware that interest rates have reached an all-time low. In June I was informed by y Wyre Forest District Council that ‘… The interest rate payable is linked to the prevailing Debt Management Office rate on the day of the investment, currently this is ranging from 0.01% to 0.04%....’ The interest secured from the Council’s investments with Wyre Forest District Council is very modest but members should bear in mind:
   • the Government guidance above prioritising security and liquidity;
   • that, in investing funds, WFDC complies with its own formal investment strategy contained within their Treasury Management Service Strategy, retains professional external advisors who provide daily market advice to ensure their strategy remains robust and fulfils key legislative requirements and guidance;
   •  that higher interest rates are earned by investing for long periods - the Town Council is unable to invest for long periods because it is likely to need the money for service provision during that period;
   • that interest rates, especially short-term, have been very low for some years ;
   • that, whilst scouring the market might achieve small increases in yield (a few hundred pounds at most), it might jeopardise security and might increase ongoing administration costs.
8. A Treasury Management Investment Strategy for 2020/21 is attached.