ANNEX 2 – GUIDANCE ON THE TREASURY MANAGEMENT STRATEGY STATEMENT AND ANNUAL INVESTMENT STRATEGY – MID YEAR REVIEW REPORT 2018-19

 

Prudential Code

The Prudential Code was developed by the Chartered Institute of Public Finance and Accountancy (CIPFA) as a professional code of practice for capital finance, to which local authorities must have regard.

Capital Expenditure

The Capital Expenditure table (section 3.3 of report) is split between the Council’s Housing Revenue Account (HRA) and General Fund (GF or non-HRA). The HRA is a ‘ring-fenced’ account for local authority housing.

The table also shows the resources used to fund the capital expenditure (being capital receipts from the sale of assets, capital grants, reserves and revenue) and any shortfall in resources. This shortfall represents the Council’s borrowing need.

Borrowing Limits

The Capital Financing Requirement (CFR) represents the Council’s aggregate borrowing need. i.e. the element of the capital programme that cannot be funded. Borrowing may only be undertaken for capital expenditure purposes.

The Limits to Borrowing Activity table (section 3.5 of report) shows that the Council’s debt is not more than the CFR because, as above, the CFR represents the Council’s aggregate borrowing need.

Borrowing limits (sections 3.5, 6.2 and 6.3 of report) – there are various general controls on the Council’s borrowing activity (operational boundary, authorised limit, fixed and variable interest rate exposures, and maturity profiles).

Investments

General controls on the Council’s investment activity to safeguard the security and liquidity of its investments (as set out in the Council’s Annual Investment Strategy), include:

        Creditworthiness of investment counterparties.

        Counterparty money limits.

        Counterparty time limits.

        Counterparty country limits.

        Limits on the Council’s fixed and variable interest rate exposures.

        Minimum size of the Council’s bank overdraft facility.

 

 

 

Borrowing Sources/ Types

PWLB (section 5 of report) is the Public Works Loan Board which is a statutory body operating within the UK Debt Management Office, an Executive Agency of HM Treasury. PWLB’s function is to lend money from the National Loans Fund to local authorities, and to collect the repayments.

The Council has the following types of fixed rate loan with the PWLB:

        Annuity: fixed half-yearly payments to include principal and interest.

        Equal Instalments of Principal: equal half-yearly payments of principal together with interest on the outstanding balance.

        Maturity:  half-yearly payments of interest only with a single payment of principal at the end of the term.

Financing Costs as a Proportion of Net Revenue Stream

This shows (section 6.1 of report), separately for HRA and GF, the percentage of the Council’s revenue stream that is used to finance the CFR (net interest payable and Minimum Revenue Provision (MRP)).

MRP is the annual resource contribution from revenue which must be set against the CFR so that it does not increase indefinitely.