Purpose of Report

1. To inform Members of the Authority’s borrowing position and final prudential indicators for North Wales Fire and Rescue Authority (the Authority) for the 2020/21 financial year. This report is a requirement of the Prudential Code (the Code).

 Executive Summary

2. The Authority’s treasury management activities are regulated by professional codes, statutes and guidance. The borrowing position as at 31 March 2021 was £26.1m which is within the limit approved by members. The value of market loans maturing within 12 months was £14m which is within the limit set within the strategy. No variable rate loans were held during the financial year.

Recommendation

3. Members are asked to note the Treasury Management Activity and Actual Prudential Indicators for 2020/2021.

Background

4. The Authority’s treasury management activity is regulated by professional codes, statues and relevant guidance. The key requirements include the production of a Treasury Management Strategy and prudential indicators to demonstrate affordability of capital and borrowing decisions. These documents were approved by the Authority at its meeting of the 16 March 2020. Arrangements are in place to monitor and report the prudential indicators during the financial year and report the outturn position to the Authority.

5. The prudential indicators were revised in year due to the re-profiling of the capital programme which resulted in a reduced borrowing requirement. These revisions were approved by the Authority at its meeting of the 9th November 2020. This is the final report for 2020/21 which sets out the actual prudential indicators for the year and provides an analysis of outstanding debt at the year end. The report is in line with the CIPFA Code of Practice on Treasury Management and the CIPFA Prudential Code.

Information

Summary of the Strategy Agreed for 2020/2021

6. The day to day decisions on borrowing are delegated to the Treasurer to the Authority who is required to ensure the most appropriate form of borrowing depending on the prevailing interest rates at the time. This includes the use of shorter term fixed rates which may provide lower cost opportunities in the short term.

7. Surplus funds are only held for working capital purposes and invested on a short term basis with banks or building societies. During 2020/2021 no long term investments were made by the Authority in line with the strategy approved that investments would be held for cash-flow purposes only.

Borrowing Activity

8. Loans are taken out to finance the Authority’s capital expenditure programme. The outstanding loan debt as at 31 March 2021 was £26.1m.

9. The Public Works Loans Board (PWLB) loans held as at 31 March 2021 are detailed below and amounted to £12.12m:

10. During the year no new PWLB loans were taken out. The loan portfolio includes Equal Instalment of Principal loans which reduced by £2.79m compared to the previous year.

11. The short term market loans held at the year-end amounted to £14m and related to borrowing with other local authorities:

12. These loans provided a low cost option for the Authority with an average interest rate of 0.085% which compares favourably with the rate which is currently 0.99% being offered by the PWLB for one year loans.

13. The Authority approved an upper limit of 55% for short term loans maturing within 12 months. The position at 31st March 2021 was that 53.6% of loans were short term loans taken out with other Local Authorities.  The remaining loans were PWLB loans which on maturity will be replaced with other PWLB loans.

14. The Treasury Management Strategy confirms that the borrowing portfolio should have a maximum of 35% of debt in variable loans with up to 100% of loans having fixed terms. During 2020/21 the Authority only borrowed on fixed rate terms due to prevailing interest rates and to allow certainty.

15. The actual borrowing for 2020/21 was £3.27m below the approved capital financing requirement (CFR) mainly due to further reductions in the capital programme. Total interest of £0.380m was paid compared to the budget of £0.568m. The average short term borrowing rate for the year was 0.86% and the average long term rate was 2.30%.

Investments

16. The principles governing the Authority’s investment policy are contained in the National Assembly for Wales Guidance in 2003. The investment activity during the year conformed to these principles and the Authority had no liquidity difficulties.

17. The investment strategy for 2020/21 approved by the Authority on
    16 March 2020 included approval of the following criteria for counterparties:

5. Debt Management Office of the Treasury: limit £5.0m
6. Local Authorities (except rate-capped): limit £2.0m

• All UK and Irish banks and their subsidiaries that have good ratings (Fitch or equivalent of A-). – limit: £5.0m

18. Banks whose ratings fall below those in the table above will be used if wholesale deposits are covered by a government guarantee, and the deposits fall within the terms of the guarantee.

19. Building Societies with a rating (as for the banking sector) all have a lending: limit £2.0m. Building societies without a rating but with assets of £1 billion or more: limit of £2m with a maximum time limit of 9 months.

20. The balance of investments as at 31 March 2021 was £1.49m compared to £1.73m, as at 31 March 2020. In order to maintain the Authority’s liquidity position, the money was mostly held within instant access call accounts. The average rate achieved on investments was 0.05%.The budget for investment interest was nil and the actual interest achieved was £0.002m.

Prudential Indicators

21. The Authority is required by the Prudential Code to approve the actual prudential indicators after the year end which are set out in
    Appendix A. The table below confirms the key limits approved by the Authority and the outturn for 2020/21:

22. The Capital Financing Requirement (CFR) shows the Authority’s underlying need to borrow for a capital purpose. In the short term the borrowing requirement may exceed the capital financing requirement due to the effect of cash and investments. The table above shows the gross borrowing position was lower than the CFR for 2020/21 by £3.27m.

23. The Authorised Limit is the affordable borrowing limit required by section 3 of the Local Government Act 2003. During 2020/21 the Authority has maintained its gross borrowing within its Authorised Limit of £32.5m.

24. The Operational Boundary is the expected borrowing position of the Authority during the year, and periods where the actual position is either below or over the Boundary is acceptable subject to the Authorised Limit not being breached.

REGULATORY FRAMEWORK, RISK AND PERFORMANCE

25. The Authority’s treasury management activities are regulated by professional codes, statutes and guidance as set out below:

26. The Local Government Act 2003 (the Act), provides the powers to borrow and invest as well as providing controls and limits on this activity. The Act permits the National Assembly for Wales to set limits either on the Authority or nationally on all local authorities restricting the amount of borrowing which may be undertaken (although no restrictions were made in 2019/20). Under the Act the National Assembly for Wales has issued Investment Guidance to structure and regulate the Authority’s investment activities.

27. Statutory Instrument (SI) 3239 (W319) 2003, as amended, develops the controls and powers within the Act. This requires the Authority to undertake any borrowing activity with regard to the CIPFA Prudential Code for Capital Finance in Local Authorities and requires the Authority to operate the overall treasury function with regard to the CIPFA Code of Practice for Treasury Management in the Public Services; The Authority has complied with all of the above relevant statutory and regulatory requirements which limit the levels of risk associated with its treasury management activities. In particular its adoption and implementation of both the Prudential Code and the Code of Practice for Treasury Management means both that its capital expenditure is prudent, affordable and sustainable, and its treasury practices demonstrate a low risk approach.

IMPLICATIONS

Appendix A

Prudential Indicators