Transcript

Transcript

My name is Councillor Arjun Mittra. I'm the chair of the Governance Audit Risk Management and Standards Committee. Welcome to all members of the committee, but in particular Councillor McGuirk, who in her 31 years as a member of this council, shamefully, this is the first time we've ever had her on the Governance Audit Risk Management Standards Committee or any of its predecessor committees. So, massive welcome to use the microphone when speaking by pressing the middle speaker, comment. Please note that we are currently in the pre-election period in advance of the burnt oak by-election, that these principles are respected at all times. Right. Diving into the agenda, item number one, absence of members, if any, if any, are there any interests? No interests? Item number three, dispensations by the monitoring officer. There are none. Item number, thank you. Thank you, Chair. Yes, I'll start by just introducing the paper, and then my colleague Jagroup will take you through the main points. I think it'd be good to start with actually just a reminder of what the Treasury Management Strategy Statement is. And it is a forward-looking document that sets out the annual investment and borrowing strategies for the year, along with the minimum revenue provision policy statement and prudential and treasury indicators. And this is in line with requirements of the SIPFA, prudential and treasury management codes. And just a little note that there is some overlap between this paper and the next item agenda, which is the quarter-free update. So, there will be some overlap between that. And Jagroup will take you through some changes from the last update, the TMSS's update on a six-month basis. And the main things that Jagroup will take you through will be around the capital financing requirement, which is detailed in the paper, the liability benchmark, and this is a forecast of the level of gross loan debt the authority will require in accordance with its budgets plans, and the MRP policy statement, and that does require full council approval, and there is a section on exceptional financial support, and also an update on our public works loan board rate projections. Just to look at the route through for the paper, the paper will go to Cabinet on the 18th of February, part of the budget papers that goes there, ready for full council to be endorsed on the 4th of March. So, at this point, I'll hand over to Jagroup to take you through the main... Yeah, so I'll begin talking through Section 2.1, which shows the capital expenditure over the years to 2027-28 as part of the capital program. So, in 2025-26, the capital expenditure that's shown is 265 million pounds as part of the capital program. However, this also includes capital expenditure of 59.3 million pounds as part of the financial support. So, this figure is shown is 59.3 million pounds at the moment, but this is to be finalized. So, this additional capital expenditure is... This revenue expenditure that will be applied to be treated as capital expenditure through the capitalization direction. So, this allows Barnet to treat this as capital expenditure and, therefore, allows that revenue expenditure to be financed through long-term borrowing. So, on that note, so in Section 2.2, we show the increase to the capital financing requirement. So, the increase here in 2025-26 includes that 59.3 million of finance through long-term borrowing. So, the net financing need for the year for 2025-26 of 199 million includes that 59 million pounds. So, in Section 2.2, the elements of the capital program to be financed through potential borrowing are shown. So, we also show that the capital financing requirement is expected to increase by 170 million pounds through 2024-25 and 186 million through 2026. If you then scroll to page 12, there's a table that sets out some of the... ...larger projects that are to be financed through... ...page 13 in Section 2.3. ...we show the Council's Liability Benchmark. This is a metric that's introduced as part of SIPFER's credential indicators. The Liability Benchmark chart for the General Fund shows that the Council's capital financing requirement... ...increases through the life of the current agreed capital program. And then the mechanism through which this is recognized through revenue budgets and paid down is through... ...minimum revenue provision contributions. And you can see those contributions then show that the Liability Benchmark trends to zero as those contributions are made. As that happens, forecasted cash balances increase to reflect that prior year's internal borrowing has been repaid through that MRP provision. So on page 14, there's the chart for the Liability Benchmark for the HRA. So this shows that the HRA's debt is not paid down as there's no MRP contributions that are made for the HRA. So an implication of that is that both the debt, the debt is held in perpetuity as shown in the chart. However, it's assumed that the housing stock underpinning the HRA's... So in section 2.4 draw your attention to the updated minimum revenue provision policy statement. So since the later part of 2023-24, there was a consultation on revisions to minimum revenue provision policy guidance, which was then published this year. So the council's chief accountant has reviewed the existing MRP policy against the new guidance and the updated policy statement sets out that the council's MRP policy meets the requirements of the updated guidance. The report also comments on updated interest rates from the council's treasury advisers who were previously linked and have changed their name to MUFG. The interest rate forecasts that are set out in the report show that relative to expectations in last year's treasury management strategy statement rates remain elevated, which will impact the borrowing strategy that's supplied. So on the expectation in the forecast set out in the report, rates are forecasted to fall through 2020. I was trying to understand this chart that you showed us in 2.2. Page 13. I'm sure that's not quite what it's supposed to mean. This is supposed to be showing us. I'm sorry. I've only had to sum on this. I'm not very familiar. Yeah. Thanks for the question. The chart shows our current borrowing portfolio and the maturity profile. The yellow bars reflect our existing loans that we hold currently. Currently. What this also sets out is that the blue line reflects new borrowing. Though the borrowing is profiled such that new loans taken. You take the total level of borrowing up to that liability benchmark, which is a metric that shows the sort of the borrowing required to meet the council's capital financing requirement. The chart, you'll see the capital financing requirement increases over the first five years that are shown in the chart, which is the years in which there is an agreed capital program. So that curve will increase by the amount of capital expenditure that are to be financed through potential borrowing. At the point at which that begins to trend down towards zero, that shows that the council is making these minimum revenue provision contributions, which are intended to. They're contributions from revenue budgets that repay that capital. Does that mean the new loans. Are we. So, I mean, your initial question was, why is it showing that the council has no borrowing by 20. Well, I now understand. This is just the roll up of what we expect. Exactly. In the next four or five years. Exactly. Up to 28, 29. Exactly that. Obviously, we're going to borrow for other stuff after that. Yeah. And the new loans are representative of not just the maturity of five years or 50 years, but it's also making an assumption of where cash is where internal borrowing will have to be replaced with external borrowing. So in 2026, there is a gap. The blue line represents a gap between what we think we have borrowed existing loans and what we the level of expenditure. We may not take out a loan. This is indicative because we may use internal borrowing if we've got cash reserves lying around. Obviously, cash we know is not. We don't have high levels of reserves. So it is more likely that we will probably have to externalize that borrowing. So the maturity rate, I don't think this speaks to so much, but it speaks more to the fact that this is the absolute level that we need to borrow and we will have to make those decisions incrementally after many changes. Thanks. Thanks. We received an updated interest rate forecast from our treasury advisers today, which does make some minor revisions to those projections, which… Thanks, Chad. Two questions, if I may. Micro and macro. So on a larger scale, I'm going to bring this up here because we don't have a forward work program in tonight's agenda. I think we're going to be talking a lot about treasury management and I believe a large contributing factor in the state of the council's current finances has been due to the borrowing has been a lack of oversight of the council's cash flow forecasting. This is something that can… Thank you. Thank you for that. I also have another question. Well, on the same graph that Councillor Miriam Smith was referring to in 2.3. Question from Mr. Basra, please. So I might be misunderstanding, but I was trying to see if I could track. There's a 200… There's an existing loan debt between 24, 25 and 25, 26 goes up by over 200 million. I was trying to track that back to previous areas, 2.1, 2.2. I wasn't able to see a clear correlation. Is that a number that we should be seeing somewhere else? 205 or so million pound jump in the one year period. So those movements in the loan debt won't tie back entirely to other track tables that you mentioned. Because they also show some elements of refinancing. So many of the recent loans that the council has taken have been annuity loans. So an element of the payments that are made towards those loans on a six monthly basis are… Sorry, just to clarify. Is that different to what we're seeing from 26 on to 2034, 425 and 2526? Is that… That's not what you're implying, is it? Sorry. I'm just trying to tell you why is it different. Why is there such a huge jump in one year of 200 million pounds and then year on year after that we're seeing a 30 million increase, 10 million decrease, you know, much more staggered. Yeah. So in the table below that pulls out some of the figures, that existing loan debt, that's the movement in the yellow bars. It should track this portfolio. Sorry, I'm just trying to get to the understanding behind the number. Not just… I can… I understand that the chart is showing that the numbers underneath are representative of the data in the chart. I'm trying to understand what's the cause of a 200 million pound increase in loans in that one year period that is not reflected going forward. Internal borrowing, but an element of it will be new projects as well. But I can't give you a split exactly on what that 200 million is made of, but we should have that. We'll add this to the action log. Thank you, Jack. Okay. Councillor Kirk. Yeah. Obviously, it's my first time on the grounds, as I call it, and we don't talk about bottom money and techy stuff, but it's also about people. It's about the housing revenue account. The housing revenue account is actually really providing housing, supporting people in our system. I just want to know, do you think that where we are in this financial cycle, how we can actually… I mean, probably not best place to answer that question, to be honest, because it's probably more for our HRA colleagues. But I do know there's the HRA business plan recently went to Cabinet as well, which, again, we could share that link around. It has probably, maybe not all the answers to the questions that you raised there, but it has a little bit more detail on some of the direction that you've mentioned there. So I think it would probably be worthwhile for the actions if that could be reshared. I can't see in this table, you know, the return, the returns, but how reliable was the reliance on being able to meet the returns? I mean, we're looking at the loan requirement. What about the return on investment? I think, Councillor, actually, we may want to look at that in the quarter-free update, because there's a section on our investments that we've made on quarter-free. All right, J. Group? Okay. Yeah, we may have to come back to you on that one as well, because there is a reference to that in quarter-free update, but it's not in a detail that you've just mentioned, Councillor. So I think we could probably give you a bit more of an update into the investments and a bit more detailed breakdown. Thank you. Go ahead. Yep, so I'll just introduce this again. So this is, as Chair said, the quarter-free update committee to note the treasury management performance update for quarter-free and the changes from quarter-two, and also the updates on the strategic priorities identified by the treasury team for 24, 25 and beyond, which cuts across the council's operations and require focus across finance and service areas. I'll pass over to J. Group for a bit more of the stadium points of that point. Thanks. So this update shows the change in the capital program relative to its presentations in the September cabinet meeting. So it shows that there's a 51.7 million pound reduction in the capital program. This includes a reduction of capital expenditures to be funded through prudential borrowing of 24 million pounds. This is expected to reduce some of the strain on the cap, the spending capital financing cost center. Also sets out some commentary on the use of reserves, which has the total worth. And this will leave the, the earmarked reserve balance to be 47.2 million pounds by April, 2025. So that's, that's not including a further 25.7 million pounds of reserves that are expected to be used to, to meet overspend. The report also shows, um, the most recent, uh, that's for the capital financing costs and seven million pounds now. However, this does include, um, uh, an update to the, the budget as there's a contribution that's been made to the cost center from, um, the paper also sets out, um, updated, uh, boring figures that the 31st of December have been taken for the quarter. There's also comment on, on the changes to the, uh, investment portfolio. So, uh, 145 million pounds. And then I think one of the other key elements covered in the report is those strategic priorities. So following, uh, internal audit review of the service, it was, uh, set out that, uh, there were several recommendations that were set out. So we've been, uh, commenting on performance, uh, measures taken to, to meet those. Um, recommendations, these, um, been presented. Uh, so that, yes, they're, they're, they're also covered in section six of the, uh, the report. So they, they comment on, uh. I refer you to figure 10. Um, I was struggling to make these numbers add up. Uh, first. Yeah, I think, um, it looks as though, um, it looks as though, um, there's a formatting error in this table. Um. Yeah. We, we, we, we will add that request to the list and council Nearing Smith is not routinely a member of this committee. So I'm presuming that he will be able to see that as part of the regular paperwork. So just some reassurance on that. Um, for this one, you know, obviously a difficult situation. Um, is there more we could be doing, you know, there's been a period of flux with not only staff changes, but also political changes as well. So, you know, credit to the team for, you know, moving in and what looks like the right direction for. Um, it's a, it's a really, really good question just in terms of should we have externalized the borrowing at the time when interest rates were 2% versus using high cash reserves as internal borrowing. Um, and the answer obviously in hindsight is yes, because the two things happen together interest rate increasing and reserve decreasing at the same time. Um, we do have obviously a treasury strategy, a borrowing strategy. I think we've got principles for when we, when we should borrow, when we would borrow to lock in rates. Um, but I'm going to say yes, but I suppose there's not a learn a lesson once. It's a evolving picture and making sure we're constantly doing that and making use of advisors as well. To some extent it is a little bit of, um, just a ball gazing, but yeah, absolutely. I mean, there were some projects, for example, the Broadcross retail park where we had to borrow 50 million and we did externalize that debt there. And then I think it was December, 2020 or 21. Um, I know, I know, I know, I know. Um, but I think the point, the point is definitely that, you know, in hindsight, we should have externalized more of it when, when it was 2%. But at the time we were paying nothing because we were using internal borrowing. So, yeah. If I may just add, it's not, I don't think it's as straightforward as just saying it's interest rates going up at the same time as, as reserves going down. Because there was also, again, going back to what I was saying earlier about the crux of this being cashflow forecasting. There, there was less, it was less relevant here. Um, the, the issue was with, with, with cash levels. So we had, we weren't focusing so much on the cashflow position because we had so much cash from government, um, investment, let's call it in, in Brent cross. It's, it's only after that's all been spent, that cash, the cash reserves have dropped and more of a focus has needed to take place and more borrowing therefore needed to happen. But yeah, definitely officers, officer advice, but officer, officer advice at the time. Absolutely. Because officer advice at the time was to not borrow. Well, I'm, I'm very much not a financial expert, but you know, just in terms of taking a strategic view on it, whether we can take lessons from it. Um, you know, I don't think even Liz Truss or Liz Truss coming. So, you know, who knew that was going to happen? Um, maybe the letters did, but, um, yeah, and moving to the second point, you know, what more can we be doing as officers, as counsellors in order to support each other and moving towards a position where we're not having to, it's, it's a changing world with, uh, policy being made by, you know, senior foreign leaders on the hoofs and, you know, how do we protect ourselves best? It's probably the crux of the question. I think that was a rhetorical question for now. Councillor Muir. In a way I'm supporting Councillor Rose, because actually thinking back, because I do have rather a long experience in financial world. I can't remember any time when, if you looked at government forecasts for interest rates, they ever forecast substantially increasing interest rates. They always look at charts just like we've got here. Oh, it's bound to go down in the future. Which, for some peculiar reason, never seems to happen in the way one expects. And so, I don't suppose when we looked at the forecast at the 2% level, anybody said, oh, it's just years ago, they expected, or 30 years ago, they expected to go to 14%. But, unfortunately, when you don't run fiscal stability, that's the sort of thing that happens. And, unfortunately, many governments have been conscious, have been responsible for that. Well, we will. Yeah. I think that's the key point. And, you know, whatever happens, we're going to be through it, should we say. Yeah. Okay. Just, we'll note that for the minutes and come back to that comment at another time. Well, yeah. Okay. No, no, we've definitely got that on video now. So, I'm sure that one will be used. Right, okay. Can I take us to the recommendations on page four, which are the committee notes, number eight. Any other items that the chair decides are urgent? There is one item that I deem is very, very urgent, which is, I'm sure every member of this, Georgina, who is, who is leaving Barnet at the end of March. But, my right, you've been a wonderful presence on that. You know, you've, you've done great service to the people of Barnet. We wish you well in the future in Dennis. Thank you. I think that bit's TBC, but we wish you well anyway. If I, if I may second that on the Conservative group, and also thank Mr Langston, I believe it's your last grams committee this evening. First and last. So welcome, and we wish you well in your future endeavours. Yeah, you too. Thank you very much for your service to the people of Barnet. It would be great. Right. With that, I, unless there are any, anything else. I don't know.