RSS Press releases

Dumfries and Galloway Council has a duty to be shrewd with its finances and to invest, manage and spend public money in the most prudent way possible. The Local Government in Scotland Act 2003 and supporting regulations require the Council to ‘have regard to’ the ‘Prudential Code for Capital Finance in Local Authorities’ published by the Chartered Institute of Public Finance and Accountancy (CIPFA) and therefore to set Prudential and Treasury Indicators for the next three years to ensure that the Council’s capital investment plans are affordable and sustainable.

The Council is required to operate a balanced budget, meaning that cash raised during the year will meet cash expenditure. Treasury management is defined as: “The management of the local authority’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.” The Council annually sets out its treasury strategy for borrowing and prepares an Annual Investment Strategy setting out the Council’s policies for managing its investments and for giving priority to the security and liquidity of those investments. Members of Dumfries and Galloway’s Full Council (30^th March) will receive a report on the current condition of the Authority’s finances.

The report to Full Council states that the 2022/23 mid-year treasury management report highlighted that the trend of the previous two years is continuing, whereby the Council had no requirement for new, long term borrowing, during 2022/23 and the Council continues to hold significant cash balances. This, coupled with recent increased interest rates, has prompted us to further review our investment strategy to ensure that investment income is maximised, whilst still ensuring security and liquidity of funds.

A review of our Investment Strategy has been undertaken. This has highlighted, particularly in the current fiscal climate and the value of sterling being weaker against other currencies, that broadening our investment counterparty list would be beneficial in providing opportunities to increase investment return whilst maintaining security of funds.

Full Council Members will be asked to agree that the investment strategy expands the permitted limits to overseas banks on the basis that the following conditions are met:

• All transactions will be in £ Sterling
• The bank must be A rated or above based on Fitch ratings or equivalent ratings from Moody’s     or Standard & Poors
• The countries sovereign rating must be AAA from one of Fitch, Moody’s or Standard & Poors
• Maximum of £5 Million to any one institution
• Investment for a maximum period of 6 months

By ensuring that there are strict criteria, as detailed above, included in the selection criteria, this minimises the risk involved in any overseas bank investment. At present many of these banks have better Fitch or equivalent ratings than UK banks. *It is important to note that credit ratings can change regularly so the Treasury Team would always check the live ratings before any investment is made.

Based on current indicative rates, permitting deposits in overseas banks with the above criteria would enable the Council to increase investment income by approximately 0.2%. Whilst this is marginal, the proposal also provides a wider range of counterparties to deposit with, all of which will be equal/higher credit ratings than UK banks and building societies we already deposit with.

Cllr Malcolm Johnstone, Convener of Dumfries and Galloway Council said:” Part of the treasury management operation is to ensure that this cash flow is adequately planned, with cash being available when it is needed, in order to deliver on our Council Plan. This report is good news: that our Council borrowing levels are significantly lower than before the COVID Pandemic. However, our Council still faces significant finance pressure, with an estimated funding gap of £40 million over the next three years. With these prudent investments we have in place a buffer for the future, but we must plan ahead and save where we can.”

“We are fortunately in a good immediate position to face the tougher economic times ahead. Given the level of deposits currently held by the Council and the limited borrowing required in 2022/23, it is unlikely that any long-term borrowing will be undertaken in the next 6 months, but we must not be complacent. With increasing rates and rising expenses, we need to carefully look at our Council’s investments and spend wisely.”

ENDS