1 THE ISSUE

1.1 This report gives details of performance against the Council's Treasury Management Strategy and Annual Investment Plan 2008/09 for the first six months of 2008/09.

2 RECOMMENDATION

2.1 That the Cabinet Member accepts the treasury management report to 30^th September 2008, prepared in accordance with the CIPFA Treasury Code of Practice, and notes the performance.

3 FINANCIAL IMPLICATIONS

3.1 Included in the report.

4 CORPORATE PRIORITIES

4.1 This report is for information only and is therefore there are no proposals relating to the Council's Corporate Priorities.

5 THE REPORT

Summary

5.1 The average rate of investment return for the first six months of 2008/09 is 0.24% above the benchmark rate.

5.2 The Councils Prudential Indicators for 2008/09 were agreed by Council in February 2008 and performance against the key indicators is shown in Appendix 1. All indicators are within target levels.

Summary of Returns

5.3 The Council's investment position as at 30^th September 2008 is given in Appendix 2. The balance of deposits as at 30^th June 2008 & 30^th September 2008 is also set out in the pie charts in this appendix.

5.4 Gross interest earned on investments for the first six months totalled £2.6m. Net interest, after deduction of amounts due to the pension fund, West of England Growth Points, PCT and schools, is £1.3m. The balance of internal funds has risen in 2008/09 due to receipt of Growth Points funding, held on behalf of the West of England Partnership, and an increase in pooled funding from the PCT (Primary Care Trust). The net interest figure will be further reduced by year end when interest due on other internal funds is transferred. Appendix 3 details the investment performance, the average rate of interest earned over this period was 5.28%, which is 0.24% above the benchmark rate of average 7 day LIBID +0.05% (5.04%).

Summary of Borrowings

5.5 No borrowing activity has taken place in the first two quarters of 2008/09; the current borrowing portfolio is shown in Appendix 4.

Strategic & Tactical Decisions

5.6 As detailed in Appendix 5, the markets remain high risk and we have continued to adopt a cautious strategy in this environment. We have continued to place a significant proportion of our funds with the UK Government Debt Management Office and otherwise with highly-rated major financial institutions, primarily with UK banks, where we assess there is implicit or explicit Government support.

5.7 To facilitate this approach we have received group leaders' permission, under the urgency procedure, to increase the counterparty limit from £10 million to £20 million with LloydsTSB, Barclays, Bank of Scotland and HSBC.

5.8 Following a market test exercise relating to the consultancy advice the Council receives in respect of Treasury Management, the Council has awarded this contract to Sterling Consultancy Services for a three year period (with a possible extension to five years). The contract commenced on 1^st October 2008.

Future Strategic & Tactical Issues

5.9 Our treasury management advisors economic and market review for the first six months of 2008/09 is included in Appendix 5.

5.10 The Bank of England base rate was reduced by 0.50% on 8^th October 2008 to 4.50% as part of a co-ordinated response to the deteriorating economic outlook which included 0.50% rate cuts in the US and the Eurozone. There was a further base rate reduction of 1.5% to 3.00% on 6^th November 2008.

5.11 At the time of writing, the spread between the UK Government Debt Management Office returns and those of highly rated UK banks remains in excess of 2.00%.

Budget Implications

5.12 An amount of £7.024m was included in the Councils 2008/09 revenue budget for interest and capital financing costs. The budget was reduced by £117k resulting from a virement to Development & Major Projects in relation to debt savings following the capital revenue funding review. A further one-off virement to Property Services reduced the budget by a further £690k. This was in relation to the costs associated with the holding & disposing of fixed assets, which are no longer permitted to be netted off against capital receipts. The revised net budget for interest and capital financing costs is £6.217m. A breakdown of this budget and the forecast year end position based on the period April to September is included in Appendix 6. This shows a current forecast underspend of £160k in 2008/09 due to additional interest earned from the higher ongoing cash balances from 2007/08.

5.13 Further analysis has been undertaken of the impacts of the 2007/08 capital outturn on the capital financing budget in 2008/09 and other favourable cashflow benefits since the September forecast. The following changes to the forecast will be reflected in the October management accounts:

• Additional Investment income achieved over budget due to having higher cash balances available due to capital spend slippage, including the corporate capital contingency - £640k
  
• The higher cash balances reduce the borrowing requirement for the current financial year with corresponding savings in budgeted interest costs of assumed new borrowing - £440k
  
• There is a lower Minimum Revenue Provision (MRP) required in respect of debt repayments, due to the final capital spend in 2007/08 being below the estimate used in setting the 2008/09 budget for MRP. The actual amount required is £1.78m against a budget of £2.31m producing an underspend of £528k.
  
• Bristol City Council have adjusted the debt and interest charges required by the Council on its share of the ex-Avon debt following 2007/08 closedown - this will create an underspend of £80k in 2008/09.

6 RISK MANAGEMENT

6.1 The report author and Cabinet member have fully reviewed the risk assessment related to the issue and recommendations, in compliance with the Council's decision making risk management guidance.

6.2 The Council's lending & borrowing list was agreed prior to the start of the financial year and the credit ratings are monitored throughout the year. All lending/borrowing transactions are within approved limits and with approved institutions. Investment & Borrowing advice is provided by our Treasury Management consultants Sterling.

7 EQUALITIES

7.1 An equalities impact assessment has not been carried out as this is an information only report.

8 RATIONALE

8.1 The Prudential Code and CIPFA's Code of Practice on Treasury Management requires regular monitoring and reporting of Treasury Management activities.

9 OTHER OPTIONS CONSIDERED

9.1 None.

10 CONSULTATION

10.1 Cabinet members; Section 151 Finance Officer;

10.2 This report has been circulated to the Cabinet Member for Resources, The Strategic Director - Support Services and the Divisional Director Finance for comments and clearance.

11 ISSUES TO CONSIDER IN REACHING THE DECISION

11.1 Corporate

12 ADVICE SOUGHT

12.1 The Council's Section 151 Officer (Strategic Director - Support Services) has had the opportunity to input to this report and has cleared it for publication.

Contact person	Jamie Whittard - Tel: 01225 477213
Background papers	Treasury Management Strategy & Annual Investment Plan 2008/09. Treasury Outturn Report 2007/08.
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