Borrowing and investments

How we invest

Our treasury management strategy, which is approved by full council every year, sets out that we will only invest with financial institutions that have a high credit rating. 

We use treasury management advisers MUFG who provide daily reports and advice on all the different institutions who accept the council’s investments. They look at credit ratings, as well as other market information and knowledge of forthcoming changes to the global economy and relevant legislation. 

Safety of investments

No investment is totally risk-free. We are required to invest funds prudently by both The Chartered Institute of Public Finance and Accountancy Code of Practice on Treasury Management in the Public Services, and central government guidance. 

These set out that we must weigh up the security and liquidity of our investments before seeking the highest rate of return, or yield. 

Our objective when investing money is to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk of receiving unsuitably low investment income. 

To achieve security, our investments are diversified over a number of different institutions, so that in the event of an unexpected failure, any losses would be small, and would not impact on the provision of services. 

Funding sources

The funds available to us to invest come from a range of sources. We have reserves and provisions which are held for specific, identified future expenditure. For example, our renewal and repairs fund to replace or repairs assets, such as play equipment or a boiler in a leisure centre. 

We also hold approximately £20m arising from capital receipts, Section 106 funds and normal cash flow balances, which fluctuate on a day-by-day basis.

How we borrow

Most of our current borrowing relates to our stock of council houses. New borrowing would be undertaken to invest in assets to provide services to the community.

Most borrowing is from the Public Works Loan Board, which is a central government organisation. For short-term loans, these care often taken out with other councils who have money to invest.

Decisions about borrowing

When new projects are proposed, detailed modelling is undertaken to determine if we have enough money in reserves. If not and there is a need to borrow, MUFG, our treasury management advisers,  provide advice on likely future interest rates, so that it can be done at the right time and for the right term to take advantage of the lowest possible rate. 

Recent projects have all been financed from reserves. This is for two reasons – due to low interest rates, investments generate less income so it makes more sense to spend the money on assets or services to benefit the community. Secondly we would have to pay interest on any borrowing.