Archived decisions

Treasury Management and Investment Strategies, Prudential and Financial Health Indicators

1 Summary

1.1 This Appendix:-

· outlines a proposed strategy for the management of the Council's debt portfolio;

· sets an Annual Investment Strategy for the investment of the Council's surplus funds;

· states the Council's policy on Minimum Revenue Provision; and

· in accordance with the Chartered Institute of Public Finance and Accountancy (CIPFA) Prudential Code, sets the Council's prudential indicators for next year and beyond which relate to borrowing and other aspects of treasury management, together with a number of other financial health indicators.

1.2 This Appendix recommends that:

· the borrowing strategy for 2009/10 be approved;

· a guideline annual target of up to £17m be set for 2009/10 to 2011/12 for new long-term fixed-rate borrowing, which can be exceeded if circumstances are appropriate;

· it be a recommendation to the County Council that the Annual Investment Strategy described in section 13 be approved;

· the policy on Minimum Revenue Provision as set out in section 14 be approved; and

· the Cabinet approve the prudential and financial health indicators for submission to the County Council.

2 Planned capital expenditure and capital financing requirement 2009/10 to 2011/12

2.1 Table 1 sets out actual capital expenditure incurred in 2007/08 and estimated capital expenditure in the current and future years to 2011/12, based on the capital programme submitted to the Cabinet for approval. The table also identifies the extent to which capital expenditure is planned to be financed from supported and unsupported borrowing.

Table 1: Capital Expenditure and Resources

	2007/08 Actual £m	2008/09 Estimate £m	2009/10 Estimate £m	2010/11 Estimate £m	2011/12 Estimate £m
Total capital payments	176.5	215.0	158.7	162.7	151.0
Resources:-
Supported borrowing	28.9	42.5	42.8	36.9	34.8
Unsupported borrowing	21.7	48.2	28.7	5.7	0.0
Less repayments from capital receipts etc.	-14.9	-4.7	-1.8	-9.5	-36.6
Capital grants	49.7	60.5	43.5	76.5	66.3
External contributions	16.7	10.5	6.3	15.8	19.4
Capital receipts	58.1	5.7	4.7	13.2	37.9
Contributions from reserves	1.0	0.4	0.5	0.0	0.0
Revenue contributions	15.8	39.7	27.3	24.1	29.2
Less repayments from capital receipts under the School Balances Loan Scheme Scheme	-0.5	0.0	0.0	0.0	0.0
less transfers to/from the capital reserve	0.0	12.2	6.7	0.0	0.0
Total capital resources	176.5	215.0	158.7	162.7	151.0

2.2 Based on the capital expenditure plans set out in Table 1, the capital financing requirement is forecast to increase from £648.8m at 1 April 2009 to £666.7m at 31 March 2012, as set out in Table 2 below. However a substantial increase is forecast between 1 April 2008 and 1 April 2010 when the capital financing requirement is expected to increase from £586.3m to £692.2m.

2.3 The capital financing requirement represents capital expenditure which has not been financed from capital receipts, the revenue budget, capital grants or external contributions. This can be financed either from external borrowing or by borrowing from internal balances.

2.4 Provision for the repayment of debt is charged to the revenue account based on a Minimum Revenue Provision (MRP), in most cases based on 4% of the capital financing requirement. The Council's policy on MRP to repay debt is covered in section 14.

Table 2: Capital financing requirement

2.5 Table 3 analyses the capital financing requirement between borrowing supported by the Government through the formula grant system and unsupported borrowing. In normal circumstances, the focus of the County Council's consideration of the affordability of borrowing for capital purposes would be focussed on the level of unsupported borrowing, as increases in the cost of supported borrowing from additional Government borrowing allocations would be matched by additional formula grant. However, this is not currently the case as the County Council's grant is determined by the criteria for setting a `grant floor' rather than the formula itself.

2.6 The County Council's current policy on the take up of supported borrowing in setting the base budget is to limit the increase in the capital financing requirement relating to supported borrowing to 2.5% per annum, with any additional take up of supported borrowing being subject to a review of priorities within the overall budget strategy.

Table 3: Capital financing requirement between supported and unsupported borrowing

2.7 Table 4 analyses the unsupported element of the capital financing requirement between categories.

Table 4: Analysis of the unsupported element of the capital financing requirement between categories

At 31 March	2008 Actual £m	2009 Estimate £m	2010 Estimate £m	2011 Estimate £m	2012 Estimate £m
Schemes to be financed from savings in the revenue budget	22.9	41.9	43.8	41.0	38.2
Temporary borrowing on specific projects to be repaid from capital receipts / developer contributions	31.1	52.7	55.1	45.1	13.7
Trading unit capital investment financed from future charges	1.2	2.8	4.2	4.0	3.8
General temporary borrowing to meet short term capital resource shortfalls	0.0	0.0	17.3	22.1	18.1
TOTAL	55.2	97.4	120.4	112.2	73.8

2.8 The proposals for unsupported borrowing in 2009/10 and subsequent years are the result of the application of the County Council's policy on the use of unsupported borrowing under the Prudential Code. Projects fall within four categories contained in the policy:-

· borrowing over a period of up to 10 years on an `invest to save' basis where the capital project is expected to generate cash savings, increased income or the avoidance of otherwise unavoidable costs, which will enable the service's revenue cash limit to be reduced in order to accommodate the financing costs within the budget;

· temporary unsupported borrowing pending the availability of capital receipts, grants or contributions, which will enable the borrowing to be repaid, including any interest costs not met from within the service revenue budget. Unsupported borrowing for a number of school projects in advance of capital receipts or developer contributions and the Ashburton Court refurbishment, together with a number of other specific projects have been agreed in accordance with this policy. Since 2006/07 the County Council's policy requires service budgets to cover interest costs and minimum revenue provision from the revenue budget rather than rolling it up to be financed from the eventual capital receipt;

· use of unsupported borrowing to finance business unit capital expenditure where the financing costs will be recovered in charges made to users and met from their existing budgets. IT Services' use of unsupported borrowing was approved in accordance with this policy;

· in addition to the use of temporary unsupported borrowing to fund specific projects, as a result primarily of the downturn in the property market, some additional temporary unsupported borrowing is also forecast to be required between 2009/10 and 2011/12.

3 Further long-term borrowing

3.1 Table 2 shows that over the three-year period to March 2012, an increase in the capital financing requirement of £17.9 m from £648.8m to £666.7m is forecast based on the current and proposed capital programme.

3.2 A balance needs to be drawn in the debt portfolio between long-term debt at fixed interest rates from the PWLB and other sources and debt where interest is payable at variable rates. Fixed-rate long-term debt means that interest costs are more stable and less vulnerable to changes in interest rates. Short-term debt is sensitive to changes in interest rates and enables savings to be made when interest rates fall but means higher costs when they rise.

3.3 If no further fixed-rate long-term borrowing takes place between now and the end of March 2009, some 59.0% of the capital financing requirement will be held at variable interest rates. If no further long-term borrowing were to take place by March 2012, this proportion would increase to around 62.8%. To maintain the target variable/fixed rate ratio of 55%/45%, just over £52m would need to be borrowed long-term at fixed rates between now and March 2012, implying a target of around £17m a year.

4 Interest rate trends

4.1 After having reached a peak of 5.75% in July 2007, a succession of cuts meant that by January 2009 the Base Rate of 1.50% had fallen below the lowest recorded level of 2.0% since the Bank of England was formed in 1694.

4.2 The Monetary Policy Committee (MPC) minutes of their January 2009 meeting noted how the world economy appeared to be undergoing an unusually sharp downturn, and that the outlook for business had deteriorated further. They were also concerned about undershooting the inflation target in the medium term. Hence, their decision to reduce the Base Rate by 0.50% to 1.50%.

4.3 Inflationary concerns have all but dissipated with annual Consumer Price Index (CPI) inflation having fallen from its September 2008 peak of 5.2% to its current December 2008 level of 3.1%, with this figure expected to continue to fall further over coming months. Unemployment, already at 6%, is expected to rise further. The fear of unemployment will keep wage bargaining and wage inflation to a minimum.

4.4 The economy is slowing and most analysts believe that a further rate cut in the coming months is possible. How much further they fall though is debatable, as interest rate reductions become increasingly ineffectual with the major problem being a shortage of credit rather than its cost.

4.5 Expectations of where the Base Rate will be at the end of 2009 range from 1.00% to 0% if the economy continues to worsen. The United States reduced its rate to a range of between 0% and 0.25% in December 2008, whilst Europe reduced its rate by 0.50% to 2.00% in January 2009.

4.6 Based on 25-year term fixed-rate maturity PWLB loans, long-term borrowing rates initially rose from 4.5% in early January 2008 and peaked at just above 5.0% in June 2008 before falling back to a low of just above 4.0% in late December 2008, with the current rate standing at around 4.5%. It is envisaged that longer term interest rates will remain on a broadly stable path over the next year.

4.7 Whilst longer term PWLB rates currently stand at relatively low levels, they are still higher than when they reached historically low levels three years ago when the 25-year term fixed-rate maturity PWLB loan rate briefly fell to 3.85%. The strategy will be to take out long-term fixed-rate borrowing from the PWLB of up to £17m in the period to March 2010 at a target rate of 4.2% or less, or prevailing rates if this target rate were to prove unattainable.

4.8 If fixed-rate long-term borrowing rates were to either fall still further or clear signs of a rising trend in rates was to occur, consideration would also be given to taking out further advances to cover the Authority's future years' capital financing requirements to 2012.

5 Lender's option/borrower's option loans (LOBOs)

5.1 Over recent years, the commercial money market has endeavoured to offer loan products to local authorities which are competitive with those available from the PWLB. Since June 2002, lender's option/borrower's option loans (LOBOs) have been of particular interest as an alternative form of borrowing in order to generate short-term savings in interest costs.

5.2 A standard LOBO means taking out a long-term loan for an initial primary period (normally between one and three years) at a preferential fixed interest rate, followed by a higher rate for the remaining period of the loan. `Single-rate only' LOBOs are also available, where the rate over the primary period is the same as that for the remaining period. In both instances, the lender can choose to increase the rate at the end of the primary period and every six months or annually thereafter. If the lender increases the rate, the Council as a borrower can choose to repay the loan.

5.3 LOBO loans can generate short-term savings in borrowing costs over the initial primary periods. However, such loans will track any upward movement in long-term interest rates and may therefore equate to higher future long-term borrowing costs. Unlike long-term fixed rate PWLB loans, LOBOs cannot provide guaranteed long-term interest rate stability. Whilst the Council has a choice over repaying the LOBO loan when the lender opts to increase the relevant interest rate, it will ultimately need to re-finance this by taking out a replacement loan at prevailing borrowing rates.

5.4 In 2006/07, it was agreed to set a 15% limit on the proportion of the Council's capital financing requirement to be financed from LOBOs. This would form part of the variable rate target of 55% (see paragraph 3.3).

5.5 For information, the Council currently has a total of £73m LOBOs at interest rates ranging between 3.89% and 5.0% and an average overall rate of 4.45%.

5.6 However, LOBO loan rates have risen relative to PWLB rates and currently do not offer any competitive advantage due to the lack of availability of credit within the banking system. As a result, no new LOBO loan finance has been taken out during 2008/09.

5.7 Whilst LOBO finance will be kept under review, all new external borrowing for 2009/10 is expected to be obtained from the PWLB whilst such restrictive credit conditions persist within the banking sector.

6 Fixed-rate borrowing strategy

6.1 In line with the Council's established policy of taking loans in small tranches, five new fixed-rate loans with a loan term of 25 years or longer totalling £12m have been taken out from the PWLB since April 2008. The fixed rates ranged between 4.17% and 4.54%, averaging 4.43%.

6.2 In addition to the above, a further loan for £2m was taken out from the PWLB with a shorter loan term of 10 years. This was done to fill a gap in the Council's long-term debt maturity profile for the year 2018/19. This particular loan was secured at a fixed rate of 3.59%.

6.3 It is envisaged that longer term interest rates will remain on a stable path over the next year. The strategy will be to take out long-term fixed-rate borrowing from the PWLB of up to £17m in the period to March 2010 at a target rate of 4.2% or less, or prevailing rates if this target rate were to prove unattainable.

6.4 If fixed-rate long-term borrowing rates were to either fall still further or clear signs of a rising trend in rates was to occur, consideration would also be given to taking out further advances to cover the Authority's future years' capital financing requirements to 2012.

7 Debt restructuring

7.1 Local authorities may choose to repay loans earlier than required by the original agreement. In those circumstances, they may be liable either to pay a premium or to receive a discount. A premium is an extra payment required on top of the principal repayment. A discount is a reduction in the principal repayment. Whether a premium or discount applies, and its amount, depends upon the relationship between current interest rates at the time of repayment and the interest being charged on the loan.

7.2 Whilst premiums have to be charged to the revenue account, local authorities are allowed to spread these charges for council tax setting purposes over either the outstanding period of the loan repaid or (where applicable) the outstanding period of any replacement loan, whichever is the greater.

7.3 Discounts should be treated in a broadly similar way to premiums and credited to the revenue account over either the unexpired term of the repaid loan or 10 years, whichever is the lesser.

7.4 The Council's ability to restructure its debt by repaying loans taken out at relatively high interest rates, replacing these with later maturity dates at significantly lower interest rates and spreading the premiums over this extended maturity term can achieve savings in the annual budget requirement for Council Tax setting purposes in the short term.

7.5 However, such debt restructuring increases the annual budget requirement for Council Tax setting purposes in the longer term to the extent of the amortised premiums being incurred beyond the original outstanding periods of the loans being repaid.

7.6 Such a strategy also increases the average maturity profile of the Council's outstanding debt portfolio, which would impact on its longer term ability to take advantage of low or falling short and long-term interest rates.

7.7 In 2007/08, the Council prematurely repaid a £10m PWLB loan at 9.875% which was originally due for repayment in 2018, incurring a premium of £3.9m. Replacement loans of £10m in total were taken out at an average interest rate of 4.74% maturing between 2035 and 2037. This was done in order to achieve savings in the annual budget requirement for Council Tax setting purposes in the short term.

7.8 From 1 November 2007, the PWLB introduced a separate set of rates applicable to early repayments. Hitherto, the same set of rates had applied to loan advances and to calculating the premium or discount due on an early repayment. The rates used to calculate the premium/discount due on the early repayment of a loan are now lower than those applying to advances. This has had the effect of increasing the premiums payable in respect of the early repayment of loans.

7.9 Nevertheless, it is proposed that the County Treasurer be given the authority to continue to apply such a debt restructuring strategy where there would seem to be financial advantage in doing so, whilst paying due regard to the need to maintain the Council's ability to continue to take full advantage of falling interest rates by avoiding a heavily skewed maturity profile.

8 Treasury management budget for 2009/10 to 2011/12

8.1 Table 5 summarises the interest budget to finance the Council's capital financing requirement for 2009/10 to 2011/12, inclusive of interest recovered from other external bodies in respect of transferred debt.

Table 5: Interest budgets for 2009/10 to 2011/12

	2009/10 Estimate £m	2010/11 Estimate £m	2011/12 Estimate £m
Interest on:
Public Works Loan Board loans	14.1	14.0	13.4
LOBOs	3.3	3.3	3.3
Temporary loans and internal funds	7.6	6.8	7.5
Total	25.0	24.1	24.2

9 Prudential indicators for affordability

9.1 The Prudential Code prescribes two indicators of the affordability of borrowing for capital purposes.

Ratio of financing costs to net revenue stream

9.2 The ratio of financing costs to the net revenue stream shows the estimated annual revenue costs of borrowing (interest payable on debt plus the minimum revenue provision for repaying the principal less interest on balances) as a percentage of the amount in the draft revenue budget to be met from central government grants and local taxpayers. Actual figures for 2007/08 and estimates for 2008/09 to 2011/12 are set out in the Table 6 below. It excludes past capital expenditure being financed by external bodies following the transfer of services away from the County Council. The relative stability of the ratio reflects the County Council's decision under the current grant floor arrangements not to take up supported borrowing in full.

Table 6: Ratio of financing costs to net revenue stream

	2007/08 Actual £m	2008/09 Estimate £m	2009/10 Estimate £m	2010/11 Estimate £m	2011/12 Estimate £m
Financing costs	32.0	34.7	42.2	45.4	45.9
Net revenue stream	598.2	642.7	659.7	675.5	699.5
Ratio	5.35%	5.40%	6.40%	6.72%	6.56%

Estimated incremental impact on council tax of draft capital programme

9.3 Table 7 sets out estimates of the incremental impact on the Band D council tax which will result if the Cabinet approves the new draft capital programme.

Table 7: Incremental impact on council tax

	2009/10 £	2010/11 £	2011/12 £
Borrowing costs	2.54	9.66	3.48
Running expenses and revenue contributions to capital	2.28	2.91	1.14
Total	4.82	12.57	4.62

9.4 This indicator has been calculated as if the impact of financing new capital investment by borrowing falls entirely on the council tax. However, in practice the cost of financing additional Government supported borrowing is normally matched by additional revenue support grant, although this does not currently apply to authorities such as Hampshire who are well below the grant floor. The new unsupported borrowing proposed will be matched by an equivalent reduction in current expenditure within the relevant service or will be covered from future capital receipts, grants or contributions.

10 Prudential indicators for external debt

Medium term borrowing not to exceed capital financing requirement

10.1 The Prudential Code requires that, as a key indicator of prudence, net borrowing over the medium term should not exceed the total of the capital financing requirement in the preceding year plus the estimates of any additional capital financing requirement for the current and next two years. The County Treasurer will ensure that this limit is not breached.

Actual external debt

10.2 Actual external debt at 31 March 2008 was £404.3m.

Authorised limits for external debt

10.3 The Code also requires authorities to set authorised limits for external debt, defined as the sum of external borrowing and other long-term liabilities. It is recommended that the following limits be approved for the period 2009/10 to 2011/12.

2009/10 £m	2010/11 £m	2011/12 £m
700	700	670

10.4 These recommended limits are based on the estimated capital financing requirements (as per Table 3) in order to enable these to be financed entirely from external borrowing should the Council's internal reserves become depleted. The limits also include an allowance for temporary borrowing to cover normal revenue cash flow requirements and unexpected outflows or delays in receiving cash. The 2009/10 limit is also the statutory limit for the purposes of Section 3(1) of the Local Government Act 2003. It should be borne in mind that the limits for 2010/11 and 2011/12 are indicative only and can be revised next year if necessary.

Operational boundaries for external debt

10.5 The Cabinet also needs to approve operational boundaries for external debt over the same periods. These should reflect the most likely scenario and be consistent with the Council's capital plans and treasury management strategy. Temporary breaches of the 2009/10 operational boundary can take place for cashflow reasons, but any sustained breach will lead to further investigation. The Cabinet is asked to recommend the following operational boundaries for 2009/10, 2010/11 and 2011/12.

2009/10 £m	2010/11 £m	2011/12 £m
580	580	550

10.6 The operational boundary for 2009/10 allows for new external borrowing of £17m, based on the guideline figures for new external long-term borrowing as outlined in paragraphs 3.3 and 4.8. The indicative boundaries for 2010/11 and 2011/12 reflect the changes in the predicted capital financing requirement in those two years.#

11 Prudential indicators for Treasury Management

Adoption of the CIPFA Code of Practice for Treasury Management in the Public Services

11.1 The Prudential Code requires local authorities to have adopted the CIPFA's Treasury Management in the Public Services: Code of Practice (the Treasury Management Code), which includes an annual report on the treasury management strategy and a plan before the start of the year. This was agreed by the Cabinet in February 2003 and has been incorporated in the County Council's financial regulations.

Upper limits on fixed interest rate exposure

11.2 The Council also has to set an upper limit on its fixed interest exposure. The table below sets out limits recommended for approval. They are expressed in terms of the maximum long-term fixed-rate principal sums which can be outstanding on any day in each year. The limits suggested for 2010/11 and 2011/12 are indicative only and subject to revision next year.

2009/10 £m	2010/11 £m	2011/12 £m
320	320	320

11.3 Long-term fixed-rate debt outstanding is currently £266m. This appendix recommends an annual maximum guideline target for new long-term fixed-rate borrowing of £17m over three years. However, the above limits make allowance for fixed-rate borrowing of up to the identified three-year requirement of £52m to March 2012, as it might be prudent to borrow up to these levels early if rates are particularly advantageous or show signs of a prolonged upward trend.

Upper limits on variable interest rate exposure

11.4 The Council also has to set limits on its variable interest rate exposure. The limits recommended for approval are shown in the table below. They are calculated simply as the difference between the recommended authorised borrowing limits and the fixed-rate borrowing outstanding at the end of each year if no further such borrowing is undertaken.

2009/10 £m	2010/11 £m	2011/12 £m
440	450	430

11.5 These recommended limits provide full flexibility for the prudent management of the Council's debt portfolio and mean that there will be no need for enforced fixed-rate borrowing at high interest rates as long as total external borrowing remains within the authorised limits.

Upper and lower percentage limits on the maturity structure of long-term fixed-rate borrowing outstanding in 2009/10

11.6 The Code also requires the Council to set upper and lower percentage limits on the maturity structure of its long-term fixed-rate borrowing during 2009/10. The following table shows recommended limits. These have been set in order to allow maximum flexibility in managing the debt portfolio and are consistent with the existing portfolio and the treasury management strategy as outlined earlier.

Upper limits on investments with maturities longer than one year

11.7 The Council has not made any investments for periods longer than one year and has no plans to do so. Therefore, an upper limit of nil on such investments is recommended for 2009/10 and the following two years.

12 Financial Health indicators

12.1 Annex 3 contains a summary of the prudential indicators and a series of additional financial health indicators relating to budget and capital programme management and income collection. These are monitored quarterly as one element of the County Council's budget monitoring.

13 Investment of surplus funds

13.1 This proposed Annual Investment Strategy has been prepared in accordance with guidance issued under section 15(1)(a) of the Local Government Act 2003.

13.2 When investing its surplus funds, the Council's investment priority is to continue to maintain the security of capital and maintain policy flexibility through liquidity of its investments. The Council will aim to achieve the optimum return on its investments commensurate with the proper levels of security and liquidity.

13.3 Accordingly, only `specified investments' will be used in 2009/10. These categories of investment are defined in the Government's guidance as offering both high security and liquidity.

13.4 The Council's surplus funds will either be invested in:-

· fixed-term deposits for periods of up to 364 days with local authorities, the Government's Debt Management Office, or banks and building societies rated at least A2 by Moody's (a Government-recognised credit rating agency) that are included on the Council's lending list;

· call deposits with NatWest Bank (rated Aa3); and

· call deposits with three managed Aaa-rated money market funds included on the Council's lending list, which are given as follows:

- Standard Life Sterling Fund;

- Fidelity Institutional Sterling Cash Fund; and

- RBS Global Treasury Sterling Fund.

13.5 The `call deposits' may be recalled by the Council at any time. The Council's cash flow position will be monitored on a daily basis and adjustments made as necessary to the funds placed on call.

13.6 Lending is restricted to certain of the UK clearing banks and the larger UK building societies, with the Council's current lending list given as follows:

Counterpart Moody's long-term

rating

Lloyds TSB Aaa

HSBC Aa1

Barclays Aa3

Royal Bank of Scotland (NatWest) Aa3

Abbey Aa3

Clydesdale Aa3

Nationwide Building Society Aa2

Britannia Building Society A2

Yorkshire Building Society A2

Coventry Building Society A2

Chelsea Building Society A2

Skipton Building Society A2

Leeds Building Society A2

Hierarchy of Moody's long-term ratings:

Aaa Obligations rated Aaa are judged to be of the highest quality, with the "smallest degree of risk".

Aa1, Aa2, Aa3 Obligations rated Aa are judged to be of high quality and are subject to very low credit risk, but "their susceptibility to long-term risks appears somewhat greater".

A1, A2, A3 Obligations rated A are considered upper-medium grade and are subject to low credit risk, but that have elements "present that suggest a susceptibility to impairment over the long term".

13.7 The lending list is closely monitored and reviewed by the County Treasurer, taking into account each institution's credit ratings, asset base, market capitalisation, press reports, etc. Institutions will be removed immediately from the list if any doubt is cast on their credit worthiness. Changes in the lending list will be reported in the quarterly review of the financial health indicators.

13.8 Limits are placed on levels of total deposits made with individual institutions, based on their relative strength as a counterparty. Whilst the Treasury Management and Investment Strategy sets a maximum lending term of 364 days, this will be shortened in respect of those institutions with a relatively lower credit rating.

13.9 The County Treasurer will continue to manage cash balances on a cautious basis with the emphasis on capital preservation at the expense, where necessary to avoid unjustifiable risks, of additional interest returns.

13.10 For information, the County Council has never placed deposits with Icelandic banks and has not used any overseas institutions in the last 18 months.

13.11 Other, or `non-specified', investments will not be used.

13.12 Treasury management staff operate within detailed parameters set out in an internal code of practice, which takes account of CIPFA's Treasury Management in the Public Services: Code of Practice and other guidance issued by the Chartered Institute of Public Finance and Accountancy.

14 Policy on Minimum Revenue Provision to repay debt

14.1 The Local Authorities (Capital Finance and Accounting) (England) (Amendment) Regulations 2008 requires that before the start of each financial year, a local authority prepares a statement of its policy on making Minimum Revenue Provision (MRP) for the approval of the Full Council or equivalent. These revised regulations repealed the detailed rules and replaced them with statutory guidance, while requiring local authorities to make `prudent' provision for the repayment of debt.

14.2 It is recommended that the Authority continues with the policy adopted for 2008/09, i.e., to continue to calculate MRP in respect of supported capital expenditure, incurred both before and after 1 April 2008, in accordance with the previous regulations (i.e., generally based on 4% of the Authority's outstanding capital financing requirement). In respect of unsupported borrowing relating to capital expenditure incurred after 1 April 2008, it is proposed to calculate MRP on the basis of asset life, using the equal instalment basis and adopting asset lives that are no greater than those used to calculate the depreciation provision for the relevant assets.

PWLB fixed-rate debt as at 31 March 2009 by interest rate

PWLB fixed-rate debt by year of maturity

LOBO debt as at 31 March 2009 by interest rate

LOBO debt by year of maturity