Along with Christmas shopping and getting the kids an advent calendar, local authority treasury staff will now be thinking about preparing their strategy documents for the year ahead. Treasury strategy documents set out what the local authority plans to do, where it will and won’t invest, limits on borrowing and many other important factors. The documents are prepared by officers but approved by members: forming the important democratic cog in the treasury management process.
All areas of the UK must prepare a Capital Strategy and Treasury Management Strategy as required by CIPFA (the Chartered Institute of Finance and Accountancy). English local authorities must prepare a Non-Treasury Investment Strategy to cover service or commercial investments. Required by regional specific guidance, all authorities must also prepare a Minimum Revenue Provision (MRP) Statement or in Scotland a Loans Fund Policy.
The Capital Strategy sets out the capital expenditure plans for the local authority and, where these are financed by borrowing, plans for borrowing. Local authorities must set a balanced budget, so capital expenditure will in general form the only part of a local authority for which cash goes out of the door and does not come back in again within the same year. Capital expenditure is thus the main driver of long term treasury management decisions and trends. Most authorities use borrowing to some extent. As most of us would understand from our personal finances: debt is not bad, but too much debt can be disastrous. This is the purpose of setting limits on an authority’s debt, and of other measure on the cost of borrowing.
Treasury strategies also look at borrowing details such as where local authorities will borrow from and for what periods of times loans can be for. Investments are covered in more detail in the Treasury Strategy. Most importantly the mantra of ‘don’t put all your eggs in one basket’ should be spelled out with limits on the amount of investments that can be made with any one counterparty, group, or type of investment. Limits on the length of time money can be invested for are also given in the Treasury Strategy. The Strategy will normally set the current economic backdrop to which the authority is making decisions about borrowing and investing.
In England the Non-Treasury Investment Strategy is required by the Ministry of Housing, Communities and Local Government (MHCLG) to talk about any investments that have been made to help the local area, or generate a commercial return, rather than just being investments that have arisen from spare cash held before it is spent. Requirements around proportionality, risk management, and the skills needed to manage these investments are contained within this strategy. In Wales there are requirements to discuss specified and non-specified investments, loans made and non-financial investments: in Arlingclose’s templates we have appended these to the Treasury Management Strategy.
Finally MRP or Loans Fund Policies set out how the authority will make MRP or repay its Loans Funds. Whilst quite technical, this does have an important bearing on both future revenue costs and cash levels. It is important to get this document right, especially if you have recently reviewed and changed your policy in this area.
As well as setting up key indicators that should be monitored in the coming years these documents should try and tell a story about the authority’s position, what it plans to do and where it plans to be over the coming year and in futures years.
If you require any further assistance in writing your organisation’s strategies please contact Laura Fallon at lfallon@arlingclose.com or on 07702 788303.
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