Agenda item

The Chief Finance Officer introduced Rob Thurlow, Chief Accountant, to the

committee. 

The Chief Finance Officer introduced the report to the committee, requesting them to note the report and recommend it to the next Council in January.  She provided updates on the investment strategy, exposure to debt and borrowing, and specifically, the finance related to Croxley Business Park.  She emphasised section 4.8 of the report during the presentation and explained the chart to the committee.

The Chief Finance Officer responded to questions about the reliability of financial forecasts and the additional information she used.  She mentioned consulting with Link Group, considering forecasts from the IMF, and examining the Bank of England's approach to interest rates.  Acknowledging the inherent uncertainty in forecasts, she emphasised the awareness that they were prone to inaccuracies.

There was a question to the Chief Finance Officer about the contingency plan if forecasts needed to be corrected.  She responded that savings elsewhere and changes in service would have been considered.  Due to higher interest rates, the treasury's impact on the budget was more significant than in previous years.  She highlighted potential challenges if cash flow forecasts were off, particularly if borrowing needed to be raised.

The Chief Finance Officer responded to a question regarding changes to borrowing.  In the current year, borrowing primarily originated from Watford Business Park, where additional revenue income exceeded the costs of borrowing, contributing to economic regeneration.  Additionally, significant borrowing related to the Town Hall and Colosseum, with plans to reduce borrowing following this week's grant announcement.  However, there were ongoing revenue costs that were associated with the delivery of the Incubation and Innovation Hub which were not currently part of the capital programme, which would offset the savings from borrowing.

Councillor Watkin emphasised the necessity of forward-thinking, highlighting that deferred programmes might have considerably impacted ongoing initiatives.  Drawing upon the recent case of Watford Signage discussed in the Financial Scrutiny Committee (FSC) earlier in the week, he noted that, for less critical aspects, the council could tolerate certain conditions.

In response to a question about the projects that Watford Council was undertaking, the Chief Finance Officer explained the situation with Watford Business Park, indicating that most of the spending occurred in the current financial year.  A budget-setting review of the capital programme was being conducted considering the available resources.  To align with the resources, there were plans to reduce spending in the next couple of years, necessitating the rescheduling of certain items.  This included a decision to slow down both the capital programme and borrowing.  The FSC reviewed part of the budget before it was presented to the Cabinet.

Councillor Khan referenced the discussion and scrutiny conducted by the FSC earlier in the week.  The discussion encompassed prioritisation, budgets, revenue spends, and strategies for refining those aspects.  The committee thoroughly examined treasury management, leading to a constructive dialogue.  The process was deemed valuable, offering a comprehensive overview for the Cabinet to make informed decisions.  Notably, the discussion avoided being influenced by party politics, be it Liberal Democrat or Labour.  The emphasis was on improving the scrutiny process and honing the determination of priorities.

Councillor Watkin emphasised the importance of any capital spend being reviewed by the FSC, highlighting that it involved public money. 

Councillor Clarke-Taylor asked about the fact that the average interest rate for borrowing was lower than the average rate for investments in the mid term review.  In response, the Chief Finance Officer explained that she did not have the exact figures as at the end of November but that this was already likely to have changed as short term debt at low interest rates had matured since the end of September.  Having withdrawn funds from the pooled investment funds, the Council was now able to generate substantial income from deposits with the Debt Management Office (DMO) in the short term.  The Chief Finance Officer highlighted the perpetual reality that the cost of borrowing would invariably exceed interest income at a point in time, and the strategic stance adopted was to derive an average cost of borrowing that consistently remained lower than potential earnings.

RESOLVED –

That the Committee notes the contents of the 2023/24 mid-year review of the Treasury Management function and recommends the report to Council.