Treasury solutions Treasury Management – Challenges for 2014 Society of District Council Treasurers 10 th January 2014 Presented by Cecilie Booth, Director

January Challenges: Market Update Capita Asset Services’ forecast The Balance Sheet / Balance Sheet Review Investment Opportunities Debt Management Potential areas for budget savings

3 Economic Summary – UK The UK economy continued to show positive growth in Q at 0.8% BoE’s November Inflation Report indicate CPI will drop below 2% by Q Debt as a percentage of GDP (currently 76.6%) to start falling from 2015/16 Loss of the UK’s ‘AAA’ credit rating emphasised the performance in the economy. UK economy is still in danger of weak growth in the next two years. Consumers are likely to remain focused on paying down debt Coalition government - promoting growth vs. the need to tackle the budget deficit Little sign of private sector funding to finance major expansion of infrastructure January 2014

4 GDP

January U.K. Interest Rate Forecasts Please note – The current PWLB rates and forecast shown above have taken into account the 20 basis point certainty Rate reduction effective as of the 1 st November 2012

January The Balance Sheet The Balance Sheet provides information as of the end of the year It includes:- balances, reserves and cash investments Sets out capital (indebtedness) and treasury position (borrowings) working capital (debtors and creditors) The Balance Sheet is also a powerful tool for forward planning It identifies:- under-borrowed positions lower or higher cash / investment balances potential for falling CFR’s Reserve / Balance positions in the years ahead.

January Investments - Asset Yield Curves Given their same credit risk, T-Bills should be chosen over DMADF in the 6 month period. Bank deposits give the best yield in all periods. Overnight (call) bank deposits provide plenty of credit premium over DMADF overnight. Call accounts, notice accounts and MMFs are offering competitive rates. All rates are obtainable in the market by counterparties suggested by Capita Asset Services.

January Debt Management We expect short term rates to remain low in the near term Inter-authority borrowing is available in the region of 0.3% - 0.4% Long-term rates (25-50 years) are expected to stay at around 4.5% for a year or so, but the Euro-zone & US developments mean some volatility These are only forecasts – not fact! Always keep an eye on managing the refinancing risk and internal borrowing position Some market based options continue to provide an attractive option to manage risk out of future dates

January Funding options Borrow internally (partially) and draw down on cash balances: suits a low risk appetite authority with significant cash resources in the short to medium term typical cost of this activity is 0.5% - 1% Temporary borrowing up to 2 years, typically at: 1 year 0.3% - 0.5% 18 months 0.8% makes sense for internally borrowed and budget pressured authorities

January Other funding options Fund forward tie back to your TMSS PIs and appetite for certainty LA Bond (LGA initiative) an alternative to PWLB funding - just in case margins are increased

January Potential areas for savings / income generation Budget pressures and cash levels vary considerably Capital Programme modelling and forecasting MRP Policy Options Appraisals – Lease or Purchase Advance payment to the Pension Fund Passport – streamlining information and communication Staffing levels and technical support High Level Cash Flow Management, e.g. Balance Sheet Review and Cash Flow model

January Potential areas for savings / income generation Alternative investment options – e.g. Property Funds Enhanced rates and access to good quality counterparties available from our Agency Treasury Services Filling resource / skills gaps Benchmarking Security / Liquidity / Yield – improved performance and reduced risk Salary Sacrifice Car Scheme Help negotiate lease expiry terms – substantial savings identified Asset management on outsourced services

January Potential areas for savings / income generation Housing related schemes, e.g. LAMS, Self Build, Regeneration Grants / Loans – different ways to raise funding Loans to RPs / Housing Associations Client Focus Group