Agenda item

Purpose: To consolidate the investments and borrowing strategy for the year ahead by detailing how and where the Council will invest and borrow in the forthcoming year, within a particular framework. This strategy is monitored throughout the year, with a mid-year report going to the Government and Ethics Committee as well as an annual report being presented to Members.

Councillor Iain Cottingham (Executive Portfolio Holder: Finance and Corporate Services) and Joseph Holmes (Executive Director – Resources) presented the Investment and Borrowing Strategy (Agenda Item 3).

The following points were raised in the debate:

·       Concerns were expressed about risks associated with commercial property investments in the current economic climate. The portfolio’s valuation as of March 2023 was £52.3M and delivered a net margin of just over £1M (1.7% return). Approval had been given to start divesting the portfolio, which would reduce risk exposure. There had been devaluation of the assets, but the government had confirmed that local authorities were no longer allowed to borrow through the Public Works Loan Board (PWLB) for this purpose. Sales would only be made at the right price, and it was emphasised that it was not a fire sale. The aim was to reduce risk for West Berkshire residents.

·       Members asked if Council funds were invested ethically. It was confirmed that most of the investments were through financial institutions or money market funds where there were no specific equity investments, but investigations were ongoing as to how these they could be rated. Meetings had been held with external parties who provided ethical investment ratings.

·       There was a question related to the current economic climate and why this presented an opportunity to review the investment portfolio. It was noted that since interest rates were higher than in recent years, the Council had an opportunity to sell and forego future capital financing needs and thus reduce costs.

·       It was confirmed that the Property Investment Strategy had not been revised, but the Board’s terms of reference had been updated to reflect the Scrutiny Commission’s recommendation to not have a hard end date for disposal of the commercial property portfolio.

·       Members asked about any anticipated change in the portfolio’s value since the last valuation. Officers were unwilling to speculate as to changes in individual valuations, however further significant decreases in valuations were not expected. It was emphasised that book value did not necessarily equate to the price realised upon disposal and until the Council tested the market, it was difficult to gauge interest in its assets. It was hoped that the assets would be attractive to potential buyers. While the assets currently enjoyed 100% rental income, this was not guaranteed for the future and any future reduction would put pressure on returns. It was also highlighted that a sinking fund would be required to pay for maintenance of the assets, estimated at £2M over 10 years.

·       A question was asked about how predictions about future interest rates by the International Monetary Fund and Bank of England were being taken into account. It was stressed that while there would be many unknown factors affecting the economy over the coming year, interest rates were expected to remain broadly stable in the short-term, then fall over the medium term.

·       It was noted that the Council was a long-term borrower and Members asked how the Council compared to other local authorities. Officers directed Members to information on the Office for Local Government (Oflog) website (https://oflog.data.gov.uk/). This showed that West Berkshire Council’s debt levels were lower than average. West Berkshire’s debt was around £1,000 per head of population, while some local authorities had debts of £4,000 - £5,000 per head of population.

·       Officers explained that the Council was undertaking short-term borrowing in the expectation that PWLB rates would start to drop, but at some point, It was explained that the Council would need to revert to long-term borrowing in order to reduce exposure to interest rate risk.

·       Members asked if the Council had considered issuing retail bonds for infrastructure projects. Officers explained that individual local authorities’ investment programmes were mostly too small, but some larger public bodies had issued bonds (e.g., Transport for London). Officers explained that the Local Government Association had set up a Municipal Bonds Agency to allow local authorities to package investments of a sufficient size to be attractive to the market, but no bonds had been issued to date. In order to issue bonds, local authorities had to be rated by credit agencies, which incurred an up-front cost.

·       Officers were asked about future rounds of community bonds. It was confirmed that the new solar farm would be funded partly through the UK Infrastructure Bank and partly through a community bond.

·       A typo was identified in Appendix C where % had been used instead of £.

Action: Joseph Holmes to correct the typo in Appendix C of the report.

·       It was suggested that this was not the time to sell commercial property investments if it could be avoided, since the market was at a low point in the cycle.

Resolved to note the report.