|
Memorandum from Sefton Council (LAI 15)
The following details the questions asked by the Select Committee. The Finance Director's responses follow.
Q1 What are the present arrangements for local authorities Treasury Management - and in particular the requirement to produce Annual Investment Strategies - and how have these affected the performance of local authorities, both as service providers and employers, given recent potential losses experienced by many local authorities?
Sefton produces annually a Treasury Management Policy and Strategy document, which is prepared by the council's treasury management section, and ratified by Council. It is audited annually.
This document is the framework that is used as the basis for investment decisions, and lays down the council's policy decision in terms of both risk and return. It has allowed Sefton to generate investment income in a strictly controlled environment.
Sefton has not been affected by the recent potential losses experienced by other local authorities.
Q2 In the light of recent events, are any changes needed to the framework or the scale, spread and risk of local government reserves?
It is felt that currently no change is required to our Treasury Management Policy and Strategy.
Q3 Should local authority money be invested in
Government stock, with lower risk, but with a low return? What effect would
this have on
Whilst Government stock is risk free, the return may be at an unacceptable level which could result in either an increase in the council tax burden, a reduction in services, or both. Investing in Government stock would reduce liquidity within the banking sector.
Q4 What is the role of central government in providing financial advice and guidance to local authorities? Should any other bodies have a role?
It is felt that any direct legislation by Government may unacceptably restrict local authorities from managing their own risk and return. If a local authority is limited by Government as to where it can invest, this may create a "captive market" causing distortions in the investment rate received.
It is felt that treasury management consultants have a role to play in the investment decision. They can independently advise local authorities as to the stability of institutions, and can help in the budgeting process with predictions of base rates.
Q5 Should the Government protect local authorities' investments in the same way that it is protecting personal assets? What consequences does this have for the relationship between local and central government?
It is clear that the Government has a role to play in protecting local authorities from losses on investments, particularly since any major losses could have a serious impact on local service delivery and taxation levels. However this does need to be considered carefully to avoid having an undue effect on financial markets.
If the Government protected all local authorities' investments then this could cause local authorities to gain an appetite for risk, as there would be no consequence to making potentially lucrative but risky investments. This could potentially lead to the imposition of strict legislation regarding investment strategy. This needs to be balanced against the underlying need of the Government to ensure financial and operational security of Local Authorities.
November 2008
|