Last reviewed 27th August 2024

 

This policy establishes formal objectives, practice and reporting arrangements for the effective management and control of the Council’s financial management activities and associated risks

1. INTRODUCTION

   Louth Town Council acknowledges its duty to carefully manage precept payers’ money and the importance of investing any temporary surplus funds held on behalf of its community safely.

   This Strategy complies with the revised requirements set out in the Department of Communities and Local Government Guidance on Local Government Investments and takes into account:

   1. Section 15 (1) (a) of the Local Government Act 2003
   2. Statutory Guidance on Local Government Investments (3rd Edition)
   3. Guidance within Governance and Accountability for Smaller Authorities Practitioner’s Guide March 2024.

The Local Government Act 2003 states that a local authority may invest:

1. for any purpose relevant to its functions under any enactment;
2. for the purpose of prudent management of its financial affairs;

The Council defines its financial management activities as:

“the management of the Council’s cash flows, its banking and money market transactions, the effective control of the risks associated with those activities, and the pursuit of best value performance consistent with those risks.”

2. INVESTMENT OBJECTIVES

   The Council’s investment priorities are:

   1. security of its reserves (both general and earmarked) to ensure that money held is protected and in order to minimise loss;
   2. adequate liquidity of its investments to ensure money is available when it is needed and not locked away for lengthy periods with or without financial penalty;
   3. return on investment – the Council aims to obtain and achieve the best rates of interest on any investment whilst ensuring that the investment is low risk and easy to access

All investments will be made in pounds sterling (£).

The Department for Communities and Local Government maintains that the borrowing of money purely to invest or to lend and make a return is unlawful and the Council will not engage in such activity.

The Council will monitor the risk of loss on investments by review of credit ratings on a regular basis. The Council will only invest in institutions of high credit quality – based on information from credit rating agencies (e.g. Standard & Poor’s, Moody’s Investors Service Ltd; and Fitch Ratings Ltd).

Investments will be distributed over more than one provider or more than one portfolio (where appropriate) in order to minimise risk of financial loss.

3. SPECIFIED INVESTMENTS

   Specified investments are those offering high security and high liquidity, made in sterling and with a maturity of no more than a year. Such short-term investments made with the UK Government or a Local Authority (as defined) or a Town/Parish Council will automatically be Specified Investments.

   The Council for the sensible effective and prudent management of its treasury balances may use:

   1. Treasury Deposits with UK clearing banks
   2. Local Authorities or other Public Authorities
   3. Local Authority Investment Schemes – Local Authority Investment Trust (LAMIT)
   4. Other approved public sector investment funds (i.e. CCLA)

The choice of institution and length of deposit will be at the approval of the Governance and Finance Committee, ratified by full Council.

The Council will aim to achieve the optimum return on its investments commensurate with the proper levels of security and liquidity.

4. NON-SPECIFIED INVESTMENTS

   These investments have greater potential risk – examples include investment of funds in:

   1. the money market
   2. stocks and shares

Given the unpredictability and uncertainty surrounding such investments, the Council will generally not use this type of investment.

Any such investment will be subject to specific consideration and approval by full Council.

5. LOCAL INVESTMENTS (Lending by Local Councils)

   The Town Council may loan funds to local enterprises, local third sector bodies, wholly owned companies and joint ventures as part of a wider strategy for local economic growth even though those loans may not all be seen as prudent if adopting a narrow definition of prioritising security and liquidity.

When considering security and liquidity of such loans the Council will set limits for their total exposure and apply the expected loss model in line with the requirements of International Financial Reporting Standards 9 Financial Instruments.

Local investments are often a convenient method of investing surplus funds within the community. The Town Council may lend money, on any terms which may be mutually agreed, for the benefit of its inhabitants and such loans are often made interest free.  However, the Council will demonstrate that:

1. Total financial exposure to these type of loans is proportionate;
2. They have used an allowed “expected credit loss” model for loans and receivables as set out in International Financial Reporting Standard (IFRS) 9 Financial Instruments as adopted by proper practices to measure the credit risk of their loan portfolio;
3. They have appropriate credit control arrangements to recover overdue repayments in place; and
4. The local authority has formally agreed the total level of loans by type that it is willing to make and their total loan book is within their self-assessed limit.

 

6. LIQUIDITY OF INVESTMENTS

   The Governance and Finance Committee in consultation with the Responsible Finance Officer will determine the maximum periods for which funds may prudently be committed so as not to compromise liquidity.

   Investments will be regarded as commencing on the date the commitment to invest is entered rather than the date on which the funds are paid over to the counterparty.

7. LONG TERM INVESTMENTS

   Long Term Investments are defined in Guidance as being greater than 36 months. Any investment greater than 36 months will be subject to specific consideration and approval by full Council.

8. INVESTMENT STRATEGY 2024 – 2025
   In the year 2024/25, the Town Council will seek to invest as much of its balance as possible in a low risk product to achieve its investment objectives.

   The Town Council is mindful of the need to make the administration, monitoring and reporting of investments as simple as possible, especially when considering current low rates of return and administration costs associated with managing multiple accounts or creating new accounts.

   The following have been identified using Moody’s and Fitch Ratings* as being suitably secure in the following scenarios:

   1. For day to day banking including current account a high degree of liquidity is required with suitable banking arrangements [easy] access for both deposit and withdrawal.

      This condition has limited the practical choice to [local] “High Street” banks.

      Louth Town Council has an ongoing long-term relationship with Lloyds Bank.

      1. The Business Current Account will continue to be held at Lloyds Bank for actual year finances plus 20% of the annual budget for cash flow purposes. Funds to be managed so as to avoid the balance ever dropping below £150,000.
      2. A Business Deposit Account with another high street bank will be investigated and funds therein will not exceed £100,000 (amount covered by the Financial Services Compensation Scheme plus 17.6% for cashflow purposes).

The Council is aware that it will be required to incur expenditure going forwards on its assets (e.g., Hubbard’s Hills,  Old Mill House, Sessions House, Cemetery) and there are large projects within the community that it may wish to become involved with and liquidity of funds remains a higher priority than return on investment especially when the differential in rates of interest are very modest and limited.

For general investment of reserves and other funds an interest earning account that pays a competitive return is sufficient.

The Council will maintain an Investment Account with National Savings and Investments. This will be for all balances not held in the Current/Deposit Account (Earmarked Reserves and any remaining General Reserve not allocated to the current account)

The Responsible Finance Officer shall have delegated authority to make all necessary transfers between the accounts from time to time to meet the annual investment strategy.

9. REGULAR AND END OF YEAR INVESTMENT REPORT

   Investment forecasts will be accounted for when budgets are prepared. The Responsible Finance Officer will report on investment activity (as appropriate) to the Governance and Finance Committee within budget (income /expenditure) reports.

10. REVIEW AND AMENDMENT OF REGULATIONS

    The Annual Investment Strategy must be reviewed annually and revised if considered necessary. The Council reserves the right to make variations to the Investment Strategy at any time subject to the approval of Council. All variations will be made available to the public.