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Liability Management Policy

The paper on this important, if esoteric subject was presented by the new Corporate Group Services Manager - Karl Dudley, who has come to the Council with a fine reputation, and for somewhat of a relief after many years of Steve Baker brooking no criticism.

I don't intend to examine the policy paper presented by Karl Dudley, except to say that it appears to make some substantial changes from the that has been followed for many years. I intend to deal with but one where I believe that there remains a major anomaly. It relates to the manner in which internal loans (borrowing!) are handled. This normally constitutes borrowing aginst depreciation reserves to fund new capital works.

Readers will be aware that I have harped on about this for many years, but strangely, whenever I raise finance issues, the numbers of readers falls away sharply, so I have learnt to leave well alone except where I feel that there is a major issue that should be examined in the light of recognised IAS (International Accounting Standards) and 'best practice.

Here is the statement at 7.5 of the Investment Management Policy as proposed, about which I take issue:

"The Council undertakes internal lending. Loans to each activity are set up within the internal debt portfolio based on approved loan funded capital expenditure, or operational expenditure (my caps) through the annual planning and/or LTP process and allocated to the activity incurring the capital expenditure. The following operational parameters apply to the management of the Council's internal lending portfolio:

  • all internal lending activities are consistent with the principles and parameters outlined throughout the liability management policy.
  • the Council seeks to firstly utilise reserve funds and if insufficient reserves are available utilises external borrowing mechanisms.
  • in determining an activity centre's maximum internal loan amount, any existing depreciation reserve amount or other related amount is firstly allocated to that centre. Any additional funding is provided through internal loans. (my caps)
  • the Council seeks to match the maturity and interest rate profile on its internal and external borrowing and investing activities. Any mismatches are managed within the liquidity policy outlined in Section 7.7."

My concerns here relate to the use of borrowing, either internal or external for operational purposes. That as I understand it is totally contrary to 'best practice,' and has never been part of any past policy of this Council, or any other. Operational expenditure should always be met from rating or other revenue. Councillors should certainly be seeking a full explanation for this policy as it is worded

Secondly, I can only assume that the second phrase in caps ("Any additional funding is provided through internal loans") is in fact a misprint. If not, then it seems particularly anomalous, and worthy of an explanation by Mr Dudley. It simply does not make sense as it stands.

There are other issues that i could raise, but prefer to avoid some of the more outrageous gobbledegook used in this draft policy for the next ten years to others more qualified, and better able to comment. Surely a policy of this nature can be expressed in a manner more open to the understanding of the average councillor. I would venture that not one of the present crop would have the slightest understanding of the majority of this paper.



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