The Treasury Management Code of Practice (“Treasury Management Code”) was introduced in 2001/02. Local authorities are required to “have regard” to the code in setting up and approving their Treasury Management arrangements.
About the Local Government Association
- The Local Government Association (LGA) is the national voice of local government. We are a politically led, cross party membership organisation, representing councils from England and Wales.
- Our role is to support, promote and improve local government, and raise national awareness of the work of councils. Our ultimate ambition is to support councils to deliver local solutions to national problems.
- We welcome the opportunity to comment on this consultation. This response has been cleared by lead members of the LGA’s Resources Board.
Introduction
4. The Treasury Management Code of Practice (“Treasury Management Code”) was introduced in 2001/02. Local authorities are required to “have regard” to the code in setting up and approving their Treasury Management arrangements. In practice the code is widely used, and it is likely that any local authority not following it would be required to justify (eg to its external auditors) why it had not used it.
5. The Treasury Management Code and the Prudential Code, form two parts of what is known as the Prudential Framework. In England, the other two parts are statutory guidance published by MHCLG - Guidance on Local Authority Investments (“Investments Guidance”) and the Guidance on Minimum Revenue Provision (“the MRP Guidance”). All four parts were last revised in 2017 and came into effect from 1 April 2018.
Consultation questions
6. The Treasury Management Code consultation includes 7 questions. Questions 1,2,3,4, and 5 are aimed at strengthening the skills and knowledge within local authorities to manage treasury management activities. Treasury management is a highly specialist area that can have a big financial impact. These are detailed questions and the views of individual local authorities and of finance and treasury management practitioners within the sector on these proposed changes will be important. That said, treasury management needs to be managed with a high level of knowledge and skill with an appropriate and informed attitude to risk.
7. Question 6. Do you agree more complex treasury management functions (ie a professional client under MiFID II legislation) means that local authorities would benefit from the support of a dedicated committee to review decisions and strategies and that CIPFA should recommend this in its guidance provided to local authorities? If not, why not? What alternatives would you suggest?
8. An appropriate level of member and officer challenge is needed on investments, capital and borrowing, and that needs to be properly informed, with professional advice taken, and with councillors acting in the role of an informed lay person. We do not believe that a separate Treasury Management Committee is the right way to achieve that. It is not clear what the role of such a committee would be given that full council has to approve the Treasury Management strategy and officers have to then work within its parameters. Such governance issues are for individual local authorities to decide, and some councils may feel that a specialist committee may take accountability one step further away from full council, add an unnecessary layer of bureaucracy, or undertake a role that can be just as easily be done by another committee. Instead, it is our view that further attention should be paid to making sure the subject of treasury management can be presented to members in plain language, for the intelligent non-expert. CIPFA should have a role to play in helping finance practitioners to de-mystify the subject.
9. Question 7. Do you agree with the removal of the maturity structure of borrowing treasury management indicators on the introduction of the liability benchmark indicator? If not, why not? What alternatives would you suggest?
10. This is a detailed technical point and we would again suggest that the views of individual local authorities and of finance practitioners within the sector on this proposed change will be important. We understand that the maturity structure is well understood at present so it will be important that the same holds for the liability benchmark indicator and that it is explained clearly. That said, it makes sense for there to be consistency between this and the Prudential Code indicators.
Treasury Management in the Public Services: Code of Practice and Cross-Sectoral Guidance Notes