My first reflection this year concentrated on the HRA self-financing debt settlement – treasury staff at many local authorities had spent considerable time in 2011 investigating the myriad financing opportunities available to fund what, for many, would be the single largest transaction of their careers.
Of course, to the welcome relief of most, the PWLB came to the rescue in March with ‘one-off’ special rates – would we ever see the like again? And then I look at the PWLB website today, deduct my certainty rate discount, and find there’s little difference! For those authorities with bundles of revenue resources this would seem an opportune time to fill up on ‘one-off’ cheap borrowing. Unfortunately, there are very few, if any, authorities with bundles of revenue resources!
Capital and infrastructure investment has dominated policy arguments in recent months. The chancellor heralded an additional £5bn of investment resource in his autumn statement but most local authorities are looking on with trepidation to the news due this week about revenue grant levels in future years.
Back with housing, many HRAs are looking at the stock investment and new build opportunities arising from self-financing (again, for those with headroom today’s PWLB circular must make interesting reading) or perhaps were looking and then started modelling some of the possible impacts of welfare reform – revenue strikes again!
My other reflection at Q1 concerned investment certainty in a world of uncertain Eurozone markets. I mentioned AAA-rated money market funds – in theory, perhaps, of better credit quality than HM Government if you believe the metrics of Fitch, Moodys, and S&P. Well, the funds have retained their AAA status (and HMG has a 2 in 3 chance of not being downgraded!), are still good for liquidity, but the margin over the DMO seems to decrease daily.
Moreover, the funds face the same problems that local authority treasury staff are encountering – how to diversify in a world of fewer and fewer high status counterparties. Or, if your risk appetite is greater, what value there is to be had when the Bank of England has skewed the market through its Funding for Lending scheme? Into this environment a new counterparty has emerged – the local authority itself! Well, perhaps not new, but certainly in greater volumes than at times in recent history. At Q1 brokers might occasionally mention offer x from authority y, but in Q4 conversations of this type can dominate many an early morning call. Once again, the PWLB circular comes to the fore as treasury staff gauge the margin above or below the equivalent benchmark when deciding upon offers and bids.
As the year turns, what does this all mean for those sending on their draft treasury strategies for scrutiny prior to January, February, and March councils? Not an overly optimistic investment return I’m sure. Perhaps a counterparty list that has been extended from recent years but tempered with the knowledge that many of those counterparties are, to all extents, out of reach for the time being. And under borrowing strategy? Let’s wait and see.