Treasurer’s reflections – Q1: Cyprus & PWLB rates
0Another quarter and another Eurozone sovereign/banking calamity. Perhaps the greatest shock would be a quarter without one! This time we all check our exposures to Cyprus – probably very unlikely in any direct fashion, but that hasn’t stopped a stream of emails from investment managers at several money market funds reassuring clients that they don’t hold Cypriot assets (if they ever did).
As ever with this cycle it’s not the direct investments that trouble most treasury managers but the other dreaded connotations: contagion and confidence. What if Cyprus isn’t a ‘special case’ and depositors in Spain, Italy, Portugal, etc. have more to fear than they might previously have thought? How does that play out in Euroland and then impact upon the UK? As I write, one of the major financial news items concerns the FPC’s assessment of the UK banking sector’s capital adequacy; our large institutions, still fragile, may not have the resilience to withstand the stress of another crisis just yet.
All of which adds to the mindset that seems most prevalent for local authority treasurers at present – security, security, security – keep your investment decisions within the family of the UK public sector and wait (hope) for better days. As the financial year closes, many authorities with liquidity will be seeking a home for cash with those authorities in the perennial position of tiding themselves over until the first April grant day.
One year on from the implementation of HRA self-financing and its ‘special rates’ and we now have a raft of ‘special’ PWLB rates to contend with – from the certainty rate (special rates for authorities prepared to divulge just that little bit extra information about their future capital requirements) to the project rate (special rates for authorities within Local Enterprise Partnerships to support strategic local capital investment projects.)
Confused? In a public sector where capital grants are scarce or non-existent it seems the policy lever of choice is monetary rather than fiscal. Possibly more pertinent is whether the rate on offer (standard, certain, project) is gradually rising from its historic lows in the wake of the of the UK’s credit downgrading. If you have a borrowing requirement, is now the time to approach the PWLB? Business cases for LEPs to access the project rate need to be submitted by the autumn, but if you wait, will your 40bps bonus still have the value it has now?
Or should you wait for next quarter’s Eurozone shock to see the UK’s safe haven status return again?
Mark Finnegan is the Principal Accountant at Rugby Borough Council
