Long term borrowing for capital purposes 42,921 49,421 53,981 52,998 Lease Finance 63 0 0 0 Maximum cash-flow deficit arising from revenue budget 10,000 10,000 10,000 10,000 operations Operational Boundary 52,984 59,421 63,981 62,998 Additional margin for unforeseen 3,000 3,000 3,000 3,000 circumstances Authorised Limit 55,984 62,421 66,981 65,998 Prospects for Long Term Interest Rates The PCC will appoint a treasury advisor and part of their service will be to assist the Commissioner to formulate a view on interest rates. Appendix 3 gives a market view with regards to long term interest rates (published 20 January 2016). It should be noted that: The market forecast shows long term interest rates rising steadily over the next three years, with 25 yr PWLB debt rising from 3.4% to 4.1%. Actual experience in January 2016 has been that rates have declined from 3.45% to approximately 3% as a result of concerns over global economic growth. Borrowing Strategy 2016-17 to 2019-20 The overall aims of the borrowing strategy are: borrowing at the lowest possible rates in the most appropriate periods; minimising borrowing and expenses; the management of debt maturities to avoid large levels of maturities in any one year. For a number of years market conditions have been such that internal borrowing (use of the PCC’s own cash resources to fund capital expenditure) was, in the short term, the most cost effective method of borrowing. This is because the opportunity cost of not lending working balances and reserves (i.e. the interest returns on short term loans) was significantly below the cost of borrowing to finance the capital programme. Internal borrowing also has the advantage of reducing credit and counter party risk as external lending by the PCC is reduced. In the Autumn of 2014 this policy was re-evaluated as market forecasts indicated that long term interest rates were due to increase. A new loan of £4m was taken that increased net borrowing by £2m (as a £2m loan matured in 2014/15). Further borrowing was planned for 2015/16; this has not taken place because capital expenditure has been lower than planned and long term interest rates have risen more slowly than forecast.
Long term borrowing for capital purposes 42,921 49,421 53,981 52,998 Lease Finance 63 0 0 0 Maximum cash-flow deficit arising from revenue budget operations 10,000 10,000 10,000 10,000 Operational Boundary 52,984 59,421 63,981 62,998 Additional margin for unforeseen circumstances 3,000 3,000 3,000 3,000 Authorised Limit 55,984 62,421 66,981 65,998 Prospects for Long Term Interest Rates The PCC will appoint a treasury advisor and part of their service will be to assist the Commissioner to formulate a view on interest rates. Appendix 3 gives a market view with regards to long term interest rates (published 20 January 2016). It should be noted that: The market forecast shows long term interest rates rising steadily over the next three years, with 25 yr PWLB debt rising from 3.4% to 4.1%. Actual experience in January 2016 has been that rates have declined from 3.45% to approximately 3% as a result of concerns over global economic growth. Borrowing Strategy 2016-17 to 2019-20 The overall aims of the borrowing strategy are: borrowing at the lowest possible rates in the most appropriate periods; minimising borrowing and expenses; the management of debt maturities to avoid large levels of maturities in any one year. For a number of years market conditions have been such that internal borrowing (use of the PCC’s own cash resources to fund capital expenditure) was, in the short term, the most cost effective method of borrowing. This is because the opportunity cost of not lending working balances and reserves (i.e. the interest returns on short term loans) was significantly below the cost of borrowing to finance the capital programme. Internal borrowing also has the advantage of reducing credit and counter party risk as external lending by the PCC is reduced. In the Autumn of 2014 this policy was re-evaluated as market forecasts indicated that long term interest rates were due to increase. A new loan of £4m was taken that increased net borrowing by £2m (as a £2m loan matured in 2014/15). Further borrowing was planned for 2015/16; this has not taken place because capital expenditure has been lower than planned and long term interest rates have risen more slowly than forecast.