Treasury managers attending Room151’s latest Monthly Online Treasury Briefing (MOTB) have strongly indicated that the liability benchmark should be a voluntary rather than a mandatory tool.
It is now mandatory for local authorities to have regard to their liability benchmark, which helps them plan their future borrowing requirements. However, in a poll conducted during today’s MOTB session, 88% of attendees who voted said that the tool should only be used on a voluntary basis.
They were supported by Danny Mather, head of corporate finance at Warrington Borough Council, who was one of the speakers on the MOTB finance panel.
‘My view is that it should be a voluntary indicator that professional treasury officers can use when they are borrowing, as part of a wider set of indicators,” Mather said.
He added that the complexity of the tool meant that it was not understood by finance professionals, let alone elected members and the public.
Mather said that treasury managers would have to “take the medicine” because the benchmark is a requirement of the CIPFA Prudential and Treasury Management codes.
“Most authorities will just stick a graph in their treasury management strategy and their capital strategy. And they’ll probably get no questions because the public don’t have the knowledge to challenge, and members don’t have the knowledge to challenge.”
In contrast, David Green, strategic director at Arlingclose, supported the use of the benchmark. “You shouldn’t be making ultra-long-term borrowing decisions blind,” he told attendees.
“You need some sort of tool to guide where you should be setting the debt portfolio. If the alternative is to do nothing and just guess where your debt should be, the liability benchmark is an improvement on that.”
An earlier poll of MOTB attendees showed that only 40% were clear on how they would be implementing the liability benchmark.
Also speaking at the MOTB were Sid Mehta, fund manager for cash investments at CCLA Investment Management, and Nick Edwardson, senior investment specialist for Aegon Asset Management.
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