Issue - meetings

To consider a report on the financial position in relation to the PFI contract

Consideration was given to a report on the financial position and Reserve in relation to the PFI contract. 

The purpose of the Reserve was to smooth out timing difference over the 30 year period of each PFI agreement.  These relate to timing differences between the receipt of funds by the Council and the amounts released by the Councils towards Council towards the monthly Unitary Payments. 

The Reserve had been left untouched during 2011/12 as the timing of transactions coupled with very low interest rates meant there was no in year surplus to be invested.  Any surplus balances in the reserve were invested and carried forward to cover the projected deficits in future years, with the Reserve ultimately balancing to zero when the agreement ended.  The current reserve balance was £1,551,000.

The current position masked underlying potential problems that would occur going forward. The main areas of concern were the affordability issues being experienced by both councils in respect of Adult Services overall and therefore the ability to make anticipated contributions to the Reserve in the short term.

The current economic climate with the consequential effect on interest rates would also affect the Reserve going forward.  Interest was planned at 4.5% per annum on invested funds, whereas the current rates generated little in excess of 0%.  If the current position continued in the longer term this would have a material adverse effect on the Reserve. 

At this point (and in the short term going forward) the Reserve was healthy when compared to previous estimates and therefore no immediate action was recommended.  

RESOLVED:

That the contents of the Finance Report be noted.