Tees Valley Combined AuthorityAgenda

www.stockton.gov.uk

Date: Monday, 4th April, 2016 at 11.00am

Venue: The Curve, Teesside University, Middlesbrough, TS1 3BA

Membership:

Councillor Bill Dixon (Leader of Darlington Borough Council)Councillor Christopher Akers-Belcher (Leader of Hartlepool Council)Mayor David Budd (Mayor of Middlesbrough Council)Councillor Sue Jeffrey (Leader of Redcar and Cleveland Borough Council)Councillor Bob Cook (Leader of Stockton-on-Tees Borough Council)Paul Booth (Chair of Tees Valley Local Enterprise Partnership)

Associate Membership:

Phil Cook (Member of Tees Valley Local Enterprise Partnership)Paul Croney(Member of Tees Valley Local Enterprise Partnership)Ian Kinnery (Member of Tees Valley Local Enterprise Partnership)Alastair MacColl (Member of Tees Valley Local Enterprise Partnership)Naz Parkar (Member of Tees Valley Local Enterprise Partnership)Nigel Perry (Member of Tees Valley Local Enterprise Partnership)David Robinson (Member of Tees Valley Local Enterprise Partnership)David Soley (Member of Tees Valley Local Enterprise Partnership)Alison Thain (Member of Tees Valley Local Enterprise Partnership)

AGENDA

1. Confirmation of Membership:-

1. To note the constituent Tees Valley Council Members appointed to the Tees Valley Combined Authority

2. To agree the nomination from the Tees Valley Local Enterprise Partnership (The Chair of the Tees Valley Local Enterprise Partnership)

3. To agree the Associate Membership of the Tees Valley Combined Authority

2. Appointment of Chair

To appoint a Chair for the period up until the date of the 2016 Annual Meeting of the Tees Valley Combined Authority

1

Tees Valley Combined AuthorityAgenda

www.stockton.gov.uk

3. Apologies for absence

4. Appointment of Vice Chair

To appoint a Vice Chair for the period up until the date of the 2016 Annual Meeting of the Tees Valley Combined Authority

5. Rotation of Chair of Tees Valley Combined Authority

For Members to note that the position of Chair will be rotated between the 5 Tees Valley Local Authorities

6. Tees Valley Combined Authority’s Constitution

To approve the Tees Valley Combined Authority’s Constitution which can be found at:

https://www.stockton.gov.uk/media/6346/combined-authority-draft-consitution-march-2016.docx

7. Declarations of interest

8. Appointment of Statutory Officers:-

Head of Paid ServiceMonitoring Officer – David Bond (Stockton-on-Tees Borough Council - Monitoring Officer)Section 151 Officer – Garry Cummings (Stockton-on-Tees Borough Council – Director of Business and Finance)

9. Date of Annual Meeting – Tuesday, 7th June 2016 at 10.00am

10. Approval of Medium Term Financial Plan - Report attached

11. Transport Priorities – Presentation

12. Inward Investment Sirius – Presentation

13. Education & Skills Board Update

14. Enterprise Zones

2

Tees Valley Combined AuthorityAgenda

www.stockton.gov.uk

Members of the Public - Rights to Attend Meeting With the exception of any item identified above as containing exempt or confidential information under the Local Government Act 1972 Section 100A(4), members of the public are entitled to attend this meeting and/or have access to the agenda papers.Persons wishing to obtain any further information on this meeting or for details of access to the meeting for disabled people, please contact: Peter Bell – 01642 526188 – peter.bell@stockton.gov.uk

Members’ Interests

Members (including co-opted Members) should consider whether they have a personal interest in any item, as defined in paragraphs 9 and 11 of the Tees Valley Combined Authority’s (TVCA) code of conduct and, if so, declare the existence and nature of that interest in accordance with and/or taking account of paragraphs 12 - 17 of the code.

Where a Member regards him/herself as having a personal interest, as described in paragraph 16 of the code, in any business of the TVCA he/she must then, in accordance with paragraph 18 of the code, consider whether that interest is one which a member of the public, with knowledge of the relevant facts, would reasonably regard as so significant that it is likely to prejudice the Member’s judgement of the public interest and the business:-

affects the Member’s financial position or the financial position of a person or body described in paragraph 17 of the code, or

relates to the determining of any approval, consent, licence, permission or registration in relation to the Member or any person described in paragraph 17 of the code.

A Member with a personal interest, as described in paragraph 18 of the code, may attend the meeting but must not take part in the consideration and voting upon the relevant item of business. However, a Member with such an interest may make representations, answer questions or give evidence relating to that business before the business is considered or voted on, provided the public are also allowed to attend the meeting for the same purpose whether under a statutory right or otherwise (paragraph 19 of the code).

Disclosable Pecuniary Interests

It is a criminal offence for a Member to participate in any discussion or vote on a matter in which he/she has a disclosable pecuniary interest (and where an appropriate dispensation has not been granted)(paragraph 20 of the code).

Members are required to comply with any procedural rule adopted by the TVCA which requires a Member to leave the meeting room whilst the meeting is discussing a matter in which that Member has a disclosable pecuniary interest (paragraph 21 of the code).

3

AGENDA ITEM 10

REPORT TO BOARD

4 APRIL 2016

REPORT OF HEAD OF PAID SERVICES / CHIEF FINANCE OFFICER

COMBINED AUTHORITY 2016/17 BUDGET AND MTFP

SUMMARY

The purpose of this report is to set out the Tees Valley Combined Authority (TVCA) revenue and capital budgets for 2016/17 and present provisional figures across the medium term.

This is the first formal budget for the TVCA which builds upon those budgets inherited form Tees Valley Unlimited (TVU). It also includes proposed transport budgets to be transferred from Tees Valley Authorities to the new organisation and information on investment funds available.

The budget is presented based on the current organisation and arrangements around the Combined Authority which are linked to the current funding streams and Local Authority contribution levels.

As previously agreed by the Tees Valley Leaders and Mayor, there will be a further staffing review required following the establishment of the Combined Authority and in preparation for the future requirements of the Devolution Deal. A further report will be presented to the Combined Authority Board outlining the financial implications at that time which will need to be considered alongside the funding available.

RECOMMENDATIONS

1. The Combined Authority approve the 2016/17 budget and indicative 2017-19 Medium Term Financial Plan outlined in paragraph 2.

2. The Combined Authority approve the use of £39,000 of the TVU reserve held at 31 March 2016 as outlined at paragraph 10 with the balance of £811,000 used to create a General Balances Reserve.

3. Combined Authority approve the use of LEP Core and Capacity Funding outlined in paragraph 7.

4. The balance of LEP and Core Capacity Funding of £397,000 are held in a separate Reserve to be allocated by the Combined Authority following consultation with LEP Members as part of a future report.

5. Members approve the Capital Programme at Appendix A.

6. Members endorse the previous decision of the Tees Valley Leaders & Mayor, the use of EZ income to fund Digital City and note the estimate of resources available for investment.

7. The Combined Authority approve the Treasury Management Strategy, Minimum Revenue Provision Statement and Prudential Indicators, as set out at Appendix B.

31

DETAIL

Combined Authority Medium Term Financial Plan – Core Budget

1. The purpose of this section of the report is to set out the proposed core budgets for the Tees Valley Combined Authority (CA) for 2016/17 through to 2018/19.

2. The table below identifies the proposed core budgets that are required to operate the CA and are based on the agreement that the running costs of the CA will not increase over and above those agreed for TVU.

Salary costs included in the above plan are based on the current organisational structure and assume a 1% pay award in line with Government proposals around Public Sector pay.

3. The Tees Valley Leaders & Mayors have previously discussed and agreed the need to undertake a review of Management and capacity once details of the Devolution Deal are finalized. Any costs associated with this could be funded from the Core Funding Capacity Grant (see paragraph 7) or a small top-slice to the Investment Funds available from EZ income, Single Capital Pot, etc.

Local Authority Contribution

TVU Core MTFP 2016/17£000's

2017/18£000's

2018/19£000's

LA Contributions (£2,135) (£2,150) (£2,166)

Salaries 1,551 1,566 1,582Premises 149 149 149Running Costs      Insurance & Training etc. 21 21 21Transport 32 32 32General Running Costs 73 73 73Support Costs 164 164 164Business Investment 60 60 60Marketing & Communications 85 85 85  2,135 2,150 2,166Contribution to / from Balances 0 0 0

5

4. In line with the agreements in place around the funding of TVU and the constitution of the Combined Authority which is elsewhere on this Agenda, the contributions required for 2016/17 are outlined below. The comparative figures for 2015/16 are also shown.

The future level of contributions will

need to be considered alongside the review of the structure and use of future Combined Authority Resources.

Local Enterprise Partnership Core and Capacity Funding

5. In December 2015 DCLG confirmed that they will continue to pay £250,000 of core funding and £250,000 Capacity Funding to each LEP for 2016/17. We are still awaiting confirmation of funding for subsequent years.

6. An additional £500,000 will therefore be available on top of the originally approved expenditure plans.

7. The following table identifies the estimated funds available and the commitments that have been previously approved by the TVU Leadership Board. In advance of the wider review of the organisational structure, it was recognised that there was a need to appoint a temporary Director of Transport and Infrastructure for a period of two years at an estimated cost of £216,000 and this proposal was agreed in February 2016 through utilising this funding. This will clearly be considered as part of the future review of organisational capacity.

LEP Core & Capacity Funding  

Future YearsProjected

£000'sFunding  Balance b/f from 2015/16 (722)DCLG Funding Core (500)

Total Available Funding (1,222)Approved Expenditure  

ESIF Development 19City Deal: Low Carbon & CCS 66City Deal: Commercialisation Hub 0LGF Management Costs 160LGF Development Costs 57External Specialist 34Live, Work, Play Programme 40Director Transport & Infrastructure 216Programme Staffing Costs 233

Total Expenditure 825Balance Carried Forward to 2016/17 (397)

Local Authority Contributions

2015/16 2016/17

Darlington £334,914 £337,284

Hartlepool £310,959 £313,159

Middlesbrough £442,821 £445,954

Redcar & Cleveland £444,703 £447,849

Stockton £586,613 £590,764

Total Contributions £2,120,010 £2,135,010

6

It is recommended that the Combined Authority endorse the spending plans and the balance is retained in Reserve to be allocated by the Combined Authority once spending priorities are further clarified.

Transport

8. The Tees Valley Combined Authority Order 2016 places specific transport powers on the CA and these costs have to be attributable across the constituent councils by the way of a contribution in such proportions as they agree. In this instance the apportionment is based on the same proportion each council had budgeted to spend in the year prior to the transfer of functions.

9. The total net 2016/17 expenditure for transport relate specifically to those associated with Concessionary Fares. In 2015/16 the Tees Valley budgets were £16.6m and following negotiations it is anticipated that the costs in 2016/17 will be the same as 2016/17.

2016/17 Charges

Hartlepool £2,261,150

Middlesbrough £4,176,207

Redcar and Cleveland £2,968,966

Stockton-on-Tees £4,078,821

Darlington £3,129,296

Total Tees Valley £16,614,440

General Balances

10. At 31 March 2016, the level of balances are expected to be £850,000. TVU Leadership Board have previously earmarked £39,000 to support expenditure in future years as follows:

a. Marketing & Communications £17,000b. Combined Authority Programme Management £17,000c. LEP Network £5,000

It is recommended that the Combined Authority endorse these previous approvals.

11. In line with financial Best Practice and Audit guidelines, there will be a requirement to establish a General Reserve, commonly referred to as General Fund Balances in order to manage any unforeseen events. The overall budget of the new Authority is uncertain going forward and will be largely determined by investment funding. Previously a Reserve has been held to cover redundancy costs etc. It is recommended that the uncommitted Reserve of £811,000 be held as General Fund Balances and that this is considered further in the year when funding levels and associated risks are clarified.

CAPITAL PROGRAMME & INVESTMENT FUNDS

12. TVU have received a Local Growth Fund Allocation of £96.6m covering 2015/16 – 2019/20. The 2015/16 and 2016/17 allocations of £53m have been confirmed, with the other 3 years currently being indicative allocations. Schemes totalling £33.84m have been approved and these are shown on the Capital Programme attached at Appendix B. A number of additional schemes covering the balance of funding are currently identified subject to satisfactory diligence.

7

13. In 2015 the TV Shadow Combined Authority agreed a Devolution Deal in principle with the Government which would result in the allocation of funding of £450m, based on £15m per year for 30 years, subject to Gateway reviews every five years, and also subject to the appointment of a Mayor. Indications from Government are that this will be incorporated within a Single Capital Pot, together with the balance of the Local Growth Fund and elements of transport funds. Negotiations with Government are still ongoing around the level and certainty of funding and the flexibilities available and further detail will be submitted to the Combined Authority when clarity is ascertained.

14. TVU have also operated a Growing Places Fund which is a revolving loans fund which was allocated by the Government to unlock economic growth by addressing immediate infrastructure constraints. £8.5m was originally awarded by the Government and to date approximately £5.3m has been allocated. At present there are no commitments against the remaining £3.2m and so this resource is also available together with a further £5.3m once the loans are repaid.

15. There are eight Enterprise Zones within the Tees Valley where it has been agreed that the business rates growth that is generated from these sites are paid over to the Combined Authority for 25 years. The TVU Shadow Combined Authority also approved the use of EZ income to fund the Digital City scheme which is £468,000. It is estimated that this will generate £18m over the next 5 years. Three of the original four locally funded EZ sites will become Government funded from April 2016 (see separate report, item 14). 50% of the business rates growth from these three sites will come to the Combined Authority with the remainder going to the relevant Local Authority.

16. The Growing Places Fund is a revolving loans fund which was allocated by the Government to unlock economic growth by addressing immediate infrastructure constraints. £8.5m was originally awarded by the Government and to date TV Unlimited has allocated approximately £5.3m. At present there are no commitments against the remaining balance and over the next few years loan repayments will begin to be repaid increasing the amount of funds available to invest.

17. Given that elements of the funding are Revenue, this creates the option of prudentially borrowing if the Strategic Economic Plan identifies transformational projects and initiatives where early implementation would be beneficial.

Treasury Management Strategy

18. The Authority is required to approve a Treasury Management and Investment Strategy each year. The document sets out projections for borrowing and investments, and the guidelines under which Treasury Management officers will operate to ensure the security and liquidity of TVCA’s funds.

19. A number of Treasury Management Indicators and Prudential Indicators are set out to be agreed to enable monitoring of the delivery of this strategy.

The full Treasury Management and Investment Strategy and Prudential Indicators are set out in Appendix B.

FINANCIAL IMPLICATIONS

This report sets the budget for the Combined Authority.

8

LEGAL IMPLICATIONS

None

RISK ASSESSMENT

The MTFP is categorised as low to medium risk. Existing management systems and daily routine activities are sufficient to control and reduce risk.”

CONSULTATION

Not Applicable

Contact Officer: Garry Cummings, Director of Finance & Business ServicesTel No: 01642 527011Email: garry.cummings@stockton.gov.uk

9

10

Appendix A

Approved Capital & Investment Programme Approved Schemes Local Growth FundBank Top Station 300

Cleveland College of Art & Design 8,340

Central Park 2,200

M.P.I 3,000

Teesside Park A66 Interchange 1,825

Business Growth Hub 5,800

Ingleby Way / Myton Way 1,850

TAMP Research and Technology Centre 3,000

DTVA Southside 5,000

A689 Wynyard Improvement 2,525

Hartlepool Innovation Skills Quarter 368  34,208

Other Capital & Investment SchemesTees Valley Station Upgrades 500Total Planned Expenditure 34,708

Funded ByLocal Growth Fund 34,208Government Grants - DFT 500Approved Funding 34,708

11

Appendix B

PRUDENTIAL CODE AND TREASURY MANAGEMENT STRATEGY 2016/17

Introduction1. The Authority is required to operate a balanced budget, which broadly means that cash raised

during the year will meet cash expenditure. Part of the treasury management operation is to ensure that this cash flow is adequately planned, with cash being available when it is needed. Surplus monies are invested in low risk counterparties or instruments commensurate with the Authority’s low risk appetite, providing adequate liquidity initially before considering investment return.

2. The second main function of the treasury management service is the funding of the Authority’s capital plans. These capital plans provide a guide to the borrowing need of the Authority, essentially the longer term cash flow planning, to ensure that the Authority can meet its capital spending obligations. This management of longer term cash may involve arranging long or short term loans, or using longer term cash flow surpluses. On occasion any debt previously drawn may be restructured to meet Authority risk or cost objectives.

3. CIPFA defines treasury management as:

“The management of the local authority’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.”

The Capital Prudential Indicators 2016/17 – 2018/194. The Local Government Act 2003 requires the Authority to adopt the CIPFA Prudential Code

and produce prudential indicators. Each indicator either summarises the expected activity or introduces limits upon the activity, reflecting the outcome of the Authority’s underlying capital appraisal systems.

5. The Authority’s capital expenditure plans are a key driver of treasury management activity. The output of the capital expenditure plan is reflected in prudential indicators, which are designed to assist board member overview and confirm capital expenditure plans.

6. The Authority is recommended to approve the summary capital expenditure and financing projections below. This forms the first prudential indicator:

 2016/17 2017/18 2018/19Estimate Estimate Estimate

£’000 £’000 £’000Capital Expenditure      General Fund 57,799 40,908 24,592Total FinancingCapital receipts 0 0 0Capital grants 57,799 40,908 24,592Capital contributions 0 0 0Revenue 0 0 0

Net financing need (borrowing) for the year (of which Prudential Borrowing)

0 0 0

12

The Authority’s Borrowing Need (the Capital Financing Requirement)7. The second prudential indicator is the Authority’s Capital Financing Requirement (CFR). The

CFR is simply the total outstanding capital expenditure which has not yet been paid for from either revenue or capital resources. It is essentially a measure of Authority’s underlying borrowing need. Any capital expenditure above which has not immediately been paid for will increase the CFR.

8. The CFR does not increase indefinitely, as the minimum revenue provision (MRP) is a statutory annual revenue charge which broadly reduces the borrowing need in line with each assets life.

9. At present the Authority does not own any assets and all capital expenditure has necessary funds so there is no immediate borrowing need.

10. The Authority is recommended to approve the CFR projections below:

 2016/17 2017/18 2018/19Estimate Estimate Estimate

£’000 £’000 £’000

Capital Financing RequirementGeneral Fund 0 0 0

PFI & Finance Leases 0 0 0

Total 0 0 0

Movement in CFR 0 0 0

Movement in CFR Represented ByNet financing need for the year 0 0 0MRP/VRP and other financing movements 0 0 0

Movement in CFR 0 0 0

Minimum Revenue Provision (MRP) Policy Statement

11. The Authority is required to pay off an element of the accumulated General Fund capital spend each year through a revenue charge (the Minimum Revenue Provision - MRP), although it is also allowed to undertake additional voluntary payments (Voluntary Revenue Provision - VRP).

12. The Department of Communities & Local Government regulations require full Authority to approve an MRP Statement in advance of each year. A variety of options are provided to Authority s to replace the existing Regulations, so long as there is a prudent provision.

13. The Authority does not hold any assets so at present a statement is not required.

Affordability Prudential Indicators

14. The previous sections cover the overall capital and control of borrowing prudential indicators, but within this framework prudential indicators are required to assess the affordability of the capital investment plans. These provide an indication of the impact of the capital investment

13

plans on the Authority’s overall finances. The Authority is recommended to approve the following indicators:

Actual and Estimates of the ratio of financing costs to net revenue stream

15. This indicator identifies the trend in the cost of capital (borrowing and other long term obligation costs net of investment income) against the net revenue stream.

 2016/17 2017/18 2018/19Estimate Estimate Estimate

% % %General Fund 0 0 0

BORROWING

16. The capital expenditure plans set out above provide details of the service activity of the Authority. The treasury management function ensures that the Authority’s cash is organised in accordance with the relevant professional codes, so that sufficient cash is available to meet this service activity. This will involve both the organisation of the cash flow and, where capital plans require, the organisation of appropriate borrowing facilities. The strategy covers the relevant treasury/prudential indicators, the current and projected debt positions and the annual investment strategy.

Current Treasury position and forward projections

17. The Authority’s treasury portfolio forward projections are summarised below. The table shows the actual external debt (the treasury management operations), against the underlying capital borrowing need (the Capital Financing Requirement-CFR), highlighting any over or under borrowing.

 2016/17 2017/18 2018/19Estimate Estimate Estimate

£’000 £’000 £’000External Debt      Debt at 1 April 0 0 0 Maturing Debt 0 0 0New Debt taken/to be taken out 0 0 0 Gross Debt at 31 March 0 0 0 The Capital Financing Requirement (ex PFI & Finance Leases) 0 0 0

(Under)/over borrowed 0 0 0   Total Investments at 31 March 26,133 20,964 27,468 Investment change -2,128 -5,169 6,504    

Net Investment at 31st March 26,133 20,964 27,468

18. Within the prudential indicators there are a number of key indicators to ensure that the Authority operates its activities within well-defined limits. One of these is that the Authority needs to ensure that its gross debt does not, except in the short term, exceed the total of the

14

CFR in the preceding year plus the estimates of any additional CFR for 2016/17 and the following two financial years. This allows some flexibility for limited early borrowing for future years, but ensures that borrowing is not undertaken for revenue purposes.

Treasury indicators: limits to borrowing activity

19. A further two prudential indicators control or anticipate the overall level of borrowing. These are:

The Authorised Limit for External DebtThis represents a limit beyond which external debt is prohibited, and this limit needs to be set or revised by the Authority. It reflects the level of external debt, which, while not desired, could be afforded in the short term, but is not sustainable in the longer term. This is the statutory limit determined under section 3 (1) of the Local Government Act 2003.

The Operational Boundary for External DebtThis indicator is based on the expected maximum external debt during the course of the year; it is not a limit. Actual borrowing could vary around this boundary for short periods during the year. It acts as a monitoring indicator to ensure the Authorised Limit is not breached.

20. The Authority is recommended to approve the following Authorised Limit and Operational Boundary:

Authorised Limit

2016/17 2017/18 2018/19

Estimated Estimated Estimated

£’000 £’000 £’000Borrowing 5,000 5,000 5,000 Other long term liabilities 0 0 0 Total 0 0 0 Operational Boundary      Borrowing 2,000 2,000 2,000 Other long term liabilities 0 0 0 Total 0 0 0

The Prospects for Interest Rates

21. The Authority has appointed Capita Asset Services as its treasury advisor and part of their service is to assist the Authority to formulate a view on interest rates. The following table gives their current view.

Bank Rate PWLB Borrowing Rates % % (including certainty rate adjustment)   5 year 25 year 50 yearMarch 2016 0.50 2.40 3.70 3.60June 2016 0.75 2.60 3.80 3.70September 2016 0.75 2.70 3.90 3.80December 2016 1.00 2.80 4.00 3.90March 2017 1.00 2.80 4.10 4.00June 2017 1.25 2.90 4.10 4.00September 2017 1.50 3.00 4.20 4.10December 2017 1.50 3.20 4.30 4.20March 2018 1.75 3.30 4.30 4.20

15

June 2018 1.75 3.40 4.40 4.30September 2018 2.00 3.50 4.40 4.30December 2018 2.00 3.50 4.40 4.30March 2019 2.00 3.60 4.50 4.40

22. UK. UK GDP growth rates in 2013 of 2.2% and 2.9% in 2014 were the strongest growth rates of any G7 country; the 2014 growth rate was also the strongest UK rate since 2006 and the 2015 growth rate is likely to be a leading rate in the G7 again, probably being second to the US. However, quarter 1 of 2015 was weak at +0.4% (+2.9% y/y) though there was a rebound in quarter 2 to +0.7% (+2.4% y/y) before weakening again to +0.5% (2.3% y/y) in quarter 3. The November Bank of England Inflation Report included a forecast for growth to remain around 2.5 – 2.7% over the next three years, driven mainly by strong consumer demand as the squeeze on the disposable incomes of consumers has been reversed by a recovery in wage inflation at the same time that CPI inflation has fallen to, or near to, zero since February 2015 this year. Investment expenditure is also expected to support growth. However, since the August Inflation report was issued, worldwide economic statistics have distinctly weakened and the November Inflation Report flagged up particular concerns for the potential impact on the UK.

23. The Inflation Report was notably subdued in respect of the forecasts for inflation; this was expected to barely get back up to the 2% target within the 2-3 year time horizon. However, once the falls in oil, gas and food prices over recent months fall out of the 12 month calculation of CPI, there will be a sharp increase from the current zero rate to around 1 percent in the second half of 2016. The increase in the forecast for inflation at the three year horizon was the biggest in a decade and at the two year horizon was the biggest since February 2013. There is considerable uncertainty around how quickly inflation will rise in the next few years and this makes it difficult to forecast when the MPC will decide to make a start on increasing Bank Rate.

24. USA. The American economy made a strong comeback after a weak first quarter’s growth at +0.6% (annualised), to grow by no less than 3.9% in quarter 2 of 2015, but then weakened again to 1.5% in quarter 3. The downbeat news in late August and in September about Chinese and Japanese growth and the knock on impact on emerging countries that are major suppliers of commodities, was cited as the main reason for the Fed’s decision at its September meeting to pull back from a first rate increase. However, the nonfarm payrolls figure for growth in employment in October was very strong and, together with a likely perception by the Fed. that concerns on the international scene have subsided, has now firmly opened up the possibility of a first rate rise in December.

25. In the Eurozone, in January 2015 the ECB implemented a €1.1 trillion programme of quantitative easing to buy up high credit quality government and other debt of selected EZ countries. This programme of €60bn of monthly purchases started in March 2015 and it is intended to run initially to September 2016. This appears to have had a positive effect in helping a recovery in consumer and business confidence and a start to a significant improvement in economic growth. GDP growth rose to 0.5% in quarter 1 2015 (1.0% y/y) but came in at +0.4% (+1.5% y/y) in quarter 2 and looks as if it may maintain this pace in quarter 3. However, the recent downbeat Chinese and Japanese news has raised questions as to whether the ECB will need to boost its QE programme if it is to succeed in significantly improving growth in the EZ and getting inflation up from the current level of around zero to its target of 2%.

26. Greece. During July, Greece finally agreed to EU demands to implement a major programme of austerity and is now cooperating fully with EU demands. An €86bn third bailout package has since been agreed though it did nothing to address the unsupportable size of total debt compared to GDP. However, huge damage has been done to the Greek banking system and economy by the resistance of the Syriza Government, elected in January, to EU demands. The surprise general election in September gave the Syriza government a mandate to stay in power to implement austerity measures. However, there are major doubts as to whether the size of

16

cuts and degree of reforms required can be fully implemented and so Greek exit from the euro may only have been delayed by this latest bailout.

27. In summary: Investment returns are likely to remain relatively low during 2016/17 and beyond;

Borrowing interest rates have been highly volatile during 2015 as alternating bouts of good and bad news have promoted optimism, and then pessimism, in financial markets. Gilt yields have continued to remain at historically low levels during 2015. The policy of avoiding new borrowing by running down spare cash balances, has served well over the last few years. However, this needs to be carefully reviewed to avoid incurring higher borrowing costs in later times, when authorities will not be able to avoid new borrowing to finance new capital expenditure and/or to refinance maturing debt;

There will remain a cost of carry to any new borrowing which causes an increase in investments as this will incur a revenue loss between borrowing costs and investment returns.

Borrowing Strategy

28. Against this background and the risks within the economic forecast, caution will be adopted with the 2016/17 treasury operations. The Chief Finance Officer will monitor interest rates in financial markets and adopt a pragmatic approach to changing circumstances:

If it was felt that there was a significant risk of a sharp FALL in long and short term rates, e.g. due to a marked increase of risks around relapse into recession or of risks of deflation, then long term borrowing requirements will be postponed and potential rescheduling from fixed rate funding into short term borrowing will be considered.

If it was felt that there was a significant risk of a much sharper RISE in long and short term rates than that currently forecast, perhaps from a greater than expected increase in world economic activity or a sudden increase in inflation risks, then any future borrowing portfolio will be re-appraised with the likely action that fixed rate borrowing will be undertaken whilst interest rates are still lower than they will be in the next few years.

Treasury Management Limits on Activity

29. There are three debt related treasury activity limits. The purpose of these are to restrain the activity of the treasury function within certain limits, thereby managing risk and reducing the impact of any adverse movement in interest rates. However, if these are set to be too restrictive they will impair the opportunities to reduce costs/improve performance. The indicators are: Upper limits on variable interest rate exposure. This identifies a maximum limit for variable

interest rates based upon the debt position net of investments; Upper limits on fixed interest rate exposure. This is similar to the previous indicator and

covers a maximum limit on fixed interest rates; Maturity structure of borrowing. These gross limits are set to reduce the Authority’s

exposure to large fixed rate sums falling due for refinancing, and are required for upper and lower limits.

30. The Authority is asked to approve the following treasury indicators and limits:

17

  2016/17 2017/18 2018/19Interest Rate Exposures      

  Upper Upper UpperLimits on fixed interest rates 100% 100% 100%Limits on variable interest rates 100% 100% 100%Maturity Structure of fixed interest rate borrowing 2016/17

  Lower UpperUnder 12 months 0% 25%12 months to 2 years 0% 40%2 years to 5 years 0% 60%5 years to 10 years 0% 80%10 years and above 0% 100%

Policy on Borrowing in Advance of Need31. The Authority will not borrow more than or in advance of its needs, purely in order to profit from

the investment of the extra sums borrowed. Any decision to borrow in advance will be within forward approved Capital Financing Requirement estimates, and will be considered carefully to ensure that value for money can be demonstrated and that the Authority can ensure the security of such funds. Risks associated with any borrowing in advance activity will be subject to prior appraisal and subsequent reporting through the quarterly or annual reporting mechanism.

ANNUAL INVESTMENT STRATEGY

Investment Policy

32. The Authority’s investment policy has regard to CLG’s Guidance on Local Government Investments and the 2011 revised CIPFA Treasury Management in Public Services Code of Practice and Cross Sectoral Guidance Notes. The Authority’s investment priorities (in order) are:-

1) safeguarding the re-payment of the principal and interest of its investments on time;2) ensuring adequate liquidity, and finally3) the investment return.

33. In accordance with the above guidance and in order to minimise the risk to investments, the Authority applies minimum acceptable credit criteria in order to generate a list of highly creditworthy counterparties which also enables diversification and thus avoidance of concentration risk. The key ratings used to monitor counterparties are the Short Term and Long Term ratings.

34. The Authority’s officers recognise that ratings are not the sole determinant of the quality of an institution and that it is important to continually assess and monitor the financial sector on both a micro and macro basis and in relation to the economic and political environments in which institutions operate. To this end the Authority will also take into account other information such as Credit Default Swap pricing, articles in the financial press, share prices and any other information pertaining to the banking sector in order to establish the most robust scrutiny process on the suitability of investment counterparties.

18

35. Other information sources used will include the financial press, share price and other such information pertaining to the banking sector in order to establish the most robust scrutiny process on the suitability of potential investment counterparties.

36. Investment instruments identified for use in the financial year are listed in Annex A under the “Specified” and “Non-Specified” Investment categories. Counterparty limits will be as set through the Authority’s Treasury Management Practices-Schedules.

Creditworthiness policy

37. The primary principle governing the Authority’s investment criteria is the security of its investments, although the yield or return on the investment is also a key consideration. After this main principle the Authority will ensure:-

It maintains a policy covering both the categories of investment types it will invest in, criteria for choosing investment counter-parties with adequate security, and monitoring their security. This is set out in the Specified and Non-Specified investment sections below; and

It has sufficient liquidity in its investments. For this purpose it will set out procedures for determining the maximum periods for which funds may prudently be committed. These procedures also apply to the Authority’s prudential indicators covering the maximum principal sums invested.

38. The Chief Finance Officer will maintain a counter-party list in compliance with the following criteria and will revise the criteria and submit them to Authority for approval as necessary. These criteria are separate to that which determines Specified and Non-Specified investments as it provides an overall pool of counter-parties considered high quality the Authority may use, rather than defining what types of investment instruments are to be used.

39. Credit rating information is supplied by Capita Asset Services, our treasury consultants, on all active counterparties that comply with the criteria below. Any counterparty failing to meet the criteria would be omitted from the counterparty (dealing) list. Any rating changes, rating Watches (notification of a likely change), rating Outlooks (notification of a possible longer term change) are provided to officers almost immediately after they occur and this information is considered before dealing. For instance, a negative rating Watch applying to a counterparty at the minimum Authority criteria will be suspended from use, with all others being reviewed in light of market conditions.

40. The criteria for providing a pool of high quality investment counter-parties (both Specified and Non-specified investments) is:-

Banks 1 - Good Credit Quality - the Authority will only use banks which:

Are UK banks: and/or

Are non-UK and domiciled in a country which has a minimum Sovereign long term rating of AA

And have, as a minimum, the following Fitch, Moody’s and Standard and Poor’s credit ratings (where rated):

Short Term – F2/P2/A-2

Long Term – AA-/Aa3/AA-

Banks 2 - Part nationalised UK bank - Royal Bank of Scotland. This bank can be included provided it continues to be part nationalised or they meet the ratings criteria in Banks 1 above.

19

Banks 3 - The Authority’s own banker for transactional purposes if the bank falls below the above criteria, although in this case balances will be minimised in both monetary size and time.

Bank Subsidiary and Treasury Operations - the Authority will use these where the parent bank has provided an appropriate guarantee or has the necessary ratings outlined above.

Building Societies - the Authority will use all Societies which;-

a) meet the ratings for banks outlined above;

b) have assets in excess of £2 billion;

or meet both criteria.

Money Market Funds (MMFs) – that are AAA rated limited to £5m each.

Enhanced Money Market Funds (EMMFs) – that are AAA rated limited to £5m each.

UK Government (including gilts and the Debt Management Office) - unlimited

Local Authorities, Police & Crime Commissioners, Fire Authorities - limit £10m each

41. Country and sector considerations - Due care will be taken to consider the country, group and sector exposure of the Authority’s investments. In part the country selection will be chosen by the credit rating of the Sovereign state in Banks 1 above. In addition:

No more than £30m will be placed with any non-UK country at any time, Limits in place above will apply to Group companies, Sector limits will be monitored regularly for appropriateness.

42. Use of additional information other than credit ratings. Additional requirements under the Code require the Authority to supplement credit rating information. Whilst the above criteria relies primarily on the application of credit ratings to provide a pool of appropriate counter-parties for officers to use, additional operational market information will be applied before making any specific investment decision from the agreed pool of counterparties. This additional market information (for example Credit Default Swaps, negative rating Watches/Outlooks) will be applied to compare the relative security of differing investment counterparties.

43. Time and Monetary Limits applying to Investments. The time and monetary limits for institutions on the Authority’s Counterparty List are as follows:

  Fitch Moody’s Standard & Poor’s

Money Limit

Time Limit

Upper Limit CategoryAA- Aa3 AA- £15m

Each1 to 3 years

(long term)

Middle Limit Category

F2 P2 A-2 £10m Each

Up to and

including 364 days

(short term)

Part-nationalised          UK Banks:      

RBS Group - - - £10m Up to 2 years

20

Upper Limit & For those banks that meet the above rating criteria, additional sums of up to £20m each can be placed in

accounts that can be withdrawn within 24 hours.Middle LimitCategories

Lower Limit CategoryUnrated Building Societies with assets in excess of £2

billion

£3.5m Each

Up to and

including 364 days

Other Institutions

Money Market Funds AAA AAA AAA £5m Each

Up to and

including 364 days

Enhanced Money Market Funds AAA AAA AAA £5m

Each

Up to and

including 364 days

UK Government - - - unlimited unlimited

Local Authorities

- - - £10m Each

1 to 3 years

Police and Crime CommissionersFire Authorities

(The Upper and Middle Limit categories will include banks and building societies. The Lower Limit Category will normally just be used for un-rated subsidiaries and un-rated building societies. The Other Institution Limit will be for other local authorities, the Debt Management Account Deposit Facility (DMADF), Money Market Funds and Enhanced Money Market Funds. These are all considered high quality names – although not always rated).

44. The proposed criteria for Specified and Non-Specified investments are shown in Annex A for approval.

45. In the normal course of the Authority’s cash flow operations it is expected that both Specified and Non-specified investments will be utilised for the control of liquidity as both categories allow for short-term investments.

46. The use of longer-term instruments (greater than one year from inception to repayment) will fall in the Non-specified investment category. These instruments will only be used where the Authority’s liquidity requirements are safeguarded. This will also be limited by the longer-term investment limits.

Investment Strategy47. Investments will be made with reference to cash flow requirements and the outlook for interest

rates up to 3 years.

48. Bank Rate is forecast to remain unchanged at 0.5% before starting to rise from quarter 2 of 2016. Bank Rate forecasts for financial year ends (March) are:

2016/17 1.00% 2017/18 1.75% 2018/19 2.00%

49. The suggested budgeted investment earnings rates for returns on investments placed for periods up to 100 days during each financial year for the next eight years are as follows:

21

2016/17 0.90% 2017/18 1.50% 2018/19 2.00% 2019/20 2.25% 2020/21 2.50% 2021/22 3.00% 2022/23 3.00% Later years 3.00%

50. The overall balance of risks to these forecasts is currently to the downside (i.e. start of increases in Bank Rate occurs later). However, should the pace of growth quicken and / or forecasts for increases in inflation rise, there could be an upside risk.

Investment treasury indicator and limit

51. This sets a limit on the total principal invested for periods greater than 364 days. The limits are set with regard to the Authority’s liquidity requirements and to reduce the need for early sale of an investment, and are based on the availability of funds after each year-end.

52. The Authority is asked to approve the following treasury indicator and limit:

Maximum principal sums invested > 364 days 2016/17 2017/18 2018/19

Principal sums invested > 364 days£m30

£m30

£m30

53. For its cash flow generated balances, the Authority will seek to utilise its business reserve instant access and notice accounts, money market funds and short-dated deposits (overnight to 100 days) in order to benefit from the compounding of interest.

Performance Indicators

54. The Code of Practice on Treasury Management requires the Authority to set performance indicators to assess the adequacy of the treasury function over the year. These are distinct historic indicators, as opposed to the prudential indicators, which are predominantly forward looking.

55. The following indicators will be reported in the annual report on treasury management activity for 2016/17:-

Debt – Borrowing - Average rate of borrowing for the year compared to average available

Debt – Average rate movement year on year

Investments – Internal returns above the 7 day LIBID rate

56. The Authority will use Capita Asset Services as its treasury management consultants. The company provides credit ratings and a market information service comprising the three main credit rating agencies. A three year contract with Capita Asset Services and Stockton Council commenced on 1st January 2013 and has been extended for a further year. TVCA will access this contract.

57. Whilst the advisers provide support to the internal treasury function, under current market rules and the CIPFA Code of Practice the final decision on treasury matters remains with the Authority.

Management Structure

22

58. The management arrangements for dealing with Treasury Management are shown, for information at Annex B. Stockton Council as administrative body for the Combined Authority will undertake treasury management activities on the Authority’s behalf.

23

Annex A

TREASURY MANAGEMENT PRACTICE (TMP1)

Credit and Counterparty Risk Management The Department of Communities and Local Government issued Investment Guidance in 2010, and this forms the structure of the Authority’s policy below. These guidelines do not apply to either trust funds or pension funds which are under a different regulatory regime.

The key intention of the Guidance is to maintain the current requirement for the Authority to invest prudently, and that priority is given to security and liquidity before yield. In order to facilitate this objective the guidance requires the Authority to have regard to the CIPFA publication Treasury Management in the Public Services: Code of Practice and Cross-Sectoral Guidance Notes. This Authority adopted the Code on 6th March 2002 and will apply its principles to all investment activity. In accordance with the Code, the Chief Finance Officer has produced its treasury management practices (TMP’s). This part, TMP1, covering investment counterparty policy requires approval each year.

Annual Investment Strategy - The key requirements of both the Code and the investment guidance are to set an annual investment strategy, as part of its annual treasury strategy for the following year, covering the identification and approval of the following:

The strategy guidelines for choosing and placing investments, particularly non-specified investments.

The principles to be used to determine the maximum periods for which funds can be committed.

Specified investments the Authority will use. These are high security (i.e. high credit rating, the credit ratings to be used have to be determined by the Authority as no guidelines are given), and high liquidity investments in sterling and with a maturity of no more than a year.

Non-specified investments, clarifying the greater risk implications, identifying the general types of investment that may be used and a limit to the overall amount of various categories that can be held at any time.

The investment policy proposed for the Authority is as follows:

Strategy Guidelines – The main strategy guidelines are contained in the body of the treasury strategy statement.

Specified Investments – These investments are sterling investments of not more than one-year maturity, or those which could be for a longer period but where the Authority has the right to be repaid within 12 months if it wishes. These are considered low risk assets where the possibility of loss of principal or investment income is small. These would include sterling investments which would not be defined as capital expenditure with:

1. The UK Government (such as the Debt Management Office, UK Treasury Bills or a Gilt with less than one year to maturity): unlimited

2. Supranational bonds of less than one year’s duration: limit £03. A local authority, Police and Crime Commissioner or fire authority: limit £10m each4. Pooled investment vehicles (such as money market funds) that have been awarded a high

credit rating (AAA) by a credit rating agency: limit £5m each.5. A body that is considered a high credit quality (such as a bank or building society).

Category 4 covers investments in money market funds and enhanced money market funds. These are rated AAA by the rating agencies (the highest security rating possible). The Authority had approved the use of one fund, Standard Life, but in recent times investment returns from money

24

market funds in general has been poor and consequently our account with Standard Life has been closed. Investment returns from money market funds have now improved and it is recommended that they are now used with a maximum limit of £5m with each fund.

Category 5 covers bodies with a minimum rating of F2/P2/A-2 as rated by Fitch, Moody’s and Standard & Poors. Within these bodies, and in accordance with the Code, the Authority has set additional criteria to set the time and amount of monies which will be invested in these bodies. This criteria is:

Fitch Moody’s Standard & Poor’s

Money Limit

Time Limit

Middle Limit Category

F2 P2 A-2

£20m

Up to and including 364 days

In addition, up to a further £20m can be invested in each bank that operates call accounts that can be withdrawn within 24 hours notice.

Non-Specified Investments – Non-specified investments are any other type of investment (i.e. not defined as Specified above). The identification and rationale supporting the selection of these other investments and the maximum limits to be applied are set out below. Non specified investments would include any sterling investments with:

Non Specified Investment Category Limit (£ or %)

a. Supranational Bonds greater than 1 year to maturity(a) Multilateral development bank bonds - These are bonds defined as an international financial institution having as one of its objects economic development, either generally or in any region of the world (e.g. European Investment Bank etc.).

(b) A financial institution that is guaranteed by the United Kingdom Government (e.g. National Rail, Guaranteed Export Finance Company {GEFCO})

The security of interest and principal on maturity is on a par with the Government and so very secure, and these bonds usually provide returns above equivalent gilt edged securities. However the value of the bond may rise or fall before maturity and losses may accrue if the bond is sold before maturity.

£0

£0

b. Gilt edged securities with a maturity of greater than one year. These are Government bonds and so provide the highest security of interest and the repayment of principal on maturity. Similar to category (a) above, the value of the bond may rise or fall before maturity and losses may accrue if the bond is sold before maturity.

£0

c. The Authority’s own banker if it fails to meet the basic credit criteria. In this instance balances will be minimised as far as is possible. £20m

d. Building societies not meeting the basic security requirements under the specified investments. The operation of some

25

building societies does not require a credit rating, although in every other respect the security of the society would match similarly sized societies with ratings. The Authority may use such building societies which have the following criteria:-

Building Societies with an asset base in excess of £2 billion (restricted to up to and including 364 days)

£7m

each

e. Any bank or building society that has the following rating:- Upper Limit Category (restricted to 1-3 years) for deposits with a maturity of greater than one year (including forward deals in excess of one year from inception to repayment).

In addition, up to a further £20m can be invested in each bank that operates call accounts that can be withdrawn with up to 24 hours notice.

£30m

each

up to an additional

£20m

f. Any non rated subsidiary of a credit rated institution included in the specified investment category.

£0

g. Share capital or loan capital in a body corporate – The use of these instruments will be deemed to be capital expenditure, and as such will be an application (spending) of capital resources. Revenue resources will not be invested in corporate bodies.

£0

h. Pooled property or bond funds. The use of these instruments will normally be deemed to be capital expenditure, and as such will be an application of capital resources.

£0

The Monitoring of Investment Counterparties - The credit rating of counterparties will be monitored regularly. The Authority receives credit rating information (changes, rating watches and rating outlooks) from its advisers, Capita Asset Services, as and when ratings change, and, counterparties are checked promptly. On occasion ratings may be downgraded when an investment has already been made. The criteria used are such that a minor downgrading should not affect the full receipt of the principal and interest. Any counterparty failing to meet the criteria will be removed from the list immediately by the Chief Finance Officer, and if required new counterparties which meet the criteria will be added to the list.

26

Annex B

TMP5 ORGANISATION, CLARITY AND SEGREGATION OF RESPONSIBILITIES AND DEALING ARRANGEMENTS

INDEX OF SCHEDULES

5.1 Limits to responsibilities/discretion at committee/executive levels

5.2 Principles and practices concerning segregation of duties

5.3 Treasury management organisation chart

5.4 Statement of duties/responsibilities of each treasury post

5.5 Absence cover arrangements

5.6 Dealing limits

5.7 List of approved brokers

5.8 Policy on brokers’ services

5.9 Policy on taping of conversations

5.10 Direct dealing practices

5.11 Settlement transmission procedures

5.12 Documentation requirements

5.13 Arrangements concerning the management of third-party funds

27

5.1 LIMITS TO RESPONSIBILITIES/DISCRETION AT COMMITTEE/EXECUTIVE LEVELS

5.1.1 Delegation of Powers

a) Authority The limits required by Housing & Finance Act 1989 Approval of Treasury Management Policy Statement Approval of Treasury Management Strategy Approval of Annual Report The Cabinet recommend to Authority the above

b) Leadership Board Division of responsibilities

5.2 PRINCIPLES AND PRACTICES CONCERNING SEGREGATION OF DUTIES

The Chief Finance Officer will ensure there is always adequate segregation of duties in all transactions, with a minimum of 2 officers required to make payments, and Senior Finance Managers or the Procurement and Governance Manger to release authorised payments.

5.3 TREASURY MANAGEMENT ORGANISATION CHART

Chief Finance Officer (Director of Finance & Business Services)Senior Finance Managers and Procurement and Governance MangerFinance Manager – Corporate (Chief Accountant)Senior Finance Technician (Treasury Management)

5.4 STATEMENT OF DUTIES/RESPONSIBILITIES OF EACH TREASURY POST

5.4.1 Chief Finance Officer (SBC - Director of Finance and Business Services)

1. The Chief Finance Officer will:

a) Recommend clauses, treasury management policy/practices for approval, reviewing the same regularly and monitor compliance

b) Submit reports as and when required by Authority c) Authorise and maintain TMPs and Schedulesd) Set submit and monitor budgetse) Review the performance of the treasury management function and promote

best value reviewsf) Ensure the adequacy of treasury management resources and skills and the

effective division of responsibilities within the treasury management function

g) Ensure the adequacy of internal audit and liaise with external audith) Recommend the appointment of external service providers where

appropriatei) Approve treasury payments

2. The Chief Finance Officer has delegated powers to take the most appropriate form of borrowing from the approved sources and to take the most appropriate form of investments in approved instruments.

3. The Chief Finance Officer may delegate his power to borrow and invest to members of his staff to conduct all dealing transactions. All transactions must be

28

authorised by at least two specified named officers. Alternatively staff can be authorised to act as temporary cover for leave/sickness.

5.4.2 Director of Finance and Business Services & Procurement and Governance Manager.

1. Authorise treasury payments2. Close investment deals

5.4.3 Finance Manager – Corporate (Chief Accountant)

The treasury responsibilities of this post will be:-

To assist Chief Finance Officer in the formation of the Treasury Strategy. Identify and recommend opportunities for improved practices Supervise Treasury Management staff Monitor performance Review the performance of treasury management functions and promote best

value reviews Implement Treasury Management Strategy Close investment deals Check interest calculations Arrange rescheduling or premature repayment of existing borrowings.

5.4.4 Senior Finance Technician

Responsibilities:-

Calculate daily cash balances Enter transmission of monies via Nat West Web Banking system Select Brokers from approved list Adhere to agreed policies and practices on a day to day basis Submit management information reports Maintain cash flow projections Third party loan confirmation Ensure counter party limits are not exceeded Ensure there is a clear segregation between officers for negotiating/ approving

and closing deals.

5.5 ABSENCE COVER ARRANGEMENTS

The authority will ensure that there is adequate cover for all absences.

5.6 DEALING LIMITS

Dealings can be carried out providing that transactions are within limits determined by the Authority and the Chief Finance Officer.

5.7 LIST OF APPROVED BROKERS

Prebon Brokers (UK) plcSterling International Brokers LtdGarbon Intercapital Brokers LtdTradition BrokersMartin BrokersMPC Treasury Services

29

5.8 POLICY ON BROKERS’ SERVICES

The authority will use brokers for its temporary transactions when appropriate. The Finance Manager – Corporate (Chief Accountant) will evaluate the services provided by Brokers.

5.9 POLICY ON TAPING OF CONVERSATIONS

The authority will not tape telephone conversations

5.10 DIRECT DEALING PRACTICES

All deals are carried out with brokers with the exception of Bank of England and major UK banks.

5.11 SETTLEMENT TRANSMISSION PROCEDURES

All payments and repayments resulting from the treasury management function will be made via the authority’s bank account using the electronic payment facility (with Nat West Web Banking system). Only authorised officers can transmit, approve or release payments, protected by appropriate passwords and card operated pin number. A manual back up facility will be in place to cover system failure.

5.12 DOCUMENTATION REQUIREMENTS

Cash dealing sheetCashflow summaryLoan Record Dealing sheetBrokers confirmationCounter party confirmationInvoice signed/coded to budgetNat West Bankline confirmation sheet

30

Annex CINVESTMENT COUNTERPARTY LIMITS

COUNTERPARTY Money TimeBank Call AccountsReturned

within 24hrs£m £m

Bank of England (guaranteed by HM Government equivalent to a sovereign triple A rating)Debt Management Account Deposit Facility unlimited unlimited unlimited

UPPER LIMIT/LONG TERMClearing Banks with at least AA- Fitch, Aa3 Moody’s or AA- S & P RatingHSBC Group 30 3 years 20Svenska Handelsbanken 30 3 years 20National Australia Bank Group 30 3 years 20European Investment Bank 30 3 years 20

MIDDLE LIMIT/SHORT TERMClearing Banks with at least F2 Fitch, P2 Moody’s or A-2 S & P RatingBarclays Bank 20 364 days 20Close Brothers Ltd 20 364 days 20Clydesdale Bank ( part of National Australia Group) 20 364 days 20Goldman Sachs International Bank 20 364 days 20Lloyds Banking Group 20 364 days 20Virgin Money 20 364 days 20RBS Group 20 2 years 20Santander UK Group 20 364 days 20

Clearing Building Societies with at least F2 Fitch, P2 Moody’s or A-2 S & P Rating Coventry 15 364 daysLeeds 15 364 daysNationwide 15 364 daysNottingham 15 364 daysYorkshire 15 364 days

LOWER LIMITBuilding Societies with an asset base of £2 billion +Newcastle 7 364 daysPrincipality 7 364 daysSkipton 7 364 daysWest Bromwich 7 364 days

Local Authorities, Police & Crime Commissioners, Fire Authorities 10 3 years

Money Market Funds 5 364 days5 364 days

31

Enhanced Money Market Funds

32

AGENDA ITEM 13

REPORT TO THE TEES VALLEYCOMBINED AUTHORITY

DATE April 2016

REPORT OF: Gill Alexander, Chief Executive, Hartlepool Borough Council

Education, Employment and Skills, responsibilities for the Combined Authority and appropriate governance structure

SUMMARY

This paper is to inform the Tees Valley Combined Authority of progress in dialogue with respective Government Departments, regarding responsibilities to be devolved for Education, Employment and Skills, subject to the Combined Authority finalising the Devolution Deal with Government. It will consider the scope of those responsibilities and the pace of change required to prepare for them.

The report also recommends the appropriate governance structure required to service this broad policy area (See Appendix A) both in relation to existing activities at the Tees Valley level and those that could be devolved to the area.

RECOMMENDATIONS

The Combined Authority is asked to consider the above and agree, in principle, to the following proposals:

1. Development of an appropriate Education, Employment and Skills governance structure for the Combined Authority to include:

Formation of a new Tees Valley Education, Employment and Skills (TVEES) Partnership Board.

Formation of a new TVEES Joint Commissioning Group to undertake Education, Employment and Skills related appropriate commissioning activity on behalf of the Combined Authority.

2. The existing Tees Valley Unlimited Employment and Skills Group to be discontinued.

If agreed, detailed Terms of Reference, including proposed membership for these arrangements will be developed and brought to the Combined Authority for consideration.

31

DETAIL

1. DEVOLUTION AND ASSOCIATED RESPONSIBILITIES FOR A NEW TEES VALLEY EDUCATION, EMPLOYMENT AND SKILLS PARTNERSHIP BOARD

1.1 In addition to Education Employment and Skills responsibilities already undertaken at a Tees Valley level, the Combined Authority could have additional responsibilities under the Devolution Deal, subject to the overall Deal being finalised with Government. Listed below are those funding / activity areas which Government agree would benefit from a more localised approach through devolution, together with an update on the latest developments within that process.

19+ Adult skills funding – government are prepared to devolve responsibility for all 19+ adult education funding (apart from Apprenticeships funding) currently managed centrally by the Skills Funding Agency (SFA) and allocated out to larger providers e.g. FE Colleges and Local Authority Adult Education Services. This fund will include the Adult Skills Budget, the Community Learning Budget and any other discretionary funding for adults currently going through this route. The new combined funding stream will be known as the ‘Adult Education Budget’ (AEB). Following a recent meeting with SFA (and the other six Combined Authority areas in this first tranche) it is now clear that this will be a staged and supported process with responsibilities moving across from SFA to the Combined Authority over the next few years.o 2016/17 academic year – Local responsibilities will involve developing outcome

agreements with providers about what should be delivered in return for their allocations. SFA will work with the Combined Authority to ensure that we have enough information to assess the scale and content of the current provision on offer, in order that we can see how this fits with Combined Authority priorities and so inform and shape our plans for future commissioning.

o 2017/18 academic year – following completion of the Area Review of Post 16 Education establishments, the Combined Authority will then have the opportunity to vary the block grant allocations made to providers, within a framework agreed with SFA.

o 2018/19 academic year - from this point onwards the Combined Authority will have fully devolved responsibility for the Adult Education Budget. This will give us the opportunity to commission adult education provision from providers of our own choice, using our own procurement rules and systems, whilst ensuring that we take account of the need to maintain a sustainable and potentially viable 16+ provider base. From this point onwards we will also be responsible for the ongoing monitoring of delivery, performance, financial management and local accountability, as with any other funding stream held by the Combined Authority.

o We have been advised by SFA that their preparatory work for future funding allocations begins around March /April of the previous academic year. We will therefore need to begin to work with SFA in the next few months, on preparations for the 2017/18 allocations.

Tackling long-term unemployment. The existing DWP Work Programme contracts will expire on 31st March 2017 and be replaced by a new ‘Work and Health Programme’ which will ideally begin to deliver from October of that year, with a national budget of £130m per annum. Following a recent meeting with DWP, it is clear that they are in now the very early stages of design for the new programme and will be looking to devolution deal areas to influence this process through ‘co-design’. This is an important opportunity for us to shape the future programme for the Tees Valley area and to ensure that it is integrated with activities which have already been commissioned locally, including European programmes such as Building Better Opportunities, and Youth Employment Initiative, as well as with any facilities in place using other funding stream for the same customer group, e.g. Public Health, Troubled Families, NHS etc. To do this effectively, the Combined Authority will need to engage with and use feedback from partners on the ground (including local Jobcentre Plus) and use this in our contribution to discussions with the national DWP Commissioning Team.

34

Transforming standards in education and skills – Government support to the Combined Authority on this theme will give our flagship ‘Transforming Tees’ education and skills initiative a higher profile, greater traction and significant influence. The initiative, which aims to improve education, skills and employability standards across Tees Valley for those up to age 18/19, has already gathered momentum and is now supported and chaired by Sir David Bell. Membership now includes representation from Teesside University, FE Colleges, primary schools and employers. As it expands, more schools will be encouraged to come on board and benefit from the initiative, to enable swifter progress towards raising both educational attainment and Ofsted performance levels across Tees Valley as well as improving individual school performance.

Securing more apprenticeship places with employers. We will be promoting and championing apprenticeships at all levels including advanced, higher and degree apprenticeships. We are working closely with employers to increase take up so that this becomes the direct alternative to the traditional A Level/Degree route into a successful career. The new Apprenticeship Levy will come into effect in April 2017, at a rate of 0.5% of an employer’s pay bill, though only for employers’ who have pay bills over £3 million p.a. It is expected that this will typically affect employers with 75-100 employees, so will still affect a large number of Tees Valley companies. However, as the majority of Tees Valley businesses are smaller SMEs, they will not be included in the levy and it is still unclear how the Levy will support them to take on additional apprentices.

Creating a new Tees Valley Education, Employment and Skills Partnership Board. This new Board would take responsibility for meeting the overall challenges and funding opportunities which come out of this policy stream and for taking appropriate decisions on funding and use of other education, employment and skills resources.

1.2 It should be noted that no formal decision has yet been taken to devolve the funds and the Combined Authority is not yet being asked to formally take on these responsibilities. A report will be brought to the Combined Authority once the position is clear about the overall Deal and we have a more detailed understanding of the implications both in terms of responsibilities and resource implications for this area of activity.

2. GOVERNANCE ARRANGEMENTS2.1 It is timely to review the governance arrangements for the existing education, employment

and skills activities at the Tees Valley level and to prepare for any devolved responsibilities that the Combined Authority agrees to take on. This would need to cover the full range of education, employment and skills responsibilities including those for all ages, abilities and business sectors, to include:

Improving standards of education and training for young people in schools and colleges.

Where funding is available at the Tees Valley level - commissioning programmes to support the most vulnerable young people back into education, training or employment.

If the Combined Authority takes on responsibility for - commissioning Further Education for adults including those who are in work but wish to gain new/advanced skills to make progress in their chosen career.

Supporting services for adults who are a long way from the labour market due to health /other issues which form barriers to work.

Increasing Apprenticeships opportunities at all levels, including Higher and Degree.

Improving access to Higher Education and developing higher level skills to meet specific employer demand.

35

Improving access to quality independent, careers education, information advice and guidance (CEIAG) and work related experiences, informed by accurate economic data and employer demand.

2.2 This includes the need to understand the resources available, the type and level of provision already offered/ needed and to make decisions on what should be procured (using the appropriate procurement guidance). In addition we will need to review ongoing provider delivery, which will in turn inform future funding decisions.

Proposed Governance arrangements

2.3 Taking the above into account, members are asked to agree, in principle, for a new Education, Employment and Skills governance structure under the Tees Valley Combined Authority. See Appendix A. This structure includes:

An overall Education, Employment and Skills Partnership Board with responsibility for agreeing all Tees Valley education, employment and skills policy, provisioning and partnership activities for the Combined Authority, including allocating key resources to achieve goals. This group will meet on a regular basis.

Where funds are available at the Tees Valley level and if funds are devolved to the Combined Authority - A separate Joint Commissioning Group, with a limited membership from local representatives of relevant Government Departments/Agencies to avoid conflicts of interest between local commissioning and delivery. This Group will be the point where commissioning decisions are taken and include allocating funding and reviewing progress and performance of any specific Tees Valley contracted provision. The Group will meet three times a year and will report to the TV EES Partnership Board.

A number of individual Workstreams, to cover the broad range of education, employment and skills activities with appropriately skilled representatives. Workstreams will operate on a task and finish group basis, as required. The following activity areas could be led at TVEES Workstream level, using task and finish groups as required:

o ‘Transforming Tees’ Education and Skills Initiative - for young people up to age 18/19 (to include input from Directors of Children’s Services).

o ‘Tees Valley Skills’ Careers and Enterprise Hub – developing and delivering the Careers and Enterprise Co and wider CEIAG agenda across Tees Valley with supporting activities and tools.

o Work, Health and Employability – to develop and improve co-ordination of support for unemployed/ inactive adults/young people. This will involve input from Directors of Adult /Social Services, DWP, wider partners.

o Employer Skills needs – to bring employers together from specific sectors to share their understanding of the skills they need to develop their workforce in the short, medium and longer term.

Key recommendations developed under individual Workstreams will be referred to the TVEES Partnership Board for decision.

A wider TVEES Forum will be brought together up to twice a year, to share policy developments and engage with wider stakeholders. This will be chaired by Sir David Bell.

Other activities and communication methods will be utilised as required to keep wider partners involved. This could include virtual networking, website, regular newsletters, sector specific events etc.

36

Officer support for the above activities will be provided by the Tees Valley Combined Authority and Local Authority staff (current capacity is being reviewed).

2.4 It is not considered appropriate for any of the groups currently operating under the Local Enterprise Partnership to take on the new TVEES Partnership Board responsibilities as the remit of the new groups will be different, but rather we should discontinue the existing TVU Employment, Learning and Skills Group and refresh the mechanisms used for wider stakeholder/partner engagement.

2.5 All existing TVU Employment, Learning and Skills Group member agencies will be invited to access wider communications being developed to ensure that all partners, including schools, providers and employers, continue to be aware of and included in developments in so far as they affect Tees Valley. Some members may be included in the new Education, Employment and Skills Partnership Board or within task and finish groups as appropriate.

3. TERMS OF REFERENCE AND MEMBERSHIP3.1 If agreed, terms of reference for the new TVEES Partnership Board and the supporting

arrangements will be developed around three key themes:

Development and delivery of a shared and coherent Education, Employment and Skills Strategy for the Tees Valley.

Monitoring the delivery of that Strategy.

Leading on the wider engagement programme.

3.2 It will be important for the TVEES Partnership Board to have a senior level of membership in order to provide the appropriate levels of responsibility, experience and breadth of skills necessary to ensure that it can take key decisions on behalf of the Combined Authority. A detailed membership list for each group will be developed as part of the terms of reference exercise. Full terms of reference and membership to be further developed under the broad headings identified above.

3.3 The detailed Terms of Reference for the proposed governance arrangements, including proposed membership will be developed and brought to the Combined Authority for consideration.

FINANCIAL IMPLICATIONS

There are no direct financial implications associated with the decision to the principle to create a governance structure as proposed, other than those of potential resources needed to provide secretariat support to the meetings. The financial implications, including staffing implications of any opportunity for devolved funding will be considered at a future meeting. There may be financial implications associated with any subsequent decisions of the new governance groups, but where so, this will form the subject of a separate report.

LEGAL IMPLICATIONS

Any legal issues associated with the creation of an Education, Employment and Skills Governance structure to support the Combined Authority will be addressed when reporting back regarding the detail of the proposed governance arrangements. Any procurement issues associated with the proposed devolution of Adult Education Budgets will be considered as part of the preparation for that responsibility, which will transfer to the Combined Authority with effect from the 2018-19 academic year.

37

RISK ASSESSMENT

The creation of an Education, Employment and skills Governance Structure is categorised as low to medium risk. Existing management systems and daily routine activities are sufficient to control and reduce risk.

CONSULTATION

Dialogue will continue with all partner agencies involved within the existing Tees Valley Unlimited Employment, Learning and Skills Group structure to explain how they will be involved at varying levels under the new structure.

Name of Contact Officer: Sue HannanPost Title: Employment and Skills ManagerTelephone No. 01642 524406Email Address: sue.hannan@teesvalleyunlimited.gov.uk

Members’ Interests (the text below is fixed and should not be altered by the author).

Members (including co-opted Members) should consider whether they have a personal interest in any item, as defined in paragraphs 9 and 11 of the Tees Valley Combined Authority’s (TVCA) code of conduct and, if so, declare the existence and nature of that interest in accordance with and/or taking account of paragraphs 12 - 17 of the code.

Where a Member regards him/herself as having a personal interest, as described in paragraph 16 of the code, in any business of the TVCA he/she must then, in accordance with paragraph 18 of the code, consider whether that interest is one which a member of the public, with knowledge of the relevant facts, would reasonably regard as so significant that it is likely to prejudice the Member’s judgement of the public interest and the business:-

affects the members financial position or the financial position of a person or body described in paragraph 17 of the code, or

relates to the determining of any approval, consent, licence, permission or registration in relation to the member or any person or body described in paragraph 17 of the code.

A Member with a personal interest, as described in paragraph 18 of the code, may attend the meeting but must not take part in the consideration and voting upon the relevant item of business. However, a member with such an interest may make representations, answer questions or give evidence relating to that business before the business is considered or voted on, provided the public are also allowed to attend the meeting for the same purpose whether under a statutory right or otherwise (paragraph 19 of the code)

Disclosable Pecuniary Interests

It is a criminal offence for a member to participate in any discussion or vote on a matter in which he/she has a disclosable pecuniary interest (and where an appropriate dispensation has not been granted) paragraph 20 of the code.

38

Members are required to comply with any procedural rule adopted by the TVCA which requires a member to leave the meeting room whilst the meeting is discussing a matter in which that member has a disclosable pecuniary interest (paragraph 21 of the code)

39

AGENDA ITEM 14

REPORT TO THE TEES VALLEYCOMBINED AUTHORITY

4th APRIL 2016

REPORT OF DIRECTOR OF BUSINESS INVESTMENT

NEW ENTERPRISE ZONE UPDATE

SUMMARY

In July 2015 the government opened a competitive process for a further round of Enterprise Zones with a deadline for applications to be received by Department of Communities and Local Government (DCLG) of 18th September 2015.

The Tees Valley application focussed on three sites:

o Central Park (Darlington),

o Northshore (Stockton) and

o Historic Quarter (Middlesbrough).

These sites cover the existing locally funded Enterprise Zones (See Appendix 1 attached plans)

The government announced on 25th November 2015, the creation of 18 new Enterprise Zones and extended 8 Enterprise Zones as part of its spending review.

The Tees Valley application, Enterprise Zone Growth Extension was included in this announcement.

RECOMMENDATIONS

It is recommended that the proposals outlined in the report be endorsed.

40

DETAIL

Update

1. The application process stated that the incentives for the new Enterprise Zones would be:

Local Enterprise Partnerships retaining 100% of business rate growth for 25 years. Governments expectation is that this will be used to fund development required on the Enterprise Zone sites.

A business rate discount for occupiers. Central government will reimburse a 100% discount for five years up to the maximum state aid de minimis threshold, for businesses that enter the zone before 31 March 2022, e.g. if a business enters the zone on 31 March 2022, it can receive the discount (subject to de minimis) until 30 March 2027.

2. The Tees Valley Application stated:

This submission is being made alongside the Tees Valley Powerhouse Plan which seeks devolution of funding and powers to the Tees Valley. As part of devolution, the emerging Combined Authority would wish the income arising from the Enterprise Zone to be allocated 50% to the Combined Authority and 50% to the local authority from which the rates arise. We recognise that this is not the current EZ model or the criteria set out in this competition, but are submitting this proposal on this basis.

3. The process also allowed for the creation of Enterprise Zones with Enhanced Capital Allowances (ECA) however this was not applied for in the Tees Valley application.

Next Steps

4. Local Authorities and Local Enterprise Partnerships/CA’s responsible for operating Enterprise Zones will be asked to agree to a memorandum of understanding with DCLG to confirm the incentives and other benefits local partnerships can expect from establishing the zone whilst giving assurance to Ministers about the arrangements for delivering the Enterprise Zone.

5. The MOU is expected to cover four elements: Operation, Governance, Communications and Monitoring.

6. Operation - The Local Authority/ LEP/CA, through the current Enterprise Zone nominated person and procedures, will:-

- Provide maps and confirmation re: location incentives sought and commencement dates for each site. (Complete)

- Submit a 5-year delivery plan to the Secretary of State setting out how the Enterprise Zone will be set up and operated.

- Secure expertise needed to establish and operate the Enterprise Zone.

- Provide DCLG with a named contact for the Enterprise Zone and regularly notifying DCLG regarding progress.

41

7. Operation - DCLG will:-

- Permit Local Authorities to retain 100% of business rate growth for 25 years from the commencement date of the Enterprise Zone, on the condition that this is spent on the Local Enterprise Partnerships growth priorities. The expectation is that this will initially be to fund development required on the Enterprise Zone.

- Reimburse 100% of the discount in business rates (provided by the Local Authority on which the Enterprise Zone is sited) to businesses that occupy an Enterprise Zone site before 31 March 2022 for a period of 5 years up to the maximum state aid de minimis threshold.

8. Governance - The Local Authority/LEP/CA, t hrough the current Enterprise Zone nominated person and procedures, will:-

- Agree governance structure with local partners and arrange regular meetings.

- Enter into agreements with each Local Authority with Enterprise Zones covering key delivery issues including arrangements for fast-track planning and other approvals, use of business rates retained by the local authority, collection and reporting of monitoring data etc….

- Provide DCLG with copies of board papers and the opportunity to attend meetings.

9. Governance - DCLG will:-

- Provide a named contact for the Enterprise Zone to advise on establishing the zones and resolving issues arising in relation to Government procedures and support.

10. Communications - The Local Authority/LEP/CA, through the current Enterprise Zone nominated person and procedures, will:-

- Develop and implement plans for marketing the Enterprise Zone.

- Use the national Enterprise Zone logo on marketing materials and signage.

11. Communications - DCLG will:-

- Promote Enterprise Zone programme and good practice via press releases, website, Twitter account, Linkedin group etc….

- Provide the opportunity for senior leaders of LEPs/Enterprise Zones with the opportunity to meet to discuss progress, challenges and good practice with senior government officials and Ministers.

12. Monitoring - The Local Authority/LEP/CA, through the current Enterprise Zone nominated person and procedures, will:-

42

- Collect data on employment, business activity etc…. and report quarterly to DCLG in an agreed format.

13. Monitoring - DCLG will:-

- Advise on data monitoring and arrangements for returning monitoring data.

- Publishing summaries of national and regional Enterprise Zone activity, which allows local areas to judge their own performance.

Indicative DCLG Timeline

January 2016 Deadline for providing maps/details of incentives sought and commencement dates for each site.DCLG officials visiting new Enterprise Zones/extensions.

February Regulations for commencing incentives drafted and laid (ECA regulations are laid in April).

29 February Draft Memorandum of Understanding finalised by Local Authority/CA Local Enterprise Partnership representatives.

31 March Memorandum of Understanding signed by Local Authority/CA Local Enterprise Partnership and returned to DCLG for Minister’s signature.

1 April Commencement of incentives for new Enterprise Zones/extensions that have been asked in April 2016.

31 July First quarter monitoring return (zones starting in April 2016 only).

September Enterprise Zone Delivery Plan submitted to Secretary of State (zones starting in April 2016 only).

43

FINANCIAL IMPLICATIONS

The total income from the New Enterprise Zones will be determined by the successful uptake of companies locating on the zone.

Local Authorities will retain 100% of business rate growth for 25 years from the commencement date which will be split 50:50 with the Combined Authority.

DCLG will reimburse 100% of the discount in business rates (provided by the Local Authority on which the Enterprise Zone is sited) to businesses that occupy an Enterprise Zone site before 31 March 2022 for a period of 5 years up to the maximum state aid de minimis threshold.

LEGAL IMPLICATIONS

Each Local Authority and the Combined Authority will sign a MOU with DCLG, covering Operations, Governance, Communications and Monitoring.

RISK ASSESSMENT

This new Enterprise Zone is categorised as low to medium risk. Existing management systems and daily routine activities are sufficient to control and reduce risk.

CONSULTATION

The submission for the new Enterprise Zones covering Darlington Borough Council, Middlesbrough Council and Stockton-on-Tees Borough Council was agreed through Tees Valley Unlimited Management Group and Tees Valley Chief Executive’s.

Name of Contact Officer: Neil KenleyPost Title: Director of Business InvestmentTelephone No. 01642 527094Email Address: neil.kenley@teesvalley-ca.gov.uk

Appendix 1 - Attached Maps

Tees Valley Enterprise Zone - Middlesbrough historic Quarter (blue).pdf

44