GUIDANCE ON LOCAL GOVERNMENT INVESTMENTS
Issued by the
Secretary of State under section 15(1)(a) of the Local Government Act 2003
1.
In this guidance, 2003 Act means the Local
Government Act 2003
2.
Local
authority (except in paragraph 12(d) below) has the meaning given in section 23 of the
2003 Act
(and in regulations made under that section). To the extent that this guidance
applies to parish councils and charter trustees (see paragraph 6 below), a
reference to a "local authority" includes those councils and
trustees.
3.
An investment is a transaction which relies upon the power in
section 12
of the 2003 Act and is recorded in the balance sheet under the
heading of investments within current assets or long-term investments. The term
does not include pension fund and trust fund investments, which are subject to
separate regulatory regimes and are therefore not covered by this guidance.
4.
A long-term investment is any investment other than
(a) one which is due to be repaid within 12 months of the date on which the
investment was made or (b) one which the local authority may require to be
repaid within that period.
5.
A credit rating agency is one of the
following three companies: Standard and Poor's; Moody's Investors Service Ltd,
Fitch Ratings Ltd.
6.
This guidance applies in relation to the financial year 2004-05 and
subsequent financial years. It applies only in England. It applies to all local
authorities. It also applies to parish councils and charter trustees, subject
to the following conditions:
(a)
Where the parish council or charter trustee expects its investments at
any time during a financial year to exceed £500,000, the guidance should apply
in relation to that year.
(b)
Where the parish council or charter trustee expects its investments at
any time during a financial year to exceed £10,000 but not £500,000, it should
decide on the extent, if any, to which it would be reasonable to have regard to
the guidance in relation to that year.
(c)
Where the parish council or charter
trustee expects its investments at any time during a financial year not to
exceed £10,000, no part of this guidance need be treated as applying in
relation to that year.
7.
The Secretary of State
recommends that a local authority produces an Annual Investment Strategy,
approved by the full council, that sets out the local authority's policies for
managing its investments and for giving priority to the security and liquidity
of those investments, as indicated in this guidance.
8.
The Secretary of State considers that where the
local authority is operating executive arrangements, it would be preferable for
the local authority (ie the full council), rather than its executive, to
approve the Strategy. Under Schedule 4 to the Local
Authorities (Functions and Responsibilities) (England) Regulations 2000 (S.l.
2000/2853, as amended), the authority has discretion to
determine that the decision should be taken by them on whether the Strategy
should be approved. The Secretary of State therefore recommends that they make
such a determination.
9.
For authorities without a full council, approval of the Strategy should be at the
closest equivalent level.
10.
Variations to the Strategy may be made at any time,
subject to the same process of approval.
11.
The Secretary
of State recommends that the Strategy for any financial year should normally be
approved before the start of that year. For the year 2004-05 only, it should be
approved either before the start of the year or as soon as possible after the
start. The Strategy and any variations should be made available to the public.
12.
An investment is a specified investment if:
(a)
the investment is denominated in sterling and any
payments or repayments in respect of the investment are payable only in sterling;
(b)
the investment is not a long-term investment (as
defined in paragraph 4);
(c)
the making of the investment is not defined as
capital expenditure by virtue of regulation 25(1)(d) of the Local Authorities (Capital Finance and Accounting)
(England) Regulations 2003 BSI 3146 as amended]; and
(d)
the investment is made with a body or in an
investment scheme which has been awarded a high credit rating (see paragraph
13) by a credit rating agency (as defined in paragraph 5) or is made with any
of the following:
(i)
the United Kingdom Government
(ii)
a local authority in England or Wales (as defined
in section 23 of the 2003 Act) or a similar body in Scotland or Northern
Ireland
(iii)
a parish council or community council.
13.
For the purposes of paragraph 12(d) above, the Secretary
of State recommends that the Annual Investment Strategy states:
(a)
how high credit rating is to be defined for the categories
of investments which the local authority intends to use in the financial year
(b)
how and how frequently credit ratings are to be
monitored and what action is to be taken when ratings change.
14.
With regard to non-specified investments (ie those
not meeting the definition in paragraph 12), the Secretary of State recommends
that the Annual Investment Strategy:
(a)
sets out procedures for determining which
categories of such investments may prudently be used;
(b)
identifies which categories of such investments
have so far been identified as prudent for use during the financial year; and
(c)
states the
upper limits for the amounts which, at any time during the financial year, may
be held in each identified category and for the overall amount which may be
held in non-specified investments (the limits being defined by reference to a
sum of money or a percentage of the local authority's overall investments).
15.
The
Secretary of State recommends that the Annual Investment Strategy sets out
procedures for determining the maximum periods for which funds may prudently be
committed.