Melton Parish Council Investment Policy
September 2024
Version 1
Introduction
Melton Parish Council (MPC) is required to manage its cash reserves to the benefit of the Parish while minimising risk and providing value for money. In a nutshell, investments should be low risk, easy to administer, have immediate access and give fair returns. Income is generated within MPC via the Precept and Community Infrastructure Levy (CIL) receipts, grants and the hire of facilities, including the Pavilion.
MPC currently has cash reserves held in four accounts across Lloyds and Suffolk Building Society. At any one time only £85k per institution is covered by the Financial Services Compensation Scheme (FSCS). There are times when cash held in these accounts exceeds the amount covered by the FSCS and additionally, it is only earning minimal interest. Given the recent improvement in interest rates, it could be said that MPC was not acting prudently in terms of its cash management strategy.
The risk was identified by MPC’s Internal Auditor two years running and the Council agreed to identify actions to reduce the risk of loss and the lack of securing an appropriate return on investment.
Cash Management
MPC’s cash management is underpinned by the principles of immediate access and low risk to financial loss. Difficulties have been experienced by MPC in the management of its bank accounts with financial institutions. Therefore, ideally, any account/s selected need to be easy to use and administer in support of the Council’s efforts to reduce administrative demands on the Clerk.
SALC was approached for advice about the most popular and secure vehicles for cash management and investments for Parish Councils. They suggested that an alternative option to an ordinary bank account is the “Public Sector Deposit Fund” offered by the Church, Charities and Local Authorities Investments (CCLA).
Other bank accounts were investigated such as fixed term bonds or deposit accounts with United Trust Bank, or alternatively Paragon or Yorkshire Building Society. However, to find an account with a comparable return on investment the money would have to be held in a fixed term account, which would mean there was no immediate access.
CCLA – Public Sector Deposit Fund (PSDF)
The CCLA was established in 1958 and expanded to include local authorities in 1961. It is an ethical and responsible investment company ensuring investments meet the highest standards of governance. Investments are selected based on being financially sound and are ethical in terms of performance associated with Climate Change, Mental Health, Modern Slavery and promoting healthier financial markets.
The PSDF is described as a short-term, cash management solution designed for local authorities. Suitable for short term investments where you are seeking a high level of capital security and a competitive rate of interest.
It is regulated by the Financial Conduct Authority and has a Triple A Fitch Rating. The fund is covered by the Financial Services Compensation Scheme so should it fail completely up to £85k of the fund at that point would be covered. However, because the investments are subject to the vagaries of the financial markets, investments can go down as well as up.
Because of the robustness of this fund’s performance and its sound trading record, circa 800+ Councils have made investments in this fund over many years. Many Councils operate with one business bank account choosing to have all its reserves invested in the CCLA to simplify administration. It should be noted that with so many other councils investing in the CCLA, we could not be seen as taking an unreasonable risk. The fund only invests a maximum of 10% in any one institution and all institutions must have a minimum rating of A- to mitigate risk.
The current return on investment is around 5.1-5.2% with immediate withdrawal available. Interest is reported monthly and can either be reinvested in the fund or it can be paid to a separate bank account.
MPC’s Investment Strategy
The Budget Working Group discussed the pros and cons of opening additional bank accounts and/or investing in the CCLA PSDA. Because the Council requires immediate access to its reserves, additional bank accounts with fixed terms are not suitable. Opening another account that does have immediate access also offered much lower returns on the investment as well as incurring additional risks associated with managing the account and potentially monthly costs for an additional current account.
Therefore, it was agreed that the Council would:
- Keep a maximum of £85k in total across the two Suffolk Building Society accounts. This will remain static for the majority of the time. A maximum of £85k in total would also be held across the two Lloyds accounts. Rates are subject to change as the Bank Rate changes.
- Any funds in excess of £170k held with Lloyds and the Suffolk Building Society will be invested in the CCLA PSDF. On an ongoing basis – at least monthly or more frequently as required – the Clerk will transfer money from the CCLA into the Lloyds accounts when funds in Lloyds drop below £60k to return it to the £85k level. Any excess over the £170k held with Lloyds and the Suffolk Building Society will be transferred to the CCLA. This will be reported to Full Council/FERM.
The interest is paid into Lloyds monthly rather than being reinvested into the fund.
This policy will be reviewed at least annually by Full Council and as required by FERM.
