Cynulliad Cenedlaethol Cymru

Yn ôl i Chwilio

Y Pwyllgor Cyllid

Finance Committee

31/01/2018

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Jane Hutt AC
Mike Hedges AC
Nick Ramsay AC
Simon Thomas AC Cadeirydd y Pwyllgor
Committee Chair

Y rhai eraill a oedd yn bresennol

Others in Attendance

Adrian Crompton Ymgeisydd a Ffafrir i fod yn Archwilydd Cyffredinol Cymru
Preferred Candidate for Auditor General for Wales
Jim Harra Ail Ysgrifennydd Parhaol, Cyllid a Thollau Ei Mawrhydi
Second Permanent Secretary, HM Revenue and Customs
Sarah Walker Dirprwy Gyfarwyddwr, Datganoli, Cyllid a Thollau Ei Mawrhydi
Deputy Director, Devolution, HM Revenue and Customs

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Bethan Davies Clerc
Clerk
Christian Tipples Ymchwilydd
Researcher
Georgina Owen Dirprwy Glerc
Deputy Clerk
Owen Holzinger Ymchwilydd
Researcher

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd y cyfarfod am 10:01. 

The meeting began at 10:01. 

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Croeso, felly, i gyfarfod y Pwyllgor Cyllid. Croeso i Aelodau. Rydym ni wedi derbyn ymddiheuriadau gan Steffan Lewis a hefyd gan David Rees. Cyn i mi droi at y busnes cyhoeddus y bore yma, a gaf i atgoffa Aelodau ynglŷn â'r cyfieithu ar sianel 1, y lefel sain ar sianel 0, ac i dawelu unrhyw beth electronig, os gwelwch yn dda? 

Welcome, therefore, to the meeting of the Finance Committee. I welcome Members. We've had apologies from Steffan Lewis and also from David Rees. Before I turn to the public business this morning, if I could just remind Members about the interpretation on channel 1, and the amplification on channel 0, and to put any electronic devices on mute.

2. Papurau i'w nodi
2. Papers to note

Hefyd, gofynnaf i aelodau'r pwyllgor nodi'r papurau sydd i'w nodi, sef llythyr gan Ysgrifennydd y Cabinet dros Gyllid ynglŷn â recriwtio i Awdurdod Cyllid Cymru, a hefyd cofnodion y ddau gyfarfod diwethaf. A ydych chi'n hapus i dderbyn y papurau hynny? 

Also, may I ask the committee members to note the papers that are to note: a letter from the Cabinet Secretary for Finance on recruitment at the Welsh Revenue Authority, and also the minutes of the last two meetings? Are you happy to note those papers? 

3. Gwrandawiad Cyn Enwebu—Archwilydd Cyffredinol Cymru
3. Pre-nomination Hearing—Auditor General for Wales

Rwy'n troi, felly, at groesawu Adrian Crompton i'r cyfarfod. Adrian yw'r ymgeisydd a ffefrir ar gyfer swydd Archwilydd Cyffredinol Cymru. Dyma'r gwrandawiad cyhoeddus cyn enwebu, sy'n rhan o'r broses benodi, wrth gwrs, ar gyfer y swydd honno. Roeddwn i, fel sy'n hysbys, ar ran y Pwyllgor Cyllid, yn cadeirio'r panel penodi, sydd wedi enwebu Adrian. Ond, wedi dweud hynny, mae hon yn broses wahanol, gyhoeddus, ac felly byddwn ni'n mynd ati i fynd drwy hynny mewn dull gwahanol.

Felly, gan groesawu Adrian yn y lle cyntaf, rwyf jest yn gofyn, fel cwestiwn gen i i ddechrau: beth ydych chi'n teimlo sydd wedi eich denu chi, gyda'r sgiliau sydd gyda chi, at y rôl yma? Beth ydych chi'n gobeithio cyfrannu, o ran y sgiliau hynny, at y rôl hefyd? 

We turn, therefore, to Adrian Crompton and welcome him to the meeting. Adrian is the preferred candidate for the Auditor General for Wales post. This is the public pre-nomination hearing, which is part of the appointment process for this role. I was, on behalf of the Finance Committee, the chair of the appointment panel, which has nominated Adrian. But, having said that, this is a different, public process, and therefore we will now proceed to go through that in a different way.

Therefore, I welcome Adrian in the first place, and just ask, as an opening question from me: what do you feel has attracted you, with your skills, to this role? And what do you hope to contribute, in terms of those skills, to that role? 

Diolch, Simon. Well, you will have seen my career history—and, of course, I've known many of you for several years. My entire career has been devoted to working in Parliament and in the cause of improving democratic accountability—here in Wales, in Westminster, and in the middle east and north Africa in latter years, in what are some of the most challenging political environments you'll find anywhere. And I've done that, not only because it's been great fun and I've enjoyed every moment of it, but because everything that it stands for really matters to me.

I believe very passionately in the power of democratic open accountability as a driver for change and driver for better Government and better service provision for citizens. Integral to that system is the existence of an independent authoritative audit function. So, for someone like me, coming from that background, to have the opportunity to apply for this role is more than a career opportunity, it is an absolute privilege, and that's why I put myself forward. 

In terms of what I hope to bring, you will also know that I'm not an auditor by background, so it won't be that. But I do feel as though I have a range of experiences and skills that would be of value in the role. I have a background in research and analysis, originally. In my current role, and in all the work that I've done, I have held positions that have required me to act, first and foremost, independently and impartially in everything that I do. Clearly, these are qualities that you will want to see in any auditor general. 

I have a deep understanding of this place, obviously, but also the wider political and parliamentary constitutional framework in which we operate and I've had quite a hand in designing many of the procedures and practices that we follow in respect of financial oversight and accountability. I'd point too to my record of leadership here of the staff. So, over the last decade, the staff in this place have adapted to huge change in the demands placed upon them and the environment in which we operate. I'm immensely proud of that and very proud of the part that I've played as a leader in this organisation in achieving that. That's very much what I would want to bring to the audit office as the chief executive in this role. 

10:05

Diolch. Yn ychwanegol i'r hyn yr ŷch chi wedi'i amlinellu, a oes yna rywbeth o ran uchelgais neu ddyheadau personol byddech chi'n gobeithio eu cyflawni yn y rôl hefyd? Mae'n rôl wyth mlynedd, sydd yn galluogi, os ydych chi'n dymuno, cynllunio ar gyfer ryw rhaglen o weithredu neu ryw broses rŷch chi'n dymuno ei gweld, neu rywbeth efallai a fyddai'n ffitio i'r weledigaeth rŷch chi newydd ei hamlinellu. A oes gyda chi rywbeth i'w rannu gyda'r pwyllgor ar hyn o bryd ar hynny? 

Thank you. In addition to what you've outlined, is there anything in terms of ambition or aspiration in a personal sense that you'd like to achieve in the role? It's an eight-year role, which allows you, if you wish, to plan for some programme of activity or some process that you'd like to see, or something that might fit the vision that you've just outlined. Do you have anything to share with the committee on that? 

If I may, as introduction to answering your question, because it's relevant for me, I'd like to pay tribute to what Huw Vaughan Thomas has achieved in his period in the role. Because when Huw took up the position, the audit office and the position of auditor general—there had been some very challenging times immediately prior to that. So, it seems to me that Huw has achieved a huge amount in his leadership of the organisation—and tribute to him and to the staff of the organisation in getting them to a position where they are such a high-performing, respected body of staff today.

In terms of the way that Huw has conducted himself in the role of auditor general, he has brought gravitas and dignity and independence and authority to the position, and restored, I hope, parliamentary and public confidence in the position. So, for me, stepping into the role, that was very much the starting point: stepping into some very big shoes indeed. 

In terms of what I would want to achieve—taking forward much of what Huw and the staff are already focusing their efforts on. In particular, I think the work that they have done around sharing good practice and drawing together different parts of the public sector and different parts of the inspectorate and commissioner regime that we have in Wales is excellent. I'd certainly want to continue with that. I think critical to me for the function is a focus, as much as we can, on providing advice and insight and assistance to the wider public sector that drives improvement. So, not just the retrospective examination and audit, but being proactive and forward looking. 

So, for instance, through the requirements of the Well-being of Future Generations (Wales) Act 2015, the audit office is central to that. So, coming together with the future generations commissioner, I think, is a great step. We reduce duplication on public bodies, we build on each other's work, clarity about responsibility, and so on. That helps to drive down the burden on the public services generally and drive up the quality of the insight and offering that we can provide. 

Critical too, I think, over the next few years will be changes in the way that we use technology. So, I was pleased to see the proposal that was included in the estimates that came to this committee last year for investment in data analytics and technology. So, again, a really important driver for change in terms of pushing down on our cost base, reducing the burden on public bodies, but also increasing the quality and depth of insight that we can provide. 

And, finally, I think it's important for the audit office itself to be looking ahead to the challenges that are on the horizon, the not-too-distant horizon. So, for instance, in terms of Brexit, fiscal devolution, the changing nature of the delivery of public services and so on, demographic changes in society—these are huge challenges for any part of the public sector. So, for me, over the next eight years, that will be a critical plank of what I would want the office to be focused on—looking ahead and helping other parts of the public sector to plan and prepare for those challenges.

10:10

The role of auditor general is a significant office in Welsh public life. It's also a personal responsibility, and there are personal powers that exist with the auditor general post. What can the Welsh public sector expect from you in this role, and how would you differ from the incumbent auditor general?

Well, as I've just said, I would want to mirror many of the qualities that Huw Vaughan Thomas has exhibited, in terms of independence and a determination to give difficult messages when difficult messages are warranted. So, as I said at the beginning, this is a critical plank of our whole system of democratic accountability, and central to that is having an auditor general who is truly independent and is prepared and able to speak up and to give challenging messages to the wider public sector and to Government. So, I would certainly want to embody that quality in the way that I held the office.

For me, though, public audit is a constructive, positive process, and it is best undertaken when the audit body itself has an understanding and an empathy for the challenges that public bodies face and the objectives that they wish to achieve. So, my approach would be very much to reach out to stakeholders right across Wales to start to develop that kind of relationship at a senior level, and to see that permeate throughout the organisation so that every contact that the audit office has with public bodies is characterised in that way. So, a combination of independence and challenge, but also a sympathetic, co-operative ear that is fundamentally looking to use the efforts of our office to help bodies improve. 

The big decisions that Huw Vaughan Thomas has had to make over the last few years have been what to investigate. Sometimes, some of the things that are investigated don't sit nicely with the organisations being investigated, including the audit office—if you look at the land drainage report,  the audit office was found to not actually have done as well as it could have in auditing the land drainage scheme. We've also seen examples, from Powys Fadog to the regeneration investment fund for Wales, where things critical of Welsh Government have come out. How would you decide which of these many, many requests you have to investigate you will—and it will be your decision solely—decide to take on?

I agree, Mike, completely—an absolutely critical part of the role. I think there are a number of elements to the process. So, in part, it needs to be guided by the professional expertise and judgment within the audit office—so, the familiarity of expert staff with different sectors identifying issues that carry highest risk or carry highest impact in terms of the examinations that we can conduct.

I think it's important too, as I said just now, to be looking ahead—to have an element of the programme that is forward looking and looking at issues that are on the horizon and, perhaps, parts of the public sector are not yet thinking about, but they should be.

An important element too is the steer and the insight that will come from Members of the Assembly and from the public—from the Public Accounts Committee in particular. I think it's important that the auditor general and the WAO and the PAC and Assembly Members generally respect the independence of each part, but also listen to each other, because Assembly Members and feedback from the public will be giving, in many cases, a very accurate reflection of what matters most to people on the ground, and I think that's an important plank of the process that the auditor general and the audit office ought to be taking into account in designing their programme. So, it's a combination of factors: what matters most to people in immediate terms, yes; looking ahead to matters of particular significance over the horizon; and also a risk-based assessment of the issues that matter most, based on the expertise that we have available to us.

10:15

What's your experience of working with senior public figures? You'll be working with chief executives of local authorities, chief executives of health boards, chief executives of other bodies that fall under the ambit of the auditor general. What experience have you got of dealing with people at that level within Welsh public life?

I've been very fortunate in my career to have worked with a very wide array of people who operate at that level. In political terms, self evidently, I've been a very close adviser to three successive Presiding Officers, all of whom had very different approaches and styles and objectives; Members of the Assembly, self evidently; but also senior figures elsewhere in public life in Wales: the standards commissioner, the independent remuneration board, et cetera. In my work overseas, I work closely with people with that background: at chief executive level in local government, at Cabinet level in the UK, at ambassador level overseas, and with Speakers and Cabinet-level Ministers in overseas countries. So, I have a wide experience of having worked with people in very senior positions, both within Wales and further afield.

I think you've virtually answered this in the answers you've given earlier, but I'll ask it anyway in case there's anything else you want to add to it. You'll have to work very effectively with, and have a good working relationship with, the WAO chair and board. Do you see any difficulty in that, and how will you set about doing it?

With the chair of the board?

Yes, yes.

No. So, the auditor general is a member of the board; I think it's important to remember that. The design of the Government's framework around the office is an interesting one, I think, so there is a potential tension that exists between the independence of the auditor general, him or herself, and the role of the board in terms of oversight and advice. I don't foresee, however, that being a difficulty. For me, it is absolutely essential that the individuals involved—the chair of the board, other board members, the auditor general—have to make that system of governance work. To have dysfunction at the top of any organisation soon permeates throughout the organisation in terms of its performance. So, absolutely critical for me would be to forge a very effective working relationship with the chair and the rest of the board. I've had good conversations with the chair of the board since the assessment process a couple of weeks ago, and I'm very optimistic that that can be a very powerful and effective working relationship. I'm interested too, also, in the presence on the board of staff elected representatives, because that seems to me a really powerful and positive feature in terms of linking up the leadership of the organisation at that level with the concerns and issues that staff may have.

How are going to ensure that you have a smooth transition by working with the current auditor general until he departs?

Yes. I spoke to Huw yesterday about exactly that. On the one hand, I'd be very keen to learn as much as I can from Huw in the time available. On the other hand, I need to balance that, you know. If I'm successful in this stage of the process, it will be several months before I actually take up the role, and I don't want to crowd the territory, and it's only right and proper that Huw continues through to the end of his tenure without me in the way. But, we had a good discussion about how to start to bring me up to speed on critical issues—for instance, being involved in some way in helping to shape the programme of examinations that you just asked about, Mike, and, closer to the time, as the transition approaches, I think, deepening that level of engagement, getting to know some of the senior staff there and the team that I'll be working directly with, and sitting down with Huw for him to talk me through some of the key things that will be on my desk on day 1. I think that's very important. But, as I said, I don't want to overplay that because there is quite some time before the transition takes place.

10:20

Mike Hedges just asked you about working with the board. Obviously, as you said, you're a member of the board. At the end of your answer, you just mentioned the need to work with the staff as well. Clearly, you're an external candidate or you were an external candidate going into the interview process, as was the case, actually, with the previous auditor general, so that's not new. You'll be coming into an office environment, a working environment, where the staff will know a lot more about audit—not just the current issues, but the audit process in general; many of them have been there for a long time—than you do. How do you think you'll manage that process and, at the time that you're getting up to speed, still maintain the respect within the role that the auditor general needs?

Yes, they certainly will know a great deal more than I on that front. I will rely on that professional judgment and guidance a great deal, I know. In my current role, I lead a wide body of staff, who have much deeper expertise in many areas than I do. So, I lead lawyers and procedural experts and research specialists, communications experts—they all have deeper expertise than I have in those areas. I think what's important for someone in a leadership position is to be able to bring yourself up to speed in a reasonable way on a raft of issues that might be unfamiliar to you, rapidly—and I think I've been able to demonstrate my ability to do that over the years; to ask insightful and intelligent questions on the back of that, and so I would attempt to be doing that; and also to start to give some coherence and shape to the overall direction that you want the team to go in. So, that would be the priority for me: to demonstrate early on that I appreciate and will be guided by the professional expertise of the organisation, but that I too have some things that I can bring to the organisation and add value as well. It's absolutely essential, early on, that I start to get to know that senior leadership team and understand their particular strengths and ambitions and that, together, we start to forge an effective working relationship and work out how best to work together and take the organisation forward.

The current auditor general—soon to be the ex-auditor general—Huw, sits on the Public Accounts Committee, alongside me as Chair. I assume you'll be doing the same. That's not a specific question, actually; that's a matter for you to decide on.

He also came from a non-audit background, but I've always been impressed by how he's able to balance—and Mike Hedges will know this from sitting on PAC—he was very good at being able to balance delegating to his staff, often delegating pretty major areas, but at the same time being able to step in and catch the ball, so to speak, if they weren't available or they needed support. He knew each of those areas inside out. Do you think your experience here and in your jobs to date will give you that ability to delegate where necessary, not micromanage, but at the same time be able to step in and provide that firm leadership and guidance as necessary?

Yes, I certainly hope so, Nick. The nature of the role I have at the moment is that it's extremely broad. However, Members expect me to have a grip on points of detail on just about everything. So, I'm well-versed in having to have that breadth of understanding and being able to judge how best to get myself up to speed on points of detail so that I'm able to respond in that way. It's impossible for a single person to know the ins and outs of everything that a large organisation is doing, but I think you're absolutely right: it's the skill of someone in a leadership position such as that to have a way of working and the intellectual capacity and self-awareness to make sure that they do have a grasp of the issues that matter most; a sufficient grasp of the detail so that they can respond to questions and queries at very short notice, but at the same time never to be too precious about delegation, as you say. I am perfectly happy to step back and let staff who work with me, and who know far more than I about particular aspects of work, to take the lead. That's the way to give the best service to—in this case—the PAC. So, yes you can expect me to have a grasp, and to be able to step in and cover anything that you need, but you won't find me at all precious about it all being me, me, me. You will see more expert voices advising the committee when that's necessary.

10:25

Good. This might be an awkward question for you to answer at the moment whilst you're still in your current position, but I'll ask you anyway. You're currently employed by the Assembly and a member of its senior team. The Assembly is audited by the auditor general and the audit office. How will you demonstrate independence when it comes to certifying the Assembly's future accounts? In other words—not to put too fine a point on it—how will you not be biased to your former colleagues at the Assembly?

Sure. No, I get that, and I guess that would be a question you'd have to pose to anybody who is coming into this role from within the public sector in Wales. My understanding of the position I would be in is that, formally, I would be the person required to certify the accounts. However, the auditor general and the whole staff of the audit office operate within a well-established code of practice, internationally recognised codes of ethics and standards. That is the framework within which I would be operating. In practical terms, I would want to make very clear that I was playing no part whatsoever in influencing the professional conclusions and judgments that the staff of the WAO had reached in respect of the Assembly Commission's accounts. But as I say, subject to that, my understanding is that, formally and technically, I would have to sign.

For a short time—albeit a short time—in a way, you'd be sort of auditing yourself, wouldn't you, in terms of—? Well, yourself as part of the team, but—.

Yes, absolutely, and I recognise that potential tension. As I say, I would fulfil the formal responsibilities that fall upon me; I would operate in accordance with the code and the ethical standards that apply to public audit, and I would make very clear that I had not, in any way, influenced the professional judgment that the staff had reached.

In practical terms—this doesn't take it away, but just, hopefully, to reassure you that I recognise that as a potential issue—I've had a conversation with the Clerk and Chief Executive here so that if I am successful in this process, we can look at ways that I can start to put a bit of distance between myself, in my remaining time in this role, and some key financial and governance decisions that we may have to take, so that, at least for 2018-19 and beyond, there is a little more clarity and distance in my role.

Yes, I just want to look a little bit more at your leadership skills and experience, obviously considerable in the parliamentary realm, and I think it's a question of how you will apply these to this new role, recognising that you will now be a key figure in the Welsh public sector. It's how you will go about using those leadership skills, but also developing relationships in the Welsh public sector. Because you've talked about Huw Vaughan Thomas, his dignity and the gravitas he's brought, which obviously is very important, an assessment of those skills, but the Welsh public sector have got to feel that you've got credibility and that there's confidence in your post. So, a few questions there for you to respond to.

10:30

Okay. Well, I accept entirely what you say, Jane. As I said earlier in response to one of Mike's questions, a key task for me in my early days would be to start to reach out to other key players within the public service in Wales—some of whom I will know and many of whom I will not have had direct dealings with in the past—and to start to develop the kind of relationship that I've described, one where I and my staff are able to demonstrate an understanding of the pressures that public authorities face and the objectives that they are seeking to achieve, but they too understand and appreciate our role and the independence of our role and what we have to deliver, so that, hopefully, we can develop a relationship where we are well-versed and understand the bodies that we're working with, and those bodies are receptive and open to the challenge and insight that we can provide. I think key to that is the relationship that I can forge at a senior level, and then seeing that pushed down through my own organisation and the organisations that we audit. 

In terms of developing relationships, as I said earlier, I've long experience of doing that with a lot of very senior, influential, authoritative people. So, that doesn't, in any way, faze me. It has always been a question for me of being open and approachable, being very clear with people about the red lines that I cannot cross, the principles that I hold very dear, and the independence that matters so much in my current role and in the role of auditor general. But, around that, there's absolutely no reason at all not to be as co-operative and open and as engaging as it's possible to be, because the role of the auditor general and the audit office, as I've said repeatedly this morning, is primarily to help drive improvement, and that is a positive, constructive process for me.

I was encouraged by the fact that you saw one of the developments, which has been very, very constructive, as sharing of good practice across the public sector. Because these are going to be ongoing relationships that you need to sustain and that's where you can be a critical friend—a constructive role that WAO can play, and as auditor general.

Absolutely. So, the sharing of good practice—I think what the audit office has done so far has been fantastic and we have benefited from that ourselves, here in the Assembly Commission, and it's something I would certainly want to continue and promote.

One of the features of the auditor general and the Wales Audit Office in that regard is the breadth of their view, as well as the depth of their expertise. So, they are uniquely placed, it seems to me, to provide leadership across the public sector and to shine a light on lessons that other parts of the public sector can learn—in a way, frankly, that few, if any, other parts of the system can do. So, absolutely, I think that drive to share good practice and to give breadth of view and experience and insight into good practice is fundamental to what we would want to achieve.

That's very much an outward-looking leadership role. Then, of course, obviously, your leadership— following up from Nick's points—of the WAO is critically important. Have you got any aspirations that you want to share with us about that role, looking also at, just again, how you can motivate the staff body in terms of taking things forward?

10:35

I think one of the most important things for the auditor general to be focused on is the leadership of the organisation itself. A high-performing, exemplar Wales Audit Office is—that is the bedrock upon which all the other things we've discussed today are based. So, for me, I would be looking to develop an office that is exemplary not only in the quality of the professional work that it undertakes, but also in the way that we organise ourselves internally, our own governance and accountability frameworks and behaviours, the way we engage with other duties that are placed on bodies across the public sector, and the way that we develop, motivate, inspire our staff.

I'm conscious of work that has been done in the office, I understand, over recent months, looking to refresh and develop organisational values and behaviours. I've also seen results of the most recent staff survey, which are really good—really good. So, it is very clearly already a high-performing organisation with an evolving culture that is very positive. I will be very keen to engage with that, put my own energy and weight behind that drive. If you can get the values and behaviours of an organisation right, other things follow. That's the most critical element for me.

Fundamentally, in terms of motivation and inspiration, in a way, for me, it comes back to the opening question from Simon. This field of work and the work that the audit office does really matters—it matters to me—in making the whole system of democratic accountability that we have in Wales work well. In the Assembly Commission, we have a lot of people who are motivated in their day-to-day work by that higher ideal and ambition, and I suspect that that's exactly the case in the WAO as well, and that's something I'd want to embrace and build upon.

Thank you, Adrian. One other point from me—and it follows on from Nick's question—about the fact that you will be appearing, I'm sure, regularly, in front of not only Finance Committee but Public Accounts Committee. That's a very important role—as you've described, Nick, that's been very valuable—and you've got the example of how it can work very constructively. How do you feel about that kind of level of scrutiny and responsibility?

I had more than a hand in designing the procedure that I'm being exposed to today, so it would be rich of me, I think, to in any way shy away from scrutiny either of the Finance Committee or engagement with the PAC. It's everything that I stand for and believe in.

So, in terms of engagement with the Finance Committee and its role in respect of the oversight and governance of the organisation, it's an absolutely critical, important plank of transparency and accountability. I would want to engage with all committees of the Assembly in the way that I would advise any other external attendee to do, namely, to be open, to be on the front foot, to be forward looking, for there to be no surprises and early sight of key documents and key decisions that are forthcoming, so that it's a constructive, productive relationship.

In terms of the PAC, I see that clearly as—that is a critical plank of the functioning of the audit office. The audit office without the PAC is weaker, and the PAC without the audit office is not the powerful committee that we have in the Assembly. So, nurturing that relationship with the Chair, with the membership generally, attending to that committee on a very frequent and regular basis, for me, are absolutely fundamental. As I said earlier, the two need to respect the independence of each other, but also to work collaboratively at all times if at all possible. So, yes, I would be attending PAC regularly, and it's absolutely something that I would want to focus a considerable part of my efforts upon.

10:40

There will be some early pressure on the new auditor general from things that are already in the pipeline—dealing with the fees regime is one of those, and early closure of local government accounts has been announced and needs to be implemented. Do you have any ideas at this stage of how you might want to change aspects of public audit in Wales in order to make it more effective, and to achieve the value for money that you've talked about this morning? 

A few things, one of which I mentioned earlier, namely our investment in technology. So, I think, over the next few years, that really is going to lead to some radical change in the way that we operate, what we can deliver and, obviously, it impacts significantly on audited bodies as well. But that, undoubtedly, is one way that we can look to free up resource to address other fresh challenges that we face. 

I think we need too to look at ways to make best use of all of the resource that we already have available. So, it's a feature of what we have done here in the Assembly Commission over the years. A big theme for me has always been around integration of expertise. Not only does that give a better quality output, in my view, when you bring together different streams of expertise, it also gives you some greater organisational flexibility and resilience. So, with big challenges coming down the line for the audit office, I would certainly want to look at how we can make best use of the existing resource within the office.

And the third plank, I suppose, is self-evidently the ongoing annual work that any organisation has to do in terms of workforce planning, capacity planning, resource planning. So, I would want to work very closely with the board to get myself up to speed with their thinking on workforce planning for the future, and how that interacts with their thinking on the estimates that they bring forward. 

In terms of the fee regime, I know that's been a feature that has been drawn to this committee's attention on several occasions. My understanding is that to redesign the fee regime will require legislation, and that, I know more than most, is a big deal. But I think it's—. The right step for the audit office, therefore, is to prepare the ground as best they can, to explain the issue, as has clearly been done already, but to take steps as much as they can to prepare the arguments, the assessments, the clarity of what needs to be changed, so that, should a suitable legislative vehicle present itself, they're in a good position to make that process as light and straightforward for the Government, for the committee, for the Assembly as it's possible to do.   

Your career to date has clearly benefited from international work and, you've, in turn, contributed to developments in other parliaments, for example, in other places. As you've already mentioned, there are international standards and there are international aspects to the auditor general's work, but it could be seen to be inappropriate for the Auditor General for Wales to undertake a great deal of overseas work. Have you planned how you might deal with that aspect of what has been an important part of your career to date? 

Of the work that I've done in the past? 

My intention would be to step away from that, primarily, in the early days, self-evidently because I will have more than enough on my plate and, unfortunately, I won't be able to continue with that work. I do, though, think it's an important part that the audit office, the National Assembly, any sophisticated public body in this country—it's important for us to play a part in assisting development, in evolving parliamentary systems elsewhere. So, I would have no objection in principle to either myself individually or members of the office engaging in that sort of development work, as I know the office does already—in Kosovo, I understand. Because I think it's important that we play our part and pay a little back into the system, and share our learning with people who are struggling to make this sort of democratic system function effectively. But in practical terms, for the foreseeable future I can't see how I can carry on doing that work personally, because I will have more than enough on my plate.

10:45

You've also clearly operated at a senior level in public service in Wales for quite some time, but I think it's fair to say that—well, none of us are household names, but you'll be stepping out of the shadows, if I may put it that way, with this role, because it is a very exposed public role. Some of the questions we've asked already have touched on the fact that with the Wales Audit Office, this is a role held by appointment by the Queen, and therefore it's something that attracts attention. How would you deal with scrutiny that might come from the press, for example about where you live or what you do or other aspects of your character that suddenly are now of public interest, and have previously been only of private interest?

I accept that, and that's not a surprise to me. I appreciate that that's part of what comes with this role. It's not something that I've had to deal with in any great way to date, you're absolutely right, but it's not something that fazes me. I'm entirely comfortable with the things that I stand for, the things that I do, and I'm certainly comfortable with where I live. So, yes, it would be a change for me, but I think I'm equipped personally as well as professionally with the resilience to deal with that.

If I may indulge myself and wear my public accounts hat, you're obviously aware of how the Public Accounts Committee—you've been in your role for a long time now—works with the auditor general. Would you leave things pretty much as they are in terms of that relationship, or have you got any ideas of how you could modify the relationship between the audit office and the Public Accounts Committee in the Assembly?

Not in radical terms, no. I think it is based on established good practice. I think the area we need constantly to keep an eye on is the relationship and the distance between the committee and the office. So, we need to do everything we can to make sure that the PAC is comfortable with the programme of examinations that comes forward and provides a large proportion of the diet of the committee's work.

I think the change that took place a few years ago where the committee started to do more of its own-initiative work is a very good one and a sensible one, but I'd be concerned if that balance gets out of kilter, if it becomes too much. Then there's something wrong for me—the two are too far apart. I would certainly want to look at ways that the office can support that sort of own-initiative work. Clearly, it almost certainly won't be possible to do it in quite the same way, but I'm sure there are some things we can do to provide some assurance and advice that will assist in that work, and for other committees of the Assembly as well.

So, another feature that I think is a good one is the developing willingness to share examinations that emanate from the audit office with other committees so that they can use it as a platform for their work, not solely channel everything through the PAC. So, fundamentally, I wouldn't want to change the nature of the relationship, but I would certainly always want to have an eye on the closeness of the relationship to make sure it was functioning as effectively as it could be.

Diolch yn fawr iawn am ddod i mewn am y gwrandawiad. Dyletswydd y pwyllgor nawr fydd ystyried y gwrandawiad a pharatoi adroddiad i Gyfarfod Llawn y Cynulliad. Diolch yn fawr iawn i chi.

Thank you very much for attending this hearing. It's now the duty of the committee to consider the hearing and prepare a report for Plenary. So, thank you very much.

4. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 5 a 7 a'r cyfarfod ar 8 Chwefror 2018
4. Motion under Standing Order 17.42 to resolve to exclude the public from items 5 and 7 and the meeting on 8 February 2018

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd ar gyfer eitemau 5 a 7 a'r cyfarfod ar 8 Chwefror 2018 yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from items 5 and 7 and the meeting on 8 February 2018 in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

Os caf fi ofyn i'r pwyllgor: a ydych chi'n hapus, o dan Reol Sefydlog 17.42, i fynd mewn i gyfarfod preifat? Pawb yn hapus. Fe awn ni i gyfarfod preifat, os gwelwch yn dda. Diolch yn fawr.

If I could ask the committee: are you content, under Standing Order 17.42, to go into a private meeting? Everyone content. We'll enter a private meeting now. Thank you very much.

10:50

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:50.

Motion agreed.

The public part of the meeting ended at 10:50.

11:05

Ailymgynullodd y pwyllgor yn gyhoeddus am 11:05.

The committee reconvened in public at 11:05.

6. Datganoli pwerau cyllidol i Gymru: Sesiwn dystiolaeth 4 (Cyllid a Thollau Ei Mawrhydi—HMRC)
6. Devolution of fiscal powers to Wales: Evidence session 4 (HMRC)

Croeso nôl i'r Pwyllgor Cyllid.

Welcome back to the Finance Committee.

I just remind everyone that there are translation facilities available.

Croesawaf y tystion y bore yma, sydd o Cyllid a Thollau ei Mawrhydi. Os gaf fi ofyn i chi, ar gyfer y cofnod, i ddatgan eich enwau a'ch swyddogaethau os gwelwch yn dda, i ddechrau?

I welcome this morning's witnesses, who are from HM Revenue and Customs. To begin, if I can ask you, for the record, to state your names and roles please. 

My name is Jim Harra. I'm second permanent secretary at Her Majesty's Revenue and Customs and I'm additional accounting officer for the Welsh rates of income tax.

My name is Sarah Walker and I'm the head of the devolution team in HMRC.

Diolch yn fawr i chi am ddod i'r Pwyllgor Cyllid y bore yma. Mae croeso mawr i chi. Rŷm ni'n ddiolchgar eich bod chi yma i'n helpu ni i edrych ar sut y mae datganoli cyllidol yn digwydd yng Nghymru. Os gaf fi jest ofyn i ddechrau i chi amlinellu beth yw eich cyfrifoldebau chi yn y broses yma ar gyfer datganoli cyllidol, a lle mae'r broses ar hyn o bryd hefyd?

Thank you very much for attending the Finance Committee meeting this morning. You're very welcome and we're very grateful that you're here to help us to look at how the devolution of fiscal powers is happening in Wales. If I could just ask you to outline the responsibilities that you have in this process for fiscal devolution and where the is process at present.

I’m very pleased to be here today to talk through HMRC’s approach to implementing the Welsh rates of income tax and answer the committee’s questions. HMRC is responsible for administering Welsh rates of income tax and we are working very closely with the Scottish [correction: Welsh] Government on implementation of that, but also we’ll collaborate on the ongoing administration of it.

We have set up extensive governance, which enables the Welsh Government  to monitor what we’re doing and to challenge and to contribute to that. That includes a devolution of taxes programme board on which senior officials sit, and also a Welsh rates of income tax project board on which Welsh Government officials sit.

Our approach to that is that we have already implemented the Scottish income tax, and although there are specific issues for implementation of the Welsh rates of income tax, which are very different and different challenges, nevertheless, that is a template that we know that we can learn from when we are implementing it. We have already got a memorandum of understanding with the Welsh Government and in due course we will have service level agreement as well, which will give a lot more detail.

On the fully devolved taxes, we are working with the Welsh Revenue Authority, which has been established now, to operate land transaction tax and Welsh landfill tax. Very recently, there was an official meeting where we agreed that both sides were ready for the thing to go ahead and there was an exchange of letters, I think, last week, between Ministers, which again has given the go-ahead for that launch.

We are confident that we will have systems in place that will prevent Welsh transactions being wrongly reported to us and vice versa. We have facilities in place to exchange data between the two authorities to make sure that we can properly maintain compliance and have the right statistical information. But at the same time, we're also working very closely with the Welsh Revenue Authority as they set up, on exchanging staff, working together to share technical knowledge and guidance and making sure that we are working together very closely in our communications with customers and with solicitors who are responsible for processing transactions.

Clearly, for the two devolved taxes—landfill and stamp duty, by shorthand—the timetable has been kept to and, as you say, we've had a statement from the Welsh Government this week on the turning off, if you like, of those and the coming onstream for the Welsh taxes. On the devolution of income tax, is the broad timetable in line with how you'd expect it to be at the moment in terms of working through the details of that?

11:10

Yes. At this stage, we're working on the IT specification and starting to engage with our IT suppliers about implementing that, and we're obviously preparing a taxpayer identification strategy that will enable us, in time for April 2019, to have identified Welsh taxpayers and have set them up on systems to be paying the correct rate of tax from the outset. We still have to finalise exactly what those plans are, but I would envisage that, around the end of December 2018, we would be running our main pay as you earn coding round for the following tax year, and that's when we would be issuing pay as you earn codes to Welsh taxpayers for the first time. There is the option to communicate with them before that, probably in the autumn, but otherwise the formal thing that they will see is a coding notice, if they are in pay as your earn, which will have a 'C' on it to identify them as a Welsh taxpayer.

You mentioned there information to Welsh taxpayers about this; are you part of a wider information campaign about the fact that this will be happening, so it's not just that—? They may not even notice the 'C', it has to be said, in those terms. Will there be a wider campaign? Are you talking to Welsh Government about how that might be done?

Yes, we are talking to the Welsh Government about the possibility of issuing notification letters to all Welsh taxpayers in advance of that, so that would be—. Although we are very proud of how understandable our pay as you earn coding notices are, that might be, in communication terms, something that people engage with much more easily. That will give people an opportunity to be aware of what's coming, and, if they feel that they are not a Welsh taxpayer for any reason, to be able to get in touch with us and clarify that; or, if someone feels they should have had a notification letter and haven't received one, also to get in touch with us. Otherwise, the formal thing they will receive is the coding notice, starting from December 2018.

I just want to explore some of the issues around costs. I note that there's the increase in the estimated transition costs for landfill transaction tax. Can you just clarify why that has happened? Because obviously this is quite a significant uplift.

We won't be charging any costs for landfill disposals tax. I think the costs involved in that are pretty negligible from our point of view and we will just absorb those.

There will be a charge for the devolution to create a land transaction tax and that is because we have to change our IT systems to make sure that we do not collect returns or payments in relation to land transactions in Wales, and also to ensure that we can safely and securely transfer data between us and the Welsh Revenue Authority. We estimated last June that those changes would cost about £1 million. That was an initial estimate based on what we had done when similar devolution happened in Scotland. However, in the following months, we did some more work and we identified that changes that we had made to our IT architecture since Scottish devolution actually meant that it would be more expensive to make the change this time. A key reason for that is that we have added to the resilience of our IT architecture, in particular in relation to the security of data from cyber attack. That gives us confidence that that IT platform is more secure, but unfortunately it also makes it more expensive to change. So, I wrote to the Cabinet Secretary Mark Drakeford in November or December time saying, 'I'm afraid that estimate has gone up'.

In the case of Welsh rates of income tax, we currently estimate that it'll be somewhere between £5 million and £10 million to implement that. That is something that we have had some experience of in the Scottish context, and I'm pleased to say there that, as we've refreshed those estimates over time, they've gone down rather than up, and I'm going to try my best to make sure the same applies for the Welsh rates of income tax as well.

Obviously, we've noted the correspondence from the Cabinet Secretary. He refers to the fact that—the June you were talking about—the transition costs in June are the maximum cost. You've explained in correspondence with him, and to us now, those additional costs. But you've got to get it right in terms of transition, but we are concerned to see that change and we want you to be as transparent and accountable as possible, because this is a very important new relationship with the Welsh taxpayer. So, what about final cost savings for no longer administering stamp duty land tax and landfill tax in Wales? Can you confirm those final cost savings? 

11:15

We can't confirm the final costs yet, although I think we're on the point of doing so. But we have estimated what those will be, if you want to, Sarah—.

Yes, I think the figures that we've said are between £115,000 and £160,000 a year. That is the operational cost of the Welsh transactions, both for stamp duty and for landfill tax. I think we're pretty confident it's going to come out around and close to the top end of that range. I don't have a final figure for you at the moment, but we're close to doing that, and we'll have it before the start of the tax year. 

So, we're a few weeks off, obviously, but you'll be able to confirm quite soon. 

Just on the Scottish example, you said as you've worked through the Scottish devolution of income tax now, costs have changed but, on the whole, they've actually come down, not gone up. Is there a read-across to the Welsh example there, or are there indeed cost savings, because you've gone through the iteration once? Are you able to give any comfort to us around how those costs might actually pan out at the end of the day? 

Yes, I mean, I think I had a defence when I appeared before the Scottish finance committee that I don't have when I'm appearing before yours, which was, 'I haven't done this before', and therefore there was a level of uncertainty in our estimates and I was pleased that they had come down over time. I think in this instance, whilst, as I say, there are particular challenges in relation to the Welsh rates of income tax, it's not identical. Nevertheless, a lot of what we did when devolving income tax to Scotland we can reuse for your purpose and that's why our cost estimate is already much, much lower than the cost estimate for the Scottish devolution. But I would also hope that that estimate will be more solid as well, because we've learned from that experience. 

I think one key reason why we started off with a much higher estimate for the Scottish implementation and it came down was that it's not about IT change but about the cost of communicating with taxpayers, and the amount of contact we would get back from taxpayers asking us, 'Why have I got this tax code?' and 'What's going to happen?' In practice, that has been a lot less than we originally allowed for. I think we made a generous allowance for that sort of cost, if you like. It's turned out to be less. I think that's partly because of the effectiveness of our communications , but also, I guess, a bit about how interested people are and how engaged people are with their tax codes. So, again, we have some experience on that kind of thing—how much contact to expect and we'll obviously build that in, and we built that into the lower estimate for the Welsh implementation. 

There are some things that go the other way. In Wales, we'll have to allow for the bilingual translation and for some of the publicity—if we do publicity, how we manage that in a Welsh context. So, there may be things that actually in Wales will cost more than they did in Scotland, but overall we're expecting it to be significantly less. 

Diolch. Good morning. I asked the Cabinet Secretary in the debate yesterday about the transitional arrangements and the switching off of the UK taxes and the coming online of the Welsh taxes. I understand the Welsh taxes can't be switched on until the UK ones are formally switched off. So, what work is being done—. First of all, how are preparations for disapplying the UK taxes progressing and what work is being done by HMRC to communicate tax changes in Wales? 

So, this is in relation to the land transaction tax and the landfill disposals tax, where agreement has been reached between the Scottish [correction: Welsh] Government and the UK Government that both the Welsh Revenue Authority and the HMRC are ready to implement those changes from April this year. That will require an Order to be laid, which will happen in the next week or two, to make that formally happen in the legal sense, and we'll be ready, I think, from February, next month, to do joint communications with the Welsh Revenue Authority to people who will need to understand the new rules and who they will need to direct their transactions to. We've already been engaging with bodies like conveyancers and solicitors, and indeed officials from the Welsh Revenue Authority are in our offices in London today at a meeting that we have with the conveyancing industry to communicate with them. Formal communications will happen over the next couple of months, starting in February. 

I would expect there's a relatively small number of readily identifiable players who administer those taxes in the conveyancing industry, for example in relation to land transaction tax. So, they're quite easy to reach in communication terms, I think.  

11:20

Yes, I mean, obviously, there's potentially a wider group of people but they all have to deal with the operator of the licensed waste disposal site and we know who those people are and we can readily communicate with them and we've got a joint communication plan in place with the Welsh Revenue Authority to do that. 

Great. Has HMRC had a role in developing joint guidance on transitional arrangements between taxes?

That guidance has been drafted and is ready for publication now the decision has been made to go ahead. 

It's been out there—we've been consulting again with the representative bodies who represent the conveyancers and so we're getting those comments back. 

So, it's all part of your communication with conveyancers and—

Absolutely, it's all part of the normal routine of what we're doing. We're also doing specific guidance on cross-border properties where there are some properties that actually span the border, where we're working with the Land Registry about, first of all, the rules for taxing those and also for making sure that the Land Registry is able to identify them and make sure that's picked up at the time of the transaction. 

Because that was a big concern of the committee when we were looking at the development of the land transaction tax, exactly how you would—if a property whose land straddles the border, whether it would be the property itself or the land—. So, all of that's been considered and dealt with. 

Yes. Broadly speaking, it's a fair apportionment—if it's half and half, then you just apportion the value between the sections of the property that are across the border. As I say, we've worked with the land registry to make sure that they are able to properly identify and give the transaction the right map, if you like, of where the property is.  

I remember Mike Hedges questioned it in evidence sessions. I don't think there was ever really a need to have such an accurate mapping of the border of Wales and England before, but I imagine the same case happened in Scotland when tax devolution happened there. 

It's different in Scotland because they have a separate land registry and so properties are already separately registered on either side of the border. The properties can't span the border.  

So, we're playing catch-up. Great. Okay. And how are data-sharing arrangements going ahead between yourselves and the Welsh Revenue Authority? 

As I say, we have worked with the Welsh Revenue Authority to set up secure channels to share data on land transactions. There is a legal obligation on the Welsh Revenue Authority to give the UK Government details of the transactions that they've processed so that we can have a full picture of the transactions across the whole of the UK. That's well in hand. We have, if you like, back-up systems in case the IT doesn't function. We've got no reason to think that the IT won't function on day one, but if it doesn't for whatever reason we have back-up plans and contingency plans to make sure that that data can be exchanged. It's relatively small numbers of transactions and so it's not a huge data feed. We need to make sure that we've got the provision for that to happen and we're very confident that that will happen and there'll be no effect on the continuity of data. 

Because the Welsh Revenue Authority were in the Senedd yesterday with their charter, which I seem to remember tabling an amendment to bring forward. I can ask about the charter—

I should say, we have a draft memorandum of understanding with the Welsh Revenue Authority, which we actually hope will not be draft by the time we go home—

We'll sign it this afternoon. 

We're going to sign it this afternoon. And that provides for us sharing data with them so that they can form a sort of customer view of anyone who they need to undertake compliance activities on in relation to devolved taxes. We also want to do some proofs of concept with the Welsh Revenue Authority on access to—we've got a system called Connect that we use for risk assessment, which may have some functionality that would assist them in administering the devolved taxes. We've got plans to do a couple of proofs of concept, with the Welsh Revenue Authority having direct access to that system.

11:25

You've been doing this a very long time—well, not you personally, but HMRC has been doing it.

Unfortunately, we have as well. [Laughter.]

You've been doing this for a very long time, but, obviously, the Welsh Revenue Authority is a very new institution. You can be candid with us, within these four walls, although there might be some people watching outside. I spoke to WRA— they're happy with the way that progress is going and think that everything will be up and running in what's a relatively short timescale. From your experience, from your point of view, you're confident as well that—okay, at the last minute there might be problems that need to be ironed out, that's part of the process, but you think they're generally where they should be at this point in time to get all of this up and running.

Yes. We're not in a position to audit them or anything, but we, obviously, work very closely with the WRA. We've also seconded people from HMRC to that authority, and there are people who have transferred to it. We also collaborate closely with them, and other British isles tax authorities increasingly, where we share capabilities and problem solving, so we're all there to support each other. We're happy with the assessment that everything's good to go in April.

No, I've done it at the start, I think, so we've covered those points.

With Scottish rates of tax, you had problems identifying Scottish taxpayers—a number of high-profile cases. What lessons have been learnt from that? I would say it's more complicated with Wales, because we've got an awful lot of people who work across borders in places like Chester and Wrexham. You've got places over the border from Monmouthshire that have Welsh postcodes, and I believe you've got places in Radnorshire that have English postcodes, so you can't just use straight postcodes in order to do it. What lessons have you learnt to ensure that all Welsh taxpayers are properly identified?

The other problem you've got is what are called contractors, who may well have a house in Wales but may well work in England for 200-plus days a year. This has never been a difficulty before, because it didn't matter, because you'd just pay a British tax. Now that part of it's going to be Welsh, how are you going to deal with those problems?

I'll ask Sarah in a moment to elaborate on the rules for determining who is a Welsh taxpayer, which will cover your point around the contractor who works away. You are quite right that when we first identified Scottish taxpayers for the purpose of issuing a mailshot to them, there was an error in our scan, which meant that we did not pick up everyone we should have picked up. That was identified and corrected well ahead of the formal introduction of the devolved tax. So, for example, when we issued the pay as you earn coding notices, we had corrected that. So, we've certainly learned lessons in terms of amending that scan to make sure the same problem won't happen again, but we've also, I think, put in further assurance checks that we want to do to make sure that if there are any problems, they come to light before we issue anything.

You're quite right that there's a distinct challenge in relation to Welsh taxpayers. Our first way of identifying Welsh taxpayers on our systems will be their address—we'll start with the postcode. There are, I think, about 136 postcodes that straddle the border, therefore the postcode will not necessarily correctly identify the person who's a Welsh taxpayer. We will have to take further steps to identify which side of the border the house is on. There will be some cases where the house and gardens themselves will straddle the border, and we'll have further work to do, but it is about zoning down to a relatively small number of people.

A similar issue did arise in Scotland, but the Scottish border is a lot less populous than the Welsh border, so there was a smaller number of people to deal with, but we did deal with that successfully and with very low costs and very low levels of contact. It is a larger job in relation to Welsh taxpayers, but it's the same principle that we'll need to apply. I'll let Sarah pick up on the rules.

I only discovered recently that there are Welsh postcodes that are actually in England and English postcodes that are actually in Wales, which surprised me a bit, but, yes, we know about that and we can identify those on our system, so that we are correctly picking up the postcodes that are actually in Wales. The rule for Welsh taxpayer status, unless you're a Welsh parliamentarian—so, an Assembly Member or a Member of Parliament or a Member of the European Parliament—who will always be Welsh taxpayers if they represent a Welsh constituency, for everybody else it goes on the main place of residence. So, it doesn't matter where you work. We're not interested in where you work; it is where you live. So, for most people, they will only have one main place of residence, and that should be the address that we have, so that will determine their status. For people who have more than one place of residence, it will usually be possible to identify which one is their main one, where their family lives, where generally all their family business is done, if you like, and there are rules about that. If there are people who have more than one residence and genuinely cannot identify which is the main residence, you can come down to counting the number of days that you stay in Wales or elsewhere, but we expect that will be a vanishingly small number of people. These are people who will have a home, and we know where their home is. 

11:30

Of course, we've got a lot of holiday homes in Wales as well, which may well create some complications to the system. Although, I doubt it will cause complications as long as the tax rates stay the same, because it won't matter to the taxpayer which one they claim to be their main residency. If the tax rates are different, that may well have an effect.

Yes, and we'll be looking for that, if you like. If, suddenly, the Welsh Government announce a very different tax rate and we suddenly get lots of people claiming they live in a different place, then clearly we will be watching out for that and making sure that we have some activity to pick that up.

Can I just ask on that? In light of decisions to change tax rates going forward, do you have systems in place that would identify—I think the best word for it would be 'flipping'—people changing their main residence on the basis of tax changes? Is that something that could be picked up by your system?

Yes. First of all, if someone in response to a tax rate change genuinely moves home, that is something they're entitled to do; that's not non-compliance from our point of view. I'm sure from a policy point of view, you would be interested in that, but that's not something that we could tackle. But, where a differential causes people to start telling us things that aren't the truth about where they live, yes, we would have a compliance strategy to identify that behaviour and tackle it. We would put that strategy in place when we believe there's a differential that would cause people to behave in that way. We would await policy decisions before we took action, but both in relation to the Scottish income tax and the Welsh rates of income tax, we would envisage that our compliance strategy would involve doing that kind of investigation work, if we felt the differential was sufficient to create a risk.

The amount of money you've estimated for implementing the Welsh rate of income tax is—I would say, thankfully—substantially less than that for Scotland. I'm very pleased at that, but does that actually include cleansing the pay-as-you-earn and the addresses to get down to making sure that the right people are there? So, that's all in, that £5 million to £10 million.

What we charge the Welsh Government for is all our activity that is specifically and additionally in order to introduce the Welsh rate of income tax. All our routine activity in Wales, all the stuff we would have been doing anyway, all our compliance activity in Wales, we will still meet out of our UK budget. It's the marginal extra cost of implementing it, and clearly the data cleansing and the mailshot, if that's what we do, is actually a big chunk of that extra cost, which will be charged to the Welsh Government.

How will the implementation of the Welsh rates of income tax be reviewed to assess whether it's been effective or not? How will you work out whether it's actually worked correctly?

I think as part of the project plan, and the project board has the Scottish Government on it, we'll be looking at how we get assurance that the implementation activity has been successful. So, for example, that we have identified Welsh taxpayers correctly, and I would expect the project, as part of its post implementation to do that work, and now, to be agreeing the kinds of assurance activity that it will undertake.

But, obviously, maintaining an accurate database of Welsh taxpayers is an ongoing matter, and we would expect that, each year, we would agree with the Scottish [correction: Welsh] Government what the compliance strategy and assurance strategy are in relation to that, which would be informed by how much the Scottish [correction: Welsh] Government wants to spend, but also our assessment of what we think the risk involved in that is. So, I think there are those two distinct things.

When we implemented this for the Scottish income tax, we undertook some assurance activity to compare our database of Scottish taxpayers with other databases. Unfortunately, and it's the case with Wales as well, there is no definitive database of Welsh residents against which we can benchmark our own database of taxpayers. But, we can look at credit reference agencies, and there are a variety, and electoral rolls—

11:35

Yes, there are a variety of databases that we will use to try and corroborate what we hold. In the case of Scotland, we have corroborated our Scottish taxpayers to between 98 per cent and 99 per cent of the amount corroborated against [correction: 99 per cent against] other independent databases. That doesn't mean that the remaining 1 per cent is wrong, it's just that there is no corroboration, but our databases, we find, tend to be more up-to-date than many others, in particular, for example, the electoral roll, and we would expect to carry out similar assurance activity in relation to Welsh taxpayers.

I think the other thing that should be helpful in this is that, under the legislation, the National Audit Office are required to write an annual report on our activity in relation to the Welsh income tax. That will be done, I assume, in conjunction with the Wales Audit Office, and they will report to the Assembly every year on whether we've done a good job and whether it's value for money.

Of course, during the year, people will move from England to Wales and Wales to England, which, again, had never been a problem for you before, but you've got no difficulty in picking up which month people move in terms of identifying where the money should be allocated.

The key thing that we need people to do is to keep us up-to-date when they move and tell us when they have moved, and that is really all that the vast majority of people will need to do in order for us to keep the database up-to-date. We estimate there are about 115,000 moves a year in either direction across the Welsh border; that's roughly 50:50. That is more than there are between Scotland and England, so, again, it's a bigger issue for us to manage in relation to Wales, but the key message that we want to get across to taxpayers is, really, the only thing that you need to do is to make sure you keep us up-to-date with where you live.

It's easy, if somebody lives in Swansea and is relocating to Berkshire, then that information will come through quite easily. I'm just thinking of the practicalities—somebody's moved two streets away up in the north-east of Wales, and they may be moving from their parents' house to a house down the road, and they just don't bother to update.

Obviously, we'd want that information, but it's not relevant to their taxpayer status, because it's still within Wales—

No, I meant if they moved two streets, they could be moving across the border from Wrexham to Chester. If you go to Wrexham and Chester and drive along that border, it says 'Welcome to Wales', 'Welcome to England', 'Welcome to Wales', 'Welcome to England' at least twice for each and possibly more. You don't have to move very far to move from England to Wales.

As I say, the key thing is, really, for all taxpayers to notify us when they change address. Our research tells us that roughly three quarters of taxpayers do that unprompted when they move address and then we have other measures that we take, both to remind people they need to do it, but also, we get address information from employers, from the Department for Work and Pensions, so we've got other sources of address information. But the key communication that we need to get to people is, 'Tell us when you move.'

The last question from me is: the Wales Audit Office's report on fiscal devolution noted the Welsh Government is in discussions with HMRC regarding more timely income tax data to support tax forecasting. Are these progressing? Tax forecasting itself is incredibly difficult, I accept that.

Yes, we've been talking with the Welsh Government. Clearly, they now have an interest in being able to forecast the revenues they will get from Wales's income tax. There are two types of data that we're going to be able to share with them. One is something we call the survey of personal incomes, which is a large sample of all income tax payers, where we will have a Welsh extract from that. It is anonymised, so in the sense that it is put into a state where you couldn't easily identify an individual taxpayer, and so that means that we will group together some income levels so that you haven't got very small numbers in any bracket, but it still is equivalent to the information that the Treasury have to get their forecasting.

We're also talking to the Welsh Government about getting information from the monthly returns we get from employers, which is our in-year data. It's not a complete reflection of income tax because, obviously, it's only pay as you earn, it's not the whole of the income tax revenue, but it does allow you to see whether the trends are in line with what you expect. We've already had an equivalent conversation with Scotland and we are making the monthly information available to them. So we think that we will be able to agree with the Welsh Government that that is completely adequate for what they need to do to make sure they understand the prospects for their revenue.

11:40

I think it probably is because it will identify those big redundancies and it will identify those where lots of people are moving on to shorter time working, which is an indication of what's happening in the economy. 

And I think, probably, there is a level of uncertainty from forecasting from that data for some of the reasons that Sarah mentioned: it's not a complete set of tax data because it doesn't include, for example, self-assessment. There are also things that we can put into your pay-as-you-earn code that affect the amount of tax that's deducted that are not to do with the devolved income tax. But I think, over time, I'm sure the Welsh Government and its independent forecaster will understand those limitations and learn from them and be able to forecast more clearly from them.

You can tell me if I'm wrong on this, but I would have thought if the economy goes off the cliff, like it does every now and again, and there's a huge reduction in income tax coming in from pay as you earn, you'd expect the same sort of thing to affect self-assessment. 

I'm not qualified to say whether that's what we see or not, I'm afraid. I'm not an economist, but I would have thought that your independent forecasters, that's the kind of thing that they would take into account. I think what I can assure you is that the kinds of data that the Scottish [correction: Welsh] Government and its forecaster will have are really equivalent to what the UK Treasury and the Office for Budget Responsibility have. 

Just a question on the—. We've talked about the implementation costs of Welsh rates of income tax—between £5 million and £10 million is the estimate at the moment. What are the ongoing costs? Are there ongoing costs or savings? What sort of relationship and discussion do you have with Welsh Government about how that might work?

I'll let Sarah pick up on the discussion. So, yes, there are likely to be ongoing costs. How much there are depends on the nature of the activity that we feel we need to undertake. And, in particular, for example, any differential in tax rates if that causes us to think we need to do specific compliance activity in relation to identifying Welsh taxpayers, then there would be a cost associated with that. On the other hand, if that differential is very low and we feel that it's very low risk and, therefore, we need to do very little, then there's little cost. 

We haven't got a figure at the moment for what those costs will be. I think, for Scotland, in the year when rates are pretty much in line with the rest of the UK, the identifiable additional cost was pretty low—less than £1 million. I think we would expect it to be higher in a year where the rates are a bit different, as Jim says. So, that will be part of the conversations we have to have with the Welsh Government. 

It also—. One of the things that, obviously, we will have to do is implement the outcome of the annual budget. The main way in which we do that is through the pay-as-you-earn coding notices, and obviously, our annual coding run usually starts in December. So, one of the things that we'll want to do with the Welsh Government is be in close dialogue with them about the timing of the budget and the implementation of that, because if we can include those decisions in our normal coding run, then, effectively, there's no marginal cost for the Welsh Government. If we had to run a second, sort of, supplementary coding run specifically to implement a decision of the Welsh Government or Welsh Assembly, then that would be an additional cost.

11:45

Okay. Any further questions from Members? No. In which case, I thank you for your attendance this morning. We're very grateful for that. We're keeping an overview of devolution, obviously, as a committee, and we're very grateful for the information you can give us. Diolch yn fawr iawn. 

Os yw'r pwyllgor yn hapus eto, fe awn ni, o dan Reol Sefydlog 17.42, i sesiwn breifat. 

If the committee is content again, under Standing Order 17.42, we'll return to private session. 

Diolch yn fawr iawn i chi. Awn yn ôl i sesiwn breifat. 

Thank you very much. We will return to private session. 

Daeth rhan cyhoeddus y cyfarfod i ben am 11:45.

The public part of the meeting ended at 11:45.

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