Cynulliad Cenedlaethol Cymru

Yn ôl i Chwilio

Y Pwyllgor Cyllid

Finance Committee

13/06/2018

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

David Rees AC
Jane Hutt AC
Mike Hedges AC
Neil Hamilton AC
Nick Ramsay AC
Simon Thomas AC Cadeirydd y Pwyllgor
Committee Chair

Y rhai eraill a oedd yn bresennol

Others in Attendance

Dr Grahame Guilford EU Funding Ambassador
Llysgennad Cyllid yr UE
Dr Tim Peppin Cyfarwyddwr Materion Adfywio a Datblygu Cynaliadwy, Cymdeithas Llywodraeth Leol Cymru
Director of Regeneration and Sustainable Development, Welsh Local Government Association
Faye Gracey Pennaeth Dadansoddi Polisi, Llywodraeth Cymru
Head of Policy Analysis, Welsh Government
Huw Irranca-Davies AC Y Gweinidog Plant, Pobl Hŷn a Gofal Cymdeithasol
Minister for Children, Older People and Social Care
Julie Morgan AC Cadeirydd Pwyllgor Monitro Rhaglenni Cymru
Chair of the Wales Programme Monitoring Committee
Owain Lloyd Dirprwy Gyfarwyddwr, yr Is-adran Gofal Plant, Chwarae a’r Blynyddoedd Cynnar, Llywodraeth Cymru
Deputy Director, Childcare, Play and Early Years Division, Welsh Government
Rob Stewart Arweinydd, Cyngor Abertawe a Dirprwy Arweinydd Cymdeithas Llywodraeth Leol Cymru a llefarydd ar Ddatblygu Economaidd, Ewrop ac Ynni
Leader, Swansea Council and Welsh Local Government Association Deputy Leader and spokesperson on Economic Development, Europe and Energy
Sioned Evans Prif Weithredwr, Swyddfa Cyllid Ewropeaidd Cymru
Chief Executive, Welsh European Funding Office

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Bethan Davies Clerc
Clerk
Christian Tipples Ymchwilydd
Researcher
Gareth David Thomas Ymchwilydd
Researcher
Georgina Owen Dirprwy Glerc
Deputy Clerk
Leanne Hatcher Ail Glerc
Second Clerk

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 09:01.

The meeting began at 09:01.

1. Cyflwyniad, Ymddiheuriadau, Dirprwyon a Datgan Buddiannau
1. Introductions, Apologies, Substitutions and Declarations of Interest

Bore da, a chroeso i gyfarfod y Pwyllgor Cyllid. Rwy’n croesawu pawb i’r cyfarfod. A gaf fi jest atgoffa Aelodau bod cyfieithu ar y pryd, wrth gwrs, ar gael—cyfieithu ar sianel 1, a’r sain wreiddiol ar sianel 0? A wnewch chi dawelu unrhyw ddyfeisiadau electronig, yn enwedig y rhai sydd wedi cael ffonau newydd yn ddiweddar ac efallai yn anghofio eu troi nhw off mewn pwyllgorau? A oes gan unrhyw Aelodau fuddiannau i’w datgan? Buddiannau. Na. Rŷm ni’n ocê, rydw i’n meddwl, ar ddechrau’r cyfarfod.

Good morning, and welcome to this meeting of the Finance Committee. I welcome everyone to the meeting. Could I just remind Members that interpretation is available on channel 1 and amplification on channel 0? Could you put any electronic devices on mute, please, particularly those who have had new phones recently and forgotten to turn them off in committees? Do any Members have any declarations of interest to make? No. We're okay, I think, at the start of the meeting.

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

Tra ein bod ni’n aros i’r Gweinidog gyrraedd—mae gyda fe gyfarfod tan 9 a.m., rwy’n gwybod hynny—gwnawn ni jest edrych ar y papurau i nodi. A gaf fi ofyn ichi ystyried a nodi papurau sydd wedi'u cyflwyno, gan ddechrau gyda llythyr gan yr Ysgrifennydd Gwladol ataf fi, ar eich rhan chi, ynglŷn â’r ymchwiliad rŷm ni’n ei gynnal ac yn ei wneud y bore yma ynglŷn â beth fydd yn disodli ffrydiau cyllido’r Undeb Ewropeaidd ar ôl gadael yr Undeb Ewropeaidd? Mae’r llythyr yn datgan nad yw’r Ysgrifennydd Gwladol, Alun Cairns, yn fodlon dod i roi tystiolaeth i’r pwyllgor. Rydw i’n siomedig yn hynny o beth achos mae’n golygu nad oes gyda ni agwedd Llywodraeth y Deyrnas Gyfunol yn y pwyllgor ac yn y dystiolaeth, felly. Nid ydw i'n gwybod a oes gan Aelodau unrhyw sylwadau ar hynny. Byddwn i’n cynnig ein bod ni o leiaf yn ysgrifennu yn ôl at yr Ysgrifennydd Gwladol yn gofyn am dystiolaeth ysgrifenedig ganddo fe. David.

While we're waiting for the Minister to arrive—he has a meeting until 9 a.m., I know that—we'll just look at the papers to note. Could I ask you to note the papers that are presented, starting with a letter from the Secretary of State to me, on your behalf, on the inquiry that we're doing this morning into what will replace EU funding for Wales post Brexit? The letter states that the Secretary of State, Alun Cairns, is not willing to come to give evidence to the committee. I'm disappointed about that because it means that we won't have the UK Government's perspective in the evidence to the committee. So, I don't know whether Members have any comments to make about that. I would propose that we at least write back to the Secretary of State and ask for written evidence from him. David.

Well, I think it should be stronger than that. I'm not just disappointed, I'm angry that he's not prepared to come and talk to us, because this is an important issue for Wales. There's a large amount of money being lost through EU funding and he's not prepared to come and talk to us about how the UK intends to replace that funding. I think a strong letter should be sent to him.

I think also—in a sense, this is crucial to the evidence that we're taking. We heard today about the insecurities of business—let alone the third sector, higher education, further education; it's crucial that we know the way forward and that he hears our views.

I was going to say that I think that, if you do it angry, it's perhaps counterproductive, but I think that what Jane just said about how crucial it is that he hears our views about the importance of it to business, third sector and the economy of Wales might be much more useful.

Can I add to that? It's important to remember that this shared prosperity fund, which we are yet to be clear about what it means—he is supposed to be our voice in that Cabinet, taking those positions back. If he doesn't have an opportunity to come and listen and hear, how can he do that? I think he's failing us, to be honest. I feel that strongly about it.

Felly, er nad yw pob Aelod wedi siarad, rwy’n cael teimladau’r pwyllgor, ac, yn sicr, oni bai ein bod ni’n cael tystiolaeth ganddo fe, nid oes gennym unrhyw ffordd o holi fe ynglŷn â’i gynlluniau—siarad o ran y Deyrnas Gyfunol bydd e, wrth gwrs, Llywodraeth y Deyrnas Gyfunol, o safbwynt hynny. Felly, byddaf i'n llunio llythyr ar ran y pwyllgor yn mynegi rhai o’r pryderon yna ar y sefyllfa mae e'n ein gadael ni ynddi o ran yr ymchwiliad.

Yr ail lythyr yw llythyr gan Ysgrifennydd y Cabinet dros Gyllid a Llywodraeth Cymru—llywodraeth leol dylwn i ei ddweud—ataf fi, eto yn nodi digwyddiad i ddathlu 10 mlynedd o ddatganoli cyllidol. Bydd pawb yn cael gwahoddiad i'r digwyddiad yn ogystal, mae’n siŵr—jest i nodi os ydych chi’n hapus gyda hynny. 

Mae hefyd llythyr yn ein diweddaru ni ynglŷn â Bil Iechyd y Cyhoedd (Isafbris am Alcohol) (Cymru) gan Ysgrifennydd y Cabinet dros Gyllid, a hefyd llythyr ynglŷn â goblygiadau'r gyllideb ar gyfer y ddwy flynedd nesaf. Nid oes dim byd y gallwn ni ei wneud yn ei gylch e o safbwynt y Pwyllgor Cyllid, ond mae’n ein rhybuddio ni, rydw i'n meddwl, o rai o’r trafferthion a fydd ar y gorwel. Wedyn mae cofnodion y cyfarfod diwethaf ar 23 Mai. A ydy pawb yn hapus gyda’r papurau, gyda rhai o’r nodiadau yna, a’r ymateb i’r Ysgrifennydd Gwladol? Diolch yn fawr.

Therefore, although not every Member has spoken, I've had the views of the committee, and, certainly, unless we have evidence from him, we have no way of questioning him about his plans—speaking on behalf of the UK and the UK Government, he will be, of course, from that perspective. So, I will draw up a letter on behalf of the committee, conveying some of those concerns on the situation that he's left us in in terms of our inquiry.

The second letter is a letter from the Cabinet Secretary for Finance and Welsh Government—local government, I should say—to me, again noting an event to celebrate 10 years of fiscal devolution. Everyone will have an invitation to that event, I'm sure—just to note that, if you're happy with that.

There's also a letter updating us on the Public Health (Minimum Price for Alcohol) (Wales) Bill from the Cabinet Secretary for Finance, and also a letter regarding the implications for the budgets for the next two years. There's nothing that we can do about that in terms of the Finance Committee, but it does warn us, I think, of some of the problems that are on the horizon. And then we have the minutes of the last meeting on 23 May. Is everyone content with those papers, with some of those notes, and the response to the Secretary of State? Thank you very much.

09:05
3. Bil Cyllido Gofal Plant (Cymru): Sesiwn dystiolaeth
3. Childcare Funding (Wales) Bill: Evidence session

Os trown ni, felly, at y sesiwn dystiolaeth bore yma a chroesawu’r Gweinidog yn ôl, ond ar bwnc cwbl wahanol—y mae e wedi bod gyda ni yn weddol ddiweddar. Os caf i jest ofyn i chi enwi’ch swyddogion a’u swyddogaethau jest ar gyfer y Cofnod, ac, wrth gwrs, rŷm ni’n edrych ar y Bil Cyllido Gofal Plant (Cymru).

We turn, therefore, to the first evidence session this morning and welcome the Minister back, but on a completely different subject—he's been with us relatively recently. Could I just ask you to state your officials' names and roles for the Record, and, of course, we're looking at the Childcare Funding (Wales) Bill?

Diolch yn fawr iawn, Cadeirydd. Bore da, bawb. The two officials I have with me—between us, we should hopefully be able to illuminate the committee's inquiry—are Owain, to my right, who is the deputy director of children and play, the whole policy area, and to my left, we have Faye Gracey, who is the head of analysis on the childcare offer. So, figures and policy and the Minister sitting in the middle.

Diolch yn fawr. Rydym ni'n edrych ymlaen at edrych ar y Bil yma. A gaf i ddweud ar y cychwyn nad oes gennym ni lawr o amser? Rŷm ni wedi’i gadw e mor fyr ag sy’n bosib i hwyluso pawb, a byddwn i’n gofyn i Aelodau a hefyd i’r Gweinidog a’i swyddogion am atebion mor gryno ag sy’n bosib yn ogystal. Rŷm ni eisiau atebion llawn, ond mor gryno ag sy’n bosib—dyna’r dasg sydd gyda ni.

Rwy’n dechrau gyda chwestiwn hollol benagored, so rwy’n gobeithio nad yw hwnnw’n eich arwain chi i lawr i gors yn yr ystyr yna, ond mae’n wir i ddweud bod yr asesiad effaith rheoleiddiol yn nodi nad yw gofynion y Bil, ar hyn o bryd, wedi’u diffinio’n glir, ac felly mae yna amheuaeth ynglŷn â’r amrediad o gostau sydd yn yr asesiad. Beth ydych chi’n meddwl, felly, o ba mor hyderus fedrwch chi fod, fel Llywodraeth, ynglŷn â’r costau sydd yn y Bil, a dau ben y costau—y lleiafswm a’r isafswm?

Thank you very much. We're looking forward to looking at this Bill. Could I state at the outset that we don't have much time? We've tried to keep it as brief as possible to help everyone, and I'd ask Members and also the Minister and his officials for some brief answers. We want comprehensive answers, but as brief as possible—that's the task that we have this morning.

I start with a very open-ended question, so I hope that that doesn't lead you down a path, in that sense, but it is true to say that the regulatory impact assessment does note that the requirements of the Bill are not currently clearly defined, and therefore there is some doubt about the range of costs that are in the assessment. How confident are you, therefore, as a Government, in terms of the costs that are in the Bill, and the two ends of the costs—the maximum and the minimum?

In line with your dictum, Chair, I'll keep my initial comments very brief. We're very confident in what we have in front of us in terms of the regulatory impact assessment. We've done the sensitivity analysis. It has shown that the calculations and assumptions that we've done are unlikely to change significantly around the preferred option for that to no longer be the lowest cost option. The rigour of the data sources that we used includes industry standards, information from Her Majesty's Revenue and Customs current offer, data from the early implementers and the experiences of other existing Welsh Government programmes like the parents, childcare and employment programme. The other reason we're confident it's robust—I could go through several—is that it's very much in line with standard Green Book procedure as well. And just finally, it's based on higher level estimates, so we're very confident in what we have in front of us. We will, by the way, regularly review and update these as time goes by.

Ie, yn hynny o beth, beth oedd diben defnyddio ymgynghoriaeth allanol? Nid wyf yn gwybod a oedd hynny'n berson unigol neu'n gorff o bobl, ond beth oedd y broses o weithio gyda'r ymgynghoriaeth yna? Ai gosod cylch gorchwyl a gofyn iddyn nhw ddod yn ôl ar hynny neu ryw broses mwy rhyngweithiol rhwng eich swyddogion chi a'r person neu bersonau hyn?

Yes, in that sense, what was the point of using the external consultancy? I don't know whether that was an individual person or a body, but what was the process of working with that consultancy? Did you set a remit and then ask them to come back on that, or was it more an interactive process between your officials and that person or people?

The reason for using the external consultancy I think was to give additional rigour and transparency to the process. Gartner Consulting, interestingly, have been involved in similar schemes before, including in England, so they have some familiarity with this and they're not starting from a blank sheet. They have a very strong reputation as an independent consultancy in this particular field and of developing and reviewing programmes like this.

In terms of the remit, it wasn't a totally wide remit that says, 'Go and explore the options and then tell us which one is the best one', but it was very clearly to look at the four different options, explore them exhaustively, fairly and transparently; to consider those options around application eligibility for the offer; to look at the information and communications technology service costs and the complexity and degree of customisation of the existing systems; all those things around transition costs and likely staff numbers; and then to benchmark them as well. And they came back to us very transparently with what they felt the costs were. But we think it was a useful device, and hopefully useful for the committee as well, because it isn't based purely on internal analysis; it is an external consultancy with real experience and reputation in this field.

You haven't published the results of that external consultancy as a separate document, so that was subsumed into the work you were doing in the department. That would be a fair assumption, yes?

09:10

Their output was the figures; there was no accompanying report. 

It feeds very clearly into the RIA, which obviously you have before you.

Just in terms of the RIA, you've mentioned the early implementer local authorities as obviously being used to estimate costs in the RIA. How has the cost data from those early implementers influenced and guided you?

It's been really useful. The fact that we're doing this phased approach with the early implementers has been helpful, not only in terms of the policy direction but also in terms of the costings. So, Gartner actually went out and engaged with the early implementers—all of them—and in particular I have to say with two that we're doing two slightly different approaches with. So, for example, Blaenau Gwent was the most manually administrative of the systems, which, of course, is reflected in one of the options. They were able to talk with them about the paper processing elements—what costs and bureaucracy were with that. Flintshire, by contrast, was one of the most digitally advanced, albeit not on the mechanism that we are proposing, but the most digitally advanced. So, that was helpful in being able to inform Gartner's analysis, then, of where the cost would fall in each option. 

That's interesting. You've estimated 40,000 total applicants—that's assumed in your costings. Why have you assumed the total number of applications to be the same across the five-year period for all options?

My officials have done some very good analysis based on a number of datasets, not least the Office for National Statistics data on children. So, looking at the number of children aged three and four, the most recent statistics from ONS, which were for 2016, as published by the ONS, suggest pretty much a level playing field over the period that we are looking at—these our or five years. The other aspect is the annual population survey. So, when we are looking at eligibility for this scheme, the number of parents likely to be eligible, we looked at the annual population survey, which looks at things such as employment rates, earnings of parents of three and four-year-olds and extrapolated from that. So, we're pretty confident once again—we're very confident, as confident as we can be—that the figures are showing us what is now reflected within the RIA.

Will you be revising those figures as the trial—I don't know what you call it—or pilot areas—? Is that what they're called or the trial areas?

The early implementer authorities, but in effect they are piloting—

Yes, that is what they are doing because the options are available there. So, how are you managing the figures that are emerging from those and reflecting them in the costs in the RIA?

I'll bring in my colleague in a moment, but we will be constantly reviewing and updating these figures based on the experience of the early implementers. Owain or Faye, do you want to add to that?

Just to say that we're constantly looking at the figures. We've been doing some modelling at a lower level as well, at a local authority area level because, obviously, maternal employment rates, which we use as a proxy for the eligibility vary. So, we've got more detailed work behind it, but I think the headline is—

Okay. We may come back to just one aspect of that, but we'll move on with Mike Hedges for the moment.

Only slightly moving on, I think there are a lot of people who are digitally excluded. Informing people by e-mail—and even those who aren't digitally excluded don't necessarily read their emails fairly regularly, as many of us have discovered having sent e-mails out to people and got replies several weeks later. So, how will this work in practice for those who don't reply to the e-mails within a reasonable time? Will you be making sure that you write to them, and how much do you estimate the cost to be for those who either are digitally excluded or those who, if I can use the term 'semi-digitally excluded', have an e-mail address that they either rarely use or that belongs to a third party and which they give out as an e-mail address to send things to? My wife always gives my e-mail address so I get blocked up with loads of rubbish, but lots of people do that sort of thing. They use another relative to collect their e-mails. So, what are you going to do to ensure that those people actually get contacted by some other method?

I'll come back to third-party use of e-mails in a moment, because that's quite an interesting one, but on alternative gateways for people into this, we've anticipated this and, in fact, the England offer, which of course, if the Bill is successful, we'll develop through a similar mechanism with HMRC, has also anticipated this. So, there'll be a helpdesk and, in fact, within the costings, we identified that helpdesk option within all four options so that everybody would be able to access this offer also by telephone, if need be. So, they wouldn't have to rely on e-mails or digital platforms to do it. It could be done by telephone, and, in fact, the telephone helpdesk would not only deal with enquiries but could actually be used for the application process itself. It is being used successfully in that way at the moment in the England model as well. That could also then be used for queries in addition to the original application. So, we've anticipated that. We've built the costings into the four options of doing that.

Third-party e-mail people, who—. And I have seen this myself, where people give somebody else's e-mail. I think they have a choice there, clearly, Mike, as to whether that would be secure, whether they'd want that too, because we're talking about here information that is confidential to an individual, because we are talking about—within the wider offer—data sharing. But, Owain—.

09:15

To be honest with you, it's not something that I think we've thought of in much detail at this point in time, but it's certainly something that we'll need to look at when we get into the mechanics in terms of our discussions with HMRC in due course. So, it's definitely something that we'll pick up.

In policy terms, where will you draw the line in terms of that in responsive—? You talked about telephone desks and so forth, but they all have cost implications.

So, where do you draw the line between being responsive to the needs of people in that way and the slightly more 'outreachy' way where you obviously want people to take up this offer? On the other hand, if you start to go down the line of actively sort of sitting or working in a community development way, or whatever, encouraging people, that's not, as I understand it, the English approach, and that takes you into some pretty high costs. Do you have other ways of working with other partners that might be trying to do that, or have you decided, 'We're going for—'. Well, there are four options, of course, in the paper, but all of them rely quite heavily on an electronic—well, one way will be more manual than others, but they do rely on electronic means of keeping people posted and informing by e-mail and so forth. So, what's the likely exclusion, or not, that might emerge from that?

Well, two points, Chair. We're very keen that in this roll-out—if you're looking at the policy level—the wider roll-out is successful. So, there will be a positive proactive approach to that from all the partners involved in this, to try and promote the offer, but in so doing we do anticipate, based on what we've seen in England, that, by far, the majority uptake will actually be on online platforms. But what we have to have alongside that is the ability, while encouraging people to take the offer up, to say, 'If you are completely unable to use, you don't have the capacity, or you don't have the access to a digital platform for whatever reason, then there is an alternative.' But, actually, that's been quite a minority part of the England offer so far.

So, I'm trying to separate the two things here, which is (1) the push to drive the uptake, which is built into all the partners and the way we'll take it forward as a communication strategy and so on, but as part of that, we'll be signposting people, if they are able—and the England experience says most people are— towards digital platforms to do it. Within those digital platforms as well, of course, we're making sure that that is completely reflective of the Welsh context, so in terms of the bilingual offer, in terms of the way it fits into wider childcare as well, because we want to make sure that while we're communicating the offer, we're also saying, 'By the way, are you aware of other help that you might be getting?' So, it's a very joined-up approach.

If it's this loud in here, how loud is it out there? [Laughter.]

Good morning, Minister.

Can I ask: to understand the level of engagement with HMRC, can you elaborate on the engagement you've had with HMRC when developing costs for your preferred option?

Engagement with HMRC has been increasingly intense, it really has, and we're grateful to HMRC for the level of engagement they've given us. As we've developed these options, we've had very early engagement with HMRC to see whether or not they were able to deliver this offer for us, should the Bill proceed, and also whether they could deliver it in a Welsh context, because there are some variations within the Welsh context—I'm talking about the issues around language and so on, and so forth. Now, we're going to continue with that engagement of HMRC on the costings as the plans become clearer. Gartner Consulting, by the way, as well, has also had detailed engagement with HMRC to refine their own cost model, which is inputted into the RIA. So, based on work undertaken by HMRC, it reflects an indicative breakdown of costs that HMRC supplied. So, it's the very best information we could possibly have in these costings.

09:20

This is purely HMRC. Welsh Revenue Authority wouldn't have had any input, even advisory.

No, and it is interesting, looking forward, because within the Bill as it's currently framed—sorry to go away from the pure costings—it does actually allow for the option to come back at some future time and say, 'Well, we could do our own Welsh version of this.' But, at this moment in time, no. The Welsh Revenue Authority is still a relatively recent beast and the risk analysis that we've done showed that, one, there's an issue regarding knowledge and capacity to deliver it, but, at some point in the future, they might well do, and we might make a decision as an Assembly to come back to that. But, at this moment, the risk analysis showed clearly—and the costings, by the way—that the preferred model would actually be HMRC with Welsh input, with Welsh tweaking of the service so that it reflects what we want to do, and our ability to go back and adjust the eligibility criteria, for example, as well.

I'm just thinking, over time, as tax devolution beds in and the WRA beds in, even if they're not directly involved, they'll obviously have built up experience of the Welsh taxation context, won't they, so it might be that, in the future, they would have a—?

Nick, you might well be right, and I thank you for that, because that's what we've anticipated within the Bill—the ability to come back here and say, 'Well, actually, we've now learned so much about this and, perhaps, our policy direction has evolved and we're doing something quite differently.' In that case, if we think we need a bespoke Welsh model through the WRA or an alternative build-it-ourselves new model, then there is potential within the Bill, there is scope within the Bill, built in to allow us to do that. But, by then, we will have learnt a lot in our partnership with HMRC.

Yes, thanks. Given the costs involved in adapting the HMRC tax-free childcare platform, how much control would Welsh Government have over the system?

I hope I've reflected in my comments that, actually, we have a lot of scope. This is, in effect, a contract engagement situation. It's quite a complex one and it's based on the model they currently provide, in which we've got the benefit of what they've learned, so the costings are more robust as well. We know that there is something out there working. We are working with HMRC to make sure that it reflects our eligibility criteria; that supporting information that accompanies this through HMRC is very clear, very easy to follow; that parents in Wales who apply will receive the same level of service as they do in England; and that it'll be fully compliant with Welsh language standards. What we will do is, just to give that additional reassurance, we'll enter into a section 83 agreement with HMRC under the Government of Wales Act 2006 for them to act as agents on our behalf—as agents on our behalf. We'll underpin this as well with an MOU—so, a memorandum of understanding—and it'll set out how we want the system to operate from a Welsh perspective. We'll be clear in that about the performance standards we expect and the condition, as well, under which any changes can be made. Part of that will be that if HMRC seek to make any changes, they will need to come back to us to engage on any changes, as well. So, yes, even though it's a contract situation, there'll be an ongoing engagement, and it's an agency situation, so we are in pole position to make changes to the offer, going forward, but also for them to come back to us if they want to make any changes to it.

Just to build on Nick's point, in doing that, and in having that memorandum of understanding, do you see any role for the Welsh Revenue Authority in at least having an input or, not a supervisory role, but some kind of consultancy—I'm not using the right words here—but for them to understand how you're working with HMRC, as they're working with HMRC on income tax, and as we need to have that sort of consistency across Government? How are you going to work with them, in that sense?

I'll bring Owain in a moment, but I think the WRA will be watching this development with great interest and might well want to take an interest in how it's working, how it's performing, how the costings are panning out, and beyond that as well as time goes by. Owain.

I was just going to say, Cadeirydd, that very early on in this process, when we were thinking about the option of HMRC, we actually had very detailed discussions with colleagues on the WRA side, because, obviously, they had already built a relationship with HMRC. So, we've been learning lessons in terms of how to deal with HMRC, the costing models that HMRC use, and that will continue. I think there are also governance arrangements in place between Welsh Government and HMRC at a very high level that include the breadth of projects that we're working on, including the childcare offer. So, that's a really important part of this going forward, and that engagement will continue.

09:25

We have seen in this committee—because we've had two Bills go through that have involved work with HMRC and costings that Welsh Government has to pay to get the control and so forth—we have, as a committee, seen those costings change quite a lot, shall we say, and not always to the benefit of the Welsh Government. So, what's your guarantee that you're on fairly sure grounds? Because HMRC have a tendency of finding a file at the back of the cupboard that suddenly means it's got to be £10,000 to be updated.

Well, a couple of aspects here. One of the things I failed to mention was that if HMRC do come back with revised costings on this—because they are going to have to come back to us; they can't do that unilaterally—under the MOU, under the section 83 agreement, they're going to have to come back to us and argue the toss of what's happening with it. So, there'd be full transparency on that, but having said that, Chair, the costings that we've put within here are based on what's currently being delivered and our engagement with HMRC is now indicating this is going to be the cost.

On the wider aspect, we do always anticipate—. I was saying to my colleagues, my dad was a night-school-trained accountant, but it didn't all entirely pass onto me, and I had to understand concepts such as good will: how do you factor good will into things? But of course what we do do is understand the Treasury Green Book. We factor in this idea of an optimism uplift—the fact that we regularly underestimate how the costs are going to pan out. Now, within this, and within the options, we've applied standard Green Book procedure to this, so within the option 3, we've applied there a 200 per cent optimism uplift, so it really gives us some security that the costs are not going to go beyond these high-level estimates that we've said. That gives us the additional confidence, Chair, that we've got the figures as robust as they can possibly be, I have to say, in this situation.

Well, you've answered my question one. You've said you've done a 200 per cent optimism uplift on option 3, but only 41 per cent on option 2. Perhaps you would explain why the difference in that uplift.

Yes, indeed. So, under the standard Treasury Green Book approaches, they recommend certain approaches for different types of projects. So, if it's an outsourced project, then typically the higher end of that will be 41 per cent, so that's been applied to that option that takes forward an outsourced activity. But for development projects, it's 200 per cent, and it's because of the different characteristics of a development project compared to an outsourced activity. Faye, do you want to—?

Well, can I ask then—? Based upon that, which I understand, there's obviously a level of certainty already in existence on some of those that are already operational. But you've just, in answer to Nick Ramsay, mentioned that you might want to look at a Welsh option in the future, depending on—. Have you looked at the longer term cost implications of that? Is the short-term HMRC if it's a long-term development project going to be far more expensive than a development project from day one?

I'm going to rein back for a moment, David, because whilst within the Bill it allows for that future option to be considered and costed, and we'll be back here in front of your committee actually exploring that, that isn't within it at the moment. So, these costings are very much for at this point, at this moment, in order to deliver the full roll-out of the childcare offer. The four options that are in front of us, those are what are being costed. But if at a certain point we came forward with that, we would apply the same Green Book Treasury analysis to it in terms of any optimism uplift.

And I might be asking the question: why didn't you do this in the first place? But let's go on.

On option 3, actually the estimated cost of the applicants is double your preferred option. Can you give us an understanding as to why you think the costs and the estimates are double in option 3 and 4, actually, compared to option 2, your preferred option? And also perhaps why you think they may be consistent across those years. Why isn't there any fluctuation? Because one would expect, as you get better, the way in which it works will get better and the costs might go down as a consequence of that.

With option 2, people would have access—well, we would have access—to central Government records and could check eligibility very easily and quickly. So, the applicant wouldn't need to give us as much information, but with the other options, like Welsh Government, the option 3, we would expect that the applicant would have to provide things like they do in the early implementation now—things like wage slips to demonstrate that they're employed the required number of hours earning the required amount. So, it would be more onerous for them to provide information, and that would take more time.

09:30

But, again, that seems to be a lot higher, even higher than the local authority option, which is lower again. 

Well, it is an assumption, but local authorities already have access to information because they have more records on people living within their area already. 

They wouldn't have my pay slips and my pay details—I can tell you that now. 

They wouldn't have that, but they would know that you had a three or four-year-old, potentially, because of their access to health records. So, that's why it would be less than Welsh Government or a third party. 

Okay. And perhaps why you would require—. Well, you talk about all those extra criteria that you need to assess to ensure, but the RIA actually notes that option 3 would not require the same level of manual checks as the LAs. So, if you take it that there's more coming from the applicant, why are there fewer manual checks?

There's different types of checks listed within the RIA in the detail. So, there are simple, complex and exemption checks, and they're all set out differently and they vary depending on what they are. So, across options 1, 3 and 4, we think the general eligibility checking would be the same, and the figures are the same for that. It's only the appeals eligibility checking that differs, which is at a later stage. And the assumption on that is that it differs between our preferred—. Well, our preferred option with HMRC, we think it would be lower, so we were thinking probably there would be a 1,000-ish questionable. And with local authorities, a 1,000 just because they're closer to the people applying. But with options 3 and 4, Welsh Government and a third party would be further removed from the applicant, Gartner has assumed that it would be slightly higher. So, they were assuming, I think, that you'd check 2,000 at a very late stage. It's an assumption, but, really, it doesn't make any difference to the cost as the sensitivity analysis shows, because in terms of actual money it's not a great deal. We're just talking about how many we check. And, as I say, across the piece, it's standard—[Inaudible.]—actually checking. I'll just have a look at the figures if you want me to.

Yes, so, for the overall checking of the 40,000, we'd expect across options 1, 3 and 4 that there would be 20,000 simple checks, 2,000 exemption checks, and 18,000 complex checks. That's the kind of main eligibility manual checking that would happen across those three options. It's only later, if there were any further questions on eligibility around appeals, that we then talk about, possibly, with option 1 and option 2, around 1,000 checking, and with options 3 and 4, around 2,000 checking. 

But you just said 18,000 complex. So, you're anticipating that 50 per cent of the applications would have—

I probably shouldn't use the terminology 'complex' but I'm using Gartner's terminology. If you were looking at the published document of their figures, that's what they've used. But they're just talking about an assumption that there would be different levels of checks depending on where the person was. So, things like a self-employed person is more complex to check. There are various different people, but it's just an assumption. 

To reassure you, in terms of the manual checks overall, we've taken a standardised approach to 1, 3 and 4. 

Talking about checks, we know there's substantial mobility of people moving from area to area, especially Skewen and Llansamlet, which are virtually one community although they're in two different local authorities, as you know. And you've got other areas that are also very similar. Have you factored in the fact that you're going to have people moving in and out? You say, yes, you'd know how many three-year-olds there were from the health records; yes, you would, when people were born there and lived there for the first three years. How would you know it if they moved at three from Skewen to Llansamlet, for example, which are two communities that run into each other?

I take your point completely, and I don't know to hand the scale of that. But we were talking about it very recently when I was having a look at health records, and it is very common for parents of three and four-year-olds to very quickly register them when they move with a doctor. So, we would have their records held. And for schools and for foundation phase nursery, et cetera, et cetera, local authorities would have. 

But, as David Rees can tell you, a number of people living in Llansamlet actually register with the Skewen surgery. People moving from Skewen to Llansamlet may well want to stay in the same surgery rather than move because of how close they are. 

But we'd still have an address—

It's probably worth flagging up, Mike, that in terms of eligibility, moving doesn't affect it. 

No, but it affects numbers. You've identified child A in Skewen, which is in Neath Port Talbot, and child A is now in Llansamlet and in Swansea. They're still with the same doctor and they might still be down for the same school—Coedffranc school or, perhaps, if they wanted to go to a Welsh-medium school, they're probably down for Lôn Las—whether they live in Skewen or in Llansamlet.

09:35

I might bring Owain in, but from the data sharing point of view on which this Bill is predicated, and that HMRC as an agent is predicated on, it won't make a difference, and it won't make a difference to the costings either. The data sharing will identify the relevant eligibility of any parent wherever they are living. It won't make a difference what surgery they're at. But Owain, did you want to add—?

No, I think you've answered it perfectly. Irrespective of whether they move and where they are within Wales, the eligibility—. If they're eligible in terms of their parents and in terms of income and so on, they're eligible and will continue to receive—

That may have an effect on the provision side, but that's not addressed in this Bill.

Exactly. And just in case you are worried about the policy issue around that, one of the things that we've learnt from the early implementers is the necessity to deal with more complex cases, but we've also learnt that the best model to take forward—the lowest risk option, both in terms of provision of this offer, but also for reducing complexity for parents—is the model where we use the data sharing approach of records. That helps us identify them, because those complex families—parents that show up who don't have the paperwork and who say, 'I'm not sure, quite frankly'—this approach takes care of it, from a policy perspective.

I think the zero-hours contract is an interesting case in point, where HMRC will look at an average over three months, whereas currently, what local authorities are having to do to look at those complex cases is very bureaucratic in terms of looking at payslips, and many parents don't have payslips. So, actually, the HMRC approach does look at it over a longer period of time.

And that's actually where the—. And the costings are in here for that—that help-desk approach and the additional approach that recognises that occasionally there's going to be individuals who will need a bespoke response, who won't fit into the eligibility quite, and might not fit into the easy approach of the appeals. That's why there's a separate little part of this, and it's costed in there.

I don't want to talk about policy, because you're not here to discuss policy, but costing-wise, you said there that if people need advice and help because it's complex and difficult, and it could well be—. And with HMRC, it's possible that people will still need, perhaps, an understanding and help and advice as to how to fill in forms. What is your anticipation in terms of who they will go to for that advice and who will be funded for that purpose?

So, they would go through the help desk and the helpline, and in fact—

Yes, indeed, and that process is already set up and running, so our costings for that are quite accurate.

I've had some dealings with HMRC and their helplines, and they're not always easily accessible. So, again, are your costings reflective of the challenges that people will face in trying to get that support?

Again, based on what we know is happening and based on the Gartner analysis as well, we are confident that the costings are right and that the level of provision is, but, as I say, we'll also be monitoring this and probably the Welsh Revenue Authority will take an interest in the performance of this as well. If we identify that there's as a problem, HMRC are working as an agent for us. Now, initially, they did have some issues, but it wasn't to do with the provision of the childcare offer in England; it was actually to do with the tax credit issue, primarily. They've resolved those—the glitches that were with that. With this, the system has been working quite well.

It's just that, very often, we talk about costings on a theoretical basis, but not usually on a practical basis and the challenges that people can face.

Under the memorandum of understanding that the Minister's alluded to, performance is something that we're going to have to very clearly monitor, and if we know and hear of cases of parents who don't feel they've been dealt with in the appropriate way, then that is something that we'll have to deal with through the MOU.

Dyma lle gallaf ofyn, efallai, os ŷch chi'n fodlon gyda darpariaeth Gymraeg HMRC, achos mae hynny wedi bod yn ddiffygiol yn y gorffennol ac, wrth gwrs, maen nhw'n gweithio o dan yr hen, erbyn hyn, Ddeddf iaith, lle mae cyrff cyhoeddus yng Nghymru yn gweithio o dan safonau’r iaith Gymraeg. A ydych chi wedi eich bodloni ynglŷn â'u hagwedd nhw a'u gallu nhw i ddarparu yn Gymraeg?

This is where I'll ask you whether you're content with the Welsh language provision at HMRC, because it's been problematic in the past and, of course, they are working under the old language Act, whereas public bodies in Wales are working under the Welsh language standards. So, are you content with their ability to provide through the medium of Welsh?

09:40

Chair, yes, indeed. We're content, because of the engagement that we've had so far, but also the ongoing engagement as well. So, as we take this forward, if the Bill is acceptable to the Assembly, then we will make sure that it's fully compliant with our Welsh language statutory obligations. HMRC are aware of this, and they already, by the way, provide some element of this within other processes as well. So, we're not starting from scratch with them, but we'll make sure it is right.

Yn gwbl ymarferol, a ydyn nhw'n mynd i ddefnyddio staff yng Nghymru i wneud y gwaith yma?

In practical terms, are they going to use staff in Wales to do this work?

Nid ydym ni ar hyn o bryd wedi trafod hynny mewn unrhyw fanylder, ond mae hynny'n sicr yn bosibiliad, achos mae gyda nhw bresenoldeb yng Nghymru yn barod. Felly, yn sicr, mae hynny'n un o'r opsiynau rydym ni'n mynd i edrych arno.

We haven't discussed that in any detail, but that's a possibility, certainly, because they have a presence in Wales already. So, certainly, that is one of the options that we'll be looking at.

Mae'n ffordd o ddefnyddio pŵer y Llywodraeth i sicrhau bod swyddi yn cael eu cadw yng Nghymru, yn amlwg. 

It's a way of using the power of the Government to ensure that jobs are kept in Wales, of course.

Indeed, and we appreciate your encouragement, Chair. I'm sure that we'll engage in that direction in our discussions with HMRC.

I'd like to ask a couple of questions about rules engines and IT costs. The number of days allocated to compiling rules engines varies from 20 days for the local authorities option to 120 for the Welsh Government option. I wonder if you can tell me how the allocations for compiling rules engines will be determined, considering the wide variations between the days allocated.

Thanks, Neil. The reason there's a different approach taken is that if we look at, for example, option No. 2, under that, the system for eligibility checking already exists. So, fewer additional Wales-specific rules are anticipated and so fewer days have been allocated. But, if we look at, for example, options 3 and 4, then there's going to need to be further detailed consideration of the new rules required to set up this new system. So, we've allocated more days to them. Also, under option No. 3, further days have been allocated for a third party to create this rules engine, as they're not going to have the same easy access to stakeholders to secure set-up, configuration and so on. So, there's a real logic to why we anticipate, for some, they will require more allocation of days, and others less.

I presume the exact numbers of days that you've allocated are, to an extent, guesswork and that you won't know until you start doing the work.

I wouldn't call them guesswork necessarily, but Gartner has come up with them from their experience doing other similar work and the engagements that they've had and industry standards et cetera. 

And on their experience. So, rather than guesswork, it's based on the models that are currently  being delivered as well. So, there's a level of certainty with that. 

Right. I understand that. Again, the impact assessment says that the year-on-year running costs increase steadily each year, due to integration set-up costs. Can you perhaps explain why integration set-up costs do increase each year for all the options?

Yes. It seems sometimes counterintuitive, but the longer a system is in place, the greater the likelihood is that there's going to be a desire for further integration, as the years go by. And, with that further integration, the costs increase. So, whilst it seems counterintuitive, that propensity, typically, based on experience of previous schemes, is that as a system is in place, as each year goes by, there is more of a demand for more integration along things that you're doing, and the costs rise with it. It becomes more complex. So, that's why it applies to all options.

Professor C. Northcote Parkinson comes to mind:

'Work expands so as to fill the time available'.

It's actually the heightened risk and complexity. So, as the clock ticks on and Ministers or committees come back and say, 'Wouldn't it be a good idea now to expand, engage, mutate the system?', by that time, the system is quite well embedded, and other systems have moved on. So, the complexity adds to the cost, and it's based on experience of what's happened before as well. It would seem logical to say, 'Surely, it becomes more certain, more easy', but no. The longer it is, as each year goes by, the more the integration costs rise, and the risk of complexity rises.

I want to talk about upgrades. There are very few 30-year-old ICT systems still running, not many 20-year-old ICT systems still running, and probably less than half 10-year-old systems still running. So, at some stage, however integrated you are, somebody, somewhere, is going to want to upgrade for all sorts of reasons, if only because they'll be running an out-of-date operating system that is no longer supported. I don't necessarily mean that they're running on networked PCs, but also if they're running on any other system as well, because the operating systems get updated fairly regularly.

09:45

If you go into a high-street bank, sometimes there are certain problems with the upgrading as well. But I wasn't going to say that.

It might well be the case that the system that we put in place at year 1 will be exactly the same system that is fit and proper, with no modifications, in year 5 and year 10. Although it might be that this Assembly comes back and says, 'We want to look at developing our own, and that then needs to be compatible with X, Y, and Z that we've developed within Wales.' Hence why the risk expands over time. Mike, I fully get the points that you're making, but it's again very much based on high-level expectations that are built into this to give that level of certainty. So, we're not underestimating anything. And it's also based on past experience of what happens with these projects and developments.

I'll just confirm that this is Green Book modelling that you are doing.

The second thing that I'd like to ask you about, which is also a curiosity, if you like, in the regulatory impact assessment as it is now, is the cost on the applicants, which varies enormously across the different options. You touched on, I think, why that might be earlier, in that they may be required to produce more information or papers. So, that means going and looking through your drawers and trying to find your payslips and that takes time. So, you've factored all that in. But it's a curious thing when you're giving, in effect, a free childcare offer to be taking in the costs for the applicants as part of that. So, this is more of a policy question to a certain extent, though you have to do it, again, by the Green Book—

What weight have you put, as a Minister, to those costs, which are—? I'll say what Mike Hedges usually says: those are not real costs. People aren't actually paying £50 to find their salary or payslip, they're just spending some time hunting through what was left at the bottom of the stairs, or whatever. So, how are you weighing those when you look at the different options?

Chair, you've kindly answered your question in asking me it, because we have taken a standard Green Book approach to this, and that says that we should take into account those costs, in the case of this option, that fall on the parents as well. Because, for them, whilst it might not be a direct monetary cost, it can be monetarised for the cost and complexity. We talked earlier on about, for example, some of the most complex cases of parents who are mobile or, alternatively, parents who are self-employed or starting up a business and so on, and the difficulty with that. It is a real cost. Even if you can't see it on a balance sheet, it can be monetarised. And the Green Book approach says you should do this and take it into account. What we know from the early implementers already, particularly in those areas where they are doing it by a more paperwork-driven system, is that this is impacting directly on those parents. 

It is causing real complexity. The demand from parents and also from local authorities is, 'Please, can you strip out this complexity? Can you make this simpler?' If this offer is going to work from a policy perspective, it needs to be as easy as possible. I don't know if you want to add anything to that, Faye, about our approach in terms of the costings.

No. I think you said it perfectly. 

I think there is a clear difference as well. So, with the current system, either somebody has to physically go into the local authority with their documentation or they have to scan, upload them and e-mail. Compare that with a future system where they're able to go online to HMRC, they'll put in their national insurance number, a few other details and then in most cases there will be an automatic answer, yes or no: 'You're eligible'. In the more complex cases, that might not be the case. But there is a clear difference in terms of parents. And given what we know about society these days, in terms of people being used to using online, apps, various other things in terms of their lives, then clearly we think in terms of a seamless journey for a parent and not—your point, Chair, rightly—not putting them off in terms of thinking, 'Actually, I can't find this paperwork, I'm maybe not going to bother.' So, we think there are significant benefits.

Ar hynny, rydw i'n meddwl ein bod wedi gorffen yn brydlon iawn. Felly, diolch i chi am gydweithio gyda'r pwyllgor i fynd drwy'r materion dan sylw. Fel roeddwn i'n ei ddweud, nid y stwff polisi, wrth gwrs, ond yn edrych ar yr ochr gyllidol. Diolch yn fawr i chi. Bydd yna drawsgrifiad i chi ei wirio yn ogystal, jest rhag ofn ein bod ni wedi colli rhywbeth. Diolch yn fawr.

On that note, I think we have finished on time. Thank you for coming to the committee and for discussing these issues. As I said, we have been looking at the budget side of things, rather than policy. You will receive a transcript in case we've missed anything. Thank you very much.

09:50
4. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 5, 9 ac 10
4. Motion under Standing Order 17.42 to resolve to exclude the public from items 5, 9 and 10

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 5, 9 a 10 yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from items 5, 9 and 10 in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

Os caf i ofyn i'r pwyllgor a ydych chi'n hapus o dan Reol Sefydlog 17.42 i fynd i gyfarfod preifat am yr eitem nesaf, ac hefyd eitemau 9 a 10 ar yr agenda. Hapus? Fe wnawn ni wneud hynny am 10 munud, felly. 

If I can ask the committee whether you are happy under Standing Order 17.42 ro resolve to meet in private for the next item and for 9 and 10 on the agenda. Happy? Okay. We will do that for 10 minutes. Thank you very much. 

Derbyniwyd y cynnig. 

Daeth rhan gyhoeddus y cyfarfod i ben am 09:50. 

Motion agreed.

The public part of the meeting ended at 09:50. 

10:00

Ailymgynullodd y pwyllgor yn gyhoeddus am 10:02.

The committee reconvened in public at 10:02.

6. Ymchwiliad i’r paratoadau ar gyfer yr hyn a fydd yn disodli ffrydiau cyllido'r UE yng Nghymru: Sesiwn dystiolaeth 1 (Pwyllgor Monitro Rhaglenni Cymru)
6. Inquiry into preparations for replacing EU funding for Wales: Evidence session 1 (Wales Programme Monitoring Committee)

Galwaf y Pwyllgor Cyllid nôl i drefn, felly, a chroesawu'r tystion ar gyfer y sesiwn nesaf, lle rydym ni'n edrych ar dystiolaeth parthed ein hymchwiliad ni i gyllido yn sgil gadael yr Undeb Ewropeaidd a dyfodol cronfeydd strwythurol. Os caf i groesawu pawb i'r pwyllgor, a jest gofyn i bobl ddatgan eu henwau a'u swyddogaethau, jest ar gyfer y Cofnod, os gwelwch yn dda—.

I call the Finance Committee back to order, therefore, and I welcome the witnesses for the next session, where we will be looking at evidence on our inquiry into preparations for replacing European Union funding for Wales and the future of structural funds. Can I welcome everyone to the committee, and just ask everyone to declare their names and roles for the Record of Proceedings, please?

I'm Julie Morgan. I'm the chair of the programme monitoring committee.

Sioned Evans, chief executive, Welsh European Funding Office.

Grahame Guilford, member of the PMC.

Diolch yn fawr i chi am ddod yma. Os ydych chi'n hapus—. Diolch am y dystiolaeth rydych chi wedi'i cyflwyno, felly, os ydych chi'n hapus i ni ddechrau holi cwestiynau, mi fyddwn i'n hoffi dechrau gyda Grahame Guilford, os caf i.

Thank you very much for coming here. If you're happy—. Thank you for the evidence that you have submitted, and, if you're happy for us to start with the questions, I'd like to start with Grahame Guilford, if I may.

If I can just start with you, because I'd like to thank you for your very succinct paper, which I think has also touched on some of the themes that we're looking at in this inquiry. I was particularly struck that you urge us not to assume that funding in the future will be at the same level as we have now. What's the basis for, if you like, your warning in those regards, and how you believe that funding may be predicated upon in the future?

I think the basis for it is a combination of pragmatism and the importance of contingency planning. Clearly, there's very little known in concrete form about the shared prosperity fund at the moment, but, if we go on the basis of the little bit that we do know, we think that we might replace a number of UK regions who are currently eligible for structural funds with a broader UK-wide fund, which might, in total, equate to the sum of the current regional funds. Then, just political cynicism, I suppose, leads you to think that the way that will be divided out by a Conservative Government in Westminster, looking at its English Conservative constituencies, is likely to be different to the way it's divided out now and, almost certainly, that would result in a smaller share coming to Wales. So, it's really nothing more than that. I personally think that the Welsh Government's political position is absolutely right, that we want pound-for-pound replacement, but I think the sensible contingency is to plan for what might happen if that's not the case. Also, in terms of funding, but I think also in terms of how the funds might work, the UK Government, and this is particularly true in my own area of life sciences, has tended to move very much—and so have funding bodies like Innovate UK—towards challenge funds and creating a fund that has to be applied for rather than transferring a degree of funding, say, to the Welsh Government that they can use as a replacement. So, I think the contingency would need to look at both the amount of funding but also the mechanisms by which it might be dispersed. 

10:05

And how much, in that discussion, which you've just touched on—? You can look at city deals as well, which is a kind of challenge approach as well. How much of that is, in your view, informed by the recent history of the last 20 years or so of structural funds in Wales and the UK more widely, which—if I can put it this way—has almost out-sourced regional policy to the level of the European Union, and we have a very weak kind of approach—? Well, I'm saying—. I should be asking you a question. Does that mean that we've developed a very weak approach to regional development within the UK and that that would need to be restablished in that sense? 

Yes, I think if you look at the UK as a whole, we went through the era of the regional development agencies, which, in my view, weren't really given enough time to establish whether they were valuable or not. We've now moved to the era of local enterprise partnerships, some of which, to be honest, are working quite well in England in my experience. And I think there is certainly a risk—I don't know if that's what you're getting at, but I think there is certainly a risk that it would be convenient within Westminster to look at Wales as an LEP, which is probably not something that would suit us particularly well. But I think what you're saying, really, is an argument that Wales could and should deploy because we have adopted a fairly consistent policy over the last 20 years in terms of regional development, driven to an extent by structural funds, but I think also driven by the political approach that Welsh Government has taken, and I think we should use that as evidence for continuity. We've got a lot of experience; we've learnt a lot of lessons from three rounds of structural funds, and, really, it would be a shame to throw that away because, if you went to a full-scale challenge system, then, really, we would have to change quite fundamentally the way that we operate. 

And just to broaden that point out to the other witnesses: can you see or discern any planning that Welsh Government is doing at the moment in that regard, or do you have any concerns or suggestions about what Welsh Government should be doing in addition to what it's doing at the moment in order to plan for these potential scenarios? And also the initial question that I asked, which was about the potential of less money being available for future investment.

Well, I think the situation at the moment is so uncertain that it's very difficult to plan, because the Welsh Government has laid out its proposals for regional aid, which are being consulted upon, but in terms of the UK-wide fund, I think it's been extremely difficult to try and get any information about it. So, it's very difficult to actually plan ahead, but I think what Grahame has said is very prudent—to think in that sort of way—but I know Sioned has actually been involved in the discussions with officials, so I don't know if you want to say anything about those discussions. 

Yes, thank you. I've had a number of discussions with colleagues in Whitehall around the shared prosperity fund. It's quite unclear at the moment what that fund may involve for Wales and how it will impact Wales. During the discussions, it's been referred to as a broad umbrella term that could mean on one side that all the money goes back to Whitehall and that it's a challenge fund, and yet on the other hand that it will come in as part of the Welsh Government block grant and that we have the full powers and controls that, obviously, is the position that the Welsh Government wishes to be in. There'll be a consultation, I'm advised, around about the autumn statement and that—

There's an awful lot happening in the autumn around these things. 

Yes, there's a huge amount—there's a huge amount. I've been advised that we will be involved in that part of the consultation before it goes wider. How that will pan out, because, of course, at that stage it'll be a pretty well-developed model—. But we haven't got any clarity further than that, despite pushing. So, as the chief executive of WEFO, I'm currently working in a situation where we don't know what sort of funding package may be there in the future, and I don't know whether I'm working to a 40-week timetable or a four-and-a-half-year timetable. So, it's a case of trying to balance everything as the detail emerges around what is available for us, what levers do we have to move forward. 

10:10

One of the things, in terms of what the programme monitoring committee is doing at this very uncertain time, is to make absolutely certain that we spend all the money we've got now in terms of the European moneys. So, the aim is that, by March 2019, 100 per cent will be committed, and we do believe that that will happen. So, on the monitoring committee, we're keeping very close tabs on how the spend is going, how the projects are being agreed. And I think we will achieve that, but obviously all of this expertise that we've built up over 20 years that Grahame has referred to and the working in partnership and all these things—we want to have the opportunity to continue with those sorts of philosophies as well afterwards. But, at the moment, we're just making sure that we spend everything.

I'll take mine, but this one should be very brief anyway. You said you've had discussions on the shared prosperity fund and the lack of clarity, which I think is widely accepted. But, in your discussions, have you had any sort of indication as to the direction, the preferred direction, that may be taken in the shared prosperity fund? You've highlighted two options, but has there been any discussion about what might be a preferred direction?

No, not at the moment. They've been very, very cautious around what is able to be shared with us at this stage. There has been—. During the discussion, I've actually asked how it's being co-produced. Bearing in mind that we've made the Welsh Government position very, very clear, I have asked about how that is being taken into account in the production of the shared prosperity fund, but I'm afraid I didn't get any clarity on that answer either. So, our position has been made very clear, and I'd be disappointed, the same as everyone else would be, if none of that is taken on board in terms of how the shared prosperity fund has actually been developed. But we won't know any earlier than, I think, the pre-consultation release information that we've had previously in similar circumstances.

And the pre-consultation you said—well, roughly the autumn time. Did they give you an indication as to when they may actually be in a position to confirm the funding mechanisms?

No, they weren't able to do that, I'm afraid.

So, many of our organisations that are currently possibly planning for the future and know that European funding is guaranteed if the programmes are going ahead—but at some point looking at what happens to replace that—haven't got a clue at the moment what is happening.

No, but the current programme obviously runs to 2020. We can invest money beyond that to 2023 if necessary. So, there's a relatively stable period, despite all the instability, in terms of the programmes, if they go ahead. Of course, if we did leave without any agreement, we then would have to rely on the Treasury guarantee, and that's another area that is quite uncertain for us. There's a lack of clarity on that where officials are working very closely with the Treasury to try and understand the actual implications of the guarantee as it's currently presented to us.

Because the guarantee is, just to be clear, that commitment before 2020 will be honoured. Is that correct?

Yes. Well, the guarantee is quite loosely worded. It was very welcome when it arrived, actually, in terms of settling those involved with programmes, but, as we are getting nearer to March, we've sought clarity around the wording. There are still some areas in there that are of concern to us. We had some clarity last month. For example, there is a—. Well, it's probably not worth going into detail, but one of the things that particularly concerns me, I think, is around the current terminologies around guaranteeing projects that are agreed before 2020. So, what we've had traditionally is obviously a programme for activity. Now that in Wales has enabled us to be really flexible about how we deliver the programme and make sure that we spend every penny of the European funding that we have. If it is at a project level—the guarantee—then of course that takes away that flexibility from us because, where a project is underperforming, we won't have the flexibility to remove that funding and place it into another one that's sort of chomping at the bit to be delivered, and that would be really difficult for us in Wales because it would actually have a direct impact on how we can make the most of the money that we have available.

You said projects before 2020, but if we go without a deal we'll be leaving in 2019, so I'm assuming it's projects before we leave.

10:15

It's projects signed before March 2019—. Sorry, before the end—. Right, yes, it's projects signed before we leave. Sorry, that was my mistake. So, it's projects signed before we leave, in March 2019. That's when the guarantee kicks in. Apologies.

Obviously, irrespective, at this point in time, of the shared prosperity fund and the amount of money and how it's worked, Dr Guilford, you obviously had a concern about the mechanism of managing and administrating any funds that come in. Your view is that Wales should be better at managing itself. So, basically, I'm assuming it's more of a—. It's like the Welsh Government's regional investment paper, which says, 'Give us the plot, and we'll decide', but is that the best way of managing, or should we look at a more regional devolution of some of that management? Should we keep with—excuse the term—the WEFO model, or should we look at a different model of looking at managing and administrating any sort of funding that comes in?

I think my own view would be that it would be best done—the  primary management—at the central Government level. That's partly for the reasons that I mentioned a moment ago—that we have built up quite a degree of expertise at managing in that way. I think, as I've put in my paper, that if we are left to manage, as I hope we might be, there are actually a number of advantages to that, because structural funds, for all their benefits, do have some constraints in terms of where and how they can be used. So, if we were able to manage future funds primarily at a central level, we could remove those constraints and we could take a strategic view about what was required for the Welsh economy as a whole. Now, that does require, I think, that there is a strong regional input to it, not only in terms of the internal regions, but the cross-border implications of that. So, for example, the economy of north Wales is probably far more dependent in the future on what happens in north-west England than it is in the rest of Wales. The Welsh Government is looking far more seriously now at those cross-border indications and how they can be integrated. But I think that needs to start centrally, but there need to be mechanisms, whether it's through the city deal structures or whatever it might be, for a credible input from the regions. Clearly, if that input is credible, it would be difficult for the Welsh Government to ignore, but they would build it in in terms of the overall strategic concept, or context, which I think is where we have to start from.

Are you seeing any evidence of Welsh Government planning? We've had the paper, 'Regional Investment in Wales after Brexit', and we've got the city deals, as you've already pointed out. Are you seeing any evidence of Welsh Government planning along those lines to prepare itself for that situation?

I think there are some. The most recent economic strategy that's been published would provide a framework for the sort of strategic approach that I would advocate. We are seeing, certainly in the economy department in the Welsh Government, a lot of activity with the business department in Westminster, which has been extremely successful. So, we've had recent examples of major investments from the Department for Business, Energy and Industrial Strategy, in the semiconductor complex in south-east Wales, in the Wylfa project in Anglesey, around Airbus in Deeside, the steel centre in Baglan, and those are UK Government investments in conjunction with higher education, which will be long-term, beneficial investments. And we're seeing a lot more activity with Innovate UK. So, the Welsh Government is looking, I think, at how it can access UK Government funding streams. A lot of those are challenge-type funding schemes. So, we're building up some experience there. I think there is some encouraging evidence that we are looking at the future in a more integrated way perhaps than we have in the past.

Okay. I might question the UK Government involvement in Baglan, but that's another matter. Perhaps I could also ask this question: are you seeing evidence of Government, and local government as well maybe, or other bodies, looking to other sources now of funding and moving away from EU sources and perhaps even moving away from—? Because we don't know what this shared prosperity fund is yet, is there evidence now that people are planning for and looking elsewhere for these funding mechanisms?

10:20

I think Grahame has mentioned some of these already. Obviously, the city deals are obvious ones, where money is coming from elsewhere, although, how the governance structure fits in is an issue, and Innovate UK that Graham has mentioned, definitely. And then, of course, when you look at the 15-year rail franchise that we've had now with money from the UK Government and other money, all that is bringing in money from elsewhere. So, I think there is more looking at other sources now.

But the European social fund and European regional development fund wouldn't necessarily have fed into some of those either, because of the different nature of the projects.

I was just going to say, structural funds money is essentially the shared prosperity fund. The noises we've heard from Whitehall are very much that the money from Europe will form part of the shared prosperity fund and that's where we need to be looking to make sure that, with the development of the shared prosperity fund, we secure a model there that works well for Wales. 

So, there's still an expectation upon the shared prosperity fund being a vehicle by which money will be distributed.

Yes, in one way or another.

And, just to be clear, that will include the different elements of structural funds—ESF and different things. It's all in one big pot.

Again, it's not entirely clear, I'm afraid. I'd love to be able to give you an answer on that, but it's just unclear at the moment. But we are very closely linked in. We share an awful lot of information. I think it's fair to say that we probably get less back, but we share an awful lot of information in order to ensure that as much as possible is available to Treasury and to colleagues in Whitehall to look at the evidence in order to develop something that will suit us in Wales. Of course, the commitment there is that Wales shouldn't or won't lose a penny after Brexit, and the Cabinet Secretary for Finance is certainly holding on to that commitment very, very closely.

Thanks, Chair. Dr Guilford, you just mentioned building on experience and best practice. What lessons have been learnt in terms of best practice from the current programmes that could be considered when designing future programmes? As I say, you've touched on this already in terms of the structural funds, but could you give any examples?

I think if you look at the way that we have progressed through the three rounds of structural funds, from objective 1 through 2007-14 into the current round, what you see, and what we see on the PMC is that there's been a great degree of maturity that's been developed and a great degree of professionalism that's been developed during that time in terms of how to take a more strategic view of the environment—so, where interventions can be most useful. Because structural funds was never, perhaps, as big in an economic sense as it was seen in the political sense, so it was only ever going to be effective if it was used synergistically and I think we've become a bit more professional in how to use it synergistically.

We've developed a better understanding of what makes projects work and what makes them not work so well, particularly working with project sponsors in the early days of projects to make sure that things set off on the right path. So, it's that kind of administrative project management experience, I would say, that we've built up more than anything, and most of that experience, obviously, sits in WEFO at the moment, but some of it sits within the Welsh Government departments as well. And that, I think, is what we need to argue—that, because we've got that there and it has worked well in the Welsh context, that's what we should build on in the future.

What it needs, though, to make it more effective in the future is the strategic framework at the top, and where we've struggled, I think, with structural funds is where there hasn't been that strategic framework. So, somebody comes forward with a project proposal and you would like to say, 'Well, how does that add to the overall strategic objectives of Welsh Government?' and there have been times when that's been quite difficult for WEFO to do—you know, 'Does this fit with the strategic plan or does it not fit with the strategic plan?' We really have to be able to answer that question more effectively in the future, I think.

10:25

If I could just come in, as part of the preparations for the future of regional funding, of course, Grahame mentioned the consultation we've undertaken over the first half of this year, and we've had some quite clear indications there from the partners who've responded to the consultation around the things they like and, indeed, what they don't like about the current programme, which we'll be looking to reflect in any other model, moving forward. The sort of thing that the partners like is the multi-annual nature of the funding. That's seen as being very positive, in that there's some clarity around funding in a time period that allows them to develop some really robust projects they can move forward with. They like regional partnership working, and the fact that cross-cutting themes, such as equality and sustainability, can be built in. They are built in very, very early on in the project, rather than added on at the end. So, that's the sort of theme of things that go down really well.

But, equally, what the situation does enable us to do, which I think we'll all be happy with, is that we can remove surplus tiers of audit that are currently required under the EU system. There's a lot of audit. There's a lot of—

This came through in our—sorry to interrupt. This came through in our evidence from the stakeholders last week—

—where, broadly, structural funds have been seen as very positive, but there are concerns about the bureaucracy that's been in the current system and whether it gets passed on and on until you've got the person at the bottom who has to fill out all the forms, and whether that could be—. That's what you're saying could be addressed.

That's exactly what I'm saying. We could design our own way for auditing what makes us comfortable within managing public money to ensure that we're making the best use of the money without having to put in the additional layers that have to be completed and gone through now in order to secure the money from Europe. There's an artificial construct at the moment, in terms of the programme areas, and it was artificially constructed in order to enable us to access as much money as possible. It's served us really well, but, actually, there's an opportunity to do something really different around that now. Also, I think one of the key things for me is that if you're talking about a regional footprint and how we address regions, current EU regulations don't allow us to invest the money in things like housing and health, and, actually, whilst I wouldn't want to add some of this money to the health budget, it does mean that we can look at a holistic approach to a region, working with partners in the region, which WEFO, actually, has done very, very well historically, in order to develop bottom-up solutions to Welsh Government priorities and strategic direction.

Why isn't that allowed at the moment—forgive my ignorance—in terms of things like housing?

Certain things—housing, education, various things like that—are seen as being something that, as a competent state, we should be able to deliver ourselves. [Laughter.] So, the cohesion funds—

—are very much towards addressing those areas of—I suppose you'd call them market failure, really.

Education is excluded, but I thought training was included and that you could have training programmes in there, which is education by a different name.

Yes, training—I apologise. Again, I should have been clearer. It's primary and secondary education I mean.

I think one of the things that people are concerned about is the fact that housing isn't in there, because, obviously, housing does lead to regeneration and is a very important area.

The truth is that, at the moment, we don't know what any of the—. Okay, currently, the money is coming from Europe, and that will come from some framework within the UK, but we don't yet know what the details of that will be. There was a lot of concern expressed by the stakeholders last week that, clearly, everything else involved in leaving Europe is being done first, so this is coming further down the line. Do you have concerns about the rate at which the new UK structures are being formed or not being formed?

Yes, I've a number of concerns, mostly to do with projects. Actually, I know, from the HE sector, that they're riding two horses at the moment: they're looking to Whitehall for where the next funding will come from, and they've got an eye on the Welsh Government about where the next funding will come from. That, over a prolonged period, will be really unsettling for all the partners that are involved. We're not necessarily seeing a huge reduction in the bids for projects that we're taking forward. We recently had a call for research and innovation projects, where 47 projects came to us where we could only really fund 16 of them. So, if we had an opportunity in a programme to be removing money from some areas that are particularly at risk, then R&I is something that not only is there an appetite for for funding, but also that's a really good thing for Wales to have—all that innovation in pockets across Wales that we can build upon, taking that little bit of a risk that we can use European money for that perhaps the market isn't so keen to take. 

10:30

I think, if I can say, it has been a task to keep this awareness there—that it is still possible to bid. So, I think that is something that WEFO has had to do, and I'd really like to congratulate them, because these are difficult circumstances, but they've managed to carry on with enthusiasm, advertising that projects are still there to bid for. And we'll have to keep on doing this.

You've got an interesting job, Julie.

I think the other questions have been answered.

I was interested just in terms of lessons learned and making sure that we can build on what works, particularly in relation to your evidence about—you've mentioned it, Sioned, and I'm interested, Julie, in terms of your role as chair, in the way the cross-cutting themes have worked—I'm particularly interested—equal opportunities and gender mainstreaming, sustainable development, and tackling poverty and social exclusion. You've now got this kind of progress report and these new indicators showing good practice. I mean, these are the policy areas that we've been very, very concerned about in terms of new arrangements, and they could easily be lost and seen as some sort of soft indicator, which actually is not the case—they're crucial to structural change in Wales. Have you been convinced in terms of the examples of how this is working?

Absolutely. I think this is one of the fundamental joys of what we've had from Europe, this absolute emphasis on these cross-cutting themes, and it's something that I have taken a particular interest in. I think what we've been able to do in terms of women, and trying to attract women into STEM subjects—the different projects to do that have been excellent. I think it's really important when we talk about replacement that we actually bring all this that we have learnt into the replacements. So, it's absolutely fundamental I think.

There's a dedicated team in WEFO that works specifically on ensuring that, in the very early stages of every project, cross-cutting themes are embedded. So, as I said earlier, it doesn't become an add-on at the end. It's something that flows through all the projects that we look at, and unless they're embedded, then the project isn't approved. Actually, the modelling that we work with would lend itself well to how Welsh Government then brings in the Well-being of Future Generations (Wales) Act 2015 and how we ensure that that's embedded in all our programmes across the piece, which I know is happening elsewhere.

I presume, Grahame, you've come up with your four key principles, haven't you, in terms of future funding arrangements for funding streams? To what extent can you say that you feel that the Welsh Government's management at present actually does try to meet those principles, or how much is it constrained just by the way structural funds are managed?

I don't think that that sort of management in itself is inherently constrained by structural funds. I think it's probably an accident of timing as much as anything else, with Objective 1 starting so close to devolution itself starting. We've tended to see structural funds in isolation, perhaps, a little bit more than we should have done, and as separate from some of Welsh Government's other economic development activities, what the local authorities were doing and so on. So, I do get the sense now that there is a better feeling that we should integrate those activities more effectively. For example, there are geographical constraints in structural funds. So, in south-east Wales you can't spend as much as you would like south of the M4 because structural funds are directed north of the M4. Now, that could have been mitigated in part by Welsh Government directing more of its activity south of the M4, but that didn't really happen, I think, certainly in the early stages.

So, we've got an opportunity now to design a system that is much more fit for purpose for the Welsh requirement, the Welsh economy, as it exists today. Personally, I see some very encouraging signs. Within Welsh Government, it's the economy department mainly that I work with, but within the economy department, they are starting to think more strategically. They're starting, as I said earlier, to take the cross-border implications into account. And that then is the basis for creating the sort of strategic framework that I'm talking about in these four principles that would allow you to say, 'Here are our priorities'. And once you've done that, the other three then follow, because you can ensure that those priorities are effectively communicated to all the people who need to implement them. My own view is that they need to be demand driven. That's always an area for debate, but, particularly, I think that's the way that they need to go. And, then, it makes it much easier then to make sure that the activities are synergistic, because you've got that strategic test that you can always go back to say, 'Is this delivering on what our key objectives are?' 

But I'm not suggesting it's an easy thing. The reason it hasn't happened as well in my view in the past is because it is politically difficult to achieve. Economic timescales are much longer than electoral timescales, and that always presents a challenge. So, it does require the courage and the vision to define your long-term priorities and be able to stick to them in the long term. 

10:35

And the economic action plan you feel is giving a bit of a framework for the way—

I think, if it wanted to, it could be used that way, yes.

I'd also like to thank Grahame for being one of the EU funding ambassadors, whom I appointed when I was Minister, and I'm grateful for the work you did then, and I hope we're going to be able to take account of those recommendations from the report. But one of those areas, which, of course, Julie and Sioned will be clearly aware of, is whether we can learn best practice in terms of future management delivery arrangements from other European regions. And I think it's important that we see whether there are lessons to be learnt as well, and you identified that in the report.

Yes, there certainly are—. I did quite a bit of work personally, partly through the life sciences connection, in Flanders. And there's a lot of historical, geographical-scale similarities between Flanders and Wales. They have managed to take this long-term strategic vision and establish priorities and stick with them over decades rather than over years, and have seen some very positive outcomes as a result. 

Can I just ask, to follow up on that: first of all, is it all practical, and if it were practical, is there any value in trying to maintain some relationship with some of the EU networks or funding streams, even though we might have a separate UK or Wales regional policy, and we're not looking for money from there, but in terms of maintaining that learning process, and being part of the networks, is that at all—? Are there examples of countries outside the EU that have, in the wider networks—? I think Horizon—possibly some aspects of that go wider than the EU, for example. 

Many of those networks do exist. Again, I can talk mainly about the life sciences ones that I was involved in, but there are a number of cross-European business networks, university networks. I mean Horizon is the obvious example, but there's Erasmus and some of the cultural programmes. There are some very impressive territorial co-operation programmes. And Wales is already—. Many institutions in Wales are already involved in those programmes, and I know from my own contact that they would like to maintain them because they're the sort of relationships, particularly in Horizon 2020, which do require quite a bit of effort to build them up. But once you build them up, they tend to stay in place for quite a long time and be very effective mechanisms for accessing future funding. 

One of the very important one for us, of course, is the Ireland-Wales programme. In the scale of things, it's not a huge amount of money. It's £100 million, but, actually, that's a really important programme for us in Wales with our nearest, largest trading partner, and we've got some very good programmes in that. So, with Horizon 2020, there are many things, I think, that depend on the terms that are agreed regarding our leaving. Wales has made it very clear, or Welsh Government has made it very, very clear, that we want to retain those links with Europe and we're doing everything we can to make sure that we keep those relationships going.

10:40

And I think on the programme monitoring committee, this comes over really strongly—that any links that we can manage to keep, we absolutely must keep, and continue to learn, and all the expertise we've had to share. But, of course, with the UK money no longer going into Europe, then Europe, presumably, will be looking at its own regional policy, maybe, which again will be interesting to learn from and look at.

Can I just—? Just following up on the point about not just keeping the links, but learning the lessons from other European regions like Flanders, presumably, there will be lessons learnt about administrative systems as well in terms of preparing for the future, with the replacement funding opportunities. That's something that, presumably, even at an official level and WEFO, it's important that we can start preparing for in those longer term funding scenarios. It's not what we usually do in Government and we need to look to ways in which we can learn lessons from that.

Yes, I agree with you. We are actually in very, very early discussions with the Organisation for Economic Co-operation and Development around the lessons learned, but we haven't scoped exactly how we want the OECD to be involved with that. But those sorts of discussions are really important. At the moment, there's no set piece about what the model in the Welsh Government will be, moving forward, but as some clarity comes around what is available, what we want to capture and take forward, and how the consultation develops, then that will give us a really clear steer, I think, around how we shape ourselves to deliver what needs to be delivered moving forward.

Ending the existing EU funding programmes and creating new ones, does give us the opportunity to look afresh at the way we do things, not just in policy terms, but also in terms of administration. We've partly dealt with this in the question from Nick Ramsay about auditing, which you answered very eloquently. Can you give us any idea, from your experience as members of the PMC, what kinds of elements of administration in existing programmes you might keep and, in particular, what might we change in order to reduce costs and to increase flexibility et cetera?

I think that Sioned, in response to Nick Ramsay, did go through quite a few of those, but I think there could be some increased flexibility, which would be helpful, and if we could remove some of the level of detail in some of the regulations, I think that would be helpful. 

Yes, and very personally, from my point of view, I think, we've built a very good process of evaluation, and in order to evaluate, we need detail and some information around that. But I think, at a time when we've got constraining or reducing budgets and increasing priorities, that element of prioritisation and evaluation is really important, to make sure that we're not only investing more in things that are working, but also disinvesting from things that aren't working, so that we really are clear about where we want to put our money to have the biggest impact. Evaluation is one of those things that, actually, is quite easy to push to one side, but I genuinely believe that that has added an awful lot to our understanding of where the money goes that actually makes a difference and where we can better channel that.

Right. Every Government and opposition fight elections on the basis of cutting out Government waste and bureaucracy and so on. Having been a deregulation Minister, I know how difficult it is to do that, and how unlikely it is that you'll achieve anything very much in the longer term. But a number of organisations that have given evidence to us in writing have said that reduction of bureaucracy in the current EU funding streams offers the opportunity to make significant gains, but in doing that—obviously the bureaucracy is there for a reason, which is to ensure that public money is spent in a responsible way and according to the purposes that are set out to justify it—could you say how we would balance a reduction in bureaucracy against having robust monitoring? Again, I suppose this goes back to Nick Ramsay's question in one sense, but it's wider then just auditing.

I think just to say that, during the period of the European structural funds, there has been quite a reduction in bureaucracy in any case. I think that's an important point to make.

10:45

There has been some simplification of overhead costs, for example. It's now charged at a straight 15 per cent, as opposed to people coming out with their bus tickets and various things like that. So, from that element, it's quite straightforward. If you look at the structure that we have at the moment, of course, every project is answerable to three masters—not only its local master, the local authority, but also to the Welsh Government, to make sure that we're comfortable with it, and then to Europe. So, it immediately cuts out that European level. So, there's quite a long closure period that we have on the programmes, and that's where Europe is checking things. Of course, projects have quite a long time to wait for that, so just cutting out that one additional layer would be: so, the Welsh Government is comfortable that actually these projects satisfy the Welsh Government's requirements and the legal requirements and valuing, as I say, managing public money. Then, we can draw some comfort from that.

And also, I suppose, we could look at what our risk appetite is, not in terms of breaking the law, obviously, but in terms of where we want to invest that money and how much risk we are prepared to take on on certain things, such as innovation, where at the moment European money does plug that gap. For that, we'd need to be resilient enough and brave enough to accept that, sometimes, when you take a risk, it doesn't quite pay off. So, there's that element as well. So, there's a few things that we would need to consider with that, but I think just moving the European element would remove an awful lot of the bureaucracy that's currently getting under the skin of our partners.

Good, thank you for that. I have just one question for Dr Guilford. In your written evidence, Dr Guilford, you say that current structural funds have mechanisms to mitigate risk that result in longer decision-taking cycles, which in itself creates additional risks. Could you explain perhaps how we might be able to reduce these additional risks under future funding streams?

I think the key way of doing it is by establishing the strategic priority framework at the outset. A lot of the issues around decision making, if you look at the processes within WEFO, certainly in the 2007-14 programme, really came back to, 'Does this project fit with the overall strategic objectives within the Welsh economy, or social objectives, or whatever they might be?' So, it might be a perfectly viable and valuable project in its own right, but, in terms of priorities, where does it sit? There was quite often quite a lot of to-ing and fro-ing around that sort of decision making.

I think the element of risk is also part of this. How do you demonstrate value for money in a traditional public sector sense when you are looking at something that is obviously a risk-based investment from a private sector sense? And where is the balance? I think we have got to a better balance in the current round, certainly, as far as we can see on the PMC.

So, we started off with an idea of the sort of strategic backbone projects, as we called them, that we wanted in place, an idea of how those would be delivered, and then the other sort of projects that you could fit around them. So, if you start from that strategic perspective, then I think you've got the ability to make your decision-making processes a little bit more effective, but at the same time keeping the robust nature. 

But, going back to the audit point and looking at it more from my business background, we had ended up with a multilayered audit structure, as Sioned has described, which was really out of proportion to the level of risk that actually existed. Part of it was historical, going back to the very early days of structural funds in Europe, where there were lots of examples of fraud. So, it was partly a mindset thing. You can have almost two approaches toward it. Do you say that this is an environment where the majority of people the majority of the time stick to the rules, or is it an environment where the majority of the time the majority of people have their hands in the till? The European system tended towards the latter, and I think that percolated down. So, we have the ability now in Wales to set a system that is appropriate to the level of risk that we're actually talking about.

Just a quick one. When I asked the question about the level of risk, both of you mentioned that the flexibility and the top layer has gone. Have you had those discussions with the Welsh Government and have you had any feedback from the Welsh Government as to whether they agree with you that that's the type of direction they would want to move in?

10:50

No formal discussions, but l've discussed it with the Cabinet Secretary for Finance and I think he's very mindful that, actually, we're in a period of change and, actually, we need to do what needs to be done to deliver the best possible outcome for Wales. So, I don't feel as if we're pushing against a closed door, but I've not made any formal representations on that front.

Because, obviously, the Cabinet Secretary will come into the committee, but it would be nice to know whether you've had those types of discussions with him or not.

Well, the risk is interesting, of course, because, as you're aware, mid and west Wales doesn't actually meet the NUTS 2 criteria, because it's not contiguous. You've got the Powys corridor that comes through the middle, which stops it being contiguous, but it hasn't stopped the European Union and the Welsh Government allowing it to be treated as one place, even though—not by a small amount, but a visible amount—it fails to meet the criteria.

But the questions that I've got are on, basically, paragraphs 17 and 18 of Dr Guilford's papers, where he talks about critical mass. I'm not going to repeat anything you've said there. I believe that critical mass is incredibly important, but there's no reason why critical mass can only happen in the centre of Cardiff. We have examples throughout the world of critical mass and this herd instinct that gets companies going into the City of London in finance, going to Silicon valley and around Cambridge in terms of ICT development. In fact, all this has happened because of the development of critical mass. But do you see any reason why we can't develop that critical mass in some of our less prosperous communities? For example, why can't we have a critical mass of tv, film, et cetera, being developed around the Carmarthen-Llanelli area, where we've already got Tinopolis and Yr Egin being formed? Is there any reason, when we've got huge populations across the Heads of the Valleys, why the Heads of the Valleys itself cannot generate that level of critical mass to become an area of economic development?

The answer to that, clearly, is 'No, there is no reason that you can't develop critical mass anywhere you want, provided you put enough effort and resource into it.' I think the point that I was trying to make was that it is a lot easier to add to critical mass in areas where critical mass already exists. And, given that economic development timescales are over decades anyway, probably in the Welsh environment, if you want to regenerate the south Wales Valleys, for example, you would start from the areas of critical mass that already exist, which is, clearly, Cardiff. So, the financial services quarter, as I've quoted, I think, is a very good example, (a) because it's an investment that has drawn multiple sources of investment, which I think is critical for the future, so it's not just a structural fund, it's not just Welsh Government, but it's private sector investment and so on. And then you can create something that sits there, and then you can look at, maybe, using structural funds or its replacement in terms of, 'What are the skills that people require who are going to work there? If those people are in the Valleys, then how do we get the colleges to deliver those courses and how do we make it easier for those people to get in and out of work?' So, just from a purely pragmatic sense, it seems to me to make more sense to build on what you already have, and that's really where I was coming from.

But can I go back a couple of economic policies ago? When the policy of the Westminster Government, before devolution, back in 1940s, 1950s, was the new town developments, where they developed new towns, not just in the south-east of England, but they generated these new towns as economic growth areas. Some, like Milton Keynes, have grown substantially, haven't they? Why can't we do that amongst some Valleys communities or areas around the Llanelli-Carmarthen area?

Yes, Milton Keynes started in 1970, so it has been going for quite a long time and, sitting in the south-east of England, it's within the gravitational pull of London, which is probably an advantage as well. So, I'm not saying you can't; I'm just trying to take a practical and pragmatic view as to what is the path of least resistance, I suppose. 

You wouldn't see Caerphilly and Pontypridd and Newport, for example, within the gravitational pull of Cardiff.

Absolutely, and that was part of the city deal strategy, which, up until 2007—. I mean, it wasn't called the city deal then, but I chaired at the time the economic forum in the south-east of Wales, and that was exactly the strategy. We were already seeing the beginnings of an impact in Caerphilly and Pontypridd and so on, and obviously the financial crash put a stop to that at the time, but I think that's exactly the way that you would go. So, you have to create your critical mass, but then you have to provide the conduits by which the value of that critical mass spreads.

10:55

I feel obliged to comment, as I am a product of the new town experiment, hailing from Cwmbran as I do. So, I don't know whether you see that as a success or a failure, but—. I mean, Cwmbran was the only new town in Wales, and that was really done as a reaction to the English new towns. I'm thinking now that it was a double-edged sword, really, that whole experiment. So, within Wales, probably, the city region idea that looks at Cardiff as the hub and then the surrounding hinterland as the support area is probably the best way to go at this moment. I know you think outside the box, Mike, so I think all credit to you for doing that.

There was always a plan to have the Llantrisant new town, wasn't there?

Llantrisant is semi-new town, isn't it, in some respects? And there are some other areas that are not designated new towns, but have developed in such a way that they could have been designated new towns. Llantrisant is one. Because what we've seen is population movement down the Valleys towards the coast, especially in the south-east of Wales, and it's only lack of availability of land that's stopped even more of the movement down. The point I'm trying to make—and Nick talked about hub and spoke—is surely that hub and spoke needs to have movement both ways, rather than just keeping on having the south Wales Valleys and Newport as the places where people live, and Cardiff and just slightly outside it as the areas where people work.

I think if you look at the history of those hub-and-spoke models, you do see that two-way movement, but it's perhaps not a two-way movement in, perhaps, the traditional sense. So, what you see is that you develop the economic critical mass in the hub, people move from the spoke, and what moves back is what they earn, and they then spend that in their local communities, and that creates a secondary community outside. So, the direct employment, most of it might be in the hub, but there is a lot of economic value that goes back to the spokes. Just on the point of Cardiff—and I appreciate the time—if you look at city regions around Europe, the majority of them are traditional hub and spokes, with the hub in the middle. The problem that Cardiff has always had is that it's a funnel with the hub at the bottom, and that always means it's going to be more difficult to generate the benefits, but also to convince people at the top of the funnel that they're going to see the benefits. I'm not saying this just because Rob is in the room, but Swansea, geographically, is much more like a European-style city region than Cardiff is.

I think we're getting into what this new funding regime might do, rather than the structures of it. Can I just conclude with a question? Obviously, WEFO will come to an end. The Welsh European Funding Office has to end when we leave the European Union, but do you see a need for a separate funding office for any of these shared prosperity schemes, or the work we've talked about in terms of reducing bureaucracy? Or can this be done by Welsh Government in co-operation with local authority partners and others? Is there a need, now, for a separate funding office for any replacement to structural funds, or are those days over?

Whether there needs to be something completely separate, I'm not necessarily convinced, but what I do think we need to do is retain the skills and the expertise that have been developed over 20 years. Now, if that is a model that sits somewhere within Welsh Government or outside, but actually if it sits within Welsh Government, closer links to, perhaps, the economy department. These are very much my personal views, so not anything that's been agreed anywhere, but my sense is that, actually, if there's a Government policy driving regional economic delivery, then it would make sense that the funders are there to help with the discipline around the project delivery and the evalution, and to ensure that everything delivers—to ensure that the policy is kept on track. But that's very much a personal view.

11:00

I was just going to say that the programme monitoring committee itself has had a partnership oversight, hasn't it, really. 

Yes, and I think you will need something like that in order to keep the partnerships and to keep the expertise, but I agree with Sioned that the links with the Welsh Government would have to be explored. We want this strategic direction, which must come from the Welsh Government. So, that has all to be worked out.

Structural funds require that you have three elements: a management authority, an audit authority, a payments authority and so on. Wales is actually quite unusual, if you look around Europe, in putting them all into a single body, which is probably why it looks a bit monolithic. So, I would agree with Sioned; I think it's the expertise and the experience that we've built up that needs to be retained.

Okay. On that point, we will bring this session to a close. Thank you for your contribution.

Diolch yn fawr iawn ichi. Fe fydd yna drawsgrifiad, jest ichi wirio yr hyn sydd wedi cael ei ddweud.

Thank you very much. You will receive a transcript, just to check for factual accuracy.

Thank you very much for having us. If I could just say, I don't think we've had an opportunity to talk about the inestimable benefit that we've seen, which some of these funds have brought to Wales, and I think, on the PMC, we've had a really first-hand view of the benefits.

7. Ymchwiliad i’r paratoadau ar gyfer yr hyn a fydd yn disodli ffrydiau cyllido'r UE yng Nghymru: Sesiwn dystiolaeth 2 (Cymdeithas Llywodraeth Leol Cymru)
7. Inquiry into preparations for replacing EU funding for Wales: Evidence session 2 (Welsh Local Government Association)

Trown, felly, at y sesiwn nesaf a chroesawu tystion o Gymdeithas Llywodraeth Leol Cymru. Os caf i jest ofyn ichi, yn syml iawn, i ddatgan eich enwau a'ch swyddogaethau ar gyfer y cofnod cyn inni ddechrau, os gwelwch yn dda. Gan ddechrau gyda Rob, efallai.

We turn, therefore, to the next session and welcome the witnesses from the Welsh Local Government Association. Can I just ask you to simply state your name and role for the record before we start, please? Starting with Rob, perhaps.

Hello. I'm Rob Stewart, the deputy leader of the WLGA, and I also hold the Europe portfolio.

Tim Peppin. I'm director of regeneration and sustainable development at the WLGA.

Thank you both for coming to the committee, but also for your written evidence, which obviously we've received. We'd like to continue straight away with questions, if that's okay. Indeed, picking up from the very last bit of the previous session, your evidence does highlight how, in the past, European funding streams have been used by local government to enhance its investment. Could you give a synopsis of the challenges of losing this source of funding for local authorities in the way that they currently work in supporting communities?

Clearly, the European structural funds have had a significant impact on our communities, both in terms of the programmes to help upskill our communities and also the investment that's been provided to deliver schemes across Wales. As we've said in our response, the lack of clarity around whether those funds will still be available to us at the same level post our leaving the European Union is of great concern to councils across Wales. We are told, obviously, that there will be a shared prosperity fund, and we are yet to see how that will operate. Of course, were we to be remaining in the EU, obviously there would be a seven-year programme that we would be bidding against now in terms of future funding. So, there's a huge amount of uncertainty there around not only the level of funding but how it will be utilised or provided to Wales.

Just to add a question—and you can respond to both if that's possible—we clearly see, from the committee's own evidence, that we don't have any clarity around the UK Government level, but is there anything in addition that the Welsh Government is doing or could be doing now to try and put, if you like, the embryonic case for what should continue in Wales?

The Welsh Government issued their consultation on regional investment after Brexit, and we were very supportive of a lot of the points in there. I think it aligned with our views that we would like to see the funding continue at the same level that we would have expected if we'd remained in Europe. We'd like to see that funding devolved to Wales and then used to support the work that's going on in the regional regeneration partnerships that have developed across Wales. So, we would align the funding behind plans that had been agreed. And I think that, in terms of working with Welsh Government, there's now the economic action plan, and we would like to see one plan for each of the regions as part of an integrated national plan, so that there's coherence across Wales, and each of those regional plans will be developed in partnership with the full range of partners currently operating in the city deals and the growth deals with Welsh Government, so that we then know that funding is going in to meet priorities and we're not having to skew it to meet the various criteria in various programmes. 

11:05

Can I just make an initial point on what Tim said as well? Clearly, at the moment, we have two functioning city regions in Wales. We're still waiting for the north Wales growth deal. The Growing Mid Wales partnership is a bit of a way behind that. So, again, I think that, in terms of the regional structures, they need to be up and ready to receive this funding, because you've got the local enterprise partnerships in England that are moving ahead with their plans, and we don't want to be in Wales facing a dilemma where we don't have the structures capable of delivering out the money if it's available.

That's precisely the question I was going to ask. Just for clarity, when you talk about regional development in Wales or regional areas, you're talking about two city regions, you're talking about the north Wales ambition board or whatever that develops into, and, as usual, something from mid Wales.

Yes, the Growing Mid Wales partnership.

The mid Wales partnership as it is now—a word in a budget document around a growth deal for mid Wales but no more than that at the moment. 

I think our concern is that, in the limited information there is, the shared prosperity fund appears to be going to be linked very closely to the industrial strategy, and if you look at the industrial strategy, the language in there is about local industrial strategies, combined mayoral authorities and local enterprise partnerships. None of that language applies in Wales. What we need to ensure is that, if this is going to be a UK-administered fund, what we're doing in Wales is considered equivalent. I think it's absolutely critical that we get that confirmation as soon as possible.

Following on from that, it really is important that we do get the four regions or three regions—however many we're going to have—sorted out very, very quickly, because that will make life clearer to all concerned. I'm sure you agree with that statement.

What do you think the Welsh Government should be doing in order to work towards making sure that the shared prosperity fund, when it comes in, is going to work for the whole of Wales? Apart from making sure that we have the four regions—or two city regions and two other regions, or one other region, depending on how they want to do it—sorted, is there anything else that you think they should be doing?

I'll bring Tim in in a second, but I think just to emphasise the point as well that it's about the level of funding that comes down. I don't just want us to be matching what we had in the previous round, because, again, that will fall short of what we need in the future. So, it's about maintaining and keeping pace with what we could have got out of future funding.

In terms of preparedness, obviously, the economic plan that Ken Skates has recently announced is something that, again, we've embraced. As city regions, we stand ready to utilise our structures to deliver the investment to get the programmes ready to access the funding. Tim, do you want to add anything in terms of the conversation there?

Yes. I think that we are encouraged by a lot of the things that are coming out at the moment in terms of the economic action plan and the proposals about regional investment after Brexit. Our concern is that, unless there is a dialogue with the UK Government very quickly, and unless we start to get information on how they want the shared prosperity fund to operate, time is ticking on. We are told there will be consultation this year and that there could be an announcement around the autumn budget, November time, but if we were going to be getting the next tranche of European funding then we would already be having the dialogue around the 2020 to 2027 programme now.

So, advance planning is very difficult in a vacuum, and what we would like to see, I think, is those discussions taking place between the UK Government and Welsh Government so that there is an agreement as soon as possible about how this is going to operate. There's a range of options. It could be operated as a UK fund and you've got to bid in to the UK central funding; it could be that they view Wales as a LEP and there's a block of money that comes to the LEP and then there's a plan developed here; or it could be that there is a block of money allocated to Wales to do its own thing. We don't know yet. I think that each of the regions is developing their regeneration plans on the basis that the key thing is to know what you want to do and what you're trying to deliver. We can then align the funding behind those agreed plans, whatever form it comes in, but it does make planning difficult while there's still that uncertainty.

11:10

Again, of course, returning to the funding, one of the options there is—if a block was given to Wales, there's a risk that it would be Barnettised and then we would continue to lose out in terms of the amount money that's distributed out from the UK Government. So, again, as Tim said, it's difficult to plan in a vacuum. We can guess, but we need assurance as quickly as possible.

If I could add, the other thing that we would like Welsh Government to get some clarity on is what's happening in terms of rural development funding and skills. Again, from the limited information we've seen, a lot of the discussion is taking place between the Department for Business, Energy and Industrial Strategy and the Ministry of Housing, Communities and Local Government in the UK Government and it's focused around ERDF and capital projects. The Department for Work and Pensions on the skills side and the Department for Environment, Food and Rural Affairs in terms of the rural development side don't seem to be as involved in those discussions. It's absolutely critical for rural areas that we know what's going to happen in terms of rural development funding, because that pillar 2 funding has been absolutely vital to those authorities.

Well, I think that coming out of Europe has proved that Barnett can't work for everything and agriculture will probably be in a worse state than anywhere else if they decide to Barnettise it, because we take about 10 per cent of the agricultural funding and we'd get about 5 per cent. So, it'd be a 50 per cent reduction in all agricultural expenditure.

From what you've said, there are advantages in it being co-ordinated and managed centrally and bidding into it, but there are also disadvantages in that there's no guaranteed amount coming into Wales. If it is held centrally and everybody's bidding into it, what level of support and co-ordination would you need from the Welsh Government in order to ensure that (1) people weren't competing against each other and (2) we did as well as we're doing now?

Again, I think as Tim said, we're looking for Welsh Government to have an overall co-ordinating role here amongst the city regions to make sure that, when we do bid, we're bidding in an appropriate way and that we have the right bids going in. Again, there is a risk here that Wales could become a LEP competing with all the other LEPs in England and we become regionalised, with a Barnett allocation, which could make matters even worse. So, there are some real risks in this, but where the Welsh Government can help is in terms of that co-ordinating plan across the regions to make sure that we are bidding appropriately for the funds.

Again, not to be disrespectful, but as we found with the city deal approaches, dealing with one Government is difficult, but dealing with two can become impossible, especially when they're of different make-ups. Add into that the uncertainty around Brexit and you've got a real recipe for delay and confusion. So, we do need to get this established and clear as quickly as possible, so that Wales doesn't lose out and we fall behind the English authorities in terms of being able to access the funds. 

My guess/experience is that if you're early in applying, your chances of being successful are far greater than if you're chasing after the last 10 per cent left there.

I think that's a very good point and our concern there is that there are already pilots taking place with local industrial strategies in England, which are going to put them at the front of the queue. Again, there's a concern that if we move to a competitively allocated pot of funding, then it would be easy for the UK Government to say, 'Well, of course there's the same amount of money available, but you've got to bid in and show that your bids are as competitive as everyone else', and as you say, if we're not at the front of the queue, then we could lose out in a competitive bidding situation. At the moment, allocation is on the basis of need and Wales does disproportionately well, and the concern is that we will lose that competitive advantage.

Can I just turn that argument on its head and ask you: what evidence or experience do local authorities have in Wales of this broad difference between a competitive bidding process and what we currently have, which is more of a programme basis that looks at need and says, 'You'll have seven years of funding to address the need' and you put a strategy together? We've had regional development policy on a bidding process, to a certain extent, in the past under the UK, before the fully developed structural funds. Do we have any sense of which, actually, is most effective, though, at regenerating communities—having the critical mass that we heard about in the earlier evidence session, or do we need a mix? Is there clarity around this?

I think one of the issues with competitive bidding is that, often, the money goes to the places that can write the best bids. They have the best bid writers and often they're the better-resourced areas, which, probably, are at a less—

That should be Wales now. We've got 20 years of regional funding to pull on, but there we are.

11:15

But it's also the criteria that are applied, which we won't know yet. To give an example in terms of the current bidding for superfast fibre with the UK Government, again, they've set a criterion around population, which makes it difficult for many areas of Wales to bid. Again, if those sorts of criteria are imposed in the new structures, then that will disadvantage Wales and, certainly, our rural communities.

I think what we are seeing, though, is that local authorities are very alert to the fact that the game is changing. I think we've become very used to Welsh Government providing grants and local authorities bidding for those grants, and we realise that is changing. So, within the regional groupings, the local authorities are now starting to look at industrial strategy challenge funding, what they need to do to actually consider those opportunities, and they're sharing the information amongst themselves to start to gear up. I'm going to a Cardiff capital region programme board meeting on Friday, where we'll be looking at this Strength in Places fund. That's aimed at the HE and private sectors, but, to put bids in, they've got to show that they align with a local strategy, so it will be very important that they're working with their local authorities. So, I think the regions are now starting to realise that there are opportunities aligned to the industrial strategy, and how they can make sure that, in a competitive situation, they are geared up to compete.

Thanks. Diolch, Chair. How would a Welsh-administered element of the shared prosperity fund achieve the strategic priorities set out in the report that you did with the Bevan Foundation? Will it deliver better outcomes than the current structural funds?

We would hope so. As I said before, Welsh Government, we're hoping, will set the direction for regional policy in Wales. Decision making really needs to be at the most appropriate level—again, we're talking about subsidiarity here and, again, I think the regions are best placed to know what the best projects and best priorities are for the people that they serve. But it needs to be co-designed between ourselves and the Governments. So, we would hope that if we can get the right amount of flexibility into the new process—. Again, we have to be ready to access these and to be first in the queue, as has been said, because, at the moment, we have a functioning city region in Cardiff, we have a city region that is nearly in place in Swansea bay, and we have one that's awaiting a city deal in north Wales. So, those structures need to be operating formally and in place as soon as possible—I can't emphasise that point too strongly—otherwise, despite our best efforts, we're not going to be able to co-ordinate sufficiently to access the funding.

I think, in many ways, getting that funding coming to the regions would help in terms of their own development, because the more funding they're administering and co-ordinating, the more it gives them a sense of coherent planning for the whole of the area. So, being given the responsibility for managing a successor pot of funding alongside city deal moneys, tied with regeneration investment money—all of those different funding streams—. We would like to see a range of those funds now being devolved down to the regional level, not for local authorities to take over, but in partnership with Welsh Government, FE and the voluntary sector—all the bodies that they're working with at the regional level. You can then have a much more integrated approach, rather like the regional engagement teams are trying to achieve at the moment, making sure that you don't have lots of individual projects all trying to do their own things but looking at how they can work collectively for the greater good.

So, rather than simply replacing the current funds that come to Wales with funds that would go either to this place or to local authorities, there's an opportunity here to structure the funding so that projects like the city deals would have a much bigger responsibility for accessing those funds at the coalface, so to speak, rather than through other, different—. Am I making that clear—rather than through other avenues?

There's an opportunity for greater flexibility here to prevent people having to bend their priorities to suit thematic opportunities within Europe that have been decided. However, again, the risk on the side of that is whether or not the level of funding and the available funds and the criteria to access that are—

And we don't want it squeezed, like Mike Hedges said, by any sort of Barnettisation or something that would reduce the overall funds. Yes, okay.

And the infamous Well-being of Future Generations (Wales) Act 2015, which we all, of course, adhere to or should adhere to, needs to be aligned to future regional policy. Is there an opportunity here to make sure that the EU funding stream replacement is more aligned with the well-being goals of the Welsh Government?

11:20

Yes, absolutely, and it will have to be. It's a legal requirement. Most councils have embedded it in their processes, and the regional structures will do or have done exactly the same. So 'absolutely' is the answer.

I think, in terms of the regional plans that are developing, they are trying to take that longer term view: what do we want the regions to look like in the future? What trends are happening that we want to prevent that we can actually address with some of the interventions that we're looking to do? So, you actually use the Act to inform the plans, and, in terms of the assessment frameworks that the regions are using to go through their project selection, they are working with the office of the future generations commissioner to devise assessment frameworks that embed that thinking into their forward planning.

So, there's a good opportunity here. It's important that we're first in the queue, but at the same time as we're trying to be first in the queue in making bids, we're not entirely sure what we're bidding into yet.

No, and that's the problem.

We need to know the rules of engagement, and it could be a very different scenario. It's either a competitive situation where we're racing to be the first in the queue or it's a more collaborative arrangement where we're sitting down together and planning this jointly.

It's like getting on a train and the railway track and the bridges are still being built in front of you.

Unfortunately, until we know, we can't say, can we? And, unfortunately, I don't think anybody knows yet.

I'm afraid we haven't found out either. We're trying. Jane Hutt, please.

We've been taking evidence, obviously, in terms of what works and what attributes we'd like to keep, as well as learning lessons in terms of future arrangements, and your evidence and other consultees mentioned the benefits of multi-annual financial frameworks, because, of course, this takes us into seven-year cycles outside the traditional budgetary and political cycles. So, can you say a bit more about why you think this is helpful to the way forward in terms of recognising that this was something that we need to try and retain?

Absolutely. Again, it leads back into the future generations Act. If we're going to do long-term planning, then we need to have consistency and assurance on long-term funding, and, from a local authority perspective, we've said to Mark Drakeford on a number of occasions, and to predecessors like yourself, we'd like to move to a three-year funding deal, a five-year funding deal. Those sorts of things would help local authorities plan. It's  exactly the same for the regional structures and for the programmes, sitting underneath the new frameworks, which would allow us to do long-term planning. So, again, if we were in a situation where it's very short-term funding without assurance long term, it won't allow us to deliver. Again, I'd make the point that, if we were staying, we'd already be bidding for the next round of funding, 2021-27, and we'd have an assurance of what was on offer, and we'd start to align our programmes to draw down that funding. So, it is a very difficult situation at the moment, where we don't know. We know what we're missing out on, but we don't know what we're getting instead.

But it has provided you with a way of looking at long-term planning, because of the MFF.

I think all the experience of that longer term funding demonstrates you get better value for money. When you've got a stream of projects that are being taken forward, and there's funding over a number of years, you've got that flexibility to move money between the projects depending on how they're delivering. So, if one experiences a bit of a hold-up, you can shift the funding across to another that's moving forward, and move the funding back at a later date. All of that ensures that you keep things moving, you keep the momentum going, you deliver more effectively.

Annual funding is completely the opposite. You end up with your horizons being limited, you go for smaller projects that you can deliver in a short timescale, and you don't get such keen prices in the market. So, for a whole range of reasons it's better to have that longer term perspective.

Thank you. You also say that there could be improvements in terms of administrative processes, and obviously there's been quite a lot about the heavy hand of audit in terms of ways—. How would you like to see administrative processes streamlined? And also, obviously there is an issue about robust monitoring of funding, and we've just been hearing evidence from the programme monitoring committee, but have you got views on how this could be improved from your experience?

Again, it's about getting the appropriate governance structures and checks and balances in place. You can spend all your time being governanced to death, but then you're not looking at the outcomes that you're delivering. So, it's about getting that balance right, and, again, making sure that if you are devolving funding down to the regional levels, that the democratic accountability and the structures there are suitably set up to administer that money. In my own city region—£1.3 billion, 11 projects—we're setting up to do that. We're very different to the capital region in terms of how we deliver the funding, and our gateway and our audit process is different to the capital regions because of that.

So, again, as long as we accept that the audit and the checks and balances are appropriate to the projects that are being delivered, and we don't kill ourselves in red tape, I think that would be very helpful. 

11:25

I think there is an opportunity in there, as Grahame Guilford was saying earlier. The systems have been set up so they can deal across the whole of the EU. And, if there are opportunities coming out of this, this is one where we can look at devising a system that is more streamlined and more proportionate. 

Can you just remind the committee of the what the funding period for the city deals is? Is it three or five years?

But that's not security of funding; it's an expected funding stream for 15 years. 

The Swansea bay city deal is a 15-year funding contribution from both Governments. 

So, that is a pattern to bear in mind for future approaches and the shared prosperity fund.

Your idea for the shared prosperity fund is to combine capital and revenue spending, which seems, on the face of it, to be an eminently sensible idea. The whole point of the kinds of funding streams that we want to set up is to make some kind of meaningful change in communities, and that's likely to be best achieved by being able to look at things in the round, both capital and revenue. Could you outline perhaps how this would, in your view, achieve this aim? You might be able to illustrate that from the way that the current system doesn't or what you might have been able to do if the rules that you propose for the future were in application now. 

Yes. As Tim alluded to earlier, the current funds, or the challenge fund that can be bid against is largely capital. So, again, if you're going to deliver projects, if you're going to increase people's skills and skill-based experience—all of that—you're going to need revenue funding as well. So, you're going to need to have both together in order to deliver the successful projects and the economic changes that we'd want to see as an outcome of that. Interesting experience recently with the Swansea bay city deal again—all of the money provided by the Governments was capital. However, we couldn't deliver one of the projects unless we capitalised some of that into revenue. It created a huge round of secondary negotiations with both Governments to do that, whereas we need to address that from the outset here to make sure that, if you're going to deliver the sorts of programmes and outcomes that we want for our citizens, you're going to need both of those equally managed together in one set of funding proposals.

That's very clear. Another related point that arises from your written evidence is that you suggest removing the thematic concentration of funding around a number of objectives, and this, similarly, would give greater flexibility and the opportunity to do things better than we do now. So, how do you think this would drive improvements as well? And, again, perhaps you might relate it to the current situation and contrast it with what might happen in the future. 

I think, at the moment, you've got a number of themes—so, for example, SME support, research and development, energy, infrastructure—and it compartmentalises the funding. So, there's an allocation of funding into each of those headings and then you bid against it. Well, that constrains and it bends what people bid for. What we would like to see is a removal of that so that what the regions have agreed is important, and if it is infrastructure and if that is seen as the key to unlocking the region's development, we can put more resource into that.

I think the concern at the moment is that there's a view from Europe that we've had a number of years of infrastructure funding and, therefore, we should be shifting more to the softer funding in the ESF and the training measures. But I think we want to make sure that the funding that comes in is appropriate to the needs of the region, and, ideally, we would like to have a single bidding process. So, you bid for the piece of work that you want to do, but you bid for your capital and revenue at the same time, and it's done as one application, whereas, at the moment, you tend to bid into different pots and then you've got to try and join it all up and it gets a bit messy. 

And the third element, and this is the other suggestion you make, is to remove these artificial geographical boundaries so that you're not restricted by something that might be appropriate for one type of investment that, actually, is not for another. 

I think, at the moment, we've got this east Wales/west Wales and the Valleys split. The four regions that are operating, and that's how the local authorities are working together with their partners, they are almost functional economic regions, which makes more sense. So, the projects you develop, working together on that basis, will make more sense in terms of travel-to-work patterns and everything else than when you've got the current situation, where, if you're doing something in south-east Wales, you've got Monmouth and Cardiff and the Vale, which are in east Wales, which can't bid as part of a project that is west Wales and the Valleys. And that's artificial—it doesn't reflect the way that those regions operate.

11:30

And, of course, transportation-wise, if we're going to work with our partners in the capital region on the expansion of the metro, that is something that we will need to cross borders across.

You talked this morning an awful lot about the regional development, focusing upon the city regions, effectively, which I understand, and then your paper with the Bevan Foundation highlights the fact that more decisions should be devolved down. For you, is the most appropriate level of devolution down to the city regions or does it go to the other levels again?

I think city regions are the most appropriate. I speak from experience. In terms of European funding, before the city region was ever even created, the four local authorities in that region had worked together for many, many years to combine their bids for European funding. So, there is already a well-established process there. I think to go down lower than that, in terms of local authorities' individual bidding, would probably be a step too far, I think. I think we've got a well-established regional basis, which we can use, and regional structures, which we can use, to put ourselves in a—

There's a difference between bidding and decision making and this is devolution of decision making you're talking about. So, do we do that devolution of decision making down to regional levels in the sense of the fact that you have more control over your policies and your regional investments?

Yes, and the current operating city regions have devolved powers to a regional body in order to make decisions that are not referred back to the host authority—that's the way in which the joint committees are currently set up.

Then let me ask the question: you talk about streamlining bureaucracy, we had, earlier on, WEFO saying that the removal of the EU level might actually make it more efficient, and now we're talking about producing another level of bureaucracy at the bottom. In other words, we'll still go from three, like that, but we'll go to three slightly differently. Is it actually going to be more efficient, therefore, if you do that?

I don't think we're creating further bureaucracy; in fact, what we're doing is the local authorities—

You're changing the levels of bureaucracy as to who does it. If you've got three steps—

No, I think the levels are currently set at regional level—I think that's what I'm saying. So, when we bid, we currently bid at regional level rather than at local authority level for a lot of what we receive into our local authority areas.

Yes, but what we aren't possibly asking is: should the decision making on those bids be done at a regional level? In other words, do bids come in through the regions?

Yes. We decide what we bid for currently.

What we bid for, but deciding whether bids are acceptable or not—.

Ah, right, I see what you mean. Yes, it depends what model, as Tim said, is approved in terms of how the funds are devolved. So, if they're held at Welsh Government level, then we would be bidding for that, I guess. If Welsh Government have devolved a pot down that we can then use, then, again, it will streamline the process because then we won't be going up to Welsh Government to do further negotiation. So, again, it depends as to what the overall model is, because I think you're asking a question on a specific part of it and we don't know the overall model.

I think that if what you're suggesting is on the table, then the ability to do it at regional level—

Everything is at the table at the moment, from what I understand.

With the economic action plan proposals, you've got the chief regional officers now working in the regions, working together with the local authorities. If you can get a group of the partners around the table and they can take the decisions at the local level, then fantastic, because, as you say, that would streamline the decision making further. The key thing there then is having some sort of national insight, because what we don't want is the regions competing against each other for similar types of projects, and as long as you've got that national co-ordination—

Away from this now, but you've talked about the industrial strategy, which is your fear that the LEPs will, basically—they are already working towards that in England, and, if the UK Governmnet makes a decision that that's going to be the main driver of this fund, that you're losing out. Have you seen as to whether Wales can actually—? If you were doing modelling, have you any modelling as to how Wales could benefit from that approach, or are we still in the days where we're not sure as to whether we wait for a Welsh Government strategy to match that one up?

We haven't done modelling as such, but I think that the regions are starting to look much more closely at what is coming out from the UK Government in terms of the challenge funding, the sector deals and so on, and looking at how what they're doing regionally can align with that. Because, if the model that surfaces is one where it will be competitive bidding against those sorts of pots, we need to make sure that the regions are able to complete against the LEPs and the mayoral combined authorities on as level a playing field as possible.

11:35

One of my concerns at the moment is, of course, there are still a lot of sector deals that haven't even been approved and are still waiting for outcomes, and some are still waiting to be submitted. So, there's a huge uncertainty in that model as well, at the moment.

Okay. Any further questions from Members? In which case, I'd like to thank you for your evidence this morning. There will be a transcript for you to check for veracity and so forth. Diolch yn fawr iawn i chi.

If I can just note for committee purposes that Dr Hywel Ceri Jones is not available after all to give us evidence now, because he's been taken ill—I'm sure we send him our best regards and wishes for a speedy recovery. But he has sent further information by e-mail, and I'll make sure that everyone is aware of that. We're going to ask him some further questions that we would have asked him in an oral session and, hopefully, he'll be able to feed that back to us as well. 

With that, we'll return to the private session we agreed to earlier. Diolch yn fawr. 

Daeth rhan gyhoeddus y cyfarfod i ben am 11:36.

The public part of the meeting ended at 11:36.

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