|David Rees AC|
|Jane Hutt AC|
|Llyr Gruffydd AC||Yn dirprwyo|
|Mike Hedges AC|
|Neil Hamilton AC|
|Nick Ramsay AC|
|Andrew Jeffreys||Cyfarwyddwr Trysorlys Cymru|
|Director, Welsh Treasury|
|Emma Williams||Dirprwy Gyfarwyddwr, Yr Is-adran Polisi Tai, Llywodraeth Cymru|
|Deputy Director, Housing Policy Division, Welsh Government|
|Helen Mary Jones AC||Aelod Cynulliad, Plaid Cymru|
|Assembly Member, Plaid Cymru|
|Huw Charles||Rheolwr y Bil, Llywodraeth Cymru|
|Bill Manager, Welsh Government|
|Manon Antoniazzi||Prif Weithredwr a Chlerc y Cynulliad|
|Chief Executive & Clerk of the Assembly|
|Margaret Davies||Dirprwy Gyfarwyddwr Cyllidebu Strategol, Llywodraeth Cymru|
|Deputy Director, Strategic Budgeting, Welsh Government|
|Mark Drakeford AC||Ysgrifennydd y Cabinet dros Gyllid|
|Cabinet Secretary for Finance|
|Nia Morgan||Cyfarwyddwr Cyllid, Cynulliad Cenedlaethol Cymru|
|Director of Finance, National Assembly for Wales|
|Rebecca Evans AC||Y Gweinidog Tai ac Adfywio|
|Minister for Housing and Regeneration|
|Suzy Davies AC||Comisiynydd|
|Dr Ed Poole||Cynghorwr Arbenigol|
|Georgina Owen||Dirprwy Glerc|
|Ethol Cadeirydd dros dro||Election of a temporary Chair|
|1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau||1. Introductions, apologies, substitutions and declarations of interest|
|2. Papurau i'w nodi||2. Papers to note|
|3. Craffu ar Gyllideb Ddrafft Comisiwn y Cynulliad ar gyfer 2019-20: Sesiwn dystiolaeth||3. Scrutiny of the Assembly Commission Draft Budget 2019-20: Evidence session|
|4. Bil Rhentu Cartrefi (Ffioedd etc.) (Cymru): Sesiwn dystiolaeth||4. Renting Homes (Fees etc.) (Wales) Bill: Evidence session|
|5. Cyllideb Ddrafft Llywodraeth Cymru 2019-20: Sesiwn dystiolaeth 1 (Ysgrifennydd y Cabinet dros Gyllid)||5. Welsh Government Draft Budget 2019-20: Evidence session 1 (Cabinet Secretary for Finance)|
|6. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o weddill y cyfarfod||6. Motion under Standing Order 17.42 to resolve to exclude the public from the remainder of the meeting|
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 09:00.
The meeting began at 09:00.
Good morning. Bore da. Welcome to today's Finance Committee. In accordance with Standing Order 17.22, I call for nominations for a temporary Chair until the election of a permanent Chair.
I nominate Llyr Gruffydd to be the temporary Chair of this committee until such time as the Assembly as a whole appoints a permanent Chair.
Thank you. Are there any other nominations? No. I therefore declare that Llyr has been appointed the temporary Chair.
Diolch yn fawr iawn am y cyfle i gadeirio dros dro. A gaf fi ddiolch i chi am hynny ac mi symudwn ni'n syth ymlaen i'n cyfarfod ni? Mae'n gyfarfod llawn heddiw. A gaf fi, felly, groesawu pawb yn ffurfiol a nodi bod y clustffonau ar gael, wrth gwrs, ar gyfer yr offer cyfieithu neu ar gyfer addasu lefel y sain? Mae'r cyfieithu ar sianel 1 ac fe allwch chi addasu lefel y sain ar sianel 0. A gaf fi hefyd atgoffa Aelodau i ddiffodd sain eu dyfeisiau electronig, os gwnewch chi, os gwelwch yn dda? A gaf fi ofyn a oes gan unrhyw Aelod unrhyw fuddiannau i'w datgan? Na. Iawn, diolch yn fawr.
Rydym wedi derbyn ymddiheuriadau gan Steffan Lewis ac rydw i hefyd yn gwahodd Helen Mary Jones i ymuno â ni yn y cyfarfod y bore yma o dan Reol Sefydlog 17.49. Croeso, Helen.
Thank you very much for the opportunity to chair on a temporary basis. Could I thank you for that, and we'll move on now to our meeting? It's a very full meeting today. Could I, therefore, welcome everyone formally and note that the headphones are available for interpretation or for sound amplification? Interpretation is on channel 1 and amplification is available on channel 0. Could I also remind Members to put their electronic devices on mute? Can I ask whether Members have any interests to declare? No. Okay, thank you very much.
We've had apologies from Steffan Lewis, and I also welcome Helen Mary Jones, who joins us under Standing Order 17.49. Welcome, Helen.
A gaf i ofyn felly ynglŷn ag eitem 2, os oes yna—? Mae gennym ni bapurau i'w nodi. A gaf fi eich gwahodd chi fel Aelodau i gytuno ar gofnodion y cyfarfodydd a gynhaliwyd ar 19 Medi a 27 Medi 2018? A yw pawb yn hapus gyda hynny?
Could I therefore ask in terms of item 2—? We do have papers to note. Could I invite you, as Members, to agree on the minutes of the meetings that were held on 19 September and 27 September 2018? Is everyone content with that?
Ymlaen â ni felly at eitem 3, sef craffu ar gyllideb ddrafft Comisiwn y Cynulliad ar gyfer 2019-20. A gaf fi groesawu'r tystion sydd yma'r bore yma? A gaf fi eich gwahodd chi i nodi eich enwau a'ch rolau ar gyfer y Cofnod, os gwelwch yn dda?
On we go, therefore, to item 3, namely scrutiny of the Assembly Commission's draft budget for 2019-20. Could I welcome the witnesses with us this morning? Could I invite you to state your names and roles for the Record, please?
Manon Antoniazzi, Clerc a Phrif Weithredwr y Comisiwn.
Manon Antoniazzi, Chief Executive and Clerk of the Assembly.
Bore da. Nia Morgan, cyfarwyddwr cyllid Comisiwn y Cynulliad.
Good morning. Nia Morgan, director of finance for the Assembly Commission.
Bore da. Rŷm ni'n gwybod pwy ŷch chi, gyda llaw, ond mae jest ei angen e ar gyfer y Cofnod.
Gwnaf fi ddechrau, felly, os caf fi, gydag ambell i gwestiwn, a dechrau, efallai, drwy ofyn ichi esbonio unrhyw newidiadau a wnaethoch chi i sut rŷch chi wedi amcangyfrif y costau gwariant cysylltiedig ag Aelodau—Member-related expenditure—sydd werth £16.2 miliwn.
Good morning. We do know who you are, by the way, but we just need that for the Record.
I'll start, therefore, if I may, with a few questions, and start by asking you to explain any changes that you made to how you've estimated the Member-related expenditure costs, which are worth £16.2 million.
Perhaps I could just begin by saying you've probably noticed there are quite a few differences in the way that the budget has been presented this year. On this specific line, I think the two main things, perhaps, to mention, of course, are that we, as a Commission, have committed that we will no longer be using the remuneration board underspend as part of our budget. If any part of that isn't used, it goes back to the Welsh block grant in a way that we haven't had before, and you'll see that, to compensate for that, effectively, there's a line for a project fund, which I expect you'll probably want to talk about a bit more. But the main thing to draw to your attention, I think, is the fact that we've introduced an element—. We've reduced the amount we've put into the budget because of a potential churn in the staff that we take on as Assembly Members. It's an issue that's been raised by this committee more than once in the past. So, we've heard what you've said and we've taken that on board. The figure of £500,000 is an estimate based on previous figures, but also it's in line with what we've seen with the Scottish assembly.
Roeddwn i eisiau holi'n benodol ynglŷn â'r £500,000 yna. Rydych chi wedi awgrymu'n fras—
I wanted to ask you specifically about that £500,000. You suggested very broadly—
—sut rŷch chi wedi cyrraedd y ffigwr yna. Ond yn benodol, roeddwn i eisiau gofyn: a oes yna unrhyw risg ynghylch a fydd y gyllideb yna ar gael yn ystod y flwyddyn?
—how you've reached that figure. But specifically, I wanted to ask you: is there any risk as to whether this budget will be available during the year?
There is a risk, which we've also raised with the Finance Committee before. The majority of the budget is estimated in the same way as it always is, but because we don't quite know what Assembly Members will do once the changes come in in April 2019—will they spend all the money that's allocated to them? There is, potentially, a risk, but we're hoping it's not a serious one. Because, of course, the budget, as we put it together, has been done taking all risks into account, effectively. I don't know if you want to talk in any more detail about that.
Os caf i ychwanegu, mi gawsom ni lawer o drafodaethau'r llynedd ynglŷn â ph'un ai y dylem ni fod yn gosod y gyllideb ar gyfer y penderfyniad yn 100 y cant o bopeth a allai gael ei alw arno fe. Cawsom ni'n herio bryd hynny i ystyried a fyddai e'n gallach i gyllidebu ychydig yn is oherwydd bod yna, yn gyson, bob blwyddyn, rywfaint o danwario. Felly, dyna beth rŷm ni wedi'i wneud eleni. Mae yna lawer mwy o dryloywder, yn hytrach na dibynnu ar ddisgwyliad o danwariant a defnyddio hynny ar gyfer prosiectau creiddiol. Rŷm ni wedi gosod hynny allan yn glir yn y gyllideb fan hyn. Os bydd mwy o wario—. Fel roeddwn i’n ei ddweud, rŷm ni wedi seilio’r amcangyfrif yna o danwariant ar ein profiad ni mewn blynyddoedd o’r blaen. Nawr, mae yna elfennau o’r penderfyniad sydd yn newid oherwydd mae’r bwrdd taliadau wedi awgrymu ambell i newid. Felly, rŷm ni wedi trio bod yn weddol geidwadol yn gwneud yr amcangyfrif yna.
Ar ddiwedd y dydd, os bydd angen mwy, yna mae e’n ddyletswydd statudol arnom ni i dalu’r arian yna, ac felly, bydd yn rhaid inni ffeindio’r arian o gyllideb gyffredinol y Comisiwn, ac wedyn bydd yn rhaid inni reoli prosiectau eraill a’u gohirio nhw, neu beth bynnag, er mwyn bod yr arian ar gael ar gyfer yr Aelodau.
If I may add, we had very many discussions last year about whether we should set the budget for the determination as 100 per cent of everything that could be called for. We were challenged on that to consider whether it would be more sensible to budget at a lower level, because, consistently, there has been some underspend on an annual basis. So, that's what we've done this year. There's much greater transparency in this mode, rather than depending on an expectation of underspend for the core projects. We have set that out very clearly in this budget. As I was saying, we have based that estimate of an underspend on our experience in previous years. Now, there are elements of the determination that change because the remuneration board has suggested a few amendments. So, we've tried to be relatively conservative in setting that estimate.
At the end of the day, if more is required, then it is our statutory duty to pay that money, and, therefore, find those moneys from the general Commission budget, and then we'd have to manage other projects or defer them, or whatever, in order to ensure that we have that money available for Members.
Yes. I just want to say, can I welcome this decision? I think it's the right one. Of course, if it turns out to be financially wrong, you're in exactly the same position as the ombudsman and the auditor general—you can come back with a supplementary budget if it's wrong. So, I very much welcome it. The auditor general has not, but the ombudsman has, in the past, come back with a supplementary budget because of unforeseen circumstances. I believe—though you may not—that it's better for control of finances to rest with this committee and the Assembly as a whole, and for money that's needed to be provided this way rather than the other way around.
Thank you. That is what we've tried to do.
A oes yna unrhyw risgiau a chanlyniadau annisgwyl, efallai? Achos, wrth wahanu'r arian, neu gyllidebau'r Comisiwn a'r bwrdd taliadau, mae yna elfennau, wrth gwrs, o gostau Aelodau sy'n dal i gael eu talu gan y Comisiwn, fel y post a'r stationery a phethau fel yna. A oes yna risg o ryw fath o ganlyniadau annisgwyl yn sgil y costau yna nad ydynt yn rhan o'r penderfyniad—determination?
Are there any risks in terms of unintended consequences? In separating the Commission and remuneration board budgets, there are elements, of course, of Members' costs that are still paid by the Commission, such as postage and stationery and so forth. So, is there a risk of any unintended consequences in the wake of those costs that are not part of the determination?
Well, I suppose the first thing to say is that if they're unforeseen, they're not foreseeable in that sense. [Laughter.] But, yes, it's an interesting question. I think the remuneration board has raised the level of office costs available to Members now, or from April, anyway, to accommodate things like the caseworker system, so there's more freedom within the office costs budget we've got now, plus, viring office costs into staff costs as well. So, Assembly Members have got freedom to spend their office costs, I think, in a way that adapts better to us as individuals, because none of us spend our money in exactly the same way.
With the money that still comes from the Commission's central pot, if I can put it like that, the post and printing costs, for example, there's no intention to restrict Members from using this money. As I say, we all work with our constituents in different ways. I think it's just where it appears in the budget that is causing a few problems, because, as an operational budget, it's a line over which the Commission has no direct control, and nor should it in that sense, but it does make getting that final budget line accurate—. So, I think what I'm saying is that there's no problem with the spending of this money, it's where it appears in the accounts that can prove a little problematic when we're trying to bring the Commission budget in on a sixpence.
Rhag ofn ei fod yn helpu i ychwanegu hefyd, mae yna nifer o elfennau yng nghyllideb y Comisiwn sydd yn cael eu gwario'n uniongyrchol ar Aelodau. Wrth gwrs, mae'r gyllideb i gyd yn cael ei gwario er budd Aelodau yn y pen draw, ond mae yna bethau fel hyfforddiant, costau cyfreithiol a threuliau teithio tramor a'r math yna o beth. Felly, mae yna overlap mawr rhwng y ddwy ochr, a dyna pam rŷm ni'n rheoli'r holl gyllideb fel un control total. Mae hynny'n egwyddor bwysig wrth inni symud ymlaen. Down ni nôl at hynny eto, mae'n siŵr.
If I could assist, there are a number of elements in the Commission budget that are spent directly on Members. Of course, the whole budget is spent for the benefit of Members, ultimately, but there are things such as training, legal costs, foreign travel and that kind of thing. So, there is a huge overlap between the two sides and that's why we manage the whole budget as one control total. That's an important principle as we move forward. I'm sure we'll return to that.
There's another point I think that's possibly worth raising as well. Because any remuneration underspend, which could include some of those office costs, now goes back to Welsh Government and doesn't find its way into the overall Commission envelope, if I can call it that, then there's a question about how we as individual Members spend and which bits we spend from, which pots we spend from. It's a good exercise for us as AMs, I think, in transparency.
Diolch, Cadeirydd. I appreciate you're working on, as you said, a sixpence, but you're no different to many other public bodies working in those scenarios. I'm very much appreciative of your attempts to keep the increases down to the levels we suggested last year, but, clearly, there is a difference, because you have this project, which I'll come on to in a minute, as well, which increases it a little bit. If you put the project together with your Commission budget, it goes up from a 1.6 per cent increase to a 4.5 per cent increase. But I suppose I want to ask: have you got the evidence to demonstrate how you've prioritised your spend—because, clearly, there are some important areas of work, I'll come on to the project in a minute—or operational costs in your priorities, whatever it is that you use to inform your decision making on those areas of priorities?
I'll just speak at a high level to start with, and perhaps I can bring officials in to talk about the detail on that. The first thing, of course, is that we have to comply with our statutory duties, so those are strategic priorities. We have our strategic goals, which, of course, are supporting Members, using resources wisely, and something we really need to take very seriously at the moment, which is engaging with the Welsh public to understand what the Welsh Assembly is for. Then we have plans that are in accordance with the strategic goals, which will come into that £1 million pot that we'll talk about in a while, if you like, as well as our ongoing plans for maintaining the estate and maintaining ICT, which I think you're familiar with. So, those are the headlines of how we prioritise, but there is quite a lot of detailed work underlying that, and of course perhaps Manon's best placed to talk about that.
I'd be happy to explain a bit more about that. We're doing nothing differently to what we've done in previous years. We're just being very transparent about stating it and presenting it to you so that we can comply with the comments, suggestions and recommendations that were made last year about transparency and scrutiny. We do need to have a fund for investments. This ranges from investments that come under the ICT rolling programme and the estates and facilities management programme—replacing boilers and windows and so forth. We have a degree of latitude over which year we do them in. We can bring them forward or delay them, as fits around other requirements, but these are things that need to be done on a rolling three-year or 10-year basis. Then there are other Assembly priorities, such as developing a new website, and things that were in that pot last year, like the Youth Parliament, that are now business as usual, so the costs are incorporated within the service lines that you have in the budget.
I was asking that question, because, obviously, in your project element you've got some of those things you've mentioned down, and in your other table you've got your maintenance lists. So, you've got your list of maintenance, you've got your list of projects, boilers being part of the projects, and there are window replacement projects—not in the maintenance. So, clearly, I can understand to an extent the separation. Do you, therefore, have a list of projects you would expect to be doing over the next three or four years so we could actually see, 'Well, perhaps this now fits into what you anticipate for the next three or four years'?
Yes, we have those rolling programmes of ICT investments and estate and facilities management investments, which are the big issues. Then there are other projects that, obviously, the Commission has sight of as we prepare the budgets and the forward budgets. It's certainly the case that we undertake capacity and service planning on a regular basis, and always have, and we bring those results to the Commission on a regular basis. We have systems of internal challenge. I think we've set out in the budget document the new governance arrangements that we have internally. We have our executive board and our leadership team that make sure that projects are assessed across the organisation, and so we're evaluating competing priorities across that scope and looking at what needs to come forward in that particular year. Then that, of course, is scrutinised by our independent advisers, by the audit and risk committee, as well as the Commission coming forward.
Can I give you an example? In your annex 3, which is your priority projects, you've got,
'To engage with all the people of Wales and champion the Assembly'
as a project, and I would have thought that that would be part of your normal business, per se.
What we've done has been to group the priorities under the three headline goals. The projects are the items that are not in bold, but we've grouped them for clarity. Maybe it hasn't made it more clear in this sense, but we've grouped them under the headings, so that it helps us to focus on how we're distributing the investment proposals going forward.
But, to me, public information and engagement as a heading in a project, I would have thought that's part of your normal business—public engagement and information.
It is. It's the next level down, I guess, which we can go into; we can write to you with more detail again, if you like. These are proposals that are coming out of the Leighton Andrews digital engagement report last year. The intention to engage with people around the Youth Parliament and around the twentieth anniversary of the Parliament next year, these would be specific projects that do not come under the heading of business as usual, but I can write to the committee with more detail if that would be helpful.
But also linked into that, perhaps we could look at how you then split the £1.5 million you've allocated to these projects to capital and revenue; which ones are going to be from the capital element and which ones are going to be from the revenue element. That will be interesting because I couldn't work out from annex 2 which ones are which. I can guess, but I couldn't work out.
Well, yes, because last year there were some ICT projects that were examined by the auditor, and the conclusion was that they turned out to be—. They didn't want us to count them as capital projects, which is why you'll see that there is an underspend on the capital budget last year. I don't know, Nia, if you want to talk a bit more about that.
As Manon mentioned earlier, within the Commission budget, which is potentially different to the Government budget, we've only got one control total whereas other organisations have a line with the annually managed expenditure budget, for example, and capital budget, where they have to come in within those budget lines. We have one control total, so we do have flexibility with regard to classifying things as capital and revenue. We can provide you with more information where we think these projects will land, but as Manon mentioned, with the Record of Proceedings project and the Table Office, we anticipated that these would be capital projects, but after protracted discussions with the Wales Audit Office, these ended up being classified as revenue. So, there is potential for things to move anyway between capital and revenue as business cases come to us.
I appreciate that and, obviously, you will respond to the Wales Audit Office consequently. But if you're putting in the figures here of £500,000 from the capital budget and £1 million from the Commission project board, and you end up with a list of projects, it would be nice to know which projects you think will be using the capital budget and which ones will be using the Commission budget, basically, so I can work out where I would expect to see capital in that case and what would be capital. That would be helpful. And do you think that—? You know, some of these projects, are these all one-year, two-year projects? What is the anticipation with the legislative workbench? Is that a one-year, a two-year project? What is the—?
We've provided more information within the budget document itself. Within one section of the document there's a whole section of narrative around each of these projects in more detail, and that explains the legislative workbench, for example. For the next two years, we're anticipating £100,000 within 2019-20 and £100,000 in 2020-21. So, there's more information within the narrative of the budget document itself, but we can provide—
It's a two year—. On that particular one, as I say, we've gone into a bit more detail in the narrative, but we have to invest in the system we have already because we're not yet ready, working with the Welsh Government, to determine our exact requirements for a new system, because that's going to be quite an investment. It is a core piece of software that underpins our legislation and streamlines all of it; it removes the possibility of human error, which is obviously very important when we're dealing with amendments and legislation. The new system itself is going to be quite an investment, as I say, but we are speccing that very carefully, in other words, in planning for that now, sharing the cost with the Welsh Government. So, this is actually to keep going the system that we have and to keep it up to date until we're ready to move ahead with that major new project.
So, until you and the Welsh Government come to an agreement as to what the specification will be, you're going to be maintaining the existing system as best you can.
So, it might go beyond two years, depending on when that agreement and specification align.
Indeed. And it will be a lengthy process to procure as well.
Diolch, Cadeirydd. I'd like to ask about the way in which you've presented the budget. In the budget documentation, you describe the increase in the Commission budget of 1.66 per cent as excluding non-cash. But the increase in the total net budget is slightly larger, 1.67 per cent, because that includes non-cash and pension finance costs. Now, I realise that, in this particular example, the sum of money involved is trivial, but I'm interested in the methodology of your approach here, to ensure comparability and consistency of presentation of the figures, to make them more comprehensible to the average reader. Do you think that comparisons should be made including or excluding non-cash, and under the managed expenditure costs? And, in future years, will you take a consistent approach to this, because the committee has had concerns about transparency in the past. And, for example, by excluding the Commission's project fund from quoted increases in the narrative of the budget, do you think you're meeting our recommendations in that respect?
Well, yes, I do, because certainly the recommendations that we had from this committee in the past were to present the budget in the way that we've done it this year. So, it's a transitional year, which kind of does make it a little bit difficult to compare next year, and if there are any changes from last year, and possibly next year, if you're expecting other changes from us. The main thing for us was to make sure that we came in at that 1.66, 1.67, which was the equivalent of the growth in the Welsh block, and I'm pleased to say we've done that. It took a fair bit of work to achieve it, but we've done it. But if there are any further recommendations, I suppose we have to take those on board.
Well, it might be in future years, or in another instance, that the difference between the total figure that might be produced using one approach compared with another might be more significant. Obviously, the difference between 1.66 per cent and 1.67 per cent is not really worth bothering about, but—
Yes, I realise that. But if it were a larger figure, then it would be more significant. So, a consistency of approach to ensure easier comparability when you look at the documentation would be of help.
The figure that we focused on was the 1.67, on the total budget. From the figures that we've received from Welsh Government, that will be the increase that they expect to have at the Welsh block for 2019-20. That may change, but that was the figure that we were given, so on the whole budget. And that includes non-cash, it includes the determination budget, it includes depreciation, it includes a number of things. We felt that was the most transparent way to present this transitional budget. It's very difficult to compare last year's budget to this year's budget because of the number of changes that we've put through: the churn figures, the commitment not to access any underspend on the determination budget. There were quite a number of changes. Going forward, there is merit in looking at excluding non-cash items, such as the capital charges of depreciation, and excluding the AME budget, because the AME budget, for example, is out of our control—it's based on information we have from the Government Actuary's Department. And there is also potentially merit in excluding the determination budget from the Commission's—the figure that we're asked to keep our increase within. So, we're open to the recommendations of the committee, and we will look at that in how we determine the budget for 2020-21. But there is merit in looking at non-cash items, because they tend to be out of our control.
It might be worth including a sentence or two of explanation as to why you took that decision about how the accounts are presented.
So, in the current year, it was the whole budget, to make it clear and transparent, and the number of changes. But, going forward, there's merit in looking at just the Commission budget, excluding non-cash.
Thank you very much. The other question I've got is about communication between the Commissioners and the party groups last year. We expressed some concern that party groups and Members of the Assembly weren't sufficiently engaged in the options for spending, particularly in relation to underspends that released cash that could then be spent on other things—I realise the situation has changed now, since we published our report on that. But can you tell me what steps you've taken in the last year to engage with different party groups, to discuss your future plans for the year ahead?
Well, I can speak for my own group, but I'm presuming that it's pretty much the same in all the other groups as well. The Commission, after we've had a meeting, will produce a very short synopsis of what we talked about, making sure that anything that's confidential isn't included in that. But, certainly, in my group, I tend to go a bit beyond that—obviously not talking about anything confidential—but to explain as far as I can, including some of the controversial things that we've encountered over the course of this year. As you might expect, my group will bite back if it's got particular views, which I then take to the Commission. But I'm sure that's the same in the other party groups as well. We are always open to ideas for how to communicate more, but there's an awful lot on the website already, we get notes from Manon every quarter, updating everyone on what's going on in the Commission—summaries of that. And, of course, we get the draft budgets as well. That's very much, 'This is what's coming next. If there's something in there that you don't like, you should tell us as soon as possible.'
I think Suzy has mentioned the main channel of communication, which is that, obviously, we discuss everything with the Commission and then there is a note that records the outcome of that and hopefully would prompt any further discussion. I've made offers to come and talk to any party group that wishes to have any factual clarification, and obviously that offer stands—and any other ways in which AMs would find it useful to receive information from us we'll obviously comply with.
I think, as Members, we need to be mindful that we shouldn't always just depend on the Commissioner to feed back. I think if, maybe, at times, we are reminded of these other channels of information that are available to us individually to pursue, I think that would be very useful as well.
But, as Commissioners, we do have responsibilities as well; there's a reason for having us.
I'd like to talk about the danger or the possibility of in-year supplementary budgets. It's something we put you in danger of, so if any blame is to be attached, it's to us, not you; I think that's got to be said. Can you explain the likely timescales for the changes to the civil service pension scheme and how that will impact on the budget in cash terms and accountancy terms, because quite often the two are different?
We've mentioned some of the implications of the changes within the budget document itself, and we've explained that, currently, the Government Actuary's Department is undertaking a valuation of the civil service pension scheme. So, those are the contributions that the Commission will make for Commission staff, not the Members' pension. The result of this valuation will determine the employer's—so, the Commission's—contributions that we have to pay from April 2019. So, this is ongoing at the moment, and the outcome of the valuation will be based on the assumptions that HM Treasury make.
Early indications, as I've stated within the budget document, are that the average contribution of the Commission could increase from 21 per cent to 28 per cent. And in monetary terms, in cash terms, that would be in excess of £1 million onto our budget next year. So, that amount hasn't been included as yet because the valuation is still taking place. Cabinet Office has written to us and highlighted this issue. So, it's in excess of £1 million to us but a far greater figure, obviously, to the rest of the public sector. The information that the Cabinet Office included in the letter was that Treasury could provide additional funds to UK Government departments and, in turn, that could mean more for the Welsh block, which in turn could increase the Welsh block and then, potentially, that could mean an increase of the Commission budget. So, we're not there yet. Early indications are that we won't know until, and I quote, 'later in the year'. So, I can't give you a definitive timescale for that, but the assumption is that it could be in excess of £1 million.
So, the options open to us are either to continue, as we do, to use resources wisely and find efficiencies within our own budget or, if that's not possible, to come to you for a supplementary budget in the event that the Welsh block would have increased, and that gives us scope then to look for an increased budget in line with any increases in the Welsh block.
And, of course, that's something beyond your control. I can't hold you personally responsible, or the Commissioner or the chief executive, for the decision made by the actuaries. The other question is: changing accounting rules around operating leases. Again, the same question: how will that impact in terms of cash and in terms of accounting procedure? Will it involve more money actually being spent or more money appearing on the balance sheet?
This is a forthcoming change to international accounting and international financial reporting standards. There's a new accounting standard, leases 16, coming in for accounting periods 2019-20. Again, I don't know exactly how that will impact on us. The financial reporting advisory board is meeting in November. We should have more information then, and then they will provide an update to the financial reporting manual, which is published in December of this year, which will give more information about how that accounting standard is adapted for the public sector. So, until then, I can't give a definitive answer, but, potentially, what we know it will involve is that any operating leases that we have—so, Tŷ Hywel, for example—will now be shown on the balance sheet or the statement of financial position and depreciated rather than, as we have at the moment, it's an operating lease and we pay cash for that each year and it's not shown on the statement of financial position. So, there will be quite a change to the presentation of the budget, but no impact in cash.
Yes, because, as far as we're concerned, if the cash doesn't matter—. The accounting procedures are interesting, and they change them fairly regularly, if only to keep people like yourself very busy, but it's not going to cost us—
Not in cash terms.
—any money, but things will look different when they're reported, which will obviously, possibly, get people asking you and the Commission lots of questions.
So, potentially, on that issue, we would be returning with a supplementary budget for presentation purposes only—as opposed to the pension, where it would be a cash impact.
Can I just urge you that you explain, when you produce it, that it's for presentational purposes only and that there's no additional cash being asked for before you make the front page of the Western Mail?
Thank you, Mike. We always appreciate it when we help. Thank you. Nick.
Thanks, Chair. Looking at the possibilities of in-year supplementary budgets, has the capacity review that started last autumn given you a stronger view of whether current Assembly staffing is at the right level compared to UK and bilingual parliaments and that resources are distributed efficiently and effectively?
Yes, it has. I mean, there's been a lot of detailed work gone into this, so I'm going to ask, Manon, if you'll talk us through this one, because I think it's worth you hearing some of the detail about the work that's happened in the last year or so.
It has been a very productive exercise, and we've engaged with all staff to understand the distribution of the resource. The committee has been sent a copy of the phase 1 report, which had included a lot of the benchmarking work in it. We have subsequently worked with a steering group, drawn from a lot of different departments, to draw up an action plan, which was finished before the summer and which outlines a programme of change moving forward. And the four goals are to enable us to work in a more agile way, so that staff can deploy their skills on a number of projects, as suits the business priorities.
We have made economies in lots of little ways. We have looked at ways of streamlining our procedures. We have looked at ways of using IT better, realising other benefits of IT investment— invest-to-save, renegotiated contracts, that sort of thing. And then we have brought those savings together to consider how we can then meet the evolving needs of the Assembly going forward.
So, to answer your question, I think that we are comfortable that, although there is significant work pressure on everyone, we are at the moment staying within that establishment post count of 491 that we gave you an undertaking last year that we would stay within. And we are managing dynamically to make sure that we can meet the new demands from within that staff cohort.
What sort of response have you had back from them? You said that you'd been consulting with the staff about the structure—.
Yes, well, we had—. We lay it out, actually, in the capacity review. We had, I think, something like 370 individual responses—so, that's a fair proportion of our entire staff core—with over 650 individual suggestions of things that could be done better. We've had a series of workshops where we've worked together on turning this into an action plan. We've also, before the summer, had sessions with the staff on the values that underpin our work, which has, again, been a very rewarding process and has helped us in terms of setting priorities and making sure that we're looking after staff welfare in all of this as well.
And are you planning to take the opportunity with emerging vacancies to look at restructuring the management structure?
We are. You will be aware, for example, we've lost a director out of the three directors that we have. One of them left shortly after Easter, in fact. We have imposed the discipline on ourselves that, whenever somebody leaves, rather than automatically backfill, we pause and reflect and we consider whether an alternative arrangement might allow us to free that resource to work in another way. In this case, we have had interim arrangements in place since the director left. We're working with a lot of the service heads in a new way and they've had a chance for a bit of personal development and a bit of additional responsibility as well. We are in fact now going ahead and recruiting a third director, because that experiment has shown us that we do need to have a third director to provide robust leadership and we're going ahead with that. When that director is in place, there are elements of change that have been identified during the capacity review that we'll be moving ahead with, with the benefit of input from that new director. But this isn't unusual; this is business as usual—continuous change, continuous improvement.
Thanks. Speaking with my dual hat—with my public accounts hat on as well—will you ensure that any future voluntary exit schemes deliver value for money and fit in with the recommendations of managing early departures?
Yes, we will. We would point to previous voluntary exit schemes where that has been the case and we would continue to conform to those recommendations and indeed the lessons that have been learnt through those previous exercises. I'd emphasise no decision has yet been made to move forward with a VES, but if it happens it will be with a very tight focus on refreshing our skills to enable us to cope with new demands within the headcount maximum, rather than saving money as such.
Where does the funding come from for voluntary exit schemes—apart from coming from the Assembly budget, obviously?
Yes, that's where it will come from.
Part of the calculation will be whether it is affordable and whether we can manage the operational budgets to allow it to take place.
Can I just make a point? I think it is worth mentioning, because the effort that has gone into this capacity review is exceptional, and it's—. We've mentioned before before this committee that the constitutional changes and extra powers and things are giving us new challenges that we have to meet from within the confined budget, and the need for particular skills is starting to bite now. You'll have noticed that, in the Scottish Parliament, and certainly in Welsh Government, they're taking on new staff to meet these challenges now that they're biting, and we're not doing that in the Assembly. We're sticking to the headcount that we agreed to do at the last meeting of this committee, and I think we should be proud of that, actually. It's quite an achievement.
Is that—? You've said that in Scotland there's a different situation. Is that sustainable going forward, or ultimately will you have to bite the bullet and say, 'Brexit and other issues will require greater capacity'?
Well, we've given an undertaking to try and manage within the existing establishment posts maximum for the duration of this Assembly. But, going back to the helpful point that Mike made about the necessity sometimes for supplementary budgets, if we do have a huge change, a change in the size of the Assembly, something of that magnitude, then I think we would have to recalculate and come back to discuss that with you and discuss it with the Commission again. But the very considerable additional resources already being demanded by constitutional change and Brexit are, at the moment, being absorbed.
Thanks. And agency staff—has the removal of agency staffing been due to a policy change or, in effect, how the posts are recorded?
This is more of a technicality than an actual thing. Nia, would you elaborate, maybe?
Where we presented the FTE figures was in the annual report. I don't think we referred to them in the budget itself. So, I can remember back to the annual report. We showed an overall decrease in the number of FTEs, which again is quite an achievement, when, as Manon mentioned, the Welsh Government and Scottish Parliament are increasing. There was a decrease from around, I think, 448 down to 445, and within that we break it down in employed and agency staff. We looked back to the figures we had last year and what we'd stated within agency were actually fixed-term employment contracts, who are actually employed by us rather than via an agency. So, we discussed with WAO around the reclassification of those. So, the figures you will see in the annual report for 2017-18—we don't have any agency staff, and the fixed-term contracts are actually employed, so they're within the category of employed. So, it was a reclassification, and those tables within the annual report are subject to audit, and they had a thorough audit by WAO.
Very much a technical reallocation. There has been a decrease in the number of fixed-term contracts because, in the 2016-17 financial year, we had a number of maternity leaves, et cetera, and short-term issues. So, there has actually been a decrease in fixed-term contracts as well.
Just on that point, you just mentioned Welsh Government taking people on and the Scottish Parliament, and the arguments they are giving for those are Brexit and the need to prepare and increase because of the extra workload that they anticipate. Now, clearly, we've discussed very much the legislative workload that will come through this institution. Have you had discussions about the possible increase in workload and the need you might have for additional staff during that period to ensure that we can operate as smoothly as possible, as Welsh Government are increasing staff to take on those responsibilities? Have you looked at that situation?
The capacity review was very much about assessing future need as well as understanding the current distribution of resource. So, yes, very much so.
It certainly was, and it's very challenging to keep to the requested cap on growth and still meet all those needs. So, it's not easy, and I wish we could employ more staff to do that, but we're mindful of the wider constraints.
Yes. I'm going to move on to workforce issues and start with sickness absences and just looking at the trend, and I just wondered if sickness absences have changed since March of this year and what action you've been taking to reduce sickness and also to support mental health, which I very much welcome as a key performance indicator.
Well, it's just trying to see if the trend is changing, because we've obviously got—. In the last financial year, it was rising.
Ah, right. Okay. Because, of course, it will vary during the year, so—.
It's just helpful to know whether, hopefully, you did try to start to address this in terms of—. Well, at least look at it, in terms of a KPI.
I haven't got the figures in front of me for the months of this current year, so I can write to you with those, unless Nia can find them meanwhile. But, certainly, we've been aware that the sickness rates are higher than—. Obviously, any sickness rate—you're trying to minimise it always.
Looking at last year, we have analysed what was behind that. With a relatively small cadre of staff, obviously, it only takes a few long-term sick cases to actually have a disproportionate effect on the figures, and there is bit of that. Unusually, in last August—in August 2017—there was a spike, which we haven't seen before or since. There happened to be a number of long-term absence cases, an unusual concentration of hospital and medical procedures at that time, which—
—did lead to that. I would say that it's been a turbulent year—it's been a year of change and uncertainty—and that is acknowledged to have an effect on sickness absence and, indeed, on turnover rate, which is also higher this year than it was the year before. And I think we have addressed that.
It's certainly true that mental health is an obvious cause of many of these sickness absences and, whilst being very glad that we are clearly reducing the stigma around stating that that is the reason for absence, because it gives us a chance to address it, there are measures that we need to take. I think we have been looking a lot at mental health during the last year. We now have two business partners who are specifically appointed to work with heads of service on managing sickness absence generally and the programme of action we've got—. I've got a list here—we've been supporting the Time to Change Wales campaign, we support the World Mental Health Day in October. We have established a network, a staff network, which is called MINDFUL, and we have a mental health champion on the senior leadership team, and allies, peer support—we have encouraged people to come forward and offer that. We have offered a lot of training as well to promote awareness of this amongst line managers and amongst people who may be suffering from mental health problems themselves. So, it's something we do take very seriously and we will continue to take seriously and monitor what happens. I would say, though, that even though we are not meeting our own challenging target, we are there or thereabouts in terms of the Chartered Institute of Personnel and Development reported public sector average.
Perhaps I could just add as well: there's a modest increase in the investment in health and well-being of staff in next year's budget as well, which is identifiable.
Before we move on, I think Helen wants to come in on this particular point.
Yes, it's a slightly different but related question around staff well-being. It is possible—. We would hope not, but it is possible that the dignity and respect agenda will throw up additional complaints, concerns, that will need to be effectively addressed. Has the budget taken into account—. Suzy, you mentioned an increase in terms of the health and well-being of staff, but—. Have you made any provisions in the budget for the inevitable costs of dealing with those? I mean, obviously, Chair, we're hoping that the dignity and respect agenda won't throw anything up, but I think the truth is that it may very well. Have you made any accounting in the budget for additional costs to manage those procedures if that's necessary?
We have, yes. As Suzy mentioned, there is a modest increase in our budget line. And also, in terms of staff resource, we have prioritised the staff resource in that area. The standards committee has asked us to look at the support to the standards commissioner, so that's something that is separate. But within our own staff, we have appointed officers within the HR department to receive special training in supporting people through cases, whether they have made a complaint or a complaint has been made against them. And we made sure that all of those arrangements were in place before we surveyed staff over the Easter recess, so that the process of being asked the question of whether you'd undergone any harassment or bullying in the past, if that aroused any bad feelings, then we had arrangements in place to deal with it straight away.
Yes, just moving on in terms of staff satisfaction—have you been able to take any action to gauge staff satisfaction since the capacity review, which started last autumn?
Yes, absolutely. Staff satisfaction continues to be very important to us, and as I mentioned, we were aware that the capacity review as a process could be unsettling. Change is unsettling, though necessary. We do survey staff annually. This year's staff survey is still to come. It's in November. We moved it from its usual slot, because earlier in the year, we were already surveying AMs and AMSS staff, as we do every year, and we were asking people about the dignity and respect issues, which I mentioned just now. So, we didn't want to overburden staff by asking them too much, but we have been engaging very thoroughly with staff, and I'm extremely grateful for the commitment that my colleagues have shown to that process. People have taken time out to help us think through the challenges ahead of us, and to give us the benefit of their wisdom from different parts of the organisation so that we can come up with collaborative solutions together. So, the whole thing has been a very positive exercise, as far as I'm concerned, and, of course, if we can keep staff engaged in this process, that is an important indicator of their well-being as well.
Thank you. You obviously have, as you mentioned earlier on, had quite a lot of churn and change—significantly—but have you noticed anything particular in terms of turnover rates of experienced staff? Exit interviews are useful, and other ways of analysing features in terms of turnover rates. But, you know, anything to comment on in terms of those issues—.
Well, our turnover rates have been higher in the last year than they were the year before, but they're still well below the sector average. They ran at 9 per cent last year, and 15 per cent, I gather, is the public sector average. Certainly, we do conduct exit interviews and we do analyse those. About a fifth of the people who left did so because they were either retiring or coming to the end of a fixed-term contract. Of those who left for a new job voluntarily, about a third were transferring to another Government department. A big theme that came through was that people were moving for reasons of promotion and career development. I think we have to recognise that, again in a relatively small organisation, that is going to happen. We have exchange protocols that facilitate people moving into other parts of the public sector, and, in fact, we would be rather proud of the fact that the skills of our staff are such that they are rather sought-after by other parts of the public sector in Wales.
Including Welsh Government.
That's encouraging. Yes, there used to be a lot of movement each way in the early days, but that seems to be continuing. How are you ensuring that changes to recruitment practices don't negatively impact on recruiting the skills that you need, particularly in those priority areas of legislation and Brexit that you've identified in terms of skills and experience?
Well, the only changes in recruitment practices really that we've made would relate to the timing of them. We take a longer time to consider the job descriptions and make sure that we are appointing people to jobs that meet the need of the Assembly going forward. From that point of view, the slightly increased turnover has been helpful in allowing us a bit of headroom to move staff resource around to where the need is greatest. We have also tried to maximise the expertise available to us by working with the higher education sector, and we have a whole academic engagement programme whereby we work with our universities and places like the Wales Governance Centre to make sure that work is taken advantage of and is made available to Assembly Members on a broad range of specialist topics.
Moving on to wider equality issues—and this is a challenge for all employers—how are you addressing poor representation of black, Asian and minority ethnic staff in middle to senior roles in the Commission?
You're right, that is a concern of ours, and we are giving ourselves as ambitious a target as we can there. We certainly—. I'm conscious that your question was about the middle grade to senior grade roles—. We have been establishing mentoring schemes to encourage people to develop within the organisation. We're putting a lot of effort generally into encouraging the development of career pathways and training within the organisation. We have a network of staff from different ethnic backgrounds, which is called REACH—race, ethnicity and cultural heritage—and that is also a sort of support network. I would say, though, that we have a greater turnover, obviously, at the more junior grades, and therefore we have been focusing very much on recruitment in this area to attract people in. For our current apprenticeship campaign, we've had considerable success in attracting people from black and minority ethnic backgrounds, and that meant that we adopted a different advertising campaign; we had a suite of outreach events and partnered with community leaders and were guided by them on processes to try and decrease any barriers to entry. So, we hope that getting people in that way will then enable us to develop them within the organisation and undertake succession planning.
Yes, mentoring is crucially important. I know that the Chwarae Teg mentoring scheme is important, but clearly this needs to be addressed for BAME—ensuring that mentoring for BAME staff moves on. Is there any issue about the new language scheme, recruitment scheme, which could deter BAME groups from applying for these posts?
Can I just answer that—perhaps with a question, if that's all right? Are we talking about the courtesy Welsh requirements here by any chance?
It's obviously for people who don't speak Welsh, isn't it, regardless of their background? So, that could be people who aren't from the BME community as well. The point of the courtesy Welsh is that it's a piece of training you get when you get here. It's not an entry requirement. So, I'm not really sure why that would necessarily put anybody off. We are talking about some communities where they have more than one language anyway. So, I don't see it as a deterrent myself; it's actually an increase in your skill set when you get here.
I would say, as a piece of evidence to support that—on the recruitment that we've undertaken since bringing that requirement in, which is the apprenticeship scheme that I talked about for this year, we had a much greater BME response than usual to that. So, that suggests that, again, that is not seen as an issue—it's not a barrier.
Thank you. Looking at resourcing the process of Assembly reform, and looking particularly at the second stage, the budget documentation states that there might be some additional cost to facilitate extra policy advice on technical issues around any stage 2 reform. Will this be funded from resources highlighted in the draft budget, and if so, from where?
There's something in the budget already for specialist advice. It's not a huge amount and I don't think it covers this in its entirety.
The issue with all of that is that we can't commit funds in the budget in advance of decisions being taken that they're necessary. So, we're waiting to take the Assembly's cue, really, on constitutional reform, but then we will reprioritise, if necessary, within the operational budgets to provide that advice.
That comes on to my second question, really, because if this—. I completely appreciate what you say: you can't be making financial planning for the things that may or may not happen, but if this does happen, and if you are then faced with this new and very substantial piece of work, how will you ensure that core areas of the Assembly business support are not deprioritised to make this happen?
This is the kind of dynamic management that we are constantly engaging in. We would aim to delay anything that we can delay and manage budgets—manage any savings that we made in year—to provide for new needs like that. Ultimately, we'll have to come back to the Commission and to you if we can't. But, at the moment, our calculation is that the budget, as presented, is the right balance between affordability and meeting the needs that need to be met.
Thank you. Off on a slightly different tack, and this is a question that you, no doubt, would expect me to ask: we did touch on this before, but could you tell me where in the budget the costs for running the Youth Parliament are? Because I think we'd all agree that this is a very important and exciting initiative for the Assembly, but it's not going to work unless it's both properly resourced and unless that resource is secure. So, can you tell me a little bit more about that?
Yes. I think Manon mentioned earlier that we're treating the Youth Parliament as a permanent fixture and so it has to go into the 'business as usual' categorisation, if you like. I don't know if you have table 7 of the budget available to you there, which is on page 39. It's 'analysis of other costs', if that helps. There are about a dozen or slightly more lines here, one of which is 'promoting awareness and understanding', and it's actually in that budget line. So, it's just been absorbed now as part of natural business that we have to budget for every year, which we do. It will vary when we get to election years, I think, but apart from that, it's a very static cost, I think.
It's £100,000 this year, the current year, because of the election expenses. It's £50,000 next year, within that budget line. This is the further detail of budget that I referred to earlier.
Could you tell me on what basis that—? Obviously, the election years are going to be more expensive, and the initial year is going to be more expensive because you're setting up. But, in terms of that £50,000 budget on ongoing costs, can you tell me a bit more about on what that is based or are we at the stage where it's a bit of, 'Well, we'll try it and see'?
Well, it's a bit more than that. Obviously, we work with the team who are delivering the service to define what services we think need to be delivered and then forecast and estimate those costs to our best ability.
There's the transformation service, isn't there? Oh, travel and subsistence. There's quite a lot in there.
Yes, so there is quite a lot in there. Obviously, for the budget next year, as well as the travel and subsistence costs for the young parliamentarians, there is a certain amount of communication work that's included there as well, and engagement work.
Diolch yn fawr iawn. Ocê, wel, rŷm ni wedi dod at ddiwedd ein hawr, felly a gaf i ddiolch ichi am eich tystiolaeth? Mi fydd yna gopi o'r Cofnod yn cael ei gylchredeg ichi gael ei wirio fe ar gyfer ei gywirdeb. Felly, a gaf i ddiolch ichi am ymuno â ni? Mi oedwn ni am eiliad tra'n bod ni'n newid panel y tystion. Diolch yn fawr iawn ichi.
Thank you very much. We've come to the end of our hour, so could I thank you for your evidence? There will be a copy of the transcript that will be circulated for you to check it for accuracy. So, could I thank you for joining us? We'll take a moment now. as we change witnesses. Thank you very much.
Iawn. Ymlaen â ni, felly, i eitem 4 ar yr agenda, sef sesiwn dystiolaeth ar Fil Rhentu Cartrefi (Ffioedd etc.) (Cymru). A gaf i groesawu'r Gweinidog a'i thîm a gofyn ichi i gyflwyno'ch hunain ar gyfer y Cofnod, os gwelwch yn dda?
On we go, therefore, to item 4 on the agenda, which is an evidence session on the Renting Homes (Fees etc.) (Wales) Bill. Could I welcome the Minister and her team and ask you to state your names and roles for the Record, please?
Yes. Rebecca Evans, Minister for Housing and Regeneration.
Emma Williams, senior responsible officer for this Bill.
Huw Charles, housing policy, Bill manager.
Diolch yn fawr. Okay, I'll kick off with a few questions to start. I'd like to ask if you feel that the regulatory impact assessment complies with Welsh Government guidance and recommendations made by this Finance Committee in its cost of legislation report.
Thank you, Chair. Yes, we're confident that the RIA does comply. We've worked very closely with Welsh Treasury colleagues to ensure that the RIA does reflect the committee's previous recommendations. So, you'll note that it includes an upfront summary table, which sets out the costs, benefits and key assumptions of the analysis, and that's consistent, of course, with the committee's previous calls for greater transparency and clarity within the RIA. We've also considered the impact on all of the main parties, so, letting agents, private sector landlords, tenants and the enforcement bodies, and also tried to put a clear differentiation between cash costs and non-cash costs within the RIA as well.
It's important to note that consultation on the Bill was undertaken before the committee's report, so no draft RIA was produced as part of the consultation, but there's been really wide and significant consultation with stakeholders throughout.
Okay, thank you for that. Can I ask then, given there is a large degree of uncertainty around some of the evidence and the assumptions that you make—I've been looking at some of the range of costs, for example, and the range is quite substantial. I'm just wondering how confident you are that the estimated costs that you've used are an accurate reflection of the options that are there.
We used the best data that was available to us in producing the RIA at the time of drafting, so we've been fortunate in Wales and we're in a position that England aren't, in the sense that we do have Rent Smart Wales, and they've been a really important source of expertise, looking at their experience, as well, which has helped inform our RIA. The collection of data through them has been significant because, again, this is an opportunity for us to engage directly with landlords and with agents in a way that England can't, for example, in the production of their Bill.
Our consultation was another really important piece of work in terms of accessing data from stakeholders. We had more than 600—
Six hundred and eighty-three.
—683 responses to that consultation, and the RIA was also informed by key estimates that were sought through the representative bodies from across Wales to test the assumptions that we've made in the RIA.
It's also important to recognise that Welsh Government commissioned some independent research to inform the Bill and the RIA, and that was really detailed, thorough work that employed best practice in terms of desk-based research of data, qualitative interviews and also surveys of people working in the PRS and with relationships with the PRS—so, tenants, landlords, letting agents, and so on, both in Wales and also in Scotland, where they legislated in 2012 to achieve the same thing as our Bill sets out to achieve. So, we've been very keen to learn from them in terms of their experience.
Okay. You mentioned that you've used the best data. How reliable do you feel is the Welsh-specific data?
I think the Welsh-specific data is as reliable as it can be. Again, we've looked at the best possible data that's available using reliable sources, Welsh Government sources, Office for National Statistics sources, and so on, alongside the independent research that we've carried out to inform both the development of the Bill and also our thinking in terms of what the impact might be on the various sectors involved.
Okay. I mentioned earlier the sensitivity analysis and the broad range of costs. I was looking at option 1, for example, and the lower range estimates are around £27.2 million for total tenant fees over a five-year period, but the higher estimates are up to £63.2 million, which is a huge cost range, really. It's £36 million, and I'm just wondering how have those sensitivity analyses been applied to policy decisions, because with such a broad range, surely that's a difficult process.
So, we've taken the range of costs in the RIA, reflecting both the best-case scenario and the worst-case scenario, and then we have that central area where things are more likely to end up in, and that analysis has been really helpful in understanding each case, but also understanding those less likely outcomes as well to give us a broad picture.
I think providing that wide range, although it sounds counter-intuitive, does provide us with a degree of certainty in terms of where things might fall, and, again, we've based it on the best available evidence.
I don't know if Huw or Emma would like to add anything at this point.
I think you've covered it very well. The range of estimates reflects that there are substantial differences in practice between individual landlords and, indeed, across the agents market as well. We did seek to ensure that we identified outliers in the data that we received, and excluded those from the sensitivity analysis, but, as the Minister says, taking the low, medium and high estimates enabled us to look at both best and worst-case scenarios and tweak the sensitivity estimates according to the policy area.
So, you're confident, then, that you've worked through the implications for all of those on that spectrum, really, in terms of coming to your policy decisions.
I'm very pleased you've taken a range. When legislation first started coming through, people would take a mid point, and that gave us no understanding of exactly how much it could end up costing and the range. It's not an exact science, and to pretend it was was, I think, a failure in the past. I'm very pleased to see you going in that direction.
Can I raise two other very brief points? Charges to tenants for call-out fees have been omitted from option 1 due to limited evidence. In your view, what impact did such fees have on the total cost faced by tenants? Could the money be made up by additional items such as call-out fees?
No, we're very clear within the Bill on what is a permitted payment. So, those are the holding deposits, security deposits, rent and payment in default of contract. The kind of payments that are most frequently required, which are ones that will be banned under the Bill, are the exit fees, so when people come to the end of their contract. And also renewal fees; these will also not be allowed in future as well. So, those are the additional fees that are most often charged.
We don't have a great deal of evidence in terms of call-out charges and how frequently they're applied. There could be circumstances in which call-out fees would be allowed under the proposed legislation. So, for example, were somebody to be in default of contract, then there could be a call-out fee were they to have lost their keys, for example, and that would be default of contract. That would be a legitimate payment. However, were there to be a call out because of a fault that wasn't default of contract, so perhaps a faulty boiler perhaps fitted by the landlord, for example, then clearly it would be not appropriate to issue a call-out charge there.
I think the Bill is clear in the sense of the four payments that are allowed and, obviously, we'll be working to ensure that contracts are very clear so that individuals, landlords and letting agents will be very clear when an individual tenant or tenants are in default of that contract.
And the RIA notes the current enforcement opportunities are not consistent, and that option 2 would require additional costs for enforcement. Having spoken to local authorities quite a lot in recent weeks, they have a feeling that we pass legislation and they end up having to fund it out of their diminishing resources. How do you intend to fund this enforcement, and how much do you think it's likely to cost an average authority? Will they have anything other than an, 'It's in your rates support, get on with it', reply?
So, it's worth stating at the start, really, that we expect compliance with the Act to be very high. This is because we've had good engagement already with all of the people involved, so tenants' representatives, landlords, agents, and local authorities as well. We've looked to Rent Smart Wales as a model, which has been a really transparent and straightforward way of enforcing what's required under the Renting Homes (Wales) Act 2016 [correction: Housing (Wales) Act 2014] there. We don't see this to be any different in terms of being a simple and transparent way forward, and we would expect, as I say, very high compliance. So, because of the high compliance we expect, we would then expect the cost to local authorities to be low.
The main role, I suppose, for local authorities would be with regard to the fixed-penalty notices, and, as they operate within this sector, they operate in a very simple and clear way, so addressing the behaviour of people who've breached the legislation in the same way as is the case with Rent Smart Wales. The issuing of fixed-penalty notices isn't particularly burdensome on local authorities; it's not particularly complicated when you compare that to other enforcement arrangements. So, we would expect the costs not to be burdensome to local authorities and, of course, local authorities under the proposed legislation will be able to keep the fixed-penalty notices money, which will offset, if you like, the cost to them of enforcement.
If I could just add there, it might be quite helpful, that our experience from Rent Smart Wales is that they estimate the cost of investigating a purported breach and issuing a fixed-penalty notice to be around £150 to £200. Local authorities themselves estimate a slightly higher cost, but still well within the £500 fixed-penalty levy that they would be able to retain to cover that cost. Prosecution costs would be slightly higher, but still not excessive. We estimate those to be around about an additional £300 to £400. Local authorities estimate, again, a slightly higher figure of maybe up towards £1,000, but, in the event of a successful prosecution, of course, costs could be awarded. So, as the RIA sets out, we envisage this being pretty much self-funding.
I would say, as well, that we do provide local authorities with wider funding for their enforcement duties that they already have as local housing authorities. So, we've provided a figure of £275,000 annual funding to support local authorities in undertaking the range of activities, including those that are needed to respond to, investigate and take enforcement action under Part 1 of the Housing (Wales) Act 2014.
I didn't expect to get to my questions quite so efficiently. Morning, Minister.
In terms of understanding the transitional costs and how they're treated, can you elaborate on why transitional staff costs relating to Welsh Government, local authorities, and Rent Smart Wales for option 2 are seen as opportunity costs rather than actual costs?
So, we would expect those transitional costs to be very short term—so we don't expect a long-term financial outlay from any of those partners. And those sums we wouldn't expect to be large; we would expect them to be generally related to communication activities. And we've already done a lot of communication so that relevant parties know that this piece of legislation is coming forward, and they've had, obviously, ample and multiple opportunities to contribute to it. But, after the Act is passed, tenants, landlords, letting agents and local authorities will need to understand their responsibilities, and their duties, and their opportunities, particularly for tenants, under it. So, we estimate that the costs for Welsh Government would be £4,000; £25,000 to £34,000 for local authorities; and between £5,000 and £6,000 for Rent Smart Wales. And, again, this is particularly with a focus on communication activities. We would expect that most of that work would be able to be absorbed within their existing budgets without any undue difficulty, and it's for that reason that we look at that as an opportunity cost.
The £25,000 to £34,000 is the full range of costs for local authorities. It primarily covers sending existing officers on training and developing their skills and local information.
And the estimates for Welsh Government and Rent Smart Wales are obviously much firmer—the £4,000 for Welsh Government, and the £5,000 to £6,000 for Rent Smart Wales—because, obviously, we understand the operation of what we would need to do, and what Rent Smart Wales would need to do, much more clearly.
And can you explain why you felt that the salary for managers and directors in retail and wholesale was the most suitable proxy for letting agents and landlords when estimating the transitional costs?
Yes. The Office for National Statistics doesn't have a category for landlords, so we looked at the things, really, that could be similar. So, salaries for managers and directors in retail and wholesale we used as a proxy because we saw the landlords, really, as being managers within a retail environment. So, that seemed to be the closest that we could—
They're not exactly in Tesco, though, are they? It doesn't quite carry over.
Well, that's one for us more than for you, I suppose, isn't it? There we are. Okay. Thank you, Nick. Okay, we move on to David, then.
Thank you, Chair. Just to highlight the point before I go on to my questions, this range, this cost to local government, may I remind the Minister that local government keeps telling me they are at bare bones level, and any additional cost—and they are continually expressing the view that legislation costs always on local government—. So, whether it's £35,000 or not, that's going to be an impact upon local government, at this point in time. So, we must not treat that as if it's only £35,000; to the local authorities, it's a lot of money at the moment, when they have to cut services because of the austerity agenda.
Other people are, obviously, facing very great difficulties, and that's many of our citizens who are on benefits as a result of this. And the RLA itself recognises that this may have an impact upon them as they struggle to cope with the likelihood of higher rents, because, if people are not making money through fees, they're going to try and put that money onto the rents. So, how are you going to identify the risks associated with those individuals, and how can we mitigate those risks? Because, linked in to that, I know that the Housing (Wales) Act 2014 allowed local authorities to discharge their duties through a private rented sector tenancy mechanism, but, again, there's a limit on how much they're going to have available if rents go up, and that will be an extra cost upon local authorities if they go through that route, and, if they don't go through that route, how are they going to support those individuals who are struggling? So, what assessments have been done of those scenarios?
Okay, thank you. So, there are several issues there, and I will return at the start to the point you made about local authorities and the cost to them. So, I did mention that we already provide the annual funding of £275,000 for enforcement activities, but it's also important to recognise that local authorities haven't raised concerns with us in terms of the additional cost to them through this Bill, because, obviously, they can retain the fixed-penalty notices.
Come to my local authority and I can assure you that you'll get the message that I've just given you.
And also, their costs will be essentially in staff time, rather than, you know, additional costs to local authorities. But, we've had extensive discussions with local authorities and it hasn't been raised as a strong concern, has it?
There were no significant concerns.
As I said, perhaps you want to come to my meetings.
But, anyway, it's a situation that will benefit the claimants, and, clearly, an important aspect there.
Okay. So, we've looked very closely at the legislation in Scotland to understand whether or not a knock-on cost had been the increase in rents. Actually, it can't be proven that the legislation, which achieved the same aim in Scotland, did lead to a rise in rent, and that's something that there's been independent research into, and a UK Parliament scrutiny committee also looked into this issue. So, this Bill, were it to become an Act, does not have to necessarily have a knock-on impact in terms of increases in fees [correction: rent]. However, we've recognised that there is potential for it to happen.
The real concern is about the growing gap between local housing allowances and rents. This is something that clearly is a wider concern beyond this Bill, and it's something that we continue to lobby the UK Government on, because, of course, local housing allowances have been frozen, and they'll have been frozen for five years by the end of that freeze. And also, the level went from the fiftieth percentile, which meant that a reasonable amount of properties were available to people, down to the thirtieth percentile, which really does curtail people's choice and options. So, I appreciate that this Bill is part of a much wider picture.
But we do have some leeway in terms of discretionary housing payments, which local authorities are able to provide to people in order to assist them with their housing and the costs of it. In previous years, we've seen that local authorities haven't been using that fund to the maximum, but now, the vast majority of local authorities are using that fund, which I think is important in terms of supporting people, particularly on benefits.
You did mention the Housing (Wales) Act, and I think it's important to recognise there that, although the PRS can be used to alleviate and prevent homelessness for six months within that Act, actually the local authority has to discharge their duties by considering the needs of the household and affordability of the property as part of the consideration that they have to make in terms of discharging their duties. So, local authorities shouldn't be supporting people into housing that they simply can't afford and where tenancies will break down as a result of that. And, again—
But, on that point, is this Bill therefore going to put an additional financial burden upon either the individual or the local authority to ensure that there is sufficient stock with which they can support people into housing?
So, there are other ways that local authorities, and also the third sector with the Welsh Government's support, support people on benefits and low incomes into properties. These include our bond schemes, for example, and we offer other opportunities for start-up costs for people who are moving into a home, potentially for the first time, or are on release from prison, and so on. So, there are various schemes there. But I think that the removal of fees—and let's not forget that, actually, local authorities end up paying some of these fees—would actually mean that local authorities, potentially, could have more to spend on supporting people into accommodation as a result of not having to pay the additional fees that letting agents charge.
So, an assessment is that the additional fees that the letting agents charge, if they disappear, would compensate perhaps for higher rents that may be paid for private rented accommodation or to support individuals. So, local authorities would be no worse off in that case.
There's potential for that but, equally, we can't be certain that rents are going to rise as a result of this legislation. We've been honest that it is a potential response that the sector could have.
I disagree with the direction of travel that David Rees has been going on. I see letting agents' fees as windfalls. Does anybody really think or has anybody told you that landlords say, 'I've had my letting agent's fee, now I can drop the rent. I won't let it at market rate, I'll let it at a little less than market rate because I've had this windfall', or that they actually rent properties out at market rate every single time? When you sell a house it's the seller that pays the estate agent's fee, not the buyer. So, if we passed the set-up fee on to the buyer, the price of houses would go down. Is that a method of reducing house prices? I just find this idea that a windfall that falls to letting agents and falls to landlords every now and again when they let a new property as something that means that they, out of the goodness of their heart, reduce the rent of the property they're renting to below the value of which they could rent it out at—. Have you ever seen any evidence to say that?
I think you've hit the nail on the head in terms of the power relationships that are involved within the private rented sector. One of the reasons behind this Bill—or the main purpose of the Bill—is to help people enter and move within the sector, but one of the reasons it is so hard is because tenants don't have a choice, in the sense that the tenant looks for a property that suits their needs in a location that they want to live in and at a price that they can afford. So, the tenant doesn't really have a choice about shopping around between letting agents. Whereas the relationship between the letting agents and the landlords is an entirely different relationship. So, the landlord can shop around and find a letting agent who can provide them with the level of service they want at a price they're willing to pay. So, the power relationship is very much at that end of the spectrum, not at the tenants' end.
If I can just add to that point? There's huge variation in terms of charges made. There's quite significant difference in terms of landlords with individual small portfolios and large agents and what they charge. There doesn't appear to be a correlating difference in rent that would appear to point to your point being correct, and indeed not all commercial agents actually charge fees to tenants. Around 8 per cent in our research indicated that they made no charges, and, again, there doesn't appear to be evidence that there is a significant difference in rental levels there.
Mike Hedges pretty much answered my question. But, you phrased it again there that there's no evidence, it's not proven. You were finely legally nuanced earlier, Minister, when you said that there's no evidence from Scotland, but clearly rents fluctuate all the time for different reasons, so I imagine it is very difficult to get that hard evidence. Are you going to make sure that, once it's implemented, you are monitoring this closely to see that if any evidence was to come forward that there is a knock-on effect for tenants, which is what we want to avoid, that that can be assessed at that point?
There is a natural monitoring process as part of the collection of private rental data that we collect in order to deliver data to DWP for their assessment of local housing allowances, so it is something that we already monitor and we will be able to keep an eye on whether there appears to be any significant impact on rentals.
I imagine that the data that would come from Wales—. In the budget yesterday, we heard about the landfill disposals tax and the issues there with the amount that's raising. It seems to be Wales does quite good, once you do get the data of giving quite a good indication of how things are going. Maybe that's the size of the base within the country.
The data is fairly consistent. We're required, in order to deliver on our duties in relation to DWP, to collect data on different property sizes in specified area, and to meet a minimum standard in terms of the proportion of the market as far as it can be assessed to be in that area. So, the data is robust and fairly comparable and collected on a regular basis.
I'll just add, in terms of the research we've done on the experience of Scotland, we used the most reliable data, so that's the ONS index of private housing rental prices, and when we reviewed that data and when others reviewed that data, they couldn't attribute changes to rent levels in Scotland to the legislative changes they made in 2012. When rents did go up in Scotland, they didn't go up at the same level for different types of property, nor were they out of kilter for rent levels changing across the rest of the UK over a prolonged period as well. And Scottish stakeholders told researchers that the ban coincided with changes to deposit protection rules, and those affected agents' cash flow. Also, their enhanced health and safety legislation was introduced, which required electrical safety tests, and they came into force at the same time. So, it's expected that the combined effect of these changes might have affected the rent levels in Scotland.
My only word of caution with that—as you were speaking earlier and then again, it's been popping into my head, an analogy about when we talk about climate change. We know that the climate is increasing in temperature and we know that there's more carbon dioxide in the atmosphere; it's not possible to prove that there's a causal link, but we all know that there is some sort of link there. So, I know it's a strange, left-of-field analogy, but just because something can't be proven, that doesn't mean that there isn't a link there. So, I think—. But you've recognised that you're going to watch the data closely to see what is happening in reality.
And I think the point you make speaks to the wider housing issue of supply and demand, in the sense that we need to be, and we are doing much more to increase the numbers of houses that we build. And I think, obviously, that will have an impact on the market eventually, when we are able to scale up and achieve our ambitions there in terms of greater numbers of both social housing and affordable housing as well. So, it's part of a big picture.
I'm surprised you didn't shut me down there and say, 'That's the wrong committee'. My mind works in strange ways, and there was a point there, that I failed to make.
Thank you. I want to explore a little bit more the potential impact on letting agents. We all know that there are some letting agents who behave pretty unscrupulously and take advantage of tenants. But it's also true that letting agents provide a very valuable service, and they do provide a valuable service, particularly to people who might have one or two rented properties that they use as their pension, where you don't then want to be dealing with all the compliance issues and things like that. So, under option 2, letting agents would lose £8.7 million of fees over five years. Have you made any assessment of how this might impact on particularly smaller letting agents in Wales—the companies that might be a one or two or three-person business, not part of a big chain? Is there any evidence from Scotland, for example, about the impact on letting agents, and particularly the smaller ones?
In Scotland, they had a thriving letting agents sector before, during and after the introduction of their legislation. I think I'm right in saying that the total number of letting agents has actually increased in Scotland since they introduced the legislation. Did you have anything further?
As the Minister said, the evidence from Scotland seems to be that there isn't certainly a negative impact. As you rightly say, the difference between different letting agents is quite significant. We know, as I mentioned earlier, that some letting agents currently don't charge fees already and they manage to successfully run thriving businesses. So, there's no reason to believe that others can't adjust their business model to be able to either absorb or find alternative ways to ensure the validity of their businesses going forward.
That's encouraging. My second question partly comes out of that. One of the benefits of having letting agents is that they are able to support smaller private sector landlords in complying with statutory requirements, ensuring that properties are of a good standard, and so on. I would have a concern if this legislation led to more unqualified private individuals trying to manage their properties themselves, because that can be quite a challenge and I'd be worried about the potential impact on the quality of service that the tenants would then receive. So, following on from what you've just said, would it be right to say then that there isn't evidence from Scotland to suggest that people go from using letting agents to self-managing properties? Have we got any evidence, or have you made any estimate about whether that is likely to happen?
I'll pass over to Huw in a moment—he's our resident expert on the Scottish evidence. But, just to say, looking back, similar concerns were raised when we introduced Rent Smart Wales, and we certainly didn't see a significant shift at that point, so those concerns weren't realised. To go to your point about training, of course, we do have Rent Smart Wales, which would require a minimum level of training and awareness for any landlord, whether they be an individual landlord directly managing their own property or an agent managing on behalf of other people. So, I think we have a fail-safe there in terms of quality and making sure that all of our landlords, as far as we can, are operating to a minimum standard. I don't know if there's anything particular from Scotland on that point.
[Inaudible.] The conversations I've had with colleagues in Scottish Government have indicated that there hasn't been that change that you suggest, so I think the likelihood that it will happen under this Bill is unlikely, I suppose.
It's worth noting as well that the support that we provide through Rent Smart Wales for landlords, in order to help them become good landlords, has been really well received. I think more than 90 per cent, or around that kind of figure, of landlords who undertook the training believed it would make them be better landlords. They found it useful. So, I think that's really positive. It's all part of a wider agenda, really, about seeking to professionalise the sector in order to give tenants a better deal and a better service.
According to Welsh Government, they assume that letting agents will pass on 75 per cent of lost fee income to landlords via increased letting fees, and the ARLA research suggests that landlords would likely pass on approximately 50 per cent of any increase in letting fees onto tenants through higher rents. But the RIA posits one possibility where both letting agents and landlords pass on 100 per cent of their lost fee income, which would lead to the same outcome as the 'do nothing' option. In your opinion, can you say how likely it is that this 100 per cent pass-through is likely to materialise?
I think that would be highly unlikely, for a number of reasons. I think that for 100 per cent to be achieved, it would require the whole of the letting agent sector to be operating in the same way all at once, and I think that would be unlikely, especially because it's a competitive market, so letting agents will be wanting to attract landlords whose properties they can manage. So, I think that, actually, it will lead to healthy competition between letting agents in terms of providing a service at a good price to landlords. I don't think that—. Well, looking at Scotland, the 100 per cent pass-on rate didn't occur there. The RIA does show variations from one extreme to another, but because it is a competitive sector, I wouldn't expect the 100 per cent pass-on rate to be anything other than a really risky approach by an individual letting agent or landlord, within a competitive sector.
Yes, obviously, it's not going to apply in every single instance to them as a monolithic response, but there may well be individual instances where they try to do it. I just wondered whether this features on your radar screen at all, or whether you dismiss this as so unlikely that it's not even worth considering.
I think that the RIA sought to estimate and to find the most appropriate figure, so 75 per cent reflected where we felt was a reasonable expectation. We felt the 100 per cent pass-on across all parties was highly unlikely, for the reasons that the Minister has outlined. It's also fair to say that, in response to our consultation, tenants were actually quite clear that if they had a choice of paying a slightly higher rent—and I believe the ARLA evidence paper comes out at something around about £100 a year might be the impact on rents—that tenants would actually find that easier to cope with than having to find several hundred pounds in a lump sum, perhaps as frequently as every year or every six months, if they're moving around the sector a lot.
Just to add to Emma's opinion, 75 per cent is ARLA's estimate. So, the representatives of letting agents are suggesting 75 per cent is what will happen, so the 100 per cent pass-on rate, again, you wouldn't expect that to happen.
Right, very good, thank you very much. Welsh Government research has also found that—I'm quoting:
'landlords might consider selling their portfolios if their costs increased'.
Have you determined the effect this would have on the private rented sector? Do you think this is likely to happen to any material degree?
I think that, again, this is an unlikely thing to happen, because, of course, before we introduced Rent Smart Wales, everybody was saying, 'Well, everybody's going to sell their properties; no-one's going to want to do the half-day training' and so on, but actually it didn't happen, and we didn't see that as a response within the sector at all. Similarly, it's not the experience that they've had in Scotland. I think what's important to remember as well is that were landlords to sell all their portfolios, potentially it wouldn't lead to a decrease in the number of homes available to rent. Of course, some might be sold for purchase—you know, not to be rented out—but I think that's all just part of the natural churn of the housing market anyway. So, it's not a significant concern to us and, based on previous experience and experience elsewhere, it doesn't seem like a likely response.
I'm looking at option 3, the non-legislative approach. Do you think a non-legislative approach could be effective in enforcing compliance relating to the publication of letting fees?
We did consider whether a non-legislative approach would help us achieve our policy aims of tenants not paying fees other than holding deposits, security deposits, rent and payment in default, and we felt that a voluntary approach or any non-legislative approach wouldn't help us achieve that aim. I think the RIA shows that, actually, we would be spending a lot of money going down a road that wouldn't deliver the result of tenants not paying fees other than those that I've just described.
We looked, for example, at suggestions that the Consumer Rights Act 2015 could be used in terms of regulation-making powers under that, but that wouldn't help us achieve our aim of tenants not paying those fees, because that Act is about transparency. It's not about changing whether or not the fees are paid in and of themselves. So, that's an approach that we decided not to take.
We looked at voluntary schemes as well, and our experience in the sector of voluntary schemes has been that they are not well taken up. So, the landlord accreditation scheme, for example, only managed to attract 2,000 out of what we thought at the time was about 70,000 landlords. So, that approach we don't think would work. Also, again, this is because it's about a competitive market that agents and landlords are operating in. So, were an agent to sign up voluntarily to a scheme not to charge the fees, then obviously they would be at a disadvantage to their competitors locally as well.
Also, building on your case and the evidence you presented, the development of a voluntary fees code would cost Rent Smart Wales money, wouldn't it, in terms of costs?
There could be a cost to Rent Smart Wales were we to ask them to deliver and lead on that piece of work, certainly.
I think we've had a long discussion as if there's an absolute rental value of a house and anything that's done will change that rental value. Would you agree that the rental value of a house depends on three things: supply, demand and the ability to pay, and that, if any of those reduces, then rental will be changed? The other thing is that I'm not convinced that it would be a terrible thing if we moved out of the direction of travel we've had over the last 20 years of increasing the number of houses for rent and reducing the number of houses that are open for sale to owner-occupiers. For very many young people, would you agree that they're moving into rented accommodation not out of choice, but because of their inability to purchase houses because it's being driven by a very aggressive market in rental?
I agree that, for many young people, the dream of owning a home does seem a long way away, which is why we are operating a number of various schemes in order to try and assist young people to own a home. I was really pleased in February of this year to launch Rent to Own—Wales. So, this is a scheme where people can rent the property that they would ultimately wish to buy from a housing association for a period between two and five years, and 25 per cent of the rent that they've paid during that period, and 50 per cent of the increase in value of that house over that period, will be gifted to them then as part of their deposit, or their full deposit, for that property that they can buy. So, that's a really exciting scheme that we've introduced just this year, and just last week I visited a young person who'd actually been a beneficiary of that. She said that owning a home was a dream and it would never have happened without the rent to own scheme.
So, there's certainly a lot that we can do in different sectors, but building more homes for affordable purchase is important. Building more homes for social rent is important as well. So, I think the more homes that we're able to produce at all levels of the market, I think, is a healthy thing.
Okay. There we are. [Inaudible.] Thank you, Minister, and your officials for your evidence this morning. We clearly will be reporting on the Bill, and we'll be deliberating your evidence as we draw up our conclusions and recommendations. You will also, of course, be sent a copy of the transcript to check for accuracy, so thank you very much again for your time with us this morning. Diolch yn fawr.
We will break as a committee now for 10 minutes, but could I ask Members just to stay for a second just to go through one or two things before you leave? Diolch.
Gohiriwyd y cyfarfod rhwng 10:46 ac 11:01.
The meeting adjourned between 10:46 and 11:01.
Iawn, mi gychwynnwn ni. Croeso i bawb a chroeso arbennig i'r Ysgrifennydd Cabinet dros Gyllid a'i swyddogion. A gaf fi ofyn i chi gyflwyno eich tîm ar gyfer y cofnod, os gwelwch yn dda?
Okay, we'll start. Welcome everyone and a warm welcome to the Cabinet Secretary for Finance and his officials. Could I ask you to introduce your team for the record, please?
Diolch yn fawr, Cadeirydd. Gyda fi y bore yma y mae Andrew Jeffreys, cyfarwyddwr Trysorlys Cymru, a Margaret Davies, dirprwy gyfarwyddwr cyllidebu strategol.
Thank you very much, Chair. With me this morning are Andrew Jeffreys, director of the Welsh Treasury, and Margaret Davies, deputy director of strategic budgeting.
Diolch yn fawr. A fyddech chi'n hoffi dweud ychydig o eiriau i gyflwyno'r gyllideb, neu a ŷch chi'n hapus i ni fynd yn syth i gwestiynau?
Thank you very much. Would you like to say a few words to introduce the budget, or would you be happy for us to go straight into questions?
Dyna fe. Ocê, grêt. Mi gychwynnaf i, os caf fi, a jest gofyn i chi: a allwch chi ddweud wrthym ni sut bydd cyllideb Llywodraeth y Deyrnas Unedig yn clymu i mewn â phroses y gyllideb yma yng Nghymru a pha senarios rŷch chi wedi cynllunio ar eu cyfer nhw yn y flwyddyn ariannol nesaf, cyn, wrth gwrs, ein bod yn gwybod beth fydd yn y gyllideb Brydeinig?
Okay, great. I will start then, and just ask you if you can tell us how the UK Government's budget will tie in to the budget process here in Wales, and what scenarios you have planned for in the next financial year, before, of course, we know what will be in the UK budget.
Wel, diolch am y cwestiwn, wrth gwrs. Y proses sydd gyda ni, y tro yma, fel y tro diwethaf, yw un ble rŷm ni'n rhoi cyllideb ddrafft o flaen y Cynulliad ym mis Hydref a, diwedd y mis, bydd cyllideb y Deyrnas Unedig i lawr ar 29 Hydref, ac mae hynny'n torri ar draws ein proses ni. Rydw i'n cofio, yma yn y pwyllgor y flwyddyn ddiwethaf, roeddem ni'n trafod sut rŷm ni'n gallu delio â hynny. A ydy'n well jest cadw beth sydd gyda ni, ble mae pwyllgorau’r Cynulliad yn cael yr amser ehangaf i graffu ar y gyllideb ddrafft, neu a ydy'n well i'w wneud e fel maen nhw'n ei wneud e yn yr Alban, lle maen nhw'n aros nes bod y Canghellor yn rhoi ei gyllid ef i lawr ac maen nhw'n dechrau'r broses ar ôl hynny, pan fydd popeth gyda nhw? Ond, wrth gwrs, mae hynny'n torri i lawr—dim ond rai wythnosau sydd gyda nhw i wneud y gwaith craffu. So, y tro olaf, ar ôl ei drafod e gyda'r pwyllgor, cyngor y pwyllgor i mi oedd cadw beth sydd gyda ni ar hyn o bryd a jest delio â'r ansicrwydd mae hynny'n ei greu.
Well, thank you for that question, of course. The process that we have this time, like last time, is one where we table a draft budget before the Assembly in October and, at the end of the month, the UK budget will be tabled, on 29 October, and that cuts across our process in a way. I remember that, at this committee last year, we discussed how we could deal with that. Is it preferable just to retain what we have, where the Assembly committees have the optimum time in order to scrutinise the draft budget, or is it preferable to do it as they do it in Scotland, where they wait until the Chancellor has laid his budget and then the process starts immediately after that, when they are in possession of all the facts, as it were? But, of course, that cuts down on the time available—they only have a very few weeks to do the scrutiny work. So, last time, having discussed this with the committee, the committee's advice to me was to adhere to our current process and just deal with the uncertainty that that obviously creates.
And, of course, it does create significant uncertainty, Chair, because Members will remember that what we managed to do last time, when the UK budget was even later in the process than it will be this year, was that we managed to include the revenue implications of the UK budget in the final budget that was laid in December, and there was £251 million of revenue that we didn't know about at this point in the process, and we did know by the time we got to the final process. But I wasn't able to do that for capital—there simply wasn't enough time to make sensible decisions. So, I gave an indication in the final budget debate in January of some of the ways in which capital would be deployed and then followed that up at the supplementary budget and, indeed, in this budget too. So, that is the unsatisfactory context that we work in, but, while the committee is happy to do it in the way that we agreed last year, then I'm happy to try and be as helpful as I can within those constraints.
Would you have, for example, scenarios in your mind that you've worked up in relation to potential outcomes from the UK Government budget, to save you starting from scratch when they announce some of those decisions?
Well, we do, but they are inevitably speculative, and this year they are even more speculative than they were, because of Brexit, of course, which hangs over the budget process. Our central assumption is that the budget is likely to be a sort of steady-as-you-go budget at UK level, in which the Chancellor will want to wait to see whether there is a final deal, the nature of that final deal, before he makes major departures from the outlines that he's set out already. But it's an assumption, and it may turn out not to be borne out.
We fully understand that, Cabinet Secretary. But given, of course, the uncertainty in relation to the imminent budget, what evidence is there in your draft budget that long-term thinking is driving some of this strategy?
Well, obviously, my budget is designed to meet the long-term strategies that have been laid out by my Cabinet colleagues across the whole of the Assembly Cabinet—so, 'A Healthier Future', the 10-year strategy for the health service that has been published by the Cabinet Secretary for health, and, as you know, this budget is powerfully aligned with our ambitions for the health service. We have a new rail franchise, which, again, is a 10-year prospect, so there's a long-term plan there, and the budget has, in its capital elements, the ways in which we will support the rail franchise into the future. 'Our Valleys, Our Future', the plan for the Valleys—again, a plan that goes well beyond this Assembly term, and there are allocations in the budget for the Valleys landscape park, and for the Valleys hubs that support that. There is our ambition to create 1 million Welsh speakers by the year 2020—2050.
Yes, I know, I know. [Laughter.] 2050. And there are capital developments in the education budget, designed to accelerate Welsh-medium education places and so on. So, those long-term plans drive the budget despite the immediate very high level of short-term uncertainty, which you have to manage in the budget as well.
Diolch, Cadeirydd. You've already highlighted the uncertainty that arises because of Brexit—we'll come back to that later—and the volatility, perhaps, we're facing, and the difficulty of the ideology of austerity that's been in place for many, many years. Clearly, our colleagues in local government have been facing some severe challenges as a consequence of that, and I want to put on record our praise for the workforce who've been going above and beyond as they do face those challenges in a very difficult time. Therefore, you discussed in your budget statement yesterday you would only increase landfill disposals tax by inflation, you weren't going to change the land transaction tax, and you're not going to do anything to the income tax rates, which we will now be responsible for as of April next year. How difficult was that for you to come to? Because, clearly, it must have been a very serious discussion, how we can we help our public services, and one way would have been to look at the different rates of taxation.
Yes. David Rees is absolutely right. That is exactly the sort of debate that goes on when we look at rates of taxation, because we do now have an additional ability to raise revenue to support public services in Wales. I'd already said last year that we would keep landfill disposals tax in line with tax rates across our border and uprate them according to inflation, as they will do there. Chair, that is partly because of debates we had in this committee about the risks of waste tourism. The analysis at the time that the Bill was in front of this committee demonstrated that there is a considerable level of sensitivity in the waste disposal industry to different rates. It would only have needed to increase the rate relatively marginally to find that waste producers would send their waste to landfill disposal sites across our border, and that would've had a detrimental effect on revenue in the round, so I think that was the right decision to make there.
On land transaction tax, I don't think that the pattern of transactions in the property market in Wales has changed over a 12-month period in a way that would want you, on an annual basis, to be altering those rates; I think it's sensible to allow them to continue for a while longer. The bigger debate was over income tax, of course, because a 1p rise in income tax potentially brings in about £200 million, £210 million a year in Wales, and in a period of very severe resource constraints, that £200 million could have gone a long way to doing some of the things that we would like to do in Wales.
The arguments against it are the ones that I rehearsed yesterday—the manifesto commitment that our party has, which I take very seriously; the fact that next year is a transitional year into the new system and the need to get the mechanics of the system to bed in properly as well. But I'm also very aware, David, as I'm sure you will be, that the bulk of that £210 million in Wales does not come from higher rate taxpayers, it comes from basic rate taxpayers. And in my mind I had a young woman who came to see me in my surgery, in the final surgery before the summer, working in a minimum wage-type job, and she brought into my surgery a pile here, which were her wage slips and what she earned every week, and a pile here of the bills that she had to pay, and she said to me, 'I can't make the one match the other.' And the bills were not extravagant bills—they're the council tax and they're her food bill and they're her electricity bill, and so on. She said to me, 'What am I to do? I can't—'. There were things we were able to do in terms of help she wasn't getting that she could get, but if I put 1p on the income tax, that person's going to be paying that in Wales, and that person is struggling now. We know there are families throughout Wales, that the impact of austerity—wages are pressed and prices and other costs are going up. So, I have that person in my mind when I'm making that decision; I decided that this was not the year in which I wanted to add to the inevitable burdens that an increase in taxation would create.
Have you thought about, because you talk about other taxations, a land value tax? Is that in your thinking for your longer term strategy?
Yes. Thank you. Of course, those four taxes that we rehearsed in front of the committee are in my thoughts when we're crafting the budget. We've pressed on with our vacant land tax—I hope to have more to report to the committee on that later in the autumn.
It's the social care levy that I suppose is closest to the discussion we've just had, because we know that there is a worked-up plan that could result in a levy being used in Wales to create a social care fund for the future. We'll see whether the promised Green Paper on social care is published alongside the budget on 29 October, as we are hearing the Chancellor intends.
Only on one of the taxes—council tax. Have you given any further consideration to adding additional higher bands of council tax? As you know, people on the lowest income in the lowest bands pay a substantially larger proportion of their income than those who pick up the upper band and then they have a valuable house but still can end up paying substantially less?
Well, Chair, council tax is a regressive tax by its design, in the way that Mike Hedges just pointed out. Adding further bands to the top end does something to create greater progressivity, but it bites quite hard quite quickly. People would not be paying tens of pounds extra; quite quickly, some households will be paying thousands of pounds extra, so it would—. I don't rule it out, and I get advice on it, and I think if we were to do it, it would have to be carefully implemented to give people time to adjust to the bills that they would be receiving.
Our focus this year has been, as you know, on a take-up campaign for council tax benefits in Wales. We think the take-up is only between 60 and 65 per cent, so there are large numbers of households who are entitled to help from council tax benefit in Wales who don't get it. And a different way of trying to erode the regressive nature of the tax is to make sure that those households entitled to help get it, and we're in the middle of a campaign with our local authority colleagues to try and improve the take-up rate to address the issue that Mike Hedges has raised.
Before we move on from income tax, you mention your manifesto commitment, of course, and the circumstances that many people in Wales are facing in terms of balancing their budgets. Are you therefore saying that, unequivocally, you will not vary the rate of income tax at all in this Assembly? Or given the volatility and the unknowns—and they are unknowns, I appreciate that—are you not unequivocally ruling it out, then?
I'm not going to say 'never is forever'. We have a manifesto commitment, I take it very seriously. Members, as you will know, the sort of doctrine of manifestos is that they inevitably have a somewhat diminishing impact over a five-year term, because in the first year, the manifesto has been drawn up in circumstances very close to the ones you're in, but by the time you get to year 5 of an Assembly term, the circumstances in which a manifesto is drawn up may have altered very significantly. And we have Brexit—a major difference that the manifesto never anticipated. So, I will not move away from our manifesto commitment unless I'm compelled to do so, but I don't rule out the possibility that circumstances could change in a way that do have that compelling impact.
Okay, thank you for that. Jane—sorry, Nick. Yes, okay, just on this.
Just on the income tax. We took evidence from Her Majesty's Revenue and Customs last week and I asked them about their charging in terms of billing the Assembly for running the Welsh rate. I didn't ask them last week, but would it be the case that if we did change the rate, whether it was up or down—would that be chargeable as well from HMRC because we would have a different rate? It's a technical question, but I didn't get to ask it last week.
That's a question about whether the costs of operation of income tax—the Welsh rate of income tax—would be higher if we change rates than they would be if we didn't change rates, and I think the answer to that is 'yes'. There would be costs involved. There'd be initial set-up costs—I suppose that's the right word for making the change—but then, yes, if there are different rates in Wales than in England, for example, then HMRC has to do things in the future that it hasn't has to do to date to do with compliance, but also to do with relatively obscure things to do with pension relief and charitable giving relief and things like that, which would have to be administered in a different way. So, yes, part of the way this will work is that those additional costs fall on the Assembly in future in the way that they have done with Scotland, where they've varied rates now, and there are some additional costs that the Scottish Parliament is picking up there.
And we will, of course, be taking evidence from HMRC as part of this process, in addition to the technical briefing that we had last week. Neil.
Could I just ask another question on income tax? I've made the case in the past for trying to make Wales, over a period of years, into a kind of tax haven to raise the tax base, and therefore raise the amount of revenue that is available to the Welsh Government to spend on all the good things that we want. And I'd like to explore with you whether you're thinking about—even if only as an academic study at the moment, to see what the possibilities are—varying the higher rate and additional rate of income tax and what evidence there might be on what we might call revenue elasticity: although you reduce the rate, you actually raise the amount of money that is forecast. The additional rate this year, according to the Bangor study, will raise only £43 million in Wales; the higher rate, £260 million. So, there perhaps may be some scope there for a little imagination and to see if we can do something to raise Wales from the bottom of the income tables of the UK nations and regions. I preface that by saying of course I fully accept the reasons you've given for making no changes this year.
Well, Chair, you will know, and Mr Hamilton will know, that I'm not generally persuaded by the argument that what we should do is to cut Welsh rates of income tax and that the effect of that will be to draw a lot of high-earning people into Wales and we'd change the nature of the Welsh economy in that way. I don't start from that position, but nor do I say that I would not look at evidence if that evidence was available that would make me change my mind about that. I think it's unlikely, but you should never close your mind off to sources of information that might make you think differently. So, we have work by the Wales Governance Centre on the Wales tax base and how it could be grown in the future, and there will be other evidence that we will both directly [correction: will directly] pay for as a Welsh Government to fill in gaps in our knowledge in this space in the future. So, if there were compelling evidence, and we were to believe that by reducing tax rates that would, in the longer run, provide a different basis for the Welsh economy, I'm not saying I wouldn't consider it, but I don't start from that place.
There's an annex in the tax policy report published yesterday on modelling income tax behavioural effects, which tries to gather together the evidence on this about what impact, potentially, would changes in rates have on behaviour, both propensity to work but also migration effects of the type being talked about. So, I can just direct you towards that if you're interested in those issues.
We'll digest that, certainly. Diolch. David wants to come in as well.
Yes, I've got another question, Chair. It's actually on the block grant adjustment mechanism. Clearly, because we now have this fiscal framework in place and the issue related to the tax-raising powers, I just wondered whether you had any comments that you want to make upon the workings of that mechanism now. Has it delivered what you would have expected, or has it delivered something different that you didn't anticipate?
Well, obviously, Chair, it's very early days in the implementation of the fiscal framework and the way the block grant adjustment operates. Within it, so far, we've not been taken by surprise, so far. It seems to be operating satisfactorily, but the block grant adjustments of devolved taxes will be revised in the light of the Office for Budget Responsibility new tax forecasts, which they will publish alongside the UK Government's budget at the end of this month. We will take account of those changes and report them to the committee and to the Assembly in the final budget in December. So, in these very early days, we haven't seen anything alarming or anything that's taken us by surprise, but there's a lot of new evidence that will build up over this autumn and into next year as the block grant adjustment system begins to operate in a practical way in Wales.
Moving on to tax forecasting, I'm just interested to see how the latest forecasts for devolved taxes in 2018-19 and non-domestic business rates compare to previous forecasts.
Thank you, Chair. So, this is the first time that any Finance Minister is in a position to do this, because we published our original forecast and now this is the first point at which we revisit them. So, the land transaction tax forecast for the current financial year is now £240 million. That's £10 million less than forecast in last year's final budget. It's down by the same proportion that it's down across the United Kingdom, and that just reflects the uncertain economic times that we are in. There is just simply less property being transacted, fewer people are moving house, fewer houses are being sold, and it's had a marginal impact on the tax forecast for this year. And for next year, we're currently forecasting land transaction tax at £258 million. That's £11 million down on the forecast that we published alongside the final budget in January.
The landfill disposals tax forecast is going in the opposite direction. For this financial year, it's now £44 million, which is up £18 million on the forecast in January, and that's based on receipts during the first quarter of this financial year, where we had £12 million coming in the first quarter, which is about twice the rate [correction: the amount] that was originally forecast.
Now, these are very uncertain things, Chair. In my previous job at the university, I would've been very hard on any student who tried to predict a full-year forecast on the basis of one quarter being collected for the very first time. So, let's be clear that that's the uncertain nature of the evidence; we don't quite know why landfill disposals tax has come in as fast as it has. The amount of waste being taken to landfill is very marginally up. The best explanation we have is that because the Welsh Revenue Authority is now doing this job, and is able to attend much more closely to the nature of the tax in Wales, that tax is being properly apportioned between the standard and the lower rate. And as you know, there's an enormous difference between £2.90 for the lower rate and £93, I think [correction: £88.95], for the standard rate. So, if you're wrongly charging £3 for something that should be £93 [correction: £89], then you're losing a lot of revenue. I think what's behind this is the fact that the Welsh Revenue Authority is doing a better job of making sure that tax is being properly paid, and, on that basis, we've changed the forecast to £44 million for this year and to £40 million for next year, which is £16 million above the forecast published in the final budget.
We also publish forecasts for non-domestic rates. It's fixed, this year, at just over £1 billion, and that hasn't changed. The provision for next year is now £1.061 billion, and that's £2 million down on what we were forecasting last year. But, as you can see, that's absolutely at the margin of that tax and reflects new information from local authorities and the Valuation Office Agency.
Thank you, Cabinet Secretary. I think this is very, very significant that we're having these today for the first time. So, I'm glad it's all on record in such detail. And also, really good to—. I'm sure your assumptions about the beneficial role of WRA in terms of landfill disposals tax will have to be tested, obviously, and we'll be coming back to test that as we move forward.
You've already mentioned, and indeed there were questions earlier on, about the UK budget and whether you will be taking account—. You will, in fact, you've just said: you'll be taking account of that in terms of any updated tax and block grant forecasts, adjustment forecasts.
Exactly that, Chair. The new economic and fiscal outlook that the Office for Budget Responsibility produces alongside the UK budget will include new forecasts for the UK economy and for the UK taxes that then go on to help determine the block grant adjustment. So, those forecasts are very material to us here in Wales and our final budget will reflect the latest OBR forecasts.
In terms of forecasts during the year, how often would you anticipate Welsh Government updating, given that there's going to be always this issue about the UK Government budget announcements?
Well, Chair, I think it's certain to be twice a year—at draft and final budget. I don't rule out that we would publish revised forecasts alongside the supplementary budget if things had changed enough in the meantime to make revised forecasts worthwhile. I don't think there is any point in—. A lot of work goes into them, and if it's only marginal, I don't think the reward will be worth the effort. But if there were to be significant changes at supplementary budget, then I would aim to publish revised forecasts alongside that as well. So, definitely twice a year, potentially four times a year.
In terms of the forecasting methodology, would you say—lessons learned—that it's been improved? Very early days, but anything to comment on as far as that's concerned?
I think there are two main ways in which we can show that. We have taken the advice of the Bangor Business School because the report this committee would've had this time last year made some recommendations to us as to how we could improve the methodology. One was in relation to the additional rate in land transaction tax: the extra 3 per cent that you pay if you're purchasing a second property. It still is relatively new as part of the land transaction tax landscape, and there were some recommendations from Bangor as to how we could improve the methodology around that, and we've used that recommendation.
And then they also made some recommendations about how we could use further information from Natural Resources Wales in dealing with landfill disposals tax, and we've taken that recommendation as well. So, the methodology has been improved for this year in those two areas. And, of course, for the future, what we will now have in a way that we haven't had up until now is the actual data from the Welsh Revenue Authority. So, we will be better placed in a methodological sense because we will have the real data that we are able to get from WRA.
Thank you. Moving on to borrowing and innovative finance, how are you considering the opportunity or the responsibility in terms of increased borrowing powers in 2019-20, and is there anything about the long-term strategic approach to borrowing?
Thank you, Chair. So, I plan to make full use of the new borrowing powers that we have. We are able to borrow £150 million in the next financial year, up from £125 million in the current. I've committed £125 million of the £150 million in the budget that you saw yesterday. I've kept £25 million in reserve, because things will change over the year. New needs will arise, patterns of spending will change; so I've kept that £25 million back as a sort of buffer to deal with changing events.
Chair, I've said it here before so I'm just going to say it again: every time you borrow money, you have to pay it back, and there is a revenue consequence to financing capital borrowing in this way. It costs me £30 million over a 30-year period to borrow £20 million today. So, every £20 million we borrow, costs us £30 million in the end. Now, of course, what £1 million can buy you today and what £1 million will buy you in 30 years' time are very different, and that's why that calculation is still a sensible one to make. But I have to find the revenue in the here and now. By the time we take into account a number of the schemes, for which Jane was responsible as finance Minister, find the revenue for local government borrowing initiatives, find the money for housing association borrowing, by the time we begin to deal with the revenue consequences of the innovative capital schemes we have in this Assembly term, the coastal risk management programme, and by the time we take into account inherited private finance initiative responsibilities, I'm already having to find over £130 million in revenue next year to support borrowing. And those who have sat around the table, including Plaid Cymru Members, when we talked through our budget agreement, know how hard we work to find £1 million for this or £2 million for that. So, I'm committed to using our borrowing powers, because I think they create the conditions of success for the future, but I don't think anybody should run away with the idea that borrowing is free. Borrowing costs us revenue in the here and now at a time when revenue is terribly scarce. So, I think carefully about it every time we do it.
In terms of the strategy that we have for borrowing, well, I've set it out in front of the committee previously, Chair, and it's got a basic principle in it, which is that my aim is always to use the cheapest money first. So, my first aim is to exhaust all the conventional capital that we get, because that doesn't cost me anything. Then, when I've done all that, I look at the European funding that we get, and I look to exhaust all of that, because that doesn't cost me money either. Then I look to our borrowing powers, because we are able to borrow money in the cheapest possible way. The money that I intend to borrow over a 30-year period, interest rates are currently 2.2 per cent. So, it's cheap money, but it still has to be paid back. Then, when we've exhausted that, we go to the innovative ideas, and, when we've done all of that, then we go to the mutual investment model that we are developing. But every time you step up the hierarchy, the money gets more expensive, so my aim is: always use the cheapest money first, and that's the strategic approach we are taking to borrowing.
And I mean, of course, over the last nine years of austerity, with cuts to our capital budget, this is partly why we've moved into the innovative schemes because we need to stimulate infrastructure. And, indeed, we have less of a bill in terms of PFI because of decisions we took nearly 20 years ago, in terms of PFI, but it is going to be a question of what's manageable in terms of that payback—paying it back in terms of the budget.
Just a quick one. You talked about your long-term strategic approach and that it's best to use what you don't have to pay back. You mentioned European funding as your second one. How much uncertainty have you now got in your long-term strategic thinking where we don't even know what will replace European funding, and is that impacting upon your decisions as to where your borrowing figures are?
Well, Chair, David is absolutely right, the uncertainty over European funding into the future, inevitably, has to be factored into that calculation. We have certainty up to the end of the current European funding round, and we have n+2, as it's called now, as well, as a result of recent announcements by the Treasury. So, we know we'll be able to go on spending European money for two years beyond 2020. But what comes after it is absolutely essential to us here in Wales.
I could use up a lot of your time, Chair, with my views on the so-called shared prosperity fund. I just repeat what we say all the time: Wales gets the money we get from the European Union because it matches our needs. Those needs will not have gone away the other side of our membership of the European Union. The European Union has recognised those needs and funded them; the UK Government must do that when we're no longer a member of the European Union. The money we get today must continue to flow to Wales tomorrow. It's what people who urged people in Wales to vote to leave the European Union were told was a cast-iron guarantee that that would happen.
Thank you for being mindful of time, Cabinet Secretary, and I would remind Members as well that we need succinct and brief questions, if we could. Neil.
You reminded us yesterday of Bevan's aphorism that the religion of socialism is the language of priorities, and we've taken a great interest in how you've arrived at your decisions in prioritising spending changes for the current year. Some of them perhaps speak for themselves, like health and so on, but I wonder if you could shed some light on how you reached your actual decisions in this draft budget.
Thank you, Chair. It is a challenge for any finance Minister as to how you find a practical way of balancing the competing demands that there are for the funds that we have when there isn't enough money to go around. The way that I've approached it this year is to use the six priority areas set out in 'Prosperity for All' for my discussions with all my Cabinet colleagues, because those six areas are meant to be the cross-cutting priorities of the Government. So, in that sense, it's not for me, necessarily, to prioritise within the budgets my Cabinet colleagues have—that's for them to do—but it is my job to try and make sure that cross-Government priorities are balanced out in the way decisions are made.
Colleagues will recall that the six priorities are: early years, housing, social care, mental health, skills and employability, and over this year, we've added decarbonisation as a sixth cross-Government priority. So, in all the bilaterals that I have with Cabinet colleagues, I ask them what contribution they are making through their budgets to those cross-Government themes, and then ask them whether there is anything further that they could do, if I were able to assist them through the budget process, to make an even greater contribution to that cross-Government effort. And in a practical sense, that is how I have tried to go about that business of balancing those priorities in the budget process. And I could, Chair, but I'm sure you won't want me to, I could go through any one of those areas and give you some—. Do you want me to choose just one?
Yes, just one. Because I can do it for them all, but if I choose, well, housing, as an example, many Cabinet colleagues have an interest in the housing field because decent housing drives so much of what else happens in people's lives. So, we have front-loaded the social housing grant during this Assembly term to maximise our chances of achieving the 20,000 affordable homes that this budget supports. It's the single biggest new capital investment that we will make. The Minister responsible came to me and asked—because we front-loaded it, the money in social housing grant goes down next year, it goes down by £40 million-odd—was there anything I could do in the budget to restore that so that we would have a better platform for an ambitious target in the future. I thought that was a very important case that she made and I was very pleased to be able to put £35 million back into social housing grant next year so that we can go on helping to create the social housing that we need for the future.
In the agreement with Plaid Cymru, we committed to maintaining the Supporting People grant over the whole period of this budget. And I spoke yesterday about the way we've been able to put over £13 million back into the mega-grant, as it was called, and separate the housing stream out in order to promote housing—not in the housing budget, now, but in the budgets that other Government colleagues have that provide support services to vulnerable people in housing. And then, as you know, we committed last year, to an extra £10 million in next year's budget for youth homelessness services and that appears in this budget as well. And that's the nature of those discussions—you try and find the different contributions that are being made around the Cabinet table to those six shared priorities, and then my job is to try and help where I can, where I think that some additional investment would have the maximum impact in drawing a greater contribution out of that portfolio to those shared priorities.
Thank you for that interesting insight. It doesn't seem to be as bloody a process in Cardiff as it is with the Chief Secretary at Westminster. [Laughter.]
Can you also, perhaps, on a slightly different tack, tell us how the draft budget documentation shows the outputs and outcomes that various allocations are expected to achieve?
Thank you. Chair, I think, at this stage in the two-stage process, my part of it is essentially an input part. What I have done, yesterday, is to set out the big building blocks showing how much money in revenue, non-revenue resource [correction: non-fiscal revenue] and capital is going into each main expenditure group. In three weeks' time, when we publish the MEG level allocations, you will see more of the outputs and outcomes, because they really are reflected in the budgets that Cabinet colleagues will publish, rather than mine, which, essentially, is how much money we're putting into the system in order to allow them to drive those outputs and outcomes. So, you don't see much output and outcome stuff in this budget, other than at the very high level—the 20,000 affordable homes and so on. The detail of that side of it you will see much more in three weeks' time.
Right. Thank you very much. My last question relates to trade-offs that the Welsh Government's made in allocating funds to priorities, particularly with the health and local government services that support active and healthy living, and, secondly, economic development and wealth creation.
Well, there are trade-offs in any budget, and when I said that the budget process has its moments, it generally is towards the end of it when you are down to the smaller amounts of money you have left and when there are many competing calls on it. That's when there are inevitably difficult decisions and all Cabinet colleagues are committed to the jobs that they do and the sectors that they represent and so on, and people do go away disappointed that it's not possible to do everything that they would like to see done. I'm sure that's true of every Cabinet that there ever has been.
So, health and social care is an obvious one in the way that Mr Hamilton asked, and, early on in this budget process, I held a meeting with the Cabinet Secretary for health and the Minister responsible for children and older people in order to reaffirm explicitly what has been the Government's policy up to now, that if new money comes our way in that area, we invest in the system in the round. I wanted to do that early on because of the seventieth anniversary announcement around the NHS. So that, in gross terms but not in net terms, adds £365 million to revenue budgets next year, and I wanted to make sure that I had got it explicitly agreed with my colleagues that that money was not for the national health service, but for the health system, including social care. That was not a difficult conversation at all, but I wanted it on the record that that's how we were going to approach the budget, and you will see that there is £30 million going direct to local government in a special grant that appears in Vaughan Gething's budget. So, it's money that has come through the health route that he is putting in the hands of local authorities for social care purposes.
You'll see that there's another £30 million that he has set aside to be decided on around the table at the regional partnership boards. So, those are joint decision-making places. No money can be agreed at the regional partnership board unless local government colleagues have agreed it alongside the health service. So, that's another £30 million that the local authority social care responsibilities will have a driving voice in determining. So, that's just an example of the way in which we have tried to balance those competing priorities and to do it in a way that is coherent across Government. I could give you other examples in other fields as well.
Thank you. Before I ask my questions I just want to say how very pleased I was to see the announcement about the Supporting People funding. The Cabinet Secretary's very, very well aware of how important those resources are, for example with the sustainability of the network of women's refuges across Wales, and I think that's had a very, very wide welcome.
Cabinet Secretary, you've talked to us a bit about the budgeting. This is another question about process, really—a set of questions about process, about how you've used 'Prosperity for All' to drive your discussions with colleagues across Cabinet. Of course, the other consideration that we would expect to see is the future generations and well-being Act, the seven well-being goals. There's been some criticism in the past about how budgets do or don't reflect those goals and, indeed, the process—the five ways of working. Can you tell us a bit about how the future generations and well-being Act has been used to drive your cross-cutting budgeting decisions this time, bearing in mind the criticism that there's been before?
Thank you. The first thing to say, Chair, as I said last year, is that I still think that this is definitely a work in progress in which we are trying to improve year on year our ability to ensure that the well-being of future generations Act bites on the decisions that are made during the budget process. In a sense, it is a process question, and the way we've done it this year again is that, when I meet individual Ministers, I have my team with me, they have their team with them, but on my side of the table I have with me a member of the civil service whose primary responsibility is for the well-being of future generations Act. So, there are always questions asked in those budget bilaterals about the way in which the budget is having an impact on the way they go about their decisions, the five ways of working, and then how those decisions are made.
We've included in the budget documentation this year some case studies that we think illustrate the impact that the well-being of future generations Act is having on decision making and budget allocation. So, the examples that you'll find in the documentation are, for example, around the metro procurement. I think we would argue that the way that procurement has been conducted is very different as a result of the well-being of future generations Act. It is not simply a value-for-money procurement. It's a procurement that has been driven by wider social and environmental benefits that we expect a procurement of that sort to derive.
We use as another example the Valleys taskforce, and the way in which the priorities that come out of the Valleys taskforce are the priorities that the people who live in those communities have said to us they think to be the most important. Helen Mary and I have both in the past been involved in community development-type activity, and the caricature of it in the past is that people come from outside communities, tell people locally what's best for them, institute a few things and leave. The Valleys taskforce went about its work in a completely different way. It's all about a whole series of conversations—individual conversations, big-scale conversations—which then, from those are derived a set of priorities that the budget then reflects. So, the fact that we have put, I think, £7 million in the budget to create the Valleys landscape park is a result of people in those communities saying to us that they live in one of the richest natural environments in the whole of Wales but that it isn't understood that way and that it isn't used in a way that would drive economic opportunities for people who live in those communities. And their message to us that jobs were the most important thing that they thought we ought to focus on, and Valleys hubs was their solution to finding a way in which we could combine investment in place and investment in people, means that the budget shows investment in those Valleys hubs over the two years of our capital programme.
So, those are two examples of the way in which I think we would suggest—and it's set out in more detail in the budget documentation—the way we have gone about things is affected by the well-being of future generations Act ways of working, and the ways in which budget decisions are then aligned with the well-being goals that those ways of working are designed to drive forward.
Those are obviously strong examples, Cabinet Secretary, but I'm sure you'll understand my concern that the whole point of the well-being of future generations Act is that it's not about good examples; it's about transforming everything that we do. Now, I'm slightly sceptical about it, but I'm sure you'd also agree with me that Welsh Government can't expect other public bodies to get this right if it's not done so itself. So, as well as these positive examples, are you finding in this budget round that the well-being goals and the five ways of working are being reflected across portfolios? When you bring that civil servant with you to those meetings, is there a consistency across portfolios in how well it's working? I acknowledge that you've already said that this is still a work in progress.
Chair, I want to be clear that, when we have those encounters, what I do not want is for my Cabinet colleagues just to give me shop window stuff. The point of having somebody there is to have a more challenging—constructively challenging—discussion with Cabinet colleagues about places in which we need to do better, as well as places where we think we can show that we are doing reasonably well. It's important to show where you're doing well, because you've got to give people confidence and encouragement, and show that progress can be made, but the exercise is not just about finding a few good examples and glossing over the rest. And of course there are places in the Welsh Government where there is ground still to be gained and where there is understanding still to be developed.
One of the things I was encouraged about this year is that we held a series of workshops with WWF Cymru and other third sector organisations early in the process, and that was to bring key civil servants who are part of making this happen in Welsh Government face to face with people from third sector organisations who had new ideas about how we could do the job better and could point to examples where they thought we weren't doing the job as well as we ought to be doing it. And we'll publish a note of those three meetings, and I think they did make a difference not just in helping us find good examples, but in uncovering places where, as I say, there is still work to be done.
Okay, fine. I'm afraid we have to move on. Nick, you have a couple of questions.
Yes, I can be quite succinct on this. Preventative spend and service transformation—how does this budget reflect a significant shift in emphasis towards prevention vis-à-vis the last budget, and what evidence have you provided to show how the allocations are achieving that?
Chair, I think the big step forward this year is that we finally have a working definition of what we mean by 'prevention'. So, those Members who've been here in previous years have probably been exposed to my own sense of impatience—that I have generally felt that we don't have a sufficiently rigorous discussion of what we mean by 'prevention'. 'Prevention' is a word that everybody uses, but everybody means something different by it. And we agreed last year that we needed to do more work so we had a shared understanding of what prevention meant. So, I'm very grateful to a group that was got together by the third sector that did a lot of work on this for us, and to Public Health Wales, as well, who assisted a lot. And I wrote to you, Chair, on 30 September, when I set out the definition that we have used during this budget process. Now, I'm not saying the definition is the last word—I'm sure there are ways in which we could work on it further, and I hope the committee will have some suggestions as to where you think that definition might be developed better over the next 12 months. But at least it has given us a common language to approach the business of prevention, and that's a genuine step ahead from where we have been in recent years. I think that I ask questions about prevention in every bit of the budget that's in front of you, and particularly when I'm being asked to find new money for purposes.
So, I'll give you three very quick examples. There's £4.5 million additional capital for the primary care estates programme here. And that is absolutely part of my colleague Vaughan Gething's ambition to put money in the health service, into the things that it does to prevent problems from happening, rather than, as it generally is, being a service designed to try to rescue things when they have gone wrong. And the shift from secondary to primary care can only happen if we've got a primary care estate that allows that to happen, and I was able to find a small amount of money to accelerate the programme that he has already.
The £60 million for the road refurbishment programme—when I was in Rhondda Cynon Taf earlier this week, the leader of RCT said to me that the capital money we provided for them last year was driving a saving of nearly £1 million in revenue for them, because they are preventing problems from happening. They were paying out a lot of money to people making claims against the local authority, because vehicles had had accidents, or things had gone wrong, because of the state of the roads. That has reduced by £850,000 in this year, as a result of the capital investment we were able to put in to prevent that from happening in the future.
And, finally, just a small item—which I didn't have a chance to mention yesterday, but I know will be of interest to a number of members of the committee—the budget also shows additional new money of £2.5 million going into the youth service in Wales next year. That's a 50 per cent increase in that budget line, and the idea is that that will be aimed particularly at preventative work in the mental health field. So, it's partly in response to the Children, Young People and Education Committee's report into mental health services—'Mind over matter'—for young people, and part of my belief, which I've no doubt bored people here with before, that sending every child who is having a problem with the difficult business of growing up to child and adolescent mental health services is not the right answer. Medicalising the business of growing up is not the way to help young people who are struggling with what is a challenging and difficult business. And having adults in their lives in normal settings, universal settings, like the youth service, who have the skills necessary to have some of those conversations and help them through that difficult patch, where they come out the other side without a diagnosis and a label that lives with them for, sometimes, a very long time afterwards, is the right way to do it. And that's preventative spend, and it's new money, and it's in this budget.
Well, members of the Children, Young People and Education Committee will be very interested in that, I'm sure—
And the same question, but substitute 'preventative spend' for 'value for money'. How are you ensuring that compared with the last budget?
Well, Chair, all new Welsh Government policies and programmes are subject to a process in which we identify the benefits, the costs, the opportunity costs as well as the direct costs. We do that using Treasury guidance called the Green Book, which some of you will be familiar with. Andrew, I'm sure, could probably give you the more technical ways in which that operates—
Briefly, if that's at all possible—I appreciate it might not be the easiest thing to condense.
Yes, I suppose the Green Book is the guide to how you go about evaluating policies and programmes. Of course, we also use the Better Business Cases programme, which builds on the Green Book, to pull around [correction: pull out] other considerations in developing policies and programmes: what are you trying to achieve, how you're going to deliver it—those kinds of considerations. Our approach to ensuring value for money is about designing your policies and programmes in the right way—thinking the right thoughts at the start—but a lot of it, obviously, is about how you monitor and evaluate as you go along, doing that in a way that's transparent and enables debate among the interested public about these kinds of issues. The academic community and others, who have an interest in the transparency of that evaluation, are a really important part of our approach. I think there's stuff in the impact assessment section of the budget that talks about the new framework for integrated impact assessments that we're now using, so there's a fair bit about that in the budget documentation.
Okay, thank you for that. If you would allow us to take one, final question from Mike Hedges, diolch.
Thank you. We've seen universal credit, we've seen the increased casualisation of employment, both of which the Government have got no control over. But what that is leading to is more and more people living in poverty. When we reach the stage, at the chapel I go to, of collecting money this year, which we used to collect to send to Romania, we're now collecting it for local food banks, because of the pressure on local food banks in the area—. The Welsh Government can't solve all of these problems, but what can be done to ameliorate what is becoming food poverty and hunger for far too many of my and, I would suggest, your constituents?
Chair, I absolutely share the concerns that Mike has identified. The Welsh Government's powers in this area are ameliorative, really. It's about trying to stop the worst of the impacts that we see in people's lives. So, you see in the budget, which I did manage to rehearse yesterday, the additional money for free school meals—there will be thousands more children eligible for free school meals. In England, those costs are having to be met by the schools themselves. We have found money from central budgets to pay for those costs here in Wales. So, schools themselves will not be bearing it—it's new money for them in that way.
I was very anxious about the evidence that I saw about the discretionary assistance fund, the social fund, which we've maintained in Wales and which has completely disappeared across our border, where it was given to local authorities and now doesn't exist at all. We sustained it in Wales—we still have a national scheme; we still have national criteria. But the pressure on that fund this year is really significant and yet it's money that genuinely goes to the poorest households in the land. By definition, to get money out of the discretionary assistance fund, you have to be living in very pressurised circumstances. The choice next year was either to make the criteria tougher, so that the money would have stayed the same and fewer people would have got help—and it's hard enough to get help from the fund. Any of you who have done it on a constituency basis will know that it's not just a matter of asking. But I found £2 million for next year so that the criteria do not have to be tightened and we will be able to go on providing help there.
We've doubled the money going into the school uniform grant, which, I think, again, goes to families who need it the most. So, where we can, we are using new money in that way to try and blunt the worst impact of these changes in the lives of the poorest families in Wales. But that's what it is. The real answers don't lie here; the real answers lie in the hands of those people who have frozen benefit levels at a time when costs go up and who've reduced the help that goes to families with the largest numbers of children so that the children bear the brunt of austerity here in Wales. That's where the decisions need to be made. Wherever we can, we put our money to deal with the worst effects, but that is after those effects have happened.
A gaf fi ddiolch ichi, Ysgrifennydd Cabinet, a'ch swyddogion am eich tystiolaeth inni'r bore yma ac am ein rhoi ni ar ben y ffordd wrth inni ddechrau'r broses o graffu ar y gyllideb sydd ger ein bron ni? Diolch o galon ichi. Mi fydd copi o'r trawsgrifiad hefyd yn cael ei rhannu â chi wrth gwrs, ichi gael sicrhau ei fod yn gywir. Diolch yn fawr iawn.
Could I thank you, Cabinet Secretary, and your officials for your evidence this morning and for putting us on course as we start to scrutinise the budget before us? So, thank you very much. A copy of the transcript will be shared with you for you to ensure that it is factually accurate. So, thank you very much.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).
Cynigiwyd y cynnig.
Mi symuda'r pwyllgor nawr i mewn i sesiwn breifat. Felly a gaf fi gynnig yn unol â Rheol Sefydlog 17.42(vi) fod y pwyllgor yn penderfynu cynnal gweddill y cyfarfod yn breifat? A ydy Aelodau'n fodlon â hynny? Iawn. Diolch yn fawr. Mi symudwn ni i sesiwn breifat. Diolch.
The committee will now move to private session. Could I propose. in accordance with Standing Order 17.42(vi), that the committee intends to undertake the rest of the meeting in private? Are Members content? Okay. Thank you very much. We'll move to private session. Thank you.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 12:05.
The public part of the meeting ended at 12:05.