Cynulliad Cenedlaethol Cymru

Yn ôl i Chwilio

Y Pwyllgor Cyllid

Finance Committee

21/11/2018

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

David Rees AC
Jane Hutt AC
Llyr Gruffydd AC Cadeirydd y Pwyllgor
Committee Chair
Mike Hedges AC
Neil Hamilton AC
Nick Ramsay AC
Rhun ap Iorwerth AC

Y rhai eraill a oedd yn bresennol

Others in Attendance

Andrew Jeffreys Cyfarwyddwr, Trysorlys Cymru, Llywodraeth Cymru
Director, Welsh Treasury, Welsh Government
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

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Bethan Davies Clerc
Clerk
Dr Ed Poole Cynghorwr Arbenigol
Expert Adviser
Georgina Owen Dirprwy Glerc
Deputy Clerk
Martin Jennings Ymchwilydd
Researcher

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

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

Dechreuodd y cyfarfod am 09:01.

The meeting began at 09:01.

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

Bore da. A gaf i groesawu pawb i gyfarfod Pwyllgor Cyllid y Cynulliad Cenedlaethol? A gaf i’ch atgoffa chi fod clustffonau ar gael a bod y cyfieithu ar sianel 1 ac y gallwch chi wrando ar y sain ac addasu lefel y sain ar sianel 0? A gaf i hefyd atgoffa Aelodau i ddiffodd unrhyw ddyfeisiau electronig, a gofyn a oes gan Aelodau unrhyw fuddiannau i’w datgan o gwbl? Nac oes. Iawn.

Good morning. May I welcome everyone to the Finance Committee at the National Assembly? May I remind you that headsets are available for simultaneous translation on channel 1 and that you can hear the sound amplification on channel 0? Can I also remind Members to put any electronic devices on silent, and also ask if any Members have any declarations of interest? No. Okay.

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

Ymlaen â ni, felly, at yr eitem nesaf, sef papurau i’w nodi. Fe welwch chi fod yna bapurau gennym ni. Mae yna lythyr gan Ysgrifennydd y Cabinet dros Gyllid ynglŷn â’r ail gyllideb atodol ac mae hwnnw’n un llythyr i’w nodi. Rydym ni hefyd wedi derbyn llythyr gan Paul Davies ar Fil Awtistiaeth (Cymru), ac mi fydd Aelodau wedi gweld wrth gyrraedd y bore yma fod yna lythyr wedi dod ddoe gan Ysgrifennydd y Cabinet dros iechyd hefyd ar y Bil awtistiaeth. Felly, rydw i’n awgrymu efallai y cawn ni gyfle i drafod y rheini yn y sesiwn breifat yn nes ymlaen, os ydy pawb yn hapus i’w nodi nhw am y tro. Diolch.

Onwards, then, to the next item, which is papers to note. You will notice that there's a letter from the Cabinet Secretary for Finance on the second supplementary budget, and that's one letter to note. We've also received a letter from Paul Davies on the Autism (Wales) Bill, and Members will have seen on their arrival this morning that a letter was received yesterday from the Cabinet Secretary for health, also on the autism Bill. So, I suggest that we'll have an opportunity to discuss those in the private session later on, if everyone is content to note them for now. Thank you.

3. Cyllideb Ddrafft Llywodraeth Cymru 2019-20: Sesiwn dystiolaeth gydag Ysgrifennydd y Cabinet dros Gyllid
3. Welsh Government Draft Budget 2019-20: Evidence session with the Cabinet Secretary for Finance

Iawn, wel, at y drydedd eitem, felly, a'n sesiwn olaf ni wrth graffu ar gyllideb ddrafft Cymru ar gyfer 2019-20. A gaf i groesawu Mark Drakeford, Ysgrifennydd y Cabinet dros Gyllid, a hefyd Margaret Davies, dirprwy gyfarwyddwr, cyllidebu strategol, Llywodraeth Cymru? Rŷm ni hefyd yn deall y bydd Andrew Jeffreys, cyfarwyddwr Trysorlys Cymru, Llywodraeth Cymru, yn ymuno â ni cyn bo hir. Os cawn ni fynd yn syth i gwestiynau, ac fe wnaf i gychwyn, os caf, a jest gofyn a oes gennych chi unrhyw sylwadau ar broses y gyllideb. Rŷm ni, wrth gwrs, ym mlwyddyn gyntaf datganoli'n rhannol, beth bynnag, treth incwm, ond efallai o ran yr amseru a'r wybodaeth rŷch chi wedi darparu ar ein cyfer ni.

Right, on to our third item, then, and our final session as we scrutinise the draft budget for Wales for 2019-20. May I welcome Mark Drakeford, Cabinet Secretary for Finance, and also Margaret Davies, who is the deputy director, strategic budgeting, Welsh Government? We also understand that Andrew Jeffreys, the director of Welsh Treasury, Welsh Government, will join us later. If we go straight into questions then, and I'll begin. I'd just like to ask you if you have any reflections on the budget process. Of course, we're in the first year now of partial income tax devolution, so in terms of the timings and detail of the information being provided.

Gadeirydd, diolch yn fawr. Yn gyffredinol, dyma'r ail dro i ni ddefnyddio'r broses newydd sydd gennym ni o gyhoeddi'r gyllideb ddrafft mewn dau gam. So, yr un cyntaf ar 2 Hydref a'r ail gam, gyda'r manylion, ar 23 Hydref. Am yr ail dro, rŷm ni wedi gweld cyllideb Llywodraeth y Deyrnas Unedig yn digwydd hanner ffordd drwy ein proses ni, ac mae hynny'n creu rhyw fath o anhawster i ni. Ond, fel y mae aelodau'r pwyllgor yn gwybod, rŷm ni'n ei wneud e yn y ffordd rŷm ni'n ei wneud e i wneud ein gorau glas i roi amser i graffu ar ein cyllideb ddrafft ni, a dyna pam roeddem ni wedi cytuno â'r pwyllgor y tro diwethaf i'w wneud e yn y ffordd rŷm ni'n ei wneud, ac wedi ei wneud yr wythnos wedyn, ac am yr ail dro'r flwyddyn yma.

Thank you, Chair. Generally, this is the second time for us to use the new process that we have in terms of publishing the draft budget in two phases. So, the first phase on 2 October and the second, with the details, on 23 October. For the second time, we have seen the UK Government budget happening halfway through our process, and that creates some difficulties for us. But, as committee members know, we do it in the way that we do it in order to ensure that we do our best to give appropriate time for scrutiny of the draft budget, and that's why we agreed with the committee last time to do it in the way that we've done it, and did it the following week, and for the second time this year.

Rŷch chi'n teimlo, felly, mai dyma yw'r drefn orau sydd gennym ni o safbwynt craffu ar y gyllideb yng Nghymru ar gyfer y dyfodol, yn sicr fel mae pethau'n sefyll.

So, you feel, therefore, that this is the best process that we have in terms of scrutinising the budget in Wales for the future, certainly as things stand.

Rydw i'n mynd i droi i'r Saesneg, Gadeirydd.

I'll turn to English now, Chair.

In many ways, I'm in the committee's hands on it, to be frank. There are advantages that I could see from my point of view in waiting until the autumn budget of the UK Government had been published, and then being able to put in front of the Assembly a set of proposals that take that into account. In many ways, from my point of view, that would be neater. It would avoid the awkwardness that every committee must feel of starting with one set of proposals and then having those proposals amended during the scrutiny process. And that's the way that things are done in Scotland. My counterpart in Scotland won't lay his draft budget until December. But the downside of that is the one we rehearsed last time, which is that it compresses the scrutiny period for the Assembly into a much smaller number of weeks. It would halve, I would guess, the number of weeks for scrutiny and it would undoubtedly delay the indication we are able to give to partners who spend the money that we provide—any indication to them of what they have to spend until much later in the process as well. We succeed in the way we do it in giving our local authorities, our health services, the third sector organisations we support, a final budget that I will lay before Christmas. Now, it's subject to the Assembly voting on it, but they know before Christmas what they can plan for. In Scotland, they don't know until March, and that's a very small period of time for them to make preparations.

So, that's the dilemma that we face. Last time we rehearsed it, the committee wrote to me and said that, having considered it, the committee preferred to live with the awkwardness of the current system, and if that's the committee's view after this round, then I will be advised by the committee.

09:05

There are certainly a lot of nodding heads around the table, and I was just keen to ensure that you were content that that was a workable way forward from this year's experience. Yes, Mike, go on.

Surely for scrutiny to work effectively, the earlier we get information, even if it is not exact, the better.

I think, Chair, that was the view that committee took last time. I think in any case that, when we establish a new process of the sort we have, it is sensible to go round the track more than just once or twice before we decide how we can improve it further. So if that was your conclusion, I would be very happy to continue with it.

Okay, thank you, Cabinet Secretary. So, how do you feel changes to the budget narrative and the budget tables have improved transparency, and how did you decide on those changes?

Well, we've worked against [correction: in light of] the recommendations of this committee after last year's budget, so you will know that we continue to try to supply a series of contextual documents at stage 1—the report of the chief economist, the work of the Bangor Business School, the tax work plan, and what I hope now will be an annual report of that alongside the budget. But the committee asked last year that we would provide an additional set of information at the second stage of the budget process, a separate integrated assessment at the detailed level. We've tried to supply that this year. We've tried to improve the way in which the budget documentation demonstrates the ways in which sums of money have altered at the budget expenditure line level, and there are columns in the tables that are published this year that show the changes to allocations between budgets. I hope that that has been helpful to the committee. And also, I took serious note of what the committee said about trying to align the way the narrative of the budget documentation is aligned to 'Prosperity for All' and the economic action plan. So, to try and take the key themes of those pan-Government documents and to align the budget narrative against the priorities set out there.

So, as ever, we will look very carefully at the feedback from the scrutiny process, at individual committee level, but particularly the Finance Committee, and if there are further improvements that we can make, then I always regard this, myself, as an iterative process in which we learn from one another, and there'll be more to learn this year, no doubt.

09:10

Indeed, and the reports and the narrative all provide welcome detail. I'm sure we'd agree with that. But one question I wanted to ask was whether you'd consider asking each individual Cabinet Secretary to look at a similar approach to the tax policy report in terms of demonstrating how policy decisions are evidenced and made in a transparent way to support scrutiny.

Well, Chair, I do provide guidance to my Cabinet colleagues on the level of budget documentation that they might provide to their scrutiny committees. But it is guidance and I think there is a line that you have to think about as a finance Minister. I wouldn't be comfortable providing guidance to them on how they discharge their policy responsibilities; that really is for them. So my tax policy document is a policy document. It reports on the work plan that we have set out and the way that we are trying to develop tax policy in Wales. The guidance I provide to my Cabinet colleagues is not about how they discharge their policy responsibilities; it's how they report their financial decisions, the way they run their budgetary responsibilities, and then to try and make sure that they know what I am providing to the Finance Committee and what they might want to provide to their committees. So, guidance of that sort I provide already and if the committee, in hearing from other committees, thinks that that could be improved, I'm very happy to think about that and to include that in the guidance that will be provided next year. Policy matters: I think you've got to be careful as a finance Minister that you don't appear to be wanting to interfere in the way that colleagues discharge those responsibilities that are theirs. 

Okay. I understand the point you're making. It's about tallying where the money goes and how that affects policy, really, isn't it? And I'm sure we'll elaborate on some of that later on in some of our questioning. 

We've had the UK budget, of course, and there will be changes as a result, some of which were articulated in the statement that you issued on local government funding yesterday. And I'm just wondering, really: will you be accommodating most of those changes in your final budget, or will much of it be left to supplementary budgets? Because we know last year, I think, the revenue element was accommodated in the final budget and capital was left to supplementaries.

Yes. Well, Chair, I anticipate there'll be the same sort of pattern this year, not necessarily in relation to capital and revenue in that way, but the major changes that we will want to make I will do my best to see those reflected in the final budget. As you said, there were some things that I was able to say yesterday to allow local government colleagues to take early account of changes I'm glad to be able to make for them. There will be some other more detailed stuff that will inevitably get reported at supplementary level via the two supplementary budgets. It'll happen during the next financial year. And there are other things that may yet emerge during the scrutiny process. Last year, and quite possibly this year, there'll be something as a result of discussions between political parties, and where I can I'll reflect those in the final budget and there will inevitably be some matters that will be swept up in supplementary budgets during the next year. 

When the supplementary budget was scrutinised in February of this year, there was a question about how Government will ensure that Members have sufficient financial information regarding in-year funding decisions and the difference between the final and the supplementary budgets. Any thoughts about how, maybe, more information could be provided this time around?

I think it's important for me to say, Chair, that the decisions that are reflected in the supplementary budgets in particular are almost always decisions that have been announced already. So, it's not like this budget process, where the budget process demonstrates for the first time the big decisions we will be making. Supplementary budgets are, in many ways, a sort of sweeping-up exercise in which we regularise on the face of the budget decisions that Ministers will already have made and there will already have been announcements and there will already have been assessments against those decisions published at the time of the decisions. If there's more that we can do to bring that together so that the Finance Committee can see that in the round, then I'm sure we'd be happy to think about how we can do that. But it's unusual in a supplementary budget that the changes are being brought to the attention of the committee for the first time; it's almost always something that's been published already. But I can see how there's lots of them, and maybe— 

09:15

Bringing it all together is the key thing, so that we can have that meaningful overview of the totality of the supplementary budget. Okay. David Rees. 

Diolch, Gadeirydd. Cabinet Secretary, the fiscal framework allowed the Welsh Government to initiate its own tax forecast initially, as long as it was independently scrutinised, and I know that Bangor University won the contract to do that, but we are now moving over to the Office for Budget Responsibility forecasts. The OBR have indicated to us that the timings of the budget and the draft budget, compared to the UK, may cause them some challenges, shall we say? So, how do you actually consider the detail provided to you when you do your work for your preparation of the draft budget, and how do you consider the detail when it comes to the final budget, because that will actually include, I'm assuming, the UK budget's position at that time? So, how is it going to work? 

The first thing, I think, Chair, to say, of course, is that we rely on our own workings. The OBR is an independent, sort of, commentator on the forecasts that we will have produced. So, we've got our own internal work to rely on, just as you've seen Bangor providing you with an assurance of that work last year and this year. So, it is not as though we have to wait for the OBR before we are able to make the assessments that we make. Of course, it is very important to us to have an assurance that the assumptions that we are making and the forecasts that we are producing chime with the views of an organisation that has particular expertise in that way. So, that's the first thing to say; it's not as though we have to wait until we hear from them before we can make decisions, we make our own assessments and then make decisions accordingly. 

We're probably all going to be in a position of seeing this process develop. The OBR have committed to providing two reports to this committee—one alongside the draft budget that will inevitably rely upon the data that they published in the preceding March, and then they will provide a further report to this committee at the final budget stage, which will then incorporate all the additional work that they will have concluded in October, using two further quarters of economic data alongside the UK's budget. Now, until they've had a go at it, I'm not sure any of us will know quite the level of detail that they will provide at the first stage. I anticipate there will be a greater level of detail at the second stage, and a greater certainty at the second stage, because they will be using more up-to-date information. But they haven't had a go at it yet, and we haven't had a chance to see the product of that work. 

So, let me just clarify, then. It's likely that your tax forecasts will be based upon the work you do, and the OBR initially basically verifying a rougher outline, a wider outline, in the first instance, and then to review that based upon the detailed work they do in the October discussion. 

As the Cabinet Secretary says, it's an evolving process, but part of the point I think you're getting at is that there's quite a long time between March and October. This time next year, when the OBR are doing, for the first time, the new job that they're doing for us, they will still be assuring the first forecast that goes in in October, but there'll be a judgment there for us to make, I think, working with the OBR, about how much regard you take of the information that you've had since March. So, the OBR won't have produced a new set of UK-level forecasts for the economy and for the UK taxes in October, because that's slap-bang in the middle of the forecasting cycle that they're running for the UK Government for their budget. So, it's not the right time for them to produce new macro forecasts or fiscal forecasts at a UK level.

But, of course, we'll have had several months of data from the Welsh Revenue Authority, for example, on land transaction tax receipts in the current financial year. So, you would expect to take that kind of data into account in the forecast that you publish in October, and not just rely on information that you've had, which the OBR have published in March. So, there's a sort of messy judgment call that will need to be made around about October, which will partly be made by Welsh Government officials, but obviously in discussion with the OBR. 

Then, as you say, the forecast that then goes into the final budget in December will be based on all of those macro UK level, fiscal and macroeconomic determinants that the OBR will have published in the UK budget. So, in a normal year, you wouldn't expect to see very significant revisions between October and December even though you're getting a lot more information between October and December. But you will probably expect to see some revisions just because you've got a load of new information coming though in that October [correction: after October]. So, timings are awkward, I think; there's no getting away from that. It's not a perfect alignment between the Assembly's process around the budget and the UK budget process, but we'll try and work it as best we can. 

09:20

And based upon the forecasts that they've done now, based on the Government's budget this year, they've identified a difference of £40 million, apparently, because of the changes to the tax allowances. How would that be considered and particularly impact upon the block adjustment?

Well, I think the good news, Chair, is that on the two taxes that we are slightly more used to, the difference between the OBR's forecasts and our own forecasts is very modest indeed. I think on LTT, their forecasts of receipts is £2 million less than ours in this year, and £3 million less than ours next year. And, in relation to landfill disposal tax, where we were forecasting £44 million this year and £40 million next year, their forecasts are within £1 million in both years of ours. So, there, we have to draw some comfort from the fact that that's pretty close there. There is a £40 million reduction in the OBR's forecasts for income tax receipts next year, but that is wholly as a result of the announced increase in the personal allowance in the Chancellor's budget. It's not to do with any change in the nature of the Welsh economy or just expecting us not to do so well. It's just the personal allowance change. And, of course, for next year, it makes no practical difference to the block grant adjustment mechanism. That's a year in which changes at the UK level and changes at the Welsh level just get accommodated in that first year as though they'd made no practical difference one way or the other.

Just to follow on from that, the revisions to the forecast that we made at the draft budget stage—obviously, we haven't finalised the forecast for December yet, but then, the revisions in October are likely to be significantly bigger than the revisions we're going to make in December this time around. We revised down the LTT forecast by about £10 million, I think, a year, at draft budget stage because you'd had six months of data on LTT receipts in Wales, and on the housing market, et cetera, and that enabled us to make a judgment about the level of receipts we expected. And, so, I'm not trying to suggest that's typical, but just to say that the additional information you get in the UK budget isn't necessarily going to mean bigger revisions or have a bigger implication for the forecast than the information we get between March and October. So, what you're getting in the draft budget will be pretty accurate, I think, and won't always be subject to very significant revisions, following the UK budget. 

Okay. I accept that you're saying that, next year, you don't anticipate any adjustment to the block grant, but is there a process in place for the tax readjustment to be considered and reported, if there is a change in the tax forecasts?

Yes, there is, Chair. Now, thinking that the committee might be interested in the block grant adjustment mechanism, I've got a note for myself, because it is complex. Andrew will be better equipped than I am to give you the detail of it, but I can either—. Would it be more sensible, Chair, for me just to circulate this note to you? I can read it out to you and explain to you exactly how—. Because it involves different time periods and different points in the year and so on. I found it a useful note and I'm happy to get it written up in a way that we can then share with committee members, just to understand the mechanical process—that's what it does.

09:25

It is important, because, as Mike Hedges will always tell you, people are confused sometimes as to what this change in income tax rules means to people, and us understanding how that affects the block grant also is important.

Yes, not on the detail, but jut on the way that this has been devised: have the Welsh Government had any influence on the block grant adjustment arrangements or has it been purely Treasury-bod, economist driven?

The fiscal framework is where we had an influence over the way the block grant adjustment mechanism would work on devolved taxes for Wales. It was part of that whole discussion in relation to income tax, where, as you know, we have this 10p on each band that we are able to adjust. And the block grant adjustment is adjusted at each band, not in the income tax as a single block, because, obviously, the structure of income tax in Wales is very different to elsewhere. We have far more taxpayers in the standard rate and far fewer higher taxpayers. Therefore, making the block grant adjustment mechanism reflect the structure of income tax in Wales was very important to us in the fiscal framework negotiations.

We spent a long, long time talking to Treasury about what was the appropriate mechanism for adjusting the block grant in relation to income tax, because, as the Cabinet Secretary says, the Welsh income tax base is very different form the UK average, as it were, and we wanted to find a way—

You wanted it done for each band rather than have it done to the overall—

That tends to mean that you'll get a more 'accurate'—if that's the right word—block grant adjustment. The particular method we've got in the fiscal framework was actually suggested by David Phillips from the Institute for Fiscal Studies, but we thought it made a lot of sense and we had a lot of debate with Treasury about how to go about operationalising that. But, yes, that was something that we negotiated as part of the fiscal framework and it is all detailed in the fiscal framework, so, yes.

Just a final question linked to that, in a sense, because if you don't get that right, we have problems and it's also based upon the actual estimates of the tax revenues you anticipate, because that'll flex the adjustment. Now, the OBR did overestimate the Scottish income tax by some £700 million, which clearly has a major impact upon budgets. It meant they had £700 million less to spend. Are you confident that the issues related to the problems they had with Scotland have been ironed out, as they are now dealing with Wales? I can tell you I've received my letter telling me that I'll have my code—my wife's received her letter saying she'll have her code adjusted. So, that's going out, but are you confident that the forecast will be sufficiently robust so that you're not going to be in a position where you have well overestimated your forecasts?

Well, Chair, I had the opportunity to discuss exactly this with my Scottish counterpart, Derek Mackay, the Finance Secretary in the Scottish Government, for whom this is a very considerable issue. What he told me is that at this point in the process, they are still unclear as to how the discrepancy occurred. They don't know whether it was just data difficulties at the beginning—that the information that the OBR was relying upon about the Scottish tax base was inaccurate—and that, in reality, it turned out not to be reflected in the actual tax. It could be behavioural effects. There are different tax rates in Scotland now: are people changing the way they organise their affairs in order to avoid paying taxes that they otherwise would have to pay?

So, I've always thought that we have been very lucky that the Scottish Government has been very willing to share information with us about the journey they have been on, and they're ahead of us in that journey. Once again, Derek Mackay has said to me that, as they know more from the HMRC when it publishes its more detailed analytic data, they will share with us their sense of what lies behind the discrepancy to make sure that, if it's something that we could attend to in Wales in advance of us having the same problem, we could learn from their experience. So, I think they genuinely don't yet understand how that gap opened up. They're having to deal with the consequences of it, of course, but as they learn more, he said to me they would be very willing to share that experience with us in case it helps us to avoid any avoidable difficulties. 

09:30

Are you confident that perhaps the fact that we are not changing bands or rates gives you a stronger opportunity to actually have more accurate results?

It certainly means that we're defended against difficulties to begin with. If there are problems to start with, then they won't hit us straight away. 

It's probably worth reiterating that this reflects why it's really important that, in the first year of income tax devolution, the actual deduction from the block grant is what the actual receipts are in that first year. So, you are protected by virtue of that transitional provision from the risk of having got the tax base wrong. In Scotland, as in Wales, the forecast of what is going to be collected from the Welsh rate of income tax in 2019-20, in the first year, is based on an estimate of the tax base. It's not based on directly observed receipts. So, there's a degree of uncertainty in that first year, and that's why the transitional arrangements are built in. So, clearly, there are many aspects of what's happened in Scotland that would lead you to feel a bit anxious about the data that this is all based on, and that kind of thing, but even if that error is repeated in Wales, it won't have an impact on the resources available in that first year. It'll just mean that you correct, one way or another. 

One of the really interesting things about Scotland is the error was not in estimating the number of taxpayers but in the distribution between the different bands. So, there turned out to be significantly fewer Scottish income tax payers in the top 40p and 45p bands than were estimated using the survey of personal income. That's something you can potentially adjust for in Wales, but you won't necessarily see the same error in our data. It is a worry that there was such a big difference, but it won't affect the resource. Even if that kind of error is repeated in Wales, it won't affect the resources we've got available in the first year. It'll just be corrected in the block grant adjustment. 

And in a very different part of the forest, certainly in terms of scale, we've seen in landfill disposals tax the difference that can open up between estimates and actuals, because we collected in the first quarter almost all of [correction: a large proportion of] what we anticipated to collect in the first year. I've always thought that that is mostly because of the work the WRA does, but it is also a reflection of the fact that it never mattered previously. It really didn't matter in terms of tax take whether waste was being taken to a Welsh landfill station or one across the border. So, when it came to trying to work out how much was going where, it turned out to be very much an estimate. 

Diolch yn fawr. Fe gawsom ni sesiwn dystiolaeth ddifyr iawn yng nghwmni Robert Chote, cadeirydd y Swyddfa Cyfrifoldeb Cyllidebol, rhyw bythefnos yn ôl rwy'n meddwl. Un peth wnaeth fy nharo i, yn cadw at y thema yma o wneud rhagdybiaethau ynglŷn â threthiant ac ati, oedd bod y Swyddfa Cyfrifoldeb Cyllidebol, er yn cymryd y gwaith yma o ddifrif, ac rwy'n meddwl yn edrych ymlaen at fod yn rhan o'r broses newydd—. Nid oeddwn i'n gweld tystiolaeth bod yna systemau bespoke yn mynd i gael eu datblygu, os liciwch chi, i edrych ar sefyllfa Cymru yn benodol. Hynny ydy, maen nhw'n gweithio yn y ffordd y maen nhw ar draws Prydain ac yn gwneud rhagdybiaethau Cymreig ar sail hynny. A ydy hynny'n rhywbeth sy'n eich poeni chi, ac a fyddech chi'n hoffi gweld dulliau gweithredu penodol Gymreig yn cael eu datblygu o fewn y Swyddfa Cyfrifoldeb Cyllidebol?

Thank you very much. We had a very interesting evidence session with Robert Chote, who is the chair of the Office for Budget Responsibility, I think it was about two weeks ago. One thing that struck me, sticking to this theme of making presumptions as to taxation and such like, was that the OBR, although it takes this work very seriously, and I believe it's looking forward to being a part of the new process—. I didn't see any evidence of bespoke systems being developed, if you like, to look at Wales's situation specifically. So, they work right across the UK and make presumptions in relation to Wales on that basis. Is that something that concerns you, and would you like to see specific Welsh processes developed within the OBR?

09:35

Wel, beth roedd Robert Chote yn dweud wrthyf i oedd yr un peth. Roedd e'n dweud mai beth roedd e eisiau ei wneud oedd nid jest i greu uned arbennig i weithio ar bethau i ni, ond i dynnu i mewn o bopeth y maen nhw'n ei wneud yn barod, ble mae pobl yn gallu cyfrannu at beth maen nhw'n mynd i'w wneud i ni yma yng Nghymru. Ond cawn ni weld sut y bydd hynny yn datblygu dros y cyfnod y maen nhw'n gwneud y gwaith i ni. Maen nhw yn mynd i wneud mwy yng Nghymru. Maen nhw yn mynd i fod yma yn siarad â phobl sy'n gweithio yn y maes i greu rhyw fath o gyd-destun i'r gwaith maen nhw'n mynd i'w wneud i ni. Ond dyna ble maen nhw'n dechrau—maen nhw'n meddwl y byddan nhw'n gallu gwneud y gwaith gorau i ni drwy ddefnyddio yr expertise sydd gyda nhw dros yr OBR i gyd yn fwy na jest i greu rhywbeth arbennig i ni yng Nghymru. 

Well, what Robert Chote told me was the same thing. He said that what he wanted to do was not just to create a specific unit to work on things for us, but to draw in, or to feed in from everything that they do already, where people can contribute to what they're going to do for us in Wales. But we'll see how that develops over the period that they do the work for us. They are going to do more in Wales. They are going to come here and speak to people working in this field to create some kind of context for the work that they're going to do for us. But that's their starting point, and they think that they'll be able to do their best work for us through using the expertise that they have across the entire OBR more than by creating a bespoke unit for us here in Wales. 

Mi ddywedoch chi ar ddechrau'r sesiwn yma, wrth gwrs, nad dim ond aros i weld beth mae'r OBR yn ei ddweud ydych chi; eich bod chi'n gwneud gwaith eich hunain o osod rhagolygon a chymharu beth sy'n cael ei ddweud gennych chi a'r OBR. Yn y cyd-destun hwnnw, mae Prifysgol Bangor yn sicr wedi argymell y dylid edrych ar ffyrdd newydd o ddadansoddi cyflwr economi Cymru a gwneud rhagolygon ariannol drwy drethiant. A allwch chi ddweud wrthym ni pa fath o waith allai ddigwydd o ran datblygu data ychwanegol gan Lywodraeth Cymru, yn cynnwys datblygu dulliau eithaf sylfaenol o ddadansoddi perfformiad macro-economaidd Cymru ar hyn o bryd? 

You said at the beginning of this session, of course, that we're not just going to wait to see what the OBR are going to say; you are undertaking work yourselves of setting forecasts and comparing what you think and what the OBR thinks. In that context, Bangor University have certainly recommended that you should look at new ways of interpreting the state of Wales's economy and making economic forecasts in relation to taxation. So, can you tell us what kind of work could be undertaken in terms of developing additional data by the Welsh Government, including developing quite fundamental methods of interpreting Wales's current macro-economic performance?

Well, Chair, this is a continually interesting area and I've debated it previously with the current leader of Plaid Cymru, Adam Price, when he was the economy spokesperson. Of course there is work to be done in developing the quality and the range of data that we have to help us to understand the nature of the Welsh economy, the way that the tax base can be developed in future and so on, and the work that Bangor has done, I think, has been of genuine assistance to us. The quality of the work that they've produced really has stood up to examination in that way.

The specific question that Rhun was asking, I think, is about whether we need to develop Welsh-specific macro-economic data. So far, my conclusion, having gone around the debate a few times, is probably closer to what Robert Chote said to you, in that you could put an awful lot of work into trying to do that and it would be resource intensive as well as time intensive, and what you might get out at the end of it might not tell you anything very much or very reliably. And the reason for that is that the degree of integration between the economies of Wales and Scotland [correction: England] is such that there is a real statistical challenge in trying to disentangle macro-economic estimates for Wales alone. Firms, for example, simply don't keep the information in that way. That's not how they think. They work on both sides of the border and they don't produce their own information in a way that separates out activity in Wales and activity elsewhere.

Generally, Chair, when I've had this discussion—and, as I said, I've discussed it a few times with Adam—it's not that I don't see the case for it and the use you could make of that information; the struggle is to see how you could get to the information and, given the state of data and the difficulties of disaggregation, whether, even if you did, it would be telling you anything very reliable or anything very different to data produced on an England-and-Wales basis. 

For the particular taxes that are devolved now, the key bits of data for Wales, or many of the key bits of data for Wales, are already available—so, for example, labour market data, incomes, migrations patterns between Wales and the rest of the UK, and then, of course, the housing market, waste arisings in relation to landfill, what plans there are for future developments of incinerators and things like that, different ways of disposing of waste. So, there's quite a lot of specific data available that's helpful in looking forward. So, there is quite a lot of relevant Welsh-specific data available that's really helpful in coming to a picture about what's likely to happen to the tax base going forward.

09:40

Ocê. Mi wnaethoch chi, yn y fan yna rŵan, grybwyll mudo sy'n digwydd ar draws y ffin rhwng Cymru a Lloegr. A allwch chi ddweud wrthym ni sut mae Llywodraeth Cymru yn cyfrannu ar y broses rydym ni wedi ei chrybwyll yn barod—y fflagio yma o adnabod pwy sy'n drethdalwyr Cymreig, o ystyried bod y darlun yn symud drwy'r amser, hynny ydy, dros 100,000 o bobl yn symud bob blwyddyn yn ôl a blaen? Beth ydy eich mewnbwn chi? Beth ydy eich lefel chi o hyder eich bod chi'n ei gael o'n iawn?

You just mentioned the migration across the border between England and Wales. Can you tell us how the Welsh Government is contributing to the process that we've already mentioned—this flagging process to identify Welsh income tax payers, given that the picture changes all the time, with around 100,000 people migrating back and forth each year? What's your input? How confident are you that you are getting it right?

Wel, y peth cyntaf i'w ddweud, Cadeirydd, wrth gwrs, yw ein bod ni'n talu'r HMRC i wneud y gwaith i ni. So, y berthynas rhyngom ni a HMRC yw i fod yn glir gyda nhw ynglŷn â beth rydym ni'n ei brynu. Mae miliynau o bunnoedd yn mynd i mewn i'r system newydd ac mae'n rhaid i ni fod yn glir gyda nhw ynglŷn â beth rydym ni'n ei gael yn ôl am yr arian rydym ni'n ei roi iddyn nhw. Rydym ni'n gwybod, achos ein bod ni'n rhan o'r bwrdd sy'n cadw llygad ar y gwaith y mae HMRC yn ei wneud, eu bod nhw'n newid eu systemau nhw i fod yn glir mai cwsmeriaid sy'n byw yng Nghymru ar hyn o bryd neu sy'n symud i Gymru—. Yn awtomatig byddan nhw'n gallu gwybod pwy ydyn nhw a'u fflagio nhw fel pobl sy'n mynd i dalu trethi Cymreig.

Mae HMRC yn gwneud adroddiad blynyddol i'r Llywodraeth yn yr Alban ynglŷn â beth maen nhw'n ei wneud yn yr un maes, ac, yn y system sydd gyda ni, maen nhw'n mynd i roi adroddiad i ni hefyd. So, dyna'r ffordd rydym ni'n mynd i drio bod yn siŵr ynglŷn â'r gwaith rydym ni'n talu i HMRC i'w wneud, i fod yn rhan o'r broses i gytuno gyda nhw ynglŷn â beth maen nhw’n ei wneud ar hyn o bryd i gasglu'r wybodaeth am bobl sy'n symud o un ochr y ffin i'r llall, a hefyd i gael adborth yn ôl drwy'r adroddiad fel ein bod ni'n gallu ei weld os ydyn nhw wedi llwyddo i wneud hynny. Maen nhw'n dweud wrthym ni bob tro eu bod nhw wedi dysgu o'r profiadau maen nhw wedi'u cael yn yr Alban a'u bod nhw'n siŵr eu bod nhw'n gallu gwneud gwaith go iawn i ni. So, bydd rhaid i ni—

Well, the first thing to say, Chair, is that we pay HMRC to do the work for us. So, the relationship between us and HMRC is to be clear with them about what we buy. Millions of pounds are going into the new system and we have to be clear with them about what we get back for the money that we put in. We do know, because we're part of the board that keeps an eye on the work that HMRC does, that they're changing their systems to be clear that customers living in Wales at present or who are moving to Wales—. They will be able to know who they are automatically and flag them up as people who are going to pay taxes in Wales.

HMRC produces an annual report for the Scottish Government about what they do every year in that area, and, in the system that we have, they're going to present us with a report as well. So, that's the way that we're going to try to be sure about the work that we pay HMRC to do, to be part of the process to agree with them about what they do at present to gather the information about people who move from one side of the border to the other, and also to have feedback through the report so that we can see whether they've succeeded to do that. Now, they always tell us that they've learned from the experience that they had in Scotland and that they're sure that they can do accurate work for us. So, we will have to—

Fel David Rees, mi allaf i adrodd yn ôl eich bod chi'n cael rhywbeth am eich pres, achos mae'r amlenni wedi dechrau cyrraedd ein tŷ ni hefyd efo'r codes newydd.

Like David Rees, I can report back that you are getting something in return for your money as the envelopes containing the new codes have started to arrive at our house as well.

Cwpl o faterion eraill yn sydyn iawn: a ydych chi mewn sefyllfa i allu rhoi diweddariad i ni ynglŷn â'r datblygiad ar drethi newydd—y tair treth arfaethedig y cyhoeddodd y Llywodraeth beth amser yn ôl eich bod chi'n eu hystyried—ac amserlen bosibl ar gyfer cyflwyno treth tir gwag?

So, a couple of other matters, just briefly: are you in a position to give us an update on developing new taxes—the three proposed new taxes that the Government announced a while back that would be under consideration—and a possible timescale for introducing a vacant land tax?

Wel, ar dir gwag, ysgrifennais i ddoe at Gadeirydd y pwyllgor CLA jest i roi diweddariad iddyn nhw, achos rydym ni wedi symud i'r cam nesaf gyda'r Trysorlys i drio creu sefyllfa lle mae'r Canghellor yn gallu symud ymlaen i roi pethau o flaen Tŷ'r Cyffredin i roi'r pwerau i ni i fwrw ymlaen gyda'r dreth tir gwag.

Well, on a vacant land tax, I wrote yesterday to the Chair of the Constitutional and Legislative Affairs Committee just to provide an update to them, because we've moved to the next stage with the Treasury of trying to create a situation where the Chancellor can move forward to put things before the House of Commons in order to give us the power to press ahead with the vacant land tax.

So, that's the most advanced of the four ideas we started with, and we chose, in the end, a vacant land tax because it seemed the most suitable to testing the machinery of the 2014 Act for the first time. Our relationships with the UK Government are not always straightforward, but I should say, in this instance, I feel like we've had a lot of co-operation from Treasury officials, and indeed from the Chief Secretary to the Treasury as well. There seems a willingness to test that machinery and to do it in a co-operative spirit, so we're at the stage that I set out in the letter yesterday of providing the Treasury with the information they need in order to lay the Orders at the Houses of Parliament that would result in the power being transferred to the National Assembly to allow us to move forward with a vacant land tax. As I've said in front of the committee before, the line that I have tried to patrol and police is this: that there are legitimate questions for the Treasury to ask to make sure that this is genuinely in an area that is devolved, that the tax that we would collect would not have an impact on taxes that the Treasury itself aims to collect, but what they're not entitled to do is to ask us questions about the use we would make of the power. That is entirely for the National Assembly for Wales to determine. So, once we get the power, then we would then move into the process that we would normally run whenever we were legislating. We'd be likely to publish a White Paper on a vacant land tax. We'd have a consultation, as we would normally do, and that would lead into the legislative process. But we are moving down the track more or less at the speed that I'd hoped we would, and I remain optimistic that, during this Assembly term, the necessary powers will be in the hands of the National Assembly and we will have begun the journey towards deciding whether or not the Assembly would support legislation to create this tax.

09:45

Ocê, diolch. Ac un cwestiwn olaf—rydw i'n dyfalu, o bosib, na fydd gennych chi lawer i'w ddweud ar hwn, neu lawer mwy nag ydych chi wedi'i ddweud yn barod. Mae gan y Llywodraeth yr hawl i ddefnyddio bondiau Llywodraeth. Rydych chi wedi dweud yn y gorffennol mai rhywbeth byddech chi'n ei wneud fel opsiwn olaf ar ôl edrych ar ffyrdd eraill o fenthyg arian ydy hwn. A oes unrhyw beth wedi newid yn hynny o beth? Ac, fel cwestiwn atodol i hynny, er nad ydych chi wedi dweud eich bod chi'n bwriadu defnyddio bondiau eto, a ydych chi'n datblygu strategaeth ar gyfer sut y gallech chi fod yn eu defnyddio nhw, ac a oes yna ddiweddariad ar hynny?

Okay, thank you. And one final question—I imagine that you won't have much to say on this, or much more than you've already said. The Government has the right to use Government bonds. You've said in the past that it's something that you would do as the last option after looking at other ways of borrowing money. Has anything changed in that respect? And, as a supplementary to that, although you haven't said that you intend to use bonds, are you developing a strategy for being able to use them, and is there an update on that?

Well, Chair, while I'm being in generous mood about the UK Government, let me say here that the Secretary of State for Wales has also been helpful and made sure that his office has done the things that they need to do to take the Government of Wales Act 2006 (Variation of Borrowing Power) Order 2018 to the House of Commons. It's due to be there any time now. You know, House of Commons timetables are under a lot of pressure, as we know at the moment, and a bit unpredictable. One side or other of 1 December we now anticipate that that Order will be approved, and that's the point at which we will have the new capacity to issue bonds. As we've rehearsed here a number of times, particularly with Mike, the purpose of acquiring the power is not to use it immediately; it's to keep the UK Government honest, in that, if it were to increase the interest rate charged on the loans that we get through the national loans fund, we would have somewhere else to go. At the moment, our estimate is that the national loans fund rate of borrowing is still below what we would have to pay if we issued our own bonds, and we don't have to incur the administrative costs that go with doing it for ourselves. We've very familiar with how the national loans fund operates, and there's no cost to us of an administrative sort there. But there has been an example in the not-too-distant past where the UK Government did try to raise the interest rates of the national loans fund, and without bonds we would have nowhere else to go. So, it is a useful tool in our armoury. It doesn't increase the amount of money available to us—that's the really key thing. Sometimes, in a debate, I get letters from people saying, 'Well, if you could issue bonds you could do all sorts of other things.' Actually, you can't; it just counts against our borrowing limit, just as money from the national loans fund does, but it does give you another tool in the armoury, if you need to use it.

But subject to affordability of the repayments of course, maybe calling for an increase in the limits through use of bonds is something that might be explored in future.

09:50

Absolutely, and, as committee will know, the fiscal framework gives us a point in the process, the comprehensive spending review, to make an application—or a bid; I don't like the word 'application'—to make a bid to the Treasury to extend our borrowing limit. I've written to the Chief Secretary previously signalling my intention to do just that.

I was going to say, it is this committee's policy to support the ability to have prudential borrowing, as local authorities have got, so that there wouldn't be a limit. That was one that was supported by the Government that didn't make it very far with the Treasury. I assume that that's still the Government's policy and that you will keep on pressing it with the Treasury.

I have made that point successively in meetings with the Chief Secretary. She always replies by explaining to me that she has a responsibility to manage the borrowing of the UK in the round and that she isn't attracted to allowing any one bit of it to have limits to their borrowing that she's not in charge of.

Although she has with local government, where she just set a very large amount, and whether we could be added to the general local government—because local government has got nowhere near its prudential borrowing limits, so whether we could actually use some of that may be a matter worth taking up further with the Treasury.

Cabinet Secretary, I do remember this challenging question I'm going to ask you very well indeed: it's about priorities, and especially when you have reducing budgets. I think, back in October, you expressed the difficulties, especially when there isn't enough money to go around, in terms of how Welsh Government prioritises the competing spending demands of different departments and how is agreement reached. So, you know, you've been through this more than once; I think it's useful if there's anything else you can say, because we talked at a high level then in terms of priorities and quite a bit has happened since early October.

Well, Chair, I'm tempted to say that I simply try and follow the process that was set by my predecessor—[Laughter.]—in doing this. I recollect, I think, setting out the basic process back in October. This is an era of ever-declining budgets, you know. If I'd simply had the amount of money available to the finance Minister in 2010, I would have had £850 million more to spend in this budget. So, if our budget had simply held its value in real terms—not gone up by a single penny—I would have had £850 million more. I've shared figures with the committee before that, if our budgets had simply risen in line with the growth in the economy—no more; just taken our share of what has been a sclerotically growing economy over that period—I would have £4.5 billion more to spend on Welsh public services in this budget. And that does just give you, I think, an illustration of just how unusual this period has been in our history, and how deep and how sustained the impact of austerity has been. So, when it comes to priorities, the first thing I am always doing with my colleagues is just trying to do our very best to sustain the services on which people in Wales rely. And that's my top priority, to just try and keep the show on the road, really. The discussions with local government that you'll have seen over recent weeks demonstrate just how difficult that is becoming, nine years into a period of austerity. So, that's my top priority.

Now, in discussions with Cabinet colleagues, my job is not to tell them, as I said earlier, how to spend the money that they have, but it is my job to make sure that the cross-cutting priorities of Government are properly attended to. So, the discussions in the budget bilaterals and so on that make up the budget process have focused on the six priorities that are set out there in 'Prosperity for All'—early years, housing, skills, mental health, decarbonisation and so on. So, that's how I have gone about my part in prioritisation. I start by trying to make sure that I use everything I can lay my hands on to sustain public services here in Wales, and then I attend to the priority that the Government has given to those cross-cutting themes and making sure that the actions that different Cabinet colleagues are making add up to more than just those individual strands.

09:55

Well, of course, one of the difficulties, particularly with those reducing budgets year on year challenges, is to see the impact of that spend—even though the spend is on sustaining services principally. But still there is a responsibility to look at and, through the budget documentation, to show what outcomes have been reached as a result of budget allocations, what they're expected to achieve, and also to monitor the results, so that, when you come to the next year, you know that, 'Well, this is something where there was a slippage or policy diversion or circumstances that required extra funding from another source.' So, how do you feel that the draft budget documentation can guide us in terms of scrutiny, and, indeed, you, in terms of seeing what the impact is of our budget spend?

Well, we've tried to organise the budget narrative against those 'Prosperity for All' priorities, so that it's clear to members of this committee and to others the way in which decisions we made last year are working out in relation to those priorities, and the decisions we make this year contribute to our ability to pursue those priorities in the next financial year. But there is information alongside the budget documentation. So, the First Minister published, almost contemporaneously with the draft budget, the first annual report on the progress of delivering the 'Prosperity for All' priorities. So, that's there as another source for Members to look at to see the Government's account of how those priorities are being pursued.

I published the annual 'Well-being of Wales 2017-18' report earlier in the autumn, which, in the welter of things that we do, actually got very little public attention, but which I think is a really useful report. When I say I published it, the independent statistical service is responsible for it, and they present the progress being made against the seven well-being goals and the national indicators that are there under the Well-being of Future Generations (Wales) Act 2015, and I think that is—I found it a very interesting read. There's lots of information there that I was coming across for the first time, in terms of sources of statistical data and so on, and it's there to be read alongside the budget, I think to do exactly what Jane was suggesting—to make sure that we track the impact of the spending decisions we make against the policy outcomes that are achieved where that money is put to work. 

There'll be more questions later on about 'Prosperity for All' and the impact of that in terms of—. The annual report, I'm sure, as well as your well-being report, has been very useful; it certainly has for us to look at this. There are trade-offs that you will be identifying in terms of spend and priorities, particularly with health and local government—active and healthy living, economic development and wealth creation, tackling inequality. Can you say anything more about those trade-offs? Obviously, overnight we've now got some good news for local government as well, which, I think—. I'm sure there's been a welcome response from local government but, clearly, there's such an integration in terms of how health and local government operate together in terms of those objectives.  

Chair, I think I remember saying, back in October, that the most intense point in budget trade-offs does tend to come towards the end of the process. Some of the very big things—. Members of this committee will know very well that while we sometimes talk about the budget as though it was £15 billion or £16 billion, that we start with a blank sheet of paper and build it all up, actually in almost any organisation it's not like that. There are very large parts of that budget that are, essentially, committed every year. We don't have a long debate about whether we're going to have a health service next year. We know we are committed to having one, and that that comes with a very large slice of the budget that's already there. So, the very big building blocks are not where the trade-off discussions tend to happen. They come later on in the process when you are dealing with the much smaller amounts of money that are genuinely available to you to make moving-about decisions, and that was exactly the case this year. I think I described to you previously how, when I went to the Cabinet in July, with a paper that I take to sum up where the budget-making process has got to at that point, I asked the Cabinet for guidance on where they wanted me to focus my efforts over the summer, and there were a number of different ways in which that effort could have been focused. The Cabinet said to me, having read the paper, and looked at where we had got to in the process, that they wanted local government to be the main focus of my attention—that I was to look to see whatever I could do over the summer to improve the position that local government would otherwise face in the budget. And as you know, the budget passed by the National Assembly in January meant that local government was facing a £43 million reduction in the revenue support grant next year, and by working over the summer, we were able to reduce that to £13 million. My ambition, at the start of the summer, was to eliminate that completely. If I could have got to cash flat, that is what I would have liked to have done, but in the trade-offs and the many urgent priorities that we have to meet, I was able to reduce the gap to £13 million, rather than £43 million, and then said, with the First Minister, that if we got any further help in the UK's autumn budget that local authorities would be at the front of the queue. I have to occasionally remind my local government colleagues that the whole of that phrase had to be thought of: 'at the front of the queue'. In other words, there was a queue, it wasn't just—. We weren't saying 'Everything we get will go to local government' because there are so many other important things to attend to.

You will have seen yesterday that we also made an announcement on further education pay. So, that was another thing that we were trying to juggle in terms of trade-offs. But I am very pleased that we managed to get to where we did yesterday. It is now better than a cash-flat budget for local government, and working very hard with colleagues here we particularly managed to find some additional funding for capital for local authorities, which I know they say to me they can use to defray revenue costs in the future. So, that's the process that we go through. Oh to be a finance Minister that was faced with the difficulties of distributing growth amongst public services— 

10:00

I remember it at the time, but it's not the business we're in, and I think I've just tried to describe the way we try and resolve the very difficult dilemma that Jane has identified. 

The strict discipline imposed on us by austerity and reducing budgets—there's no question about that, so looking at impacts of spend and allocations is crucially important. This also applies to all those we are funding, including local government, and I think a lot of it is very open and reported. But, clearly, you have worked—. Can you say anything more about working with local government, for example, to see what impact allocations can have? You've just mentioned capital offsetting revenue costs, but has that been an important part of the budgetary process? 

So, Jane, you know there is a very particular process in relation to local government. It begins with a distribution group, which is made up of essentially local government and Welsh Government officials plus some independent experts who are there to certify that the process is fair and doesn't involve biases of any sort, either in data or the interpretation of data. That expert group provides a set of proposals to the finance group, which is made up of politicians—local authority leaders primarily plus Ministers here—who make those final decisions about the formula and about priorities within it. It was because of evidence produced by local authority leaders in those meetings—. I'll give you a particular example. The leader of Rhondda Cynon Taf, Councillor Andrew Morgan, was able to show how the money that we provided last year in the final budget to allow his local authority to run a roads repair programme had reduced revenue calls on his council, from people claiming against the council because of accidents in potholes and so on, by over £800,000 at that point. So, I thought that was a very convincing demonstration of the way in which capital investment can be used in a way that helps a local authority with its revenue pressures. Because I thought that was a convincing case, we were able to say at the point of the draft budget that I could provide £60 million in additional capital to local authorities—£20 million this year, £20 million next year and £20 million the year after—so that they could plan their programme of roads maintenance, given the harshness of the winter and the fact that it was an unusually hot summer, all of which has an impact on the quality of road surfaces, as anybody who drives around will know. 

But it's because, as you say, of the evidence produced as part of our discussions of effectiveness of spend that I was able to attach a priority to finding additional capital for that purpose.

10:05

Thank you. Moving on to the agreements you came to with collaboration with the Future Generations Commissioner for Wales—three elements of the budget process that you agreed to focus on: participatory budgeting, decarbonisation and procurement. You've mentioned decarbonisation in terms of adding that to the 'Prosperity for All' objectives. What progress do you think has been made in these areas, particularly participatory budgeting?

Well, Chair, I think it's been very helpful that the future generations commissioner has identified those key things because it allows me then to corral evidence around those aspects of the budget and, in the end, she makes her independent assessment of how far she thinks we have gone in meeting the ambitions that she sets for us. It is very important to me that she is able to be that independent person as well. I know that she will report independently at the end of this budget process as to how far she thinks we've got on those three things.

I was interested in what she said to the committee about participatory budgeting, about her conclusion that it doesn't lend itself easily to a national approach and that you were better off pursuing it at a more local and specific level, partly because it is very difficult for anybody who is not as immersed in the detail of it all, as we have to be, to feel that they can get a grip of these decisions. That is something that I think I learnt from the effort we made last summer, where we got groups of people together on a participatory budget sort of prospectus to try and help us to think about what their priorities would be. We found, as I said to the committee once before, that we spent an awful lot of the time in those meetings having to explain to people some very, very basic things: the size of the budget, the things for which we are responsible, the choices that we have to make. I think the commissioner is right, really, that it is easier to engage people on more specific issues that are clearly relevant in the place that they live and try and get their views on a participatory basis there.

Some local authorities I think do a good job of this. Gwynedd runs a participatory budgeting exercise around its budget. It's not of that small-group-in-a-room sort; it is done with thousands of people in Gwynedd participating in an exercise that the council puts out there electronically, in which it exposes the choices the council faces and asks people for their views on where their priorities should lie. So, there are different sorts of participatory budgeting.

This year, what I've tried to do is to capture more in the budget documentation the discussions that all my Cabinet colleagues have all the time with groups who have an interest in our budget. So, all Cabinet colleagues meet third sector organisations, professional organisations. Jane will remember that, as a health Minister, you spend a great deal of your time meeting organisations who come through the door to talk to you about the budget and its impact on what they do. So, I've tried to capture a bit more in the budget documentation of that Government-wide participatory exercise that goes into the way that we make our budget, and then I've asked officials during the period between the draft and the final budget to take opportunities that already exist amongst groups who have an interest in all of this, rather than setting it up from scratch as we did last year, to use existing opportunities. So, there were people from my team out in the Vale, in fact, last week, with Vale People First, a learning disability organisation, talking to people there. They'll be in Bridgend and Torfaen in the next week or so talking to alliances of third sector organisations about the draft budget, and the choices that lie inside it. So, this year we've tried to do it a bit more like that—taking more local opportunities that pre-exist with groups that are already one step closer to our processes, and to to try and gather a participative commentary on what we do in that way.  

10:10

Diolch, Chair. Good morning, Cabinet Secretary. I'd like to ask you a couple of questions about our old friend, the future generations legislation, and how that plays out in this budget. So, firstly, what changes have resulted from the consideration of the Act, and can you provide any concrete examples of where the Act has driven specific Welsh Government allocations in this budget that would not otherwise have happened?   

I think I was doing okay on that question until the very last phrase in it, because I don't myself quite see the Act operating in that way—that it leads to unique decisions that otherwise would not have happened. I certainly think that you can see the impact of the Act on the budget. Maybe the closest I could get to a decision that you could track in that direct way to the Act would be the additional money we have put into the draft budget in waste recycling and decarbonisation. So, there's £29 million in this budget in addition to allow Wales to go on being at the leading edge of recycling rates, and to allow us to do more in the decarbonisation field through waste reduction, recycling, reuse and so on. And I think, maybe, if I was trying to find a single example of an investment that is aligned directly with the Act, it would be that, but I don't think even there I could say that that investment would not have happened if the Act hadn't been there. The Act helps us to shape our decision, rather than being a, sort of, you know, 'That is only happening because the Act is there.'  

It was probably more of a Plenary-type question designed to get the Cabinet Secretary on the hop in 10 seconds, but—

The future generations commissioner did suggest to us, though, for example, that if there was any additional allocations to health that they should be specifically earmarked for preventative work, or preventative spend, albeit pooling it with other organisations or other bodies. I think it's that kind of change—. I understand exactly what you're saying about the wider cultural change in the way that we look at it, and that it's difficult to pinpoint, but there is a shift, isn't there, in that focus, and I'm just wondering whether that kind of approach would be reflected in the budget?

That, I think, is much closer to my sense of how the Act should operate—that rather than it being specific budget decisions you'd track to the Act, you look at the way the budget as a whole is being shaped. So, this budget is shaped against decarbonisation, one of the future generations commissioner's own key priorities, in the decisions we have made around waste, in the decisions we have made around transport—the active travel money, the local transport plan money—and in the decisions that we have made around investment in fleet, for example, in new ambulance fleet that will be much better, as far as decarbonisation is concerned. I think in that sense, you can see it, and you can see it, Chair, in relation to prevention.

Just to be clear what I mean though, I'm going back to the question that Jane asked me. As I said, the single biggest thing that I do in the budget is to try and make sure that I squeeze everything out of it I can to keep public services that the public relies on operating, available and of the best standard. Within that, trying to change the emphasis in favour of prevention has been a big theme of the budget, and it's been discussed in every single one of the bilaterals that I have with my Cabinet colleagues, asking them to articulate ways in which they can see their budget being incrementally moved in that direction. And I think that is something you can say that has genuinely had a different level of prominence since the well-being of future generations Act has been on the statute book than it would have had in a period prior to that.  

10:15

Anytime, Chair. I like to feel I'm an amenable member of the committee. [Laughter.] It was interesting, what you just said about prevention. We launched the 'Care experienced children and young people' report from the Public Accounts Committee yesterday, and the issue of prevention came up there, and spending money early on in that process then avoids money spent later on on issues.

Two things I'd like to follow up then that have come out of your answer. First of all, you mentioned a tracker. The Future Generations Commissioner for Wales has herself talked about a journey tracker and how the Welsh Government can assess progress, not just in one budget but over a three, four, five-year—however long it might be—cycle. How difficult is it to embed the Act in the budget-making process over the medium term? Is it a very difficult thing to track and to monitor? And, secondly, before you answer, how do you ensure that. apart from those difficulties, you are ensuring consistency of the application of the Act across all the departments in the budget process? 

Thank you, Chair. Just before I answer the question, can I very briefly comment on the point that Nick made, because discussions around looked-after children, I think, have been one of the places where I personally am keenest to pursue the preventative agenda? It's been very much part of my discussions with local government, and I've tried to impress on them my willingness to use invest-to-save and innovate-to-save money to help them to re-engineer their services, so that they can do more to prevent children from being drawn into the care system, rather than having to devote all their resources to dealing with the children who they've already drawn into that net. So, it's just a very good illustration of where a preventative approach is both much better in terms of outcomes for children, but it's actually better financially as well. If they spend more on preventing the problem they will be spending a lot less on having to deal with the consequences of the problem. So, it's a very good illustration of the basic problem—.  

Which is the angle that the Public Accounts Committee came to.  

Well, I'll look forward to reading that, because I feel very passionately that we are not doing this the right way here in Wales, where we take children away from their families at a far higher rate than they do across our border at any level of social disadvantage. 

On the prevention angle, though, that's a good example of where preventing adverse outcomes and preventing additional expenditure come together. But that isn't always the case, and one of the big challenges in thinking about prevention is what is it that you're trying to prevent? Is it that you're trying to prevent adverse outcomes, which can sometimes cost more, or is it that you're trying to prevent that and prevent expenditure at the same time? And those two things don't always pull in the same direction. When you're thinking about prevention in a budget-setting context, it raises a load of really difficult and complex issues that, I think it's fair to say, we've only really started to grapple with over the last couple of years. I don't think it's the way we thought about doing the budget four or five years ago, really, and we're starting to think more about that now, but it's really not straightforward.  

And that's partly why, Chair, this year, we've concentrated on the on the definitional issues. You know, we have an agreed definition, well, provisionally agreed. It's open to further development as part of the budget process, I hope. But having a sense of what we mean by 'prevention' gives us a way into the complexity that Andrew has identified. So, apologies for going—

10:20

No, that tied in with my other hat as well. So, that was interesting. There's the issue about the consistency across—. 

So, the tracker is a very interesting new development during this budget round. The commissioner's office, as I understand it, is still in the process of developing the tracker tool to identify changes to the budget that reflect how the Act is being implemented. We will work closely with the commissioner's office and her officials to make sure that we get the most out of the work that her office is doing, and, as it comes to maturity and we understand how the tracker will act in practice, I'm hopeful that it will be a really useful tool to us as well, so that we can apply it in our own work to try and make sure that the budget process we have is developed, and we can continue to demonstrate better how the work of the budget and its allocations are aligned with the requirements of the Act.

It is, as I think the Chair said, a matter of cultural change, and I set out last week, when I was here with Julie James, some of the actions we took in this budget round to try and secure consistency across the whole of the Government. Very briefly, because you've heard it all already, but we instituted a series of training events and workshops with the help of the commissioner between the first set of bilaterals and the second bilaterals so that officials were all engaged in that work. We published the integrated impact assessment tool in July, again, to make sure that that was being done in a consistent way across the whole of the administration. Obviously, that is all new this time, and it'll be developmental in the way that it has an impact. But they are efforts to do exactly what Nick was asking me—to try and make sure that the approach to these important matters isn't patchy, and there are common ways across the organisation in which officials understand what we are trying to achieve, and then have the practical tools that they need to try and turn that understanding into the way we assess the impact of budget decisions. 

And just turning to impact assessments, we made some recommendations last year about how those could be improved. Have those changes been made? And what further progress needs to be made with those to tick all the right boxes? 

Well, the biggest change that we made this year, Chair, as a result of the recommendations of the committee last year, was to introduce an integrated impact assessment alongside the detailed budget—the second-stage budget on 23 October. We didn't do that last year, we produced it only at the first stage. So, I hope that's been helpful. We wait to see what you say when you report on it all, but it was directly in response to the committee's recommendations.

The tension is, Chair, the tension that we rehearsed last week: that everybody is signed up to an integrated approach to the impact of what we do; everybody tends to have a particular strand that they think is—. I don't want to say more important than the others, because I don't think that's what people think, but they're anxious that their strand will be lost in the integrated assessments. So, it's keeping that tension actively in your mind. It is important. I think it does make sense not to have just a series of different assessments from the point of view of children, or the point of view of older people, or the point of view of gender and all the other disaggregated impacts. It is important to bring them all together to see how they all add up to an impact. But, people who are particularly aligned with any one of those—people in the disability world, for example, whom I met recently, say much the same things about anxiety that the impact of budget decisions on disabled people is hard to track in an integrated impact assessment, as we were hearing at the very end of Plenary yesterday with discussions about how they impact on children. So, that's the tension.

10:25

And finally, you're due to have—or you might have had it—a meeting with the future generations commissioner this month. What do you expect the outcome of that meeting to be?

Well, the meeting is led by the commissioner and her advisory panel, so I'm sure they will have—.  In that sense, it's their meeting and their agenda. I think we will go into it with two particular outcomes that we would be looking for. First of all, to clear up any remaining misunderstanding that there may be about the tool, the integrated impact assessment tool, and its outcome, the outcome being the assessment of the impact. I think we rehearsed it briefly last time that people thought maybe there were two tools here; actually, there's one. There's a tool and it leads to a product, and they're different. They're not competing with one another. So, part of that meeting, from our point of view, will be to make sure that we've communicated that more clearly to people and they've got a better, more secure understanding of that.

And the second, and probably the bigger, purpose is to go on having a dialogue with the commissioners who will be there, for us to explain to them what we think we have tried to achieve in this budget process, but very much to learn from them in return as to their assessment of where they think ground has been gained and where they think there are still things that we need to work on, going into—

How often do you meet with the commissioners? Is it manly budget-setting time of the year, or throughout the year?

No. I personally, because I have some responsibility for the Act across the Government, meet the commissioner on a range of other things to do with the development of indicators and all the other things that the Act requires, and then there is a particular set of contacts we have, sometimes by letter, sometimes by meeting, around the budget as well. 

Can I carry on with preventative spend? I looked at the four levels and I can think of no expenditure in local government that would not actually be a preventative spend. Isn't there a danger that, when you start looking at it, depending how you define it—. Looking at environmental health, and when they go and look at places that serve food, they're preventative because they're preventing people from getting food poisoning. When you see social services, their actions prevent people from ending up in hospital or ending up with serious problems. Isn't there a danger that we look at this and everybody now thinks, 'Everything's preventative spend, therefore I argue my spend is preventative'?

Well, Chair, I think that is an important point and I do remember getting a bit tetchy in front of Finance Committee a couple of years ago because I felt the discussion we were having about prevention was so unfocused that you could describe anything you do as preventative if you really wanted to. But the purpose of the four stages in the definition that we have developed is that it allows you to locate the spend you are undertaking at the four levels, and then the idea is that you try and drag spending down the hierarchy. So, we start with primary prevention, secondary, tertiary and then acute spending, and the budget narrative in annex A—I brought it with me—is an attempt to apply that definition to last year's budget. But where I think it is then useful, in answering Mike's question, is: when you've attributed the spending you are making to the different levels, you then need to go on to say, 'What could I do to move spending out of tertiary and into secondary, out of secondary and into primary?', so that you are pushing the budget at the different levels in a more preventative direction. And that's where I think it has more of a bite. 

If I go back to how this committee used to run three or four years ago—and I'm sure Jane and Nick will remember it—we used to get lots of people coming in here saying, 'If you spend x amount of money on our service, we will save the health service four, five, six times x.' But what it fails to identify is latent demand. The one I always think about is that, if nobody ever needed hip operations because we solved that problem, all you'd have is the latent demand from people like me who've got something slightly wrong with our knees who aren't doing anything about it at the moment, but, if we thought that we could make our way forward and get something done relatively quickly at a time of choice—then that latent demand is being picked up. Isn't there a danger with engaging in prevention that all you do is identify latent demand?

10:30

Well, Chair, I sometimes used to do a little turn when I was health Minister in which I used to say that I was surprised, having met the number of groups who had come to me to tell me how if I spent more money on them it would save me money elsewhere—I was surprised the health service was costing me anything. [Laughter.] But the problem is that those are never cash-releasing savings. That's the point Mike is making, isn't it? It is certainly true that if you spend money on something, it means that the bed, for example, is not now being used for that purpose, but the bed is still there and it's now just filled by somebody else. It's the complexity that Andrew mentioned earlier in relation to the way we think about preventative spending. Preventative spending does not necessarily save you money, but it may mean that you are doing something better, and that's the important thing, isn't it? It is better to prevent somebody becoming diabetic than it is to deal with the costs of what happens to someone when they have diabetes—of course it is—but it doesn't necessarily mean that the health service is going to be able to take that cash out of the system and use it for something else, because the demand, the latent demand, for healthcare is inexhaustible. 

That takes me on to service transformation, and I come back to this question—and I'll use the example of health—you have examples in health, for example, where you tend to look at something that's wrong with somebody rather than the individual. One of my constituents nearly ended up in a nursing home. He went in with a minor problem, he spent a week in hospital, lost 7 lb in weight and lost most of his capacity. In another seven days, he'd have ended up in a nursing home. What was wrong with him wasn't particularly serious. He got out within a week; if he'd been there another seven days, he would have lost another 7 lb and he'd have lost even more personal capacity. Isn't one of the problems we have when we look at services that, especially in health, doctors or clinicians will look at something, 'Ah, you've got a bad hip, you've got a bad knee, we can deal with it', without thinking of the end result, which could well end up with somebody in a worse position, even though their knee is solved? When you were Chair of the health committee, many years ago, and I was substituting on there, we came across an example of clinicians who, although giving somebody an anticoagulant would actually increase the likelihood of their survival, didn't like doing it because it would actually reduce the success of the operation. Their interest was whether—. If the operation succeeded and the patient died, that was almost deemed to be a success. Isn't one of the problems we've got that we look at all these things and we don't look at the individual concerned?

Well, I vividly remember that evidence session. It may well have been in this room, I think, and it was remarkable in that it did demonstrate the way in which, in an increasingly specialised world in the health service, you can get clinicians who are very, very good at the tiny bit that they do without being able to stand back and see how that contributes to the whole of the patient journey. I'm happy just to agree with what Mike has said, really, Chair.

In another very specific example, there's a fantastic service in Llanelli at Prince Philip Hospital where a geriatrician, an occupational therapist and other people working in the community assess elderly people particularly at the front door of the hospital. They say exactly what Mike has said—'If this person is admitted, the chances are that they will lose capacity by the end of two weeks.' And in Prince Philip at that time it was a six-week average stay. And if they can turn people back at the front door and allow the individual to make the assessment alongside them of the risk—. The day I was with them, they were describing an 83-year-old woman living on her own in Llanelli. She was at risk of falling, they had a conversation with her and she said, 'I'd rather be home and take the risk than spend six weeks in the hospital being looked after, and at the end probably never go home at all.' So, they put the services in there and decided that it was her decision as to which risk she would rather take. I think that's a very good example of putting the person at the front of the decision making and coming to a different conclusion than what clinicians, maybe left to themselves, might have arrived at.

10:35

Can I just finally ask—? The same thing on this dealing with the individual. A case that I dealt with many years ago, when I was a local government spokesperson in health and social care, was: somebody lived in a house, and they were having difficulty, as you say, about falling, and they wanted to put grab rails the whole of the way around the house in order to stop them falling, and that was going to cost tens of thousands of pounds. And somebody else came along with the idea that if you actually put carpet down instead of the lino, the person's risk of falling would reduce dramatically. But putting carpet down was not one of the things that was in the social service expenditure. Spending £40,000 on handrails, no problem at all; that's accredited expenditure. Spending £400 on carpets, that's not in the—. And some of this is actually—I'll finish on this point—transforming services so that you do something that is not necessarily in your list of things you can do, but something that will actually benefit people, and that may well save money and improve outcomes.

Yes. I wouldn't expect you to respond uniquely to that, but the point we're getting at here, really, is how we relate that preventative saving back to the budget, isn't it? Because we were told by the future generations commissioner—and I don't want to get too bogged down with health specifically—that 74 per cent of health spending is on the acute level of spending. So, how do we, with all of this preventative investment that's happening, relate that back to the savings being realised?

Well, I think it's a really difficult thing to find a specific way of doing that because, as you say, Chair, the health service, as well as wanting to move in the direction of prevention, is still a curative service as well. If any one of us were taken ill later today, we hope that the health service would be helping us with services to put right what's ill with us. Taking money out of those services, in an era where there's no more money, to shift them towards prevention—there is a balance to be struck. It is still a service that needs to deal with the illness and the difficulties that people are facing here and now.

When I was health Minister, I looked at all sorts of ways: should you instruct health boards to move their expenditure by a certain percentage—a 1 per cent shift that you would track with them on things? I came to the conclusion that that would just lead to gaming in a system. People would be reascribed to different codes and carry on doing what they were always doing rather than there being genuine change. I think the way that we're trying to do it, using the cultural shift that the Act suggests, and providing the practical material that we have alongside the definitions, is preferable, really, to those blunter instruments.

Just to clarify, then: based upon what you've said—and based upon the Chair's comments about the 75 per cent going into acute, effectively, which is what the future generations commissioner told us about, and her desire to have a preventative spend, if any increase comes in—is it your belief, therefore, that, because you said the bed is still there and it's going to be used for some other practice, that 75 per cent is still going to remain there, effectively, because we have waiting lists, we have people who need services, people will always have the unexpected, so are you really going to be able to drop that 75 per cent in any form because of the need and demand out there?

Well, I don't think it will be as crude as just being able to say that it's 75 per cent today and it'll be 73 per cent in two years' time. But where I do think you can make progress is against that definition of prevention in which you try and move spending down the hierarchy. I think that is a more—. That's not particularly sophisticated, but it is a bit more sophisticated than just crude percentages. And I think if you do it in that way, the health service ought to be able to demonstrate that, instead of taking an elderly person into a hospital—that would be preventative on one of those four things because it would be preventing a further fall and things getting worse, but if you move your intervention to a different place in the hierarchy, I think you can demonstrate that you are shifting the way you are using your budget in a preventative direction. 

10:40

And would you expect that to be evidenced from health boards in years to come?

I think you certainly would expect—but I think they want to. I don't think we are having to persuade them—

But there is perhaps a challenge in capturing and demonstrating that, isn't there? And that's no mean feat, really.

And you don't want to consume too much time and effort in accounting for a spend on this basis, because you risk just creating the kind of perverse behaviour that you don't want.

There's a lot of balancing that needs to happen there, isn't there? Okay. Neil Hamilton.

I'd like to go on from the exchanges that you had with Jane Hutt earlier on about participatory budgeting. The next stage from that is: how can people who participate in that process understand the decisions that you've taken at a sub-macro level within departmental spending and the extent to which the budget document and tables enable people to understand how your priorities have actually been changed in that particular exercise? When we had our economic growth panel before us, they felt in relation to the economic action plan that it wasn't possible to identify spending on areas within the budget tables themselves, which means that it is more difficult to align policies to the budget, and they thought that the budget needed to be more explicit so that they could measure the pace of change and assess whether policies were working. So, is there any more that you can do to make explicit the changes that you've made in budget allocations, specifically in relation to the economic action plan?

Well, Chair, I'm very happy to look at the comments that the panel will have provided to the committee to see whether there are things that we could do to improve the way that we provide things so that they can find the information that they need. I think the tension here is one that we did mention last week, which is: we are trying in our budget information to make it accessible and readable and available to—I'm sure there is no such thing as the general reader for budget documentation, but to somebody who has a general interest. So, you don't want to make it too long, you don't want to make it too technical, but then, on the other hand, there are people with specialist interests who then don't find what they are looking for in text that hasn't been particularly aimed at their speciality or their area of technical expertise. So, I'm very happy to look at what the panel said and if there are things that we could provide that would be helpful—of course, that's what we learn through the scrutiny process.

I suppose maybe you could do that by producing annexes that are focused particularly on this point, so that it doesn't just lengthen the scope of the general document and make it more turgid and unreadable.

Yes. We've tried to do a bit of that this year. There are a series of annexes to the paper where we look at prevention, where we look at carbon budget cycles and so on, and my view is that we should change the annexes in different years. We should pick a few specialist areas and use an annex to try and draw them out, and then in another year choose another area. So, I think that's a helpful way of thinking about it.

Good. Thank you very much. I think that's a very interesting point.

Can I move on to ask how the budget ensures that regional inequalities are addressed and that Welsh Government infrastructure investment is balanced across Wales in the long term?

Another topic that we've had exchanges over, Chair. I suppose I'd begin by reiterating what I've always said previously: when I am helping to make decisions about investment, it is always the quality of the investment and the impact that it will have, rather than the place that it happens to be, that has to be my first criterion. It's not the only criterion—regional investment is important and some sense of balance across Wales, of course, is a factor. But I don't start from geography, I suppose is what I'm saying; I start from the quality of the proposition. An investment that will deliver more for Wales and for the broader Welsh economy would get a priority for me over the investment being in any particular place. But nevertheless, because we recognise that there are regional disparities in Wales, the regional dimension does play an important part.

In the work that I am responsible for, through WEFO in particular, I am always looking for decisions and investments that support the regional economy in those parts of Wales where that investment is most needed. You will find that reflected in the budget, because we look at those inequalities at an investment level in the way we invest in education and in the way that we invest in infrastructure. That's the essential way, I think. Quality is the overriding consideration; regional alignment and impact on regional economies then follows very closely next. 

10:45

I fully understand the general theory that you've been describing there—that's obviously a sensible approach in general terms—but there are disparities between regions in certain areas of economic activity. The Welsh Retail Consortium were talking to us in particular about digital infrastructure spending and how that affects certain areas of Wales more than others, and that affects competitiveness generally. So, those are the areas where special attention should be given.

I think that's a particularly good example of that. When we talk about infrastructure, the things that normally come into people's minds are things that they can see, whereas digital infrastructure, you don't see it, but it is vitally important to the future of the Welsh economy. There is a significant investment in digital infrastructure contained within the budget. I don't disagree with the point that is being made, but there is a regional dimension. So, we skew our investment to those places where the impact of greater investment would be the greatest.

Another question that arises out of the evidence we've taken from our growth panel is—and you'll be aware of this—the Federation of Small Businesses has recently been drawing attention to the fate of small towns within Wales, which they feel might have been sidelined a bit because of the very obvious attention that has been given to city deals and so on. They're very important, but some of the smaller towns feel perhaps they've been left on the sidelines. I wonder if you could perhaps explain to us your views on that.

I thank the Member for the question. I've seen the FSB report. It is very interesting. I know that my colleague Ken Skates has been discussing it with them. But, if I think of the city deal—if I take the Swansea city deal, for example, which is one that'll be directly relevant to Mr Hamilton. I think if you look at the deal, actually its impact is mostly at a town level. It's got 11 projects, as you know; it's designed differently to the Cardiff one. So, Yr Egin is in Carmarthen; the investment in Pembrokeshire will be at Milford Haven; there are two or three projects that will be at Port Talbot; and the wellness village is in Llanelli. So, in a sense, although it's called a city deal, it's a bit misleading, really, isn't it? Because the investments are in the towns that make up the Swansea city deal region. There are very important investments in Swansea as well—I can see Mike Hedges—let me be clear, but it's not a Swansea deal, it's a regional deal, and there are really important investments at a town level contained in it. 

Agglomeration has worked in the rest of Europe, hasn't it? I look at places like Aarhus and Mannheim, where they have major towns and cities at the centre, but the outlying regions do economically very well because they're all part of this greater region. If we start setting town against town and trying to develop one smaller town and another smaller town, isn't there a danger that we'll just fail economically, as we have done many times by doing something very similar?

10:50

I think the trick is to have agglomeration, but to do it in a way that recognises the strength of the different parts of them. I think the Swansea city deal genuinely does demonstrate that, and I look forward to the north Wales growth deal being able to demonstrate the same ability to invest across the whole of the area of that deal, too. 

Lastly, arising out of the evidence we took from our growth panel, there was a feeling that departments are not working consistently together sufficiently in relation to policies promoting economic growth, employment levels and consumer spending power. I wonder if you agree with that, or if you could give us your reflections from sitting at the centre of this as the finance Minister, watching what all the departments are doing with the money that you allocate to them, across departmental headings.  

As I said, Chair, the way that I get involved in the cross-Government work is essentially around the six priorities of 'Prosperity for All'. I probably don't have a particularly strong insight into the things that it sounds like the panel has raised with you. I do know that my colleague Ken Skates has established a cross-Government board, made up of officials from the different departments, to make sure that there is delivery of the economic action plan. But beyond knowing that it's there and that Ken is in charge of it, I've probably told you most of what I know, really. [Laughter.]

Right, I understand that. Finally, the hoary old chestnut of business rates, which is a perennial problem for everybody. Are you considering any action in the final budget to support businesses in Wales through schemes that either limit rate rises, or provide further targeted rate relief? We were given an example in Scotland: for example, there was a 12-month delay on business rates accruing to investment in new buildings, plant and machinery, and no doubt there are many other such examples as well that you might take into account.  

So, Chair, members of the committee will know that there was a consequential, as they say, for Wales from the Chancellor's decision to provide further rate relief on the high street in England. It's complicated by the fact that while he announced a two-year scheme in England, he's only announced a one-year sum of money for Wales, and we won't know until the comprehensive spending review how much money—or if we get any money, indeed—we will get for the second year. I'm assuming we will, but whereas in England they know the sum of money they've got in year 2, we won't until the comprehensive spending review is over.

We've got £26 million for next year. I'm happy to say to the committee today that I intend to use the whole of that £26 million for additional business rate relief in Wales next year. I'm not in a position today to give you the detail as to how we will do that, but we have a high street rate relief scheme in Wales, which they don't have in England. It was designed as part of a previous budget agreement with Plaid Cymru, and I remember a specific meeting with Adam Price at the time in which we agreed the parameters of that high street relief scheme for Wales, trying to make sure that it was designed to meet the particular needs of the Welsh high street, which is not the same. Average rateable values in Wales are £22,000; it's £33,000 in England. The shape of our high street is not identical, and picking up a scheme from elsewhere and dropping it down here is not the right way to do it.

So, my officials are working on ways in which existing arrangements that we have could be improved, and whether there are any additional aspects that we could incorporate within it. And my plan will be to come forward with proposals to the Assembly to demonstrate how that £26 million will be used. But I'm happy to say today that my intention is that the whole of the money that comes as a consequential to us will be used for that purpose.     

Okay, thank you for that information. We look forward to seeing the detail. I'm conscious that we have five minutes left, and I have a few questions. They were going to be short, sharp questions, but initially I'll ask you about how the budget allocations reduce inequality in Wales. That's probably a 20-minute answer if you were to answer in full, but clearly, you could give us a flavour.

10:55

Okay. We've talked about regional inequalities and economic inequalities, so maybe I'll very briefly highlight a few of the things that the budget does in terms of educational inequalities, because there are a series of measures in the budget designed to do that. So, through the centre, we will pick up the cost of free school meals in Wales next year—the additional number of children, the 3,000 additional children we expect to have free school meals next year. In England, schools are having to absorb those costs themselves. I will provide additional funding from the centre to cover all those costs here so that schools will see the benefit of that. We've doubled the pupil development grant access fund, the old school uniform grant, and again, that's an education inequality issue.

So, sometimes, Chair, these are relatively small sums in the big scheme of things, but the additional money we provide in that way really does go directly to those children who are in the most disadvantaged circumstances. In a short answer, that's an example of how the budget addresses inequality in that sphere, alongside the others we've talked about this morning.

We've seen a shift to a whole-Government approach to tackling poverty, and I'm wondering how that is reflected in the budget, particularly in light of evidence that we've had from, for example, the Bevan Foundation that says that it doesn't see that tackling or solving poverty has the priority that it should do.

I am very focused on tackling poverty through what the budget can do. It's why we continue to put £244 million into the council tax benefit scheme here in Wales when it has been abandoned elsewhere. The poorest families in the land across our border are paying on average £180 a year in council tax. Well, they don't pay council tax at all in Wales, and that's a very significant sum of money that we use for that. 

At the other end of the spectrum, I was very determined to find some additional money for the discretionary assistance fund in Wales for next year; it's practically spent out this year, and that's the impact of austerity. These genuinely are the poorest families in Wales having to fall back on the final safety net of the system, which, again, we have preserved here in Wales with a national scheme, whereas it's disappeared in England. There was some research recently demonstrating that the money that's gone to local authorities is no longer being spent for this purpose. As part of the budget round, I was told that if I couldn't find more money for it, the only thing that could happen is that the criteria next year would have to be tightened so that those families would get less help for it. Given that it is lifeline stuff that the fund provides, it was a priority for me to find extra money so that that didn't happen.

So, there are other things we are doing as well, as you know, in absolving care leavers from paying council tax and so on. They may appear a bit scattered through the budget and a bit hard, therefore, to identify, but from where I sit in the process, whenever my colleagues come to me and say that they are under pressure on budgets that support the poorest people in Wales, then I am keenest of all to help with those pressures.

We heard a little bit about the work of the budget advisory group on equality—BAGE—in our concurrent meeting last week, and I'm just wondering how their role might be affected by the rapid review of gender equality policies undertaken by Chwarae Teg.

They're certainly going to be linked to that. Their expertise will feed into that review. There was a point in the discussion with BAGE this year that some members of it wanted to propose a particular gender strand in this budget round, but in the end, I think they felt that, with the gender review going on, their efforts were better focused on helping us develop the integrated impact assessment work that we're doing.

So, the work of BAGE does alter every year, really. We meet early in the process and agree what their focus is going to be and they then work with their constituent organisations on that, and then we come back towards the end of the budget process for them to give us their reflections on the prospectus that they've embarked on. It will be affected by the gender work, I'm sure, and we'll do it the same next year: we'll meet early and decide where their efforts are best focused in helping us.

11:00

Thank you. Finally from me, if I may, I just wanted to ask you where we are now in terms of funding the increased cost of pensions. You mentioned in your statement—written statement— yesterday that the WLGA and yourself are writing jointly to the Chancellor to repeat your calls to fully fund the increased costs. Can you just give us clarity as to whether we've had assurances in some respects for next year? Have we?

Well, we've had some assurances, in the sense that we were told very late in the day that £74 million of the money we'd been given for health had apparently been given to us to cover the costs of the pension changes in the health service, so the UK Government would certainly tell you that they've already funded that, although they certainly didn't say that back in July, when they announced the uplift. The Chief Secretary said to me, in my meeting with her, that a sum of money—I think it's £4.7 billion—has been set aside to cover the costs of the pension changes across the whole of the responsibilities that she discharges, that she will be allocating that sum of money at a departmental level over the coming weeks—I think that was the phrase that she used—and we will learn how much of that then comes to Wales. We don't know. I don't think, Andrew, that there's any further detail as of today.

We have been pressing Whitehall, but, as you can imagine, it's been hard to get an answer out of the Treasury on this sort of issue when they are caught up in the Brexit turmoil.

Sure, and, beyond the next financial year, we don't know what's happening.

Oh, I think once they've picked up the costs then they will be picking up the costs on an ongoing basis.

Yes, you would assume it would be baselined, because these are long-term changes in the pension costs, so, yes. Yes, it's very, very uncertain still, and obviously these are changes that are supposed to take effect from 1 April next year. The budgets have largely been set without any of this money being in there, so it's very late in the day to be trying to set all of this out.

What I have said, Chair, to all public services who are affected by it, is that, for this purpose, the Welsh Government will simply be a postbox. If the money comes in from the Treasury to us, I will hand it straight on to the organisations who are facing these costs; I'm not intending to do anything else other than that.

Ocê. Wel, a gaf i ddiolch o galon i chi am eich tystiolaeth i ni y bore yma, ac am sesiwn drylwyr iawn? Rŷm ni'n ddiolchgar i chi, fel bob amser, am y dystiolaeth. Mi ddown ni â'r sesiwn i glo nawr, ond mi fyddwn ni fel pwyllgor yn symud i sesiwn breifat.

Okay. May I thank you very much for your evidence this morning and for a very thorough session? We're grateful to you, as always, for that evidence. We'll bring this session to an end, but we as a committee will move into a private session.

4. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o weddill y cyfarfod a'r cyfarfodydd ar 22 a 29 Tachwedd 2018
4. Motion under Standing Order 17.42 to resolve to exclude the public from the remainder of the meeting and the meetings on 22 and 29 November 2018

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod, a'r cyfarfodydd ar 22 Tachwedd a 29 Tachwedd, yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from the remainder of the meeting, and the meetings on 22 November and 29 November, in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

Felly, yn unol â Rheol Sefydlog 17.42(vi), rydw i'n cynnig bod y pwyllgor yn gwahardd y cyhoedd o weddill y cyfarfod, a'r cyfarfodydd hefyd ar 22 Tachwedd a 29 Tachwedd. A ydy Aelodau yn fodlon â hynny? Iawn. Diolch yn fawr. Mi awn ni i sesiwn breifat, te. Diolch.

So, in accordance with Standing Order 17.42(vi), I propose that the committee resolves to exclude the public from the remainder of the meeting, and the meetings on 22 November and 29 November. Are Members content? Thank you very much. We'll move into private session. Thank you.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 11:03.

Motion agreed.

The public part of the meeting ended at 11:03.

Archwilio Cynulliad Cenedlaethol Cymru