Cynulliad Cenedlaethol Cymru

It's a matter of fine-tuning and managing existing commitments, by and large. As you say, Chair, it is complex because there are four or five different sorts of transactions being reported through the supplementary budget. There are transfers within main expenditure groups, there are transfers between MEGs, there are allocations from reserves, there are changes to the departmental expenditure limit as a result of allocations through UK budgets, and then there's the latest annually managed expenditure forecasts agreed with the Treasury, which we report here.  So, there is a lot going on, particularly in the second supplementary budget, and that's how you get to some of the figures that you mentioned in your question. So, by and large, the decisions that you see here are decisions that were made many months ago. They are made by the portfolio Ministers. They are reported to the Assembly by those portfolio Ministers. They will have had questions asked of them in committee and sometimes in Plenary as well.

There are some new commitments, however. And that is where, I think, it is easier for me to explain the way in which larger considerations—'Prosperity for All' and the well-being of future generations Act—have an impact on the supplementary budget that you see. I can mention maybe three of them very briefly to you. You will see that there is £30 million in conventional capital here for road refurbishment at local authorities. The well-being of future generations Act says that we should aim for a more resilient Wales and the five ways of working say that prevention is one of the ways that we should try and achieve that. The case made to me by local authorities was that for the lack of sufficient capital to keep roads up to scratch, they ended up paying out money in revenue for claims against them when things went wrong. If we were able to provide them with an injection of conventional capital, they would be able to prevent that sort of spending in the future and they would be able to make the road infrastructure more resilient. So, I felt that that ticked lots of the boxes required by the Act and I was happy to agree to it.

There is £30 million, you will have seen, for Welsh-medium education capital. What that is allowing the education Secretary to do is create a stream of capital investment beyond this year. So, she’s drawn forward into this year capital expenditure plans in the Welsh-medium sector and that will free up money for her over the next few years to create a new Welsh-medium investment strand in her budget. Given that we have an ambitious target for a million Welsh speakers by 2050, and we know that if we’re ever going to reach that then being able to do more in Welsh-medium education is a key way of achieving that, and given that we have a well-being of future generations goal over cultural vibrancy and Welsh-language vibrancy as well, then I think you can see the Act at work there.

And you’ll have seen that there’s significant investment in housing, including some new investment in housing in this budget. There again, looking to the long-term future of Wales—a healthier Wales brought about through collaboration as the five ways of working would suggest, and housing, particularly, relies on collaboration between the local authority, central Government, housing associations and private house builders. It’s a genuinely collaborative effort, if we’re to get to the 20,000 affordable homes and other ambitions that we have in housing over this Assembly term. So, where there are new allocations being made, the question of the Act and the alignment with other priorities is always part of the decision-making process and I think you can see that in this budget.

Cabinet Secretary, I want to move on to the issue of repayable financial transactions capital. Of course, you received a further £90 million of financial transactions in the autumn budget in November, but I think we discussed, when we were looking at the draft budget, how difficult it is and I recall this when I was in your position—how we use financial transactions effectively and how we can deliver them to optimum impact and value for money. So, carrying forward is crucial now—it was November and here we are nearly into the next financial year. How is it going? Because I know it's not just you, but Scottish colleagues as well are in the same boat.

The £90 million is the share of the larger sum of financial transaction capital that came our way in the budget, but that £90 million was to be spent in this financial year—that's the point that Jane is making, isn't it—that money that comes a bit later on, you have more time to prepare for and more chance of trying to find effective uses for the fund. But to be told at the end of November that you've got £90 million of financial transaction capital and it's all got to be out of your hands within a very short number of weeks—it simply isn't doable. As you know, and as we've rehearsed in one of the committees before, deploying financial transaction capital in Wales has not been easy; there is no great appetite out there for it. The Welsh Government has to work hard to stimulate ideas and to create an appetite for it. We are always determined to use any money that comes our way in the best possible way, but because there is no great draw on it, finding a home for £90 million in very short order simply isn't possible.

The Chief Secretary to the Treasury was in Cardiff two or three weeks ago. I set this out directly to her. I said to her, in exactly the way that Jane Hutt has suggested, that the money would be used better if we were allowed to carry it forward into future years. She explained—and I've got to have some sympathy with her—that her job is to manage the whole of the UK's finances and that if we are asking for a carry-forward deal for Wales, she knows the Scottish Government is likely to be asking the same. Northern Ireland has struggled more than anywhere else to use financial transaction capital and, quite likely, there are UK or English departments that have been made allocations and are not in a dissimilar position. So, while she was not unsympathetic to the case—I'd have to say that; she recognised what we were saying—she said to me that she couldn't give me an answer there and then, because she would have to manage the bigger picture of all of this. So, officials remain in dialogue with the Treasury. We are—. I'm trying to find the right word. 'Hopeful' is probably at the stronger end of it, but we continue to work with the Treasury—

Optimistic?

'Optimistic' would be even higher up the scale. We will find other ways. There are other things we are able to do if we can't find a deal for carrying it forward. But that's what we hope to achieve.

Moving on to how financial transactions can be used, particularly working towards our housing targets and how we actually manage repayment issues there, the supplementary budget allocates an additional £49.8 million general capital to the affordable homes target, and £10 million transactions capital for Help to Buy, and £8 million general and £32 million transactions capital for the Wales stalled sites fund. So, can you explain the split between the general and financial transactions capital funding within the affordable homes target and the stalled sites fund?

Well, Chair, the essential difference, as you know, is that financial transaction capital has to be paid back. So, it's a loan that you're making, you have to be confident that there is a revenue stream that will cover the loan that you're making. We give conventional capital through SHG—the special housing grant—because that covers the gap between what rents in social housing will produce and the cost of development. So, there's no prospect of that money being paid back, because the payments back, the rental income, is already being used to its maximum in the sense of being able to pay back money that is borrowed, and our conventional capital fills that gap.

In Help to Buy, which, as you will very well know, is the most obvious use for financial transaction capital in this field, there is a return on it, because when houses are sold and so on, then the money comes back. So, with Help to Buy, when there have been 6,500 houses brought forward as a result of Help to Buy since the scheme began there, the payment back is secure and FTs suit that very well.

The stalled sites fund, I think, is a good illustration of the difference between the two. So, the stalled sites fund is designed to bring into productive use sites that are in the hands of small and medium-sized enterprises—small house builders, very often—but where the state of the site is such that it's not saleable; it can't be brought to market because you wouldn't find a buyer for it for it given the state that it is in. Some sites are close enough to market that FTs alone will be enough to invest in it, bring it up to a saleable level, and it can be sold and the money can be repaid. But, some sites are further away from the market than that and they will need an injection of conventional capital in order to get them to a state where repayment is possible. So, we provided £8 million out of the £14 million conventional capital. It will allow between 0 per cent and 20 per cent of the investment in any site to be made in conventional capital terms and the remainder through FTs. So, there you can see how you're trying to use the two different forms of capital we've got for a combined purpose, but with each strand doing something slightly different. 

So, there obviously could be a repayment risk in terms of the stalled sites fund, but your officials, or perhaps in Ken Skates's department, are identifying which would be most appropriate in terms of readiness to go to market. I think we know of Neptune 6 and the steel industry support. Both have received financial transactions funding as well as general capital.

So, in each case, to go back to Jane's original question, an assessment of risk has to be made because money cannot be advanced in this way unless you are confident that the money will be repaid. There is some flexibility over the length of time over which money can be repaid, so the stalled sites fund is a 15-year term and we expect that the money will turn over four times during that period. So, we think there will £160 million-worth of investment in stalled sites in Wales over the lifetime of that fund as the money gets returned and gets loaned back out again.

We use the Development Bank of Wales for this purpose because this is what they do all the time. So, the assessment of risk is what they are the most expert at. So, risk is assessed at the departmental level, Ministers get advice to say, 'This is an investment you can afford to make because the money will come back within the terms of financial transaction capital', you do it through the Development Bank of Wales, because that gives you another assurance, and our decisions and our repayment profiles have to be reported to the Treasury as well. So, there is a further potential check in the system at that point.

Chair, is it worth me explaining very briefly that the Treasury expect 80 per cent of financial transaction capital to be repaid to them in the end? So, there is an acknowledgement that if you're in the risk business there will be some risks that don't work out in the way that you expect. So, there is a tolerance in there that allows us to make these sorts of judgments.

Just saying, not for a response, really, I think we are very interested—and in fact Mike Hedges asked a question of you yesterday, for the leader of the house. We're very interested as a committee in the increasing use of financial transactions. So, I'm sure we'll return to it.

Indeed, and Mike wants to return to it now.

Can I return to it now? I'll ask you in public as I've asked you in private previously. Financial transaction money is to be actually used in the economy portfolio for loans that are currently given out of normal capital. So, you could actually then change around where the money is coming from, because we expect loans to be repaid anyway, and consequently you'd have more capital to spend on our roads and schools. Also, can you back-allocate? So, you've had £80 million of transaction capital that has been given in November; can you back-allocate expenditure during the year so that it can be allocated to transaction expenditure if it fits into those criteria? Like making a loan to company X of £10 million, you've taken it out of ordinary capital, you've now got £80 million in this, can you back-allocate it? Or, once it's allocated against a heading, is it allocated?

I'll ask, for the final question, for some help from people who are more expert on the detail than me. I can make two points, though, Chair. I heard Mike's question to the leader of the house yesterday. What I thought, having heard it, that I might do is I might write to Mike, setting out some of the terms, conditions and restraints that there are on financial transaction capital, and then put a copy of that letter in the Library for any other Member who wants to know a bit more about what the rules are here. The second point to make is that, given the real constraints on conventional capital, I will always ask any Cabinet colleague who comes to me asking for conventional capital whether they have explored the potential for financial transaction capital to be used first. So, if they can use financial transaction capital, then that's what they need to use, because I've got more of that that I can make available, and I only will be allocating conventional capital in those cases where there's no prospect of FTs being within the rules or being able to be repaid. As to retrospectively going back to decisions and substituting FTs, I imagine it would be difficult, given that we will have entered into agreements with various other parties, but I'll just check—have I got that right?

Well, if we've already entered into an agreement, yes. I think the point would be that financial transactions—. A loan is a financial transaction. What we're talking about when we generally talk here about financial transactions with the Treasury is the fact that they've made this portion repayable. So, if there was, following this budget, a proposal that came up that was able to substitute loan funding, if it was seen as viable and could be repaid by the department—because obviously they wouldn't be expecting to repay something from their general capital—we could look to do that and report it, because that would be outside this budget. Rather, it would be a discussion with the Treasury.

Okay, can I just finish this point? If you make a loan to a company, you don't give them £10 million and wish them luck; they tend to have it in portions. Now, the portions would probably go throughout the year. So, if you've given the company £10 million, you've given them £5 million in April, but come November/December, the next tranche of £5 million becomes payable. Is it able, then, at that stage, to say, 'Well, we'll make it a repayable loan; that extra £5 million can come out of this transaction capital rather than out of the departmental capital'?

We could make that choice, yes.

Thank you.

Okay, lovely. Nick Ramsay, then, please.

Diolch. Morning, Minister. On the subject of roads, has any direction been given to the local authorities regarding the use of the £30 million capital to maintain and prevent the deterioration of local roads?

Well, there's an agreement with local authorities over how that money is to be used. So, the money is available to them in this year. They can use the money this year in relation to the refurbishment of local roads, or they can utilise the funding to displace capital expenditure incurred this year to free up resources that they can use in the next financial year to invest in local road improvement. The key thing there is that the £30 million must be used for road improvements. I'm happy to be flexible with local authorities about how they bring that about and if it means moving money around in their own budgets to do that, I'm going to be relaxed enough about that, but what I'm not relaxed about is that the money must be used for the purpose that it has been agreed and can't leak out into any other capital pressures that local authorities face. So, I had a meeting, myself, with the WLGA—the lead spokespeople on all of this—to nail down these final conditions of the grant. The grant will be reported in the normal way, so there will have to be returns from local authorities to the Welsh Government describing how the funding for road refurbishment has been used and giving us a guarantee, therefore, that the £30 million has been deployed for the purpose agreed.

So, it couldn't leak out into a schools budget, for instance, and then—.

No. They could displace money this—. They could use some of the money this year to pay for school expenditure to create headroom next year, but it can't be extra school spending; it's got to be extra road spending. That's the whole basis of the agreement.

In terms of the M4, what's the funding looking to achieve and how is the allocation in the supplementary budget split between public inquiry and enabling costs?

The money that is in this supplementary budget is entirely connected to the local public inquiry stage of proceedings: £24 million of the money set aside is connected to the public inquiry; £3.819 million is associated with Newport docks enabling works. That's how you get to the figure of nearly £28 million. Within the public inquiry figure of £24 million, £7.3 million is to do with administration of the inquiry itself—stakeholder liaison and so on. There's £1.87 million, which is the result of successful blight claims—farms, buildings that can say that the threat of a road going past their property or through their property's had a blight impact. There's £1.6 million of legal and professional advice, which has been secured for the inquiry. So, £24 million for the inquiry itself; £3.8 million for the docks enabling works and then, within the public inquiry, you can split it down into its different components.

That's part of the agreement with the—. Because the docks were opposing the new road originally, weren't they, and they are now pro it?

There is a subsequent set of agreements not covered by the figures I've just given you that Ken Skates announced a few weeks ago, which is an agreement with Newport docks for various mitigation works there to make sure that the operation of the road doesn't adversely affect their business. Those were the figures that were reported that led to some discussion on the floor of the Assembly about the scheme as a whole, but that's not reflected in this—

But that's not in these figures.

It's significantly more than this.

Significantly more than this, yes.

So, none of this is part of that agreement. That's a future budget.

That's not part of that, no. That's outside this supplementary budget.

Just on that, could you explain why you no longer need the £20 million in reserve? What has freed up in your capital to allow you not to need—? When the original budget was presented, there was that identified reserve for the public inquiry on the M4 works.

Well, the money has been taken from reserve for that purpose, Chair, so it has been—. We have used it.

Ah right, okay. 

The difference is that in the original budget I anticipated that I would need to draw down borrowing to cover that amount of money. I've been able to do it with—

You've been able to do it within the portfolio.

As I've always said, I try and use the cheapest money first, and that's the cheapest available. So, I haven't needed to draw it through borrowing, but the £20 million has been used for the purpose originally identified.

Fine. I understand. David Rees now please.

Cabinet Secretary, you've already answered earlier in this morning's session—you've highlighted the fact—that you can't speak for portfolio colleagues and it's for them to allocate how they spend their money. I appreciate that, but you are responsible for deciding how much they get to allocate and perhaps the value for money returned on that—in other words how it's being delivered and the efficiencies to ensure that what they're asking for actually delivers what you are looking for.

And health clearly is an area where—. Your experience in the past will give you an indication as to the challenges facing that portfolio. You've allocated more money this year to health in the supplementary budget, understandably for pressures, and part of that is actually also a £35.2 million package to look at unplanned deficits in two health boards. I'm very conscious that several chief executives might say that they've got unplanned deficits. So, what discussions have you had with the health Secretary to ensure that these unplanned deficits are going to be covered and that other deficits—? Because I know many health boards have deficits and they are all facing challenging times. So, are you comfortable that the funding you have given will be sufficient for all health boards across Wales, not just those two, to ensure they can continue to deliver the services?

Yes, Chair, I am confident of that in that general sense. My job is to work with the Cabinet Secretary for health to make sure that he is able to bring his main expenditure group in within the total amount of money made available to it, and with the extra allocations in this supplementary budget I'm confident that the health budget will live within its means. Of course, David Rees is right to say that there are two health boards that are reporting deficits above the control totals that were set for them at the start of this financial year, and that inevitably poses a challenge for the health MEG to manage that. Partly, that is done by brokerage from other health boards that are doing a bit better than had been anticipated at the start of the year, and partly it's by using other sums of money in the MEG, which will have to be re-prioritised to take account of the position in Hywel Dda and in Betsi Cadwaladr. But in the round, will the MEG manage? Will it make sure that we are able to go on providing health services in every part of Wales, including those places that are struggling to live within their means? Yes, I'm confident that that will happen.

Okay. Have you placed any priorities on the additional funding you've given with the health Secretary?

Well, a number of different sums of money have been made available to the health portfolio in this budget. In revenue terms, there was a £50 million allocation earlier in the year to allow the improvements that have been achieved over the past two years in waiting times in the health service in Wales to go further. It is important to say, because sometimes I think this does get lost in the debates on the health service, that waiting times in Wales, despite the enormous pressures of austerity on our budgets, have improved step by step over the last two years, and will improve again this year despite the winter that we are having. So, there are commitments that health boards have made against that £50 million. If those commitments are delivered, then, at the end of this year, referral-to-treatment-time waits will be the lowest since May 2013, waits for therapies will be the lowest since September 2011, and waits for diagnostics will be the lowest since June 2009. So, yes, that £50 million came very precisely with purposes laid out for it, and the health Secretary has been clear to health boards that if they don't deliver on the commitments, then the money they've been given will be clawed back from them.

Can you confirm as well, then, that the extra £10 million mentioned yesterday is included in the figures you've already put in the supplementary budget, or is it additional to that?

It's not additional to it. It's money managed within the MEG. There is money, as you've seen, for winter pressures, which was identified earlier as far as the health service is concerned. This winter has already been colder and longer than the winters of the last two years, and those pressures spill over into social care as well as the health service. The £10 million yesterday is designed to allow our colleagues in social care to make an extra effort in the last weeks of this financial year to create more headroom in the health service. So, it's more domiciliary care, it's more service from Care and Repair, and it's a greater ability to spot-purchase places for respite and residential care, all of which is designed to allow our social care services to do the fantastic job they do in relieving pressure on hospitals.

I appreciate that. I just wanted to make sure that it wasn't additional.

No, it's not additional. It's within the MEG's own resource.

Can I ask—? Obviously, the parliamentary review has been completed. The Cabinet Secretary for health is obviously working through that. Has he been in discussions with you, and does this supplementary budget actually reflect any move towards implementing the review at this point, or is this actually something that we'll be looking at in next year's figures, basically?

Well, I've had preliminary discussions with the Cabinet Secretary on the parliamentary review and some of the recommendations it makes in relation to investment to change the way that services are currently configured and delivered. It's not covered in this supplementary budget, which is essentially backward-looking rather than forward-looking. The Welsh Government is committed to go on investing in the health service, and I'm committed to a conversation with the health Secretary to see if there are things that can be done to help him in taking forward the review's recommendations.

Okay. Obviously, it's something that we need to watch and see how it works and pans out.

On the capital aspects, clearly there has been £41 million of allocated capital, and I'm going to highlight, perhaps, certain aspects—the technology, ongoing works at Ysbyty Glan Clwyd and Velindre's Transforming Care programme. I will also highlight the digital radiography rooms, and before anyone says anything, my wife works in radiology in ABMU and therefore I can fully understand, actually, the need for that capital investment, because it's not just about us—. We talk about delivering efficient services and transformational changes, but it's actually ensuring services are delivered, because as rooms break down, services are failing and maintenance costs are high and so you need to use revenue as a consequence. What analysis have you done on the actual spend to ensure that it is delivering those efficiencies and that it will continue to operate? Does any of your consideration reflect that, actually, this is a need to continue service, rather than to improve service?

Chair, a great deal of capital investment in the health service is inevitably to do with service continuation, because equipment wears out and needs to be replaced. You're always looking to hope that it can be replaced in a way that is more efficient in revenue terms—that it will do more and last longer and be able to do more than the previous generation of machinery did. But a huge amount of what goes on in the health service is just keeping the show on the road. If you're using single-use instruments in surgery, for example, every time the surgery is over, the instrument is thrown away and has to be replaced with another one. So, of course, David Rees is quite right to say that lots of what we do with capital in the health service is to do with just making sure that services are able to continue.

But when there are new investments being made—to answer your original question—there are two key tests that I look at with Cabinet colleagues. I always say to them that I will give greater priority to capital investments that lead to revenue savings, because revenue is under such pressure, eight years into austerity, that if you can say to me, as a Cabinet Secretary, if I have some capital here, it will allow me to run that service more cheaply in revenue terms in the future, then, I will always be listening carefully to that case.

Secondly, I always try and put an extra priority against those investments where there is service change being supported as well. So, there's a significant sum of money in here for what we previously called the SCCC, which is a major service change, of course, in the south-east part of Wales. And, the money that you mention in relation to Velindre is, of course, investment in a whole different way of funding that development, but that will create the cancer centre of the future for the greatest concentration of population in Wales. So, both of those are service change cases, and I look to try and align capital against those two criteria, as well as other things we take into account: 'Does it save me money? Does it contribute to change?'

One final question, if it's okay with the Chair. The health and social care committee's report on the draft budget actually highlighted three areas, but it was about perhaps developing an all-Wales efficiency programme and asking health boards to prioritise capital for primary care. Have you had those discussions with the Cabinet Secretary for health to look at how that capital for primary care investment is important? Because we are often told that primary care is the front runner—it has 90 per cent of visits by any patients—but it is also one that seems to be struggling, very often, capital- and revenue-wise. So, have you had discussions to look at where those recommendations from the healthcare committee can be implemented by the Welsh Government?

I'm very well aware of exactly those points, Chair, and this time last year, we created a new £40 million investment fund for primary care—new capital moneys that the Welsh Government could use to promote primary care. And that is part of our commitment to make sure that that recommendation, and the Cabinet Secretary's own ambition to support primary care in doing 90 per cent of the contacts that are in the health service already—but more that can be done. We know that the old-fashioned model in which people travel inconvenient distances, wait long periods for routine outpatient appointments that are of low clinical value and could just as clinically successfully have taken place in primary care, and closer to people's homes—we have to be able to change the way that that system works, and investment in primary care facilities is part of the way that we will make that happen.

Jane, on this. 

There's an announcement that's been made by the Cabinet Secretary about extra funding for social care, so presumably that, obviously, is a new allocation he's been able to make. Is that an important priority?

Absolutely. Those are all services in the community that will be bolstered by that £10 million. They are, as I said, very much in the winter pressure context to allow social care to do even more to help us through these challenging winter periods. But all that money will be there to be further investment in services close to people's homes and in that primary and community care interface. 

Neil Hamilton. 

Putting aside party-political considerations, I have every sympathy with you in coping with the consequences of certain health boards failing to stay within their budgets. It seems the problem, to an extent, is getting worse, because for the current three-year rolling period I gather the figure for the deficit is now £253 million, or expected to be £253 million. Taking it on an annual basis, the aggregate deficit to December 2017 was £135 million. It is expected, for this financial year, to be £170 million. So, I don't envy you having to cut your coat according to that particular cloth. Are you sure, or is it your opinion, that the allocations to NHS organisations in this second supplementary budget are sufficient for them to achieve their financial duties? In some of these cases, perhaps this is an intractable, endemic problem, and therefore there ought, perhaps, to be an adjustment of the baseline figures.

On the first of those two questions, Chair, it is clear—and David Rees mentioned it in his question—that there will be two health boards in Wales that will not live within the means available to them, even with the extra money that is available to the MEG in this second supplementary budget. What the Cabinet Secretary tried to do, as I explained—he set control totals for all health boards and his expectations of those two health boards were already more generous in the leeway that they were being afforded than other health boards in Wales. So, it is particularly disappointing that that recognition of some of the underlying struggles that those health boards face—that even with that recognition, they've not been able to manage within the resource available to them. I know that my colleague the health Secretary will be taking action directly with those health boards to see what can be done to put them in a position where they will be able to manage better in the future. 

What I think you will see, I believe, at the end of this year—I remain confident that, at the end of this year, you will find that, in the round, health organisations in Wales have lived within the totals available to them. So, there has not been a further rise in overspending in the health service in that way. Then, the ambition of the health Secretary is, with the extra investment that we are giving him, that that will be on a downward trajectory now, over the next small number of years, because we are providing an extra £230 million plus £50 million next year, and £220 million plus £50 million in the year after. I'm not for a minute saying that health boards don't face significant challenges of demography, of demand and so on, and have to make efficiency savings of their own, but within the resources available to the Welsh Government, I think we are doing as much as we possibly can to assist them in that difficult job.

Four of the health boards have significant deficits and three of them have got very small underspends. I know it's just a small amount of money, but what's going to happen to that underspend? Is it going to stay within the system? Is it going to be rolled forward as happened last year, to be used as part of the health budget?

It'll be used as brokerage, as it's called in the health service, where people who have underspends help out people who have overspends, in order to bring the system as a whole within balance. So, the money doesn't go out of the system. It remains within it, but it's used in that sort of mutual help, self-help way. 

What preparations have the Welsh Government been making during 2017-18 to manage these potential overspends, and to what extent are you addressing the underlying issues, which I think was the input of my last question, really? You did mention, obviously, the kinds of problems that face the health service all through the United Kingdom—demography, demand and weather and all that sort of thing. It's quite clear that health is going to consume a larger and larger proportion of Government expenditure overall for those reasons for the foreseeable future. I appreciate your problem is keeping control of these totals—you can't just simply sign a cheque for whatever the demand might be—but we have to recognise that there are persistent pressures that are not going to go away and that, therefore, unless we're to stagger from crisis to crisis—and I don't say this in a critical way; that's just a fact of life—then we have to recognise that this has to have been addressed as a systemic problem. 

Well, Chair, the question was how we prepare for it. I've adopted the same approach as my predecessor, in that I meet every month with the health Secretary, and with his finance officials, and with mine, and we go every month through all the returns and look to see where pressures are building, where there are opportunities to mitigate them, where funds that the health Secretary himself holds centrally can be deployed to manage pressures, and what we can do to work with organisations who are in persistent difficulty to put them in a position where they can manage better within the means available to them in the future. I wish I could say to you that there were easy, off-the-shelf solutions that you can use, and I don't want to stray into party-political stuff either, but just in general to say that you will know that whenever changes are proposed in the health service, changes that would help a board live within its means by reordering the way that it does things, that inevitably gives rise to anxieties amongst local populations who are very attached, in a usually positive way, to the health service that they know. And so, bringing about some of the changes that would have a beneficial financial impact run into the realities of the difficulty of making change on the ground. I often quote the King's Fund as saying that the change in the health service is easy, there are only three barriers to it—the public, the professionals and the politicians, and without them, it would be straightforward.

Very wise words. When you appeared before us on 5 July, you said there was no automatic assumption that the money provided would be repaid in respect of these overspends. What are your current expectations for repayment of current and historic overspends? Are you able to give us any figures on that?

Well, the basic position is the one that I articulated previously. There's no automatic expectation that additional funding provided to NHS organisations in deficit has to be repaid. We are trying to keep organisations' heads above the water here. There is no point in trying to offer them help with one hand while pushing their head back down under the water with another. So, we can always continue to be in a conversation with them about how the money that's afforded to them to allow them to go on managing could be repaid in the future, but it's not automatically expected that it will.  And there's no point—there is no point in trying to make provisions of that sort that simply lead to the solution you're offering with one hand being unravelled by a condition that you insist on with the other.

Would it be safe to assume, then, that no money has so far been repaid?

I can look to see, because I don't think that would be automatically the case for every organisation, so I'd need to check specifically. But I believe there are organisations where we've provided assistance where that money has been repaid. I was referring more to those organisations that have— 

But we're looking in particular at the two health boards, with this systemic, structural deficit, almost.

Yes, the largest challenge on their hands, and where repayments would simply add to the difficulty of managing.

David, do you want to come in?

Just a quick question, and perhaps I can—[Inaudible.]—from a financial perspective, because I can understand your role compared to the health Secretary's role. But clearly, two of these health boards—ABMU has a £26 million projected overdraft, overspend; Cwm Taf only £8.6 million. But both of those health boards are undergoing a change—a restructural change—proposal, which I think the Welsh Government is keen to pursue. That will inevitably incur costs of rebranding, there's no question of that, and maybe some service issues. Financially, is it wise to actually start changing now and putting extra pressures on those boards, which are already overspending, and to actually look at this and say, 'Well, let's focus on the services we currently have, improving those services, rather than rebranding and restructuring'?

Well, Chair, I certainly would expect rebranding costs to be at the minimum end of any spectrum. If there are costs that are involved in the restructuring itself, then, for me, they would have to be on the basis that they are an upfront investment to allow health services in the future to be better organised and better managed and therefore better able to live within the means that they would have. These are proposals at the moment and there are consultations going on around them. The financial aspects of any change will be of interest to me, and that is the test that I will be applying to any consideration that I have to give to them.

You tried, David. Mike Hedges.

I'd like to thank David Rees for making the case against local government reorganisation so well. If it's going to cost that to do so with health boards, with local government it's going to cost substantially more.

The question I've got—the same question I asked last year, almost—is on student loans. We had £700 million last year, we've got £700 million net this year, and a quick prediction: we'll have £700 million next year. And somebody once described student loans as a giant Ponzi, and I'm not convinced they're not wrong. The question I've got is: this doesn't have any effect, does it, on the amount of money we have, and it's just an accountancy activity, but, surely, at some time, on a Welsh/British scale, some of these loans will be coming to an end and they'll be written off within the next 10 years? So, the first ones, over 30 years, are coming up to 20 years soon, so you'll start having some write-offs of these. What happens then?

Well, luckily enough, Chair, I have to manage the here and now, rather than what will happen then. Look, the points that Mike Hedges makes are fair ones, aren't they? The person who invented this scheme recently described it as a gigantic mistake.

That was Lord Adonis, I take it.

Lord Adonis, yes, indeed. And just in a factual way, we know that write-offs have increased over recent years. Is that right, have I got that—?

Yes, certainly, I think it would be fair to say this resource accounting and budgeting—or RAB—charge budget that you're referring to increases every year, and the percentage of write-off has historically grown. In terms of—there was also a question about when, almost, this comes to fruition. I think one of the points is that, in making these write-off charges now, we're already predicting—and this goes into Treasury's modelling—that amounts will not be repaid.

But on Mike Hedge's initial point, he's quite right: the £300 million in non-cash increase that you see in this budget is not real money—in my terms, anyway. It's not money I could have spent on paying for other things and it's money that has been provided to us by the Treasury to cover the non-cash element of the student loans.

I suppose the biggest mistake was the Labour Party letting Lord Adonis back into it after he'd left, but that's perhaps a party political issue.

It's certainly beyond the remit of this committee. [Laughter.]

Can we move on to homelessness and rough-sleeping? We've talked about the health costs, and a view I hold, which I keep on articulating, is that housing plays an important part in ill health. It's not a matter that seems to have permeated through to everybody yet, but I think it's something that we need to give some good consideration to. We've got an issue of money relating to homelessness prevention, which I think is an incredibly important issue, but additional moneys as well at some stage—. Can any of this money be used actually to deal with poor-quality housing? There are people in my constituency living in cold, damp conditions. Is it any surprise that they end up getting ill?

The answer to that probably is that that's not one of the purposes of this money. The money is aimed directly at people who are without a home. I'm not for a minute denying what Mike has said about people who live in homes that are themselves unsatisfactory and have health impacts, but this money—the additional investment here—is for homelessness services. They do have a health component to them, because, as I recall, there are four main things that the money is intended to do. No. 1—it will increase the number of bed spaces available for people who are without somewhere to live. Secondly, it will provide additional support services for those people. I think one of the things we’ve absolutely learnt in homelessness services is that it's not just a matter of accommodation—that people who've had very tough times and very difficult things happening in their lives need help with other aspects too. The third thing, then, is mental health services. Some of this money is going to be used to strengthen the interface between homelessness services and mental health. And then, finally, as I remember, there is a strand in the money that is being spent with the Wallich Clifford organisation, and that is to get a better handle on the number of people who are homeless in Wales and to draw up a better database than we currently have, so that we've got a better sense of numbers and where they are and the nature of the people who need this assistance.

I'll take advantage of the, Chair, here—the other thing, of course, you need to know is those people who don't actually have a fixed abode, who aren't actually sleeping rough at the moment but are one night from doing so, if no friend or family are prepared to put them up.

Of course. We've always in Wales resisted moves to change the definition of homelessness to rooflessness—you can be homeless, but still have a roof over your head, but you don't know where tomorrow's roof is coming from. In those situations, you are homeless. There have been sometimes moves at UK level to try and not count those people and count only people who are literally roofless, and we've always resisted that.

Unfortunately, that list also includes children.

My last question is on the economy and infrastructure portfolio. There have been a number of changes of allocation within this portfolio. Are these changes changes in prioritisation of programmes or changes in the amount of funding that's needed, or a mixture of both?

There's a mixture of both and there are other factors as well, Chair. The single biggest intra-MEG change in the economy and transport portfolio is what appears as a reduction of £18.4 million in relation to the superfast budget. But the explanation for that is that what we have done is been able to draw down EU money for that purpose in this year in a way that we hadn't originally anticipated. So, there is no reduction in resource for that purpose, it's just that we've been able to use European money to support that expenditure this year in a way that wasn't originally expected, and EU money, as you know, is a bit more flexible in the way that you are able to deploy it. So, that created £18 million-worth of headroom within the MEG and that's why you see some additional allocations inside the MEG for road infrastructure, active travel schemes and local transport priorities. So, it's a mixture of the factors that Mike mentioned, plus some other flexibilities that the MEG was able to deploy to be able to move money around inside it, to pursue its priorities and sometimes to do more than it would otherwise have been able to do.

Okay?

Yes.

David.

Thank you, Chair. Based upon—obviously, we're waiting on the consequentials of that £3 billion, and, yes, you said the £50 million is actually money from Welsh Government funding at this point in time, rather than the consequential of the £250 million from the UK Government. So, based upon the work that you've done to date, have you identified an expectation of funding that you would require to support businesses in the years ahead? Because, clearly, you've just produced a Government trade policy, it's based upon work done by Cardiff University. There should be some indication in there as to the type of funding or the level of funding that might be required. Have you identified that and perhaps how that would be separated into the different MEGs?

I don't have a definitive figure as to how much we think will be needed, Chair. The First Minister announced the £50 million Brexit preparation fund very early but deliberately in order to make sure that we would shape the use of that fund with a maximum input from those people who we hoped to benefit from it. There was significant discussion of it last week at the European advisory group, which will be helpful to us, and it's being discussed in many other places too. There's a tricky set of balances to be thought of here. I'm always allergic to the idea that Welsh Government money should be used to discharge responsibilities that belong to the UK Government, and there are Brexit preparation steps that will be needed in Wales that clearly fall to the UK Government to fund and we need to—. We need to police that line, I think, pretty rigorously. So, that's one set of things. 

Then there is the whole issue of replacement funding that we get from the EU now. So, Wales, as we know, is a major beneficiary of funding from the European Union, and we get it because of need, because we qualify according to the rule book. The Welsh Government's position, which has been strongly supported on the floor of the National Assembly across parties too, is that that money must continue to flow to Wales in the future and be available to assist individuals and businesses and localities that will need that help in the future too.

Then over and above that is the money that we are finding and will deploy, through the consequentials that come through Brexit preparation, to provide further and additional help. At the moment, we are thinking of that pretty much in that transition space, that it's money to help people to prepare for the world they will be in the other side of Brexit, rather than as a sort of permanent additional investment in those businesses. So, it's trying to distinguish between different responsibilities, different funding streams and how you are trying to use them, and then to have the maximum amount of help in doing that from people on the ground who have to make these decisions and make these things happen.

I appreciate that. I just want to clarify, because you mentioned the replacement funding from the EU, that this is totally separate from that replacement funding.

Exactly. That's the point I was making. You've got to try and juggle and balance these different aspects in a complex pattern.

Okay. Oh, sorry.

You've just inspired me to speak. I've always told the Conservatives, much to their amusement, that I'm a socialist in as far as I believe in the redistribution of wealth across the United Kingdom. I think the country would be far worse without that redistribution. What you've just said is being done against the background of devolution of tax. So, under this Government, the UK Government, but also under future UK Governments, isn't there a danger that the pressures on you are going to increase as a Welsh Government finance Secretary? Because they will say, 'Well, if you want to raise the money, you've got your taxes, do it yourself', which I think is fundamentally wrong, but I think that the pressures will be there.

It was a Conservative who asked that question, just to put it on record.

A Conservative socialist. [Laughter.]

This is a very big debate, Chair, isn't it? The case for the United Kingdom, in my mind, has always been a pragmatic one, that it does allow for resources to be transferred from places that are better off to places that are worse off. I'm perfectly happy to have a debate about the idea that devolution might reach a point where further fragmentation of responsibilities, for example in social security or in taxation, could actually mitigate against the ability of resource transfer across the United Kingdom, rather than be an assistance to it. I don't think we're at that point now. The modest amount of fiscal devolution we have now I don't think does put us in that position, but I agree that there's a proper debate to be had about the point where you might get to, where, actually, what you are being offered in terms of devolution would be against your own long-term interests in being able to operate a United Kingdom that transfers money from some parts of it to others where need is greatest.

I suppose, taking it to the extreme, Wales might qualify for something from the foreign aid budget, if devolution goes to that extent. [Laughter.]

You heard it here first. From that political philosophy, then, to something much—[Interruption.]—to something very, very practical, if I may. We've been looking at your supplementary budget, but the Assembly will be looking at a supplementary budget that also includes the Commission supplementary budget and the public audit office's supplementary budget, so just to remind Members that that's what we actually look at as well. We've previously looked at them, so obviously they're not subject to scrutiny today, but I just wondered how that process worked from your point of view in Welsh Government, because it was done quite early on. Has that been something that's been streamlined and been effective from your perspective, just in terms of putting the one supplementary budget together?

I suppose I'd make two points, Chair. The first is, yes, the earlier the process happens, the more helpful it is to us, because any decisions that are made to allow organisations to have a greater claim on the consolidated fund means there is less left for the Welsh Government to do everything else. So, the earlier we understand that and the more we know about it, the better position we are in to manage it. So, I think that's the most important answer. The more general answer is that I'm absolutely sure that this committee would take as rigorous a view in scrutinising requests for further funding from other organisations as you expect me to take when I'm managing the Welsh budget, and your ability to do that in a robust and rigorous way has a direct impact on the money that's available for public services in Wales.

I'm sure you've taken note of our views on some of those budgets in recent times. No further questions, in which case, diolch yn fawr iawn i chi.