Cynulliad Cenedlaethol Cymru

Good afternoon, everyone. Welcome to this afternoon's meeting of the Public Accounts Committee, and welcome to our witnesses as well. Headsets are available as usual for translation and sound amplification. Please ensure any devices are on silent. In the event of an emergency, follow directions from the ushers.

We've received no apologies today. Do Members have any declarations of interest that they'd like to make at this point? No.

Okay, item 2, and we've got some papers to note. First of all the minutes from the meeting held on 8 October. Happy with the minutes? Good.

Moving on, and the implementation of the NHS Finance (Wales) Act 2014—we have a letter from the chair. Andrew Davies has provided further clarification on the former chief exec's settlement. Auditor General, did you want to say anything about that letter?

Nothing major from me, Nick, other than that the fundamental point from our perspective about regularity of payments remains the same. We're entirely comfortable with that.

Okay. Happy to note that letter.

The Permanent Secretary has sent me a detailed response about the work being undertaken to develop the Welsh Government's relationship with its arm's-length bodies following the review 'Delivering Together'. As we've got you here, Permanent Secretary, did you want to add anything about that letter?

I think it's pretty self-contained. I'm happy to respond to any questions, either now or in writing, if you have any particular questions. 

Do Members have any questions to the Permanent Secretary about the letter?

I think it might be—[Inaudible.]—about the annual report.

Good. And if anything else does transpire, then we'll let you know in writing. Did you, auditor general, want to—?

No, I'm sure Members will pick up issues during the questioning.

Good. Okay.

So, moving on to our substantive item, item 3, and the scrutiny of the annual report and accounts, and can I welcome our witnesses again? Would you like to give your name and position for the Record of Proceedings?

Shan Morgan, Permanent Secretary for the Welsh Government.

David Richards, director of governance for the Welsh Government.

Gawain Evans, finance director for the Welsh Government.

Peter Kennedy, human resources director, Welsh Government

Great, thanks. The main part of the session will focus on the consolidated accounts and the annual grant management report. We'll then take a short break and we'll then be asking about, specifically, managing the impact of Brexit on the European Union structural funds—we have a few questions on that.

Okay, I'll kick off with the first question. The accounts this year have been published later than expected. Can you tell us the reason for that delay?

Yes, Chair. and I would like to apologise for it, because I realise that it isn't ideal for committee members at all. The preparation time this year, actually, continued about five weeks beyond the start date that we'd agreed with the Wales Audit Office.

We had tried a new approach this year to try and bring together the core and the consolidated accounts. It seemed a more sensible way of doing it, so that the WAO would be able to look at a more complete document. But, unfortunately, we came across teething problems with that process. To be honest, it was a combination of illness and accidents, plus some technical problems with the spreadsheets, which meant that the main consolidation spreadsheet actually became corrupted. So, as you can imagine, there were a lot of difficulties in resolving that. So, I'm very sorry. We had tried to pilot this new approach in order to improve the process with our colleagues in the WAO by doing it in parallel, but it didn't work, for reasons that I think were pretty much beyond our control. When I met the auditor general recently on an introductory discussion, we agreed to have a wash-up session to see how we can improve things for the future, how we can try and achieve our aim of smoothing and streamlining the process of the production of the report insofar as the WAO is concerned, but without encountering the problems that we had this year. So, I do apologise. We will learn from this. We're having a wash-up session. I hope that is in our diaries already. I guess the thing that I would like to underline is that it's very clear that the production problems that we encountered were in no way any reflection on the integrity or rigour of the actual accounts themselves.

A couple of questions on the back of that. The former auditor general suggested, in his valedictory session with us, that he felt that Welsh Government accounts were falling behind in terms of pace, falling behind Westminster in terms of transparency. So, how do you address that and what changes are you going to make for next year so that we don't see a similar repeat of this year?

I answered this very briefly in my letter back to you, Chair. I think the first thing to say is that it's not really appropriate to make a comparison between the Welsh Government and Whitehall, because we're obviously a Government with a very wide span of responsibilities, rather than a single department. I think, within the annual accounts, we have a very clear picture about how we spend the money. We've tried very hard to improve part 1 this year so that it gives the general public—as well as the PAC, obviously—a better picture of the activities that the Welsh Government carries out and what we spend public money on. Indeed, there may be more we could do to improve that, and, again, I'd look forward to discussing that with colleagues in the WAO.

When I read the detail of the former auditor general's comments, he seemed to think that we should be reporting on performance against the Government's objectives, but that, of course, as I underlined in my letter to you, is very much a matter for our Ministers and not for this report, which is my report as principal accounting officer. If you look at the span of documents that we produce as a Welsh Government, I really do believe that we more than match what is available from Whitehall and, indeed, from the Scottish Government, because I know that the auditor general made a comparison with the Scottish Government. If you put together the annual accounts, plus the annual report on 'Prosperity for All', which was published in September, where Welsh Ministers report separately on their objectives, plus the annual well-being of Wales report, you have a very, very broad range of information telling you about what's happening in Wales, what the results are, progress against the 12 well-being of future generations objectives, the six priority areas for 'Prosperity for All'. It is very much in-depth and very wide-ranging.

Something I think that I would like to underline, of course, is that not only do we provide the same level of information, just in a different format, in a number of different reports, but actually having the Well-being of Future Generations (Wales) Act 2015 means that we have a much broader span of things to report on, to think about, and that is something genuinely innovative that nobody else has. So, I think, add all of the reports together. I really don't believe that we are not transparent. We do things differently. I believe that we do things clearly and coherently, but across, essentially, three different documents.

So, you'd be opposed to the previous auditor general's call for a whole-accounts look as well.

Do you a mean a whole of Government account?

A whole of Government account, you could say, yes.

I think that's a different issue. I've heard the WAO talk about that before. To be honest, it's not something that we've been pressed for. There hasn't been a lot of interest in it, but I would certainly be very happy to consult other stakeholders on whether that would be something worth doing. Essentially, it would mean bringing in local government accounts into the annual accounts, and I guess it's really a balance between providing comprehensive reporting versus, perhaps, overwhelming the reader. At the moment, we have a fairly clear focus, rather than a, sort of, mass of information. But, as I said, I wouldn't rule that out. I'd be very happy to consult on it. Obviously, I would have to put that to the First Minister for a decision about how we present things, but I think that's a bit different from the point that I think the auditor general was making about transparency of reporting in the accounts. So, I think it's a slightly different situation. 

Okay. Rhianon Passmore.

Thank you, Chair. I was just going to ask a little bit—. You've mentioned the core and the consolidated reporting, and the attempts to get that right at this particular point, and we've obviously gone into the issue around the former auditor general's comments around the ethos around transparency for Welsh Government. So, in regard to that balance of governmental objective reporting and ministerial reporting, where do you feel this set of accounts fits in that regard, and is that optimum, bearing in mind what you've just said about potentially looking at whole of Government accounts, potentially, in the future, if that were to be the way forward?

I think the annual accounts that we have here look at how we spent the money. There's a, sort of, fairly prescribed format for two of the three parts of the report. It's only in part 1 where we have flexibility to do something different that we think is better for Wales and where we have done. When it comes to the annual accounts, that includes both an explanation of where the money has gone over the course of that particular year and detailed financial statements explaining that. And, within it, it also includes a number of, if you like, organisational targets—administrative targets of one sort or another. So—

So, to interrupt you—that was fully understandable, but in regard, then, to the comments around whether the balance is right between ministerial reporting of objectives and governmental objectives in this report, do you feel that it's correct? 

I believe it is correct.

Okay, in terms of that balance of mixture.

I believe that it is correct, and the 'Prosperity for All' national strategy is the document that sets out very clearly performance against—

So, you wouldn't agree with the former auditor general, then, on those points?

Not on that, no. 

Okay, thank you. 

And finally from me, what are the key performance indicators for the Welsh Government organisation, and how are these reported in the consolidated accounts? 

I guess that leads on from Miss Passmore's question and how I was answering it. There are, throughout the annual accounts that you have in front of you, a number of different, sort of, administrative and organisational targets that really are about the performance of the organisation itself. So, there are things in there about assurance statements, timely payments, complaints, a whole loads of things that we're doing in relation to emissions, environmental issues and other areas—complaints and so forth. They, it has to be said, are fairly scattered throughout the document. I'm clear that they're all there. So, there's quite a wide range of objectives, but I think—. We have currently under way a review of the Welsh Government's business planning process, which covers the whole of the Welsh Government, and it is being reviewed by the board over the rest of this year, and I think it would be worth while to include, as part of that review, a look at whether we could, in future annual reports, perhaps pull together the current targets and standards and other, sort of, administrative elements and organisational targets that are contained throughout the whole document. We could perhaps usefully pull them together as a table. I think that probably goes in line with the point that Miss Passmore was making as well. This is very much following on from the work that we've been doing throughout the whole year on overhauling the governance process and the decision-making processes in the Welsh Government. It flows from that. 

In terms of the process of setting the Government's objectives and monitoring that, that was covered by the review that you mentioned.

Yes, that's right.

Good, thanks. Mohammad Asghar.

Thank you very much, Chair. You have created a director general for the office of the First Minister and Brexit group. Can you detail the changes to the Welsh Government structure due to this post? Has there been any impact from this role on your good self?

Yes, there has. Before this new director general was appointed, I had direct line management responsibility for about 1,300 of our 5,000 or so staff. It seemed to me that that wasn't right, that it wouldn't give me the time to lead and manage that group of people effectively. So, that has been the effect on me.

But why I wanted to look at a new DG and a new structure, it was something, in fact, that I mentioned at my first PAC hearing—I think, in my introductory hearing—that I was going to have a look at the structure of the organisation, because since the organisation had been restructured some years ago, we'd obviously had the referendum and that changes things massively. So, the decision to set up a new directorate-general was directly flowing from the additional work that comes from dealing with Brexit. It seemed the right thing to do. It is a temporary DG post, very deliberately. It focuses on the immediate strategic and constitutional challenges facing us, particularly in relation to Brexit, but I'm conscious that the world could look very different in a couple of years' time, and therefore I wanted to create a temporary post that I could review at the end of a two-year period. So, that's what I've done. We'll review. That post has now been in operation for probably six to nine months; I will review it at the end of a two-year period and, if necessary, reconfigure at that point. But that all depends very much on where we are with Brexit and there are so many unknowns there.

Jenny Rathbone.

Chair, can I just—

Sorry. Rhianon Passmore.

very briefly on that point, if I may? In that regard, obviously that's a considerable movement in terms of that temporary post and the reprioritisation of experienced staff and I would presume adequate resources to go with that. From your perspective, bearing in mind the unknown risks attached to what we are potentially looking at, and looking at all those probabilities, are those actions sufficient and optimum for where we are at the moment, or is there more that you think possibly could be done at this point in time?

In relation to resourcing for Brexit?

In relation to the whole—

The whole of the Welsh Government—

—portfolio of measures that you've put forward to be able to look into that situation.

For looking at the Welsh Government as a whole, the structure as a whole. It seems to me to be right. It's been in place now long enough for me to have a good sense that this is working. I think we have to, given the uncertainties of Brexit, remain very agile, ready to reprioritise very, very quickly to make sure that, whilst keeping a cap on our resources, we are deploying them most effectively across the organisation.

So, you would say that's optimum for where we're at at the moment.

I think so and I should perhaps have added that we took a decision not to provide a sort of additional support function under the new DG, but he actually shares mine, because we didn't want to split out any of our resources. So, we share resources, which seemed to me a good way forward, and particularly bearing in mind that this is, for the moment, a temporary appointment.

Okay, thank you.

Jenny Rathbone.

Thank you. There's been a significant increase in the number of exit packages agreed in the financial year we're looking at compared to 2016-17. I mean, very significant: 21 to 156, that's a very significant number. Could you just explain what the strategy is behind those exits and what savings you expect to get from their departures?

Yes. To be honest, I think we could have been a little bit more explicit here. This was a voluntary exit scheme that I brought in in order to both reduce overall staff costs within the Welsh Government, because we were coming up against our limit, but also, just as importantly, to create headroom to take on people with new skills—digital, Brexit policy related, those kinds of skills, and also, importantly, apprentices, because we wanted to bring in a number of new apprentices. So, this was a voluntary exit scheme. It looked very carefully at who we could afford to lose to make sure that we weren't losing people with the kinds of skills that we were then going to be recruiting for for the future. But we agreed 156 at a total cost of about £5.5 million; that was a one-off cost, and, actually, it generated savings of about £6.5 million, so we have made a return on that investment within 10 months. So, by the end of May this year, we had actually covered the cost and created a bit of headroom so that we could recruit some more people with the skills that we're looking for for the future.

Could you just explain why, in nearly a third of the cases, it involved severance packages of between £50,000 and £100,000?

Well, the average was actually £38,000, I think the lowest was about £4,500, so they were very, very varied, but some of the people were entitled, through the rules, to significantly higher payments. But the average overall was about £38,000.

Okay, so that was these agreements that you've reached with the trade unions—the relevant trade unions.

That's right. It is a carefully defined programme. 

Okay. So, you've just told us that you're already anticipating savings from having shed a significant number of staff. How does that complement the additional resourcing you're going to need to manage Brexit?

We're doing a number of things in relation to resourcing Brexit. The First Minister, I think, in the Assembly, recently mentioned the 200 additional jobs. We've also set up a new talent management scheme, where we're encouraging the most talented within the organisation to come forward onto a programme that will place them in a series of jobs focusing on Brexit priorities, and which will give them personal development for the future, so, ideally, accelerate their learning and development and give them the opportunity to present themselves at a promotion panel. 

So, we have the 200 additional jobs to cover the most intensive period of preparations over the transition period, assuming there is a transition period, plus a talent management programme to persuade and encourage some of our best people to shift onto Brexit priority areas. But, frankly, ever since the referendum, the Welsh Government has slowly been identifying priority areas and moving people across from lower priority areas into the Brexit priority areas so that we now have, if you like, two sets of resources. We have the EU transition team in the centre, under the new DG, who look at constitutional, strategic and co-ordination issues. They are the people who produced the excellent series of Welsh Government reports on different aspects of Brexit. And then in the individual DGs, and particularly, obviously, the directorate-general leading on environment and rural affairs, where much of the immediate work is required, they have been reprioritising pretty ruthlessly throughout the whole organisation to make sure that their resources are focused on that. And Brexit has really been mainstreamed through their activity, inevitably, and in all contact with their stakeholders. So, there is a great deal of activity going on and that will all continue, and we will have to adapt as soon as we know what the actual outcome will be after the end of March.

So, although you say that there have been savings of about £6 million through the loss of the 156 posts, obviously the 200 additional jobs that you've had to create to cope with the Brexit nightmare actually means there's going to be an increase in the cost of staffing.

We have been given, by the Cabinet Secretary for Finance, an additional ring-fenced amount of money to cope with the particular pressures of Brexit during the critical phase, as I said, and the new jobs are coming from that funding.

Are you able to put a figure on the additional costs, or will we have to wait until next year?

I don't have a figure, because it will be up to 200 jobs, but they are determined on a needs basis, and they will be at different levels, depending upon what the need is. We are being, obviously, extremely rigorous about where we put those jobs, what we agree to, and there's a process of applying for those jobs.

I think Rhianon Passmore had a quick supplementary.

Very, very quickly, then. In regard of the fact that, obviously, this is our most pressing economic priority at this moment in time, and rightly so, obviously, those persons who are going through this recruitment, promotional, incremental possibility within the Welsh Government have come from somewhere, and, obviously, in terms of backfilling what I would presume are very necessary jobs in the first place—otherwise, they wouldn't have been there—what sort of impact is that going to have on ordinary, normal business for Welsh Government?

Well, I think, as you say, we simply have to prioritise absolutely ruthlessly. Some of those are—. Some of those jobs are ones that previously were focusing on EU business, and therefore it makes sense that, now, they are focusing very firmly on, for example—'Brexit' is a very broad term—preparedness, so that all of our systems, and that is in particular in the areas of rural affairs and environment regulations—that there is a seamless transition, ideally, from where we are at the moment under EU legislation through to whatever follows from Brexit.

Jenny Rathbone.

Just briefly, can I just ask you about the increase in sickness absence? On page 63, you talk about extreme weather conditions, but, surely, there's the internet; people can work from home if they can't physically get to the office on a particular day.

And, fortunately, an awful lot of people did. I live very close by, in Canton, so I was able to walk in. The building was pretty empty—I'm talking about the snow period, which was when we saw a lot of sickness. But you're absolutely right; most people in the organisation were able to work from home. But after that period is when people fall sick. So, we have, unfortunately, seen an increase in short-term, particularly, sickness absence. It's something that I am very concerned about. We've put in place a health and well-being strategy to try and tackle that. You'll have seen elsewhere in the report a reference to the introduction of a well-being hour, where we're encouraging people to carry out physical or other activity that is going to help improve their well-being; we've also been carrying out a lot more outreach and direct personal contact with, particularly, people who have been on long-term sickness. So, all of those sorts of things. We're drawing on best practice. We'll continue to review that. It continues to be a priority for me, and saying that it was partly due to extreme weather conditions isn't in any sense an underestimation of the seriousness with which we take it.

Okay. Because, as I recall, you're a bit of an outlier here. So, presumably, you want to bring yourselves down to the average.

Yes, absolutely. Yes.

Okay. Thank you. I just wanted to ask a further thing about—. The remuneration report notes that payments were made to one of the board's non-executive directors for commissioned work within the Welsh Government. How is that not a conflict of interest?

That's Ann Keane, I think, that you're referring to. She is a non-exec director of the board. She led a task and finish group for the Cabinet Secretary for Education, and it was felt that she had very strong credentials for doing that. She's a former Her Majesty's chief inspector and she has real expertise, real credibility. So, she led that group that was advising on the new National Academy for Educational Leadership. The academy got off the ground and she stood back from it, but I think we have benefited enormously from her expertise.

Obviously, she's a highly experienced person, but I just wondered whether, in principle, that isn't a conflict of interest. You can't be a non-exec scrutinising what the Welsh Government is delivering on if you're also contributing. How do you manage those conflicts?

Well, it was very specifically commissioned work with a clear remit, a clear time limit, and, as such, we managed it outside of her role as a non-exec director.

If I could just add to that—the secretariat for the board is responsible for making sure that they're aware of any interests that are declared by NEDs, because we ask all our non-executives to declare all their interests, and then the board secretariat is vigilant. Should somebody be coming to a board meeting that might actually represent a conflict, then it will discuss how they handle it with the member concerned.

Okay. Thank you.

Rhianon Passmore.

Thank you. There's been real progress made towards meeting and achieving our targets around gender diversity in the workforce, so, in terms of that, can you outline what action you've taken to address the gender pay gap, bearing in mind our position in Wales?

Yes. There's a very brief reference on page 59 to the gender breakdown of the Welsh Government, and we certainly have been doing a lot on this. To be honest, there remains a great deal to be done, and I personally welcome the leadership that we've seen from the First Minister and from the leader of the house, who are absolutely determined that we're going to make progress in this area.

In relation to the gender pay gap specifically, it's currently about 8 per cent; it's gone down from about 12.5 per cent in 2011. So, we are making progress. It's actually quite volatile because it's a relatively small number of people, because we are measuring, obviously, the gender pay gap at the SCS—at the senior civil service, the higher levels. Some of the roles in the senior civil service of the Welsh Government are secondees, in from, for example, the health sector. Their roles attract a market premium, understandably, to make sure that we're getting the right quality of people in to do those jobs. And, at the moment, a large proportion of those higher paid secondees in are male. So, you see that circumstances can, despite the systems that we have in place—they can lead to unforeseen consequences.

We're very clear, from the analysis that Peter and his team have done for the First Minister, that this isn't actually a reflection of any underlying systemic equal pay issue, it's absolutely not that at all. That doesn't stop us being concerned about it and wanting to reduce it.

So, what actions have been taken in the past year in order to be able to mitigate for the wider societal issues that we obviously can impact upon here in this place?

Basically, what we've been doing is taking forward an action plan that is designed to attract and recruit senior women into the senior levels of the civil service of the Welsh Government. There's a whole range of things we're doing, from outreach, headhunting for jobs, but also making sure that our adverts are inclusively worded, that our panels, for interviews are properly made up, and are, essentially, gender friendly. We've also signed up to Chwarae Teg's FairPlay employer benchmarking service, and that's helping us develop an action plan to reduce the gender pay gap. That's going to be important over the course of—

And in terms of an action plan, at some point, it would be good for it to go to—. The appropriate committee, I'm sure, would be very interested in that.

I'd be delighted. It's very much at the early stages at the moment, but it's going to be a wide-ranging programme. But I would also say that I don't want to lose sight of wider diversity issues, which are of equal importance to us. We have targets to increase the proportion of black, Asian and minority ethnic staff in the Welsh Government, and also disabled people, and those are also extremely important. We're doing different things in relation to each of those groups, and we're also very keen that the Welsh Government is seen as a welcoming, inclusive employer, including for LGBT staff, and we've seen some successes in that area over the course of the year.

Okay, thank you.

Thanks, Rhianon. Adam Price.

I had a bit of trouble as well, so it wasn't just me. Sorry, I should've noticed that you weren't getting the translation through. Sorry about that. Right. Try again.

I can only apologise, because this is not something that has traditionally been done. I'm sure that it is something we could look at for the future.

Apologies. The Welsh-language version is being published today, because we were so late with the accounts this year, as the Permanent Secretary has mentioned, we had the English version to sign off a couple of weeks ago. I did check this morning to make sure that it had been published and I was told it had been published. We had a couple of typos that we needed to go through with the Welsh language version. As I say, apologies, the plan was that it would go out today, in terms of being laid with the Assembly and being published on the website.

Thank you. It hasn't been submitted yet, because I've asked for some further work to be done. I've asked for further work in three particular areas. The first to look at what we mean by 'bilingualism', which is what the report talks about, which is a pretty broad term—we need to narrow it down, we need to make sure that people have the same understanding of what it means.

Secondly, I've asked the team who provided the secretariat for the report that you're talking about to carry out a review of best practice in Welsh language standards across the Welsh public sector. There are some parts of the public sector where they have been defining and implementing what they call 'level 1 Welsh', which is quite interesting, but I want to see what's happening across Wales as a whole, what we can learn from that, in more than, simply, tick-box terms. We already have core standards in the Welsh Government about availability of spoken Welsh to people who enquire to the Welsh Government. We already make sure that our communications, whether it be through e-mail, out-of-office messages, all sorts of things, employ Welsh as well. But I felt that things had moved on, that we ought to look at what's happening in practice across the public sector as a whole, and I think that there are some very good practice models out there. I want to make sure that we use that. I'm a Welsh learner myself, so it's something I really take very seriously.

The third area of work I asked the team to look at was to conduct a review of the training opportunities that are available to staff in the Welsh Government to help them learn the language. Having come from the Foreign Office myself, I'm used to extensive language learning and take it very seriously. I want to make sure that we have a range of training opportunities that will fit people's different learning preferences and needs. So, that's what they're doing. I found, for example, that what was on offer last year to me by way of an intensive language course wasn't right, and was pretty inflexible about what I could do.

So, I've asked for those three things: work to look at a definition of bilingualism; a review of best practice across the public sector; and a review of training opportunities available to Welsh Government staff to make sure that they're sufficiently wide-ranging. And, obviously, I've discussed this with the Minister for the Welsh language, who is very keen that we make progress in this area.   

Everybody has to meet the current Welsh standards already. That, I think, is simply a given, so there is that building block already in place, and people across the Welsh Government are encouraged to take up Welsh language opportunities. I think it's next week that there's a Welsh language promotion day with the Commissioner, when we will be spreading that message again. But what you're talking about is the work that will go beyond what we already have in place. The process for that will be to have a discussion at the board of the Welsh Government. That's what is still to happen. The three reviews that I've commissioned will contribute to that and will go alongside the original report that you've talked about and brought up today. In fact, I think you're right—it's the South Wales Police who have developed the level 1 language—

We are part of the UK civil service and we operate within the framework of the UK civil service, but that framework gives flexibility in a number of areas, and we use what we think is best for Wales and for this organisation. But we definitely operate within the framework provided by the Cabinet Office, but we have had a very good look, over the last year or so, at where we think it really works for Wales and where we think we could do something better.

There's a lot of work going on across the UK civil service as a whole. I contribute to that. Most Wednesdays, I'm in London at the meeting of permanent secretaries, and from time to time we discuss those sorts of issues so that we can share good practice. So, we're within the framework, but developing what we see as best practice—drawing on that from elsewhere.

So, what I've called the 'futureproofing initiative' covers, really, four big areas. One area is about how we work—working better across departmental areas in line with 'Prosperity for All', but also working much more in line with the well-being of future generations Act and the five ways of working. The second area is leadership, where I have put in place, with our human resources colleagues, a really widespread and rigorous programme of leadership training across the whole organisation, because I believe that leadership goes through every level of the organisation. The third area of futureproofing is wider learning and skills. So, digital, project management, policy in relation to Brexit and so forth. We've been doing some quite innovative work there. We've got a TEDx licence, which I'm very proud of. So, we've been doing some exciting courses. We've also—in the fourth key area related to futureproofing—been doing a lot of work on performance and talent management and promotion, because I think they're all very closely linked. We've had, in the past, the traditional, outdated civil service approach of a set of objectives, a midyear review, and an end-year appraisal, when people look back at performance and have probably forgotten what the thing was about that they're discussing. So, a backward-looking, 12-month process seemed to us not to be right. We wanted something that would really enthuse people much more and help people to recognise where they needed to change, where they had strengths, and needed to build on where they have gaps.

So, the performance system is a process of continual discussions, regularly every one or two months, so that people have quite intensive one-on-one discussions with their line manager to talk about strengths. We put up a strengths testing tool online. Three fifths of the organisation have gone through that—3,000 people out of 5,000 have gone through it to work out what their personal strengths are, to be able to have that conversation with their line manager and talk about the future.

In tandem, we have also been looking at our promotion system. This year, this autumn, we're introducing an assessment centre for a particularly important grade that is a kind of gateway to the future and for that we have set out the kind of qualities we're looking for in people. We've also put out to the organisation the values and standards we expect. I got Sophie Howe, the Future Generations Commissioner for Wales, to give her views on the sorts of things that we were talking about in terms of values and standards for the organisation. So, a lot of messages about who are the people who are going to prosper in the future, who are the people we want at different grades throughout the organisation. There will be a very intensive process of assessment this autumn for one particular grade that is a really key one and we will continue to roll out that kind of programme across the other key grades.

It is very resource intensive, but it seems to me to be absolutely right to be able to assess properly the performance of our staff and to assess who is right for promotion in the organisation. In the past, there was a bit of a tendency for people to hope that if they stayed long enough in the same job then they'd get promoted into the grade above it, whereas we're sending out very clear messages that people need to build up a much broader kind of CV. Obviously, that plays into the Brexit development programme as well, the leadership programme there. So, we're doing an awful lot to make it clear what we expect of people and making sure that line managers are really engaged in giving strong performance information to people, focusing on strengths but without dodging any of the tough messages that go with that.

Then, linked to that is a new and evolving promotion process. I've taken the best practice from elsewhere in the UK, the rest of the civil service and internationally, and also we have spent a great deal of time in the organisation holding workshops in all of our different locations and across the whole organisation, so people understand what we're trying to do and contribute to the process of developing those systems.

I've said a lot about it and you will probably detect this is probably the thing that I am proudest of over the course of this year. It's something I care about intensely. I think it's my job to help make this organisation more capable, more sustainable, more skilled for the future at a time of continuing austerity and great uncertainty.

To stick with the change programme, the futureproofing, the previous programme of reform, which was called Fit for the Future, ran for less than two years. It wasn't very fit for the future then, was it, would you say?

It laid the way for this. The people who worked on that did some really excellent work, and when I arrived I drew on that to prepare for this work. I have to say, I didn't come in with a Shan Morgan change programme in mind. I think that would have been a huge mistake. I looked at what had been done already, I drew on best practice from this organisation and worked with a very wide range of people across all of our offices to try and develop that and take it a step on from where it had been under my predecessor, who laid the foundations for all of this.

Which were the new elements then? So, where was it weaker or where were there gaps?

I think it's in specifics, perhaps. What I've tried to do is follow that direction of travel and accelerate the action. So, for example, on leadership, we have brought in a leadership expert called Steve Radcliffe, who is very highly regarded, and I think probably about 1,000 people or more throughout the organisation have had direct training from him and his organisation to really give a boost to our leadership in the organisation. So, that's a specific that I've been doing. I've mentioned already how we are looking at innovative learning and development programmes, so the TEDx—that's been really exciting. We've got another one soon on inclusive leadership and we've had one on digital.

Another thing that I've tried to do is open people up to new ideas, which I think is really important. I, throughout my career, have benefited from having a very wide range of opportunities to do things in different organisations and see how different organisations work. We've set up what we're calling the Short Term Experience Programme, which gives people the chance to go out and do a mini secondment somewhere, a few days to a few weeks, perhaps to do a project inside the Welsh Government—I've had some in my office—in the voluntary sector, in the private sector. We've got a wide range of people signed up, including Welsh National Opera. There's lots of very exciting placements. For me, that's something really important: to give people the chance to go and experience something different and open their eyes to different ways of doing things. So, those are just some examples of specifics, building on Derek's work.  

Very briefly, in the section on savings, there's a figure of £3.46 million secured. It doesn't seem like a very high figure—

Sorry, which figure are you looking at there?

Well, the efficiency savings—maybe it's such a small figure, possibly it hasn't even sparked your interest or attention, but it's on—. So, this is referring to the location strategy, so I think it's property savings, which probably explains the small quantum. Broadening it out from there, do you have a similar target across the entire Government and do you benchmark yourself against other governmental organisations in terms of the level of efficiency savings per annum that you're aiming at, not just in relation to your estate? 

We don't have efficiency targets as such. My job is to enable the Welsh Government to deliver the services it needs to deliver within a budget that is frankly very tight. But what we have seen this year is the development, under the chairmanship of Mr Drakeford, of an efficiency board—an improving efficiency board. That is at the early stages of making savings. The location strategy made its chief savings much earlier on. It's now coming to the end of its five-year lifetime, there are only a few more areas to look at. That's why the figure is lower at this stage, but there have been some very significant savings achieved in the past.

In terms of what we're doing on efficiency more generally, we're setting up a range of projects that come into Mr Drakeford's efficiency board. At the moment, we have four, one of which is pretty much complete. Centralisation and simplification of grants and assurance—we've introduced a new target-operating model to manage all of our grants and streamline the core functions, whilst leaving ownership with the policy people.

We have looked at how we place burdens on other people as well, so there's been a project looking at stakeholder and advisory groups best practice to make sure that we're not inundating people with requests to give us advice, and that's concluded with some guidance on best practice to staff.

There was the arm's-length body, which I think we'll come back to later. That has been, not looking at the efficiency of the arm's-length bodies themselves, but at how we manage our relationship with then. We expect some savings from that by the launch of the new public bodies unit, which will streamline some of the work that was done by a variety of people before. But, more importantly, we'll be improving best practice across all of our arm's-length bodies.

And, the final one—and this one may well yield more efficiencies, I think—is that we have a corporate services review under way by Deloitte of, essentially, our HR, finance, corporate governance and facilities management systems. That's going on at the moment. They'll report, I think, in four or five weeks' time, something like that, and they are looking at how we deploy resources across corporate services, across the whole Welsh Government at the centre and in each of the groups. And I would expect a number of jobs to be freed up as a result of that. I should emphasise: they will not be jobs lost, they will be resources freed up that we can use elsewhere at a time when the organisation is under pressure. 

I'm very grateful for that. I think it would be, probably, helpful to the committee if the savings realised from those different programmes would be set out in future reports, so that we can have a global picture, really, of the efficiency drive.

I'm very happy to do that.

One area that you do refer to in your report, on page 22, is information technology. Interestingly, there's a decision you're reporting there to take IT and telecommunications services back in-house. I'm wondering, is it efficiency savings that is driving that, or is it greater effectiveness and is there a frustration with the current subcontractor, really? What's driving that fairly big decision for you to do that?

We're coming to the end of a major contract, the Merlin contract. So, that gave us the opportunity to look at future information and communications technology requirements. That was quite a milestone.

We will by trying to do both of the things you said. This a mix of cost-effectiveness, plus doing things better, learning from best practice. I think, at the time that large contracts like the one that we had with Merlin were first set up, this was standard, if not best practice across the UK Government as a whole. But, that's not true anymore. I think there's a feeling that those large contracts are now pretty inflexible, they don't allow us to keep track of shifting priorities, changing organisational requirements and, in fact, changing technologies.

So, we are looking to this to bring cost savings, eventually, but also, improve the way we do things. Because we're bringing it in-house, we will increase our own in-house capacity, which will allow us to do other things in other projects as well. Because, up until now, we've had very, very limited in-house capacity on ICT. We've bought it in from the outside.

Finally, if I may turn to the issue of transparency, and particularly in relation to financial assistance to business, which has generated a lot of interest to date. I recently had a written question response from the Cabinet Secretary for the economy, infrastructure and skills, among other things confirming the amount of additional money to Aston Martin, but also confirming that there was, effectively, a guarantee in place in relation the headlease over the St Athan facility of Aston Martin over a 30-year period. So, if the company goes bust, essentially, or walks away from the contract for any other reason, then the Welsh Government would have to pay Legal & General, who are the owners of the site. Now, in that reply, it says,

'I can confirm that the contingent liability was recorded in the Welsh Government published accounts for 2017/18.'

Can you tell me where?

I can tell you where the contingent liabilities are published—that is page 89, table 12. You will see other legal and contractual claims under there. You'll see three items: legal claims, which essentially relate to the NHS risk pool; potential contractual obligations under the Welsh Development Agency Act 1975 flowing from the WDA; and then other legal and contractual claims. There are a number of items included in there, but I have to say that those figures are commercial in confidence, which is why they are not spelt out in detail, but that's where they are—it's under the contingent liabilities.

Right, because this has been the long-running problem, hasn't it? Because it was the Information Commissioner who forced the Welsh Government to publish the actual quantum of the grant, because the Welsh Government were refusing to do so for reasons of commercial confidentiality, which is what you're effectively now saying prevents you from telling us what the—. Presumably, buried in these figures, therefore, is the assessment of the contingent liability that the Welsh Government has agreed to in relation to this rental agreement, but you're not prepared to say what it is.

I'm afraid I can't say more than Mr Skates has already said. I should say, though, that the Cabinet Secretary for Economy and Transport was able to give a response to you on the grant and the existence of the guarantee fee arrangement at that time because of the timing of the flotation of the company.

As I understand it, I don't think you've entered into any other headlease arrangements since the financial year previously. I know that because I've asked other written questions. So, all I need to do, really, is to actually subtract the—. Presumably, this would be an agreement under the Welsh Government core, rather than the Welsh Government group, because it's an agreement you've entered into as a Government. It's not one of your arm's-length bodies.

It is, but, as I said at the beginning, there are other items included there, but they are all, I'm afraid, commercial in confidence, so, I'm sorry, I cannot give more information.

Are you able to tell me whether the Welsh Government has entered into any other headlease arrangements of a similar nature?

I don't believe I am, but—

Well, the Cabinet Secretary has already referenced one with the BBC. That's the only other one that I'm aware of, but you're not able to tell us whether any other headlease arrangements—not naming the companies—have been entered into in this period.

I think I would need to take legal advice before I came back with a response on that, I'm afraid.

You're not even able to tell us whether any other headlease arrangements—. I'm not asking you to name the companies or to breach any commercial confidentiality, I'm just asking you simply if any other headlease arrangements at all have been entered into.

I think you're going to get the same answer. I think you're clear, Shan Morgan, that you're not going to go any further on that.

I'm sorry, I really don't think I can go beyond the statement made by Mr Skates on 4 October.

Can we write to you on this issue afterwards when you've had time to consult?

Of course, and I will seek legal advice.

Thank you. No further questions.

Just in relation to Adam Price's earlier question about the absence of the Welsh language part of the accounts on the website, I asked you earlier about procedures you've put in place to make sure that this situation doesn't happen again next year. Will Adam's question be dealt with by that process as well? Because I think when you're looked at as the lawmakers you have to adhere to them as well—I'm sure you'd agree.

Yes. I can only apologise for the lateness of the report in English and the greater lateness of the report in Welsh.

Great. Okay, Neil Hamilton, I think. No, not Neil Hamilton, you're looking—. Rhianon Passmore.

Thank you, Chair. In regard, then, to your response to the highlighted issues that you've referenced around arm's-length bodies and the review of sponsorship arrangements, how are you ensuring, then, that any changes and any desired benefits that are not outweighed by the risks—can you outline what risks you're referring to in terms of, potentially, the new tier of arrangements around chief executives signing off around, for instance, approval of the single tender, the higher specified threshold and the segment on novel and contentious issues? Can you outline those risks because we, obviously, want those benefits that—?

Absolutely. Perhaps I could give an overview of the outcome of the arm's-length body review, and that would help put it in context. As I said, it was a review of the relationship between the arm's-length bodies and the Welsh Government, not of the arm's-length bodies themselves, and the conclusion was that we needed to move to a much more strategic and mature relationship with them, partly through better communications but also giving much clearer accountability to the CEO of each arm's-length body, and that we also needed to spread best practice. We've set up a senior leaders forum to do that. It will meet three times a year. I attended the first one, and there was a great deal of enthusiasm for the opportunity to meet all the chief executives and chairs of the different arm's-length bodies, to get together and talk about best practice, priorities, concerns and so forth. So, the risks that you're talking about will be mitigated by close management of that relationship, now through a more streamlined process, which is the public bodies unit. But essentially, the change to the calling-out procedure means that the responsibility lies very squarely with the CEO and the relevant body for the action, rather than there being, perhaps, a bit of confusion about whether the Welsh Government might have that. So, what we are trying to do is build a culture of greater accountability and responsibility within all of the organisations and—

Which sounds eminently sensible and moving in a good direction. So, could you outline for me, then, what you mean by the risks attached to that? Is it the fact—? I mean, I don't know. How would you quantify any new risk being attached to that, apart from the fact people can assume they're no longer arm's length, which they are?

The risk is, basically, we don't find out something we need to know in time. But the calling-in procedure and attendance at the board was actually a very blunt instrument for that, because a lot of the things that would be helpful for us to know don't come up at a board meeting, and they don't get covered by the calling-in procedure. So, it's actually a blunt way of getting the finger on the pulse. So, what we want to do is move up the conversation. A number of the arm's-length bodies said to us, 'Look, we don't feel we're coming into the organisation at a senior enough level, because we want to have strategic conversations about the things that are coming up, and a mature conversation around where we're going.' So, in part we're responding to what they've said to us themselves, so the risk is we don't find out, but the mechanism we had before wasn't a very good way of finding out, in any case.

So, just if I can just ask further to that, then—so, you say there's a risk we don't find out. Can you explain to me how that might not occur? I'm having difficulty in trying to unpick that.

Yes, of course. We have sponsor teams, and one of the things we expect our sponsor teams to do is have a regular dialogue with the sponsored body about the issues that they're finding emerging, about our own strategy, about their performance, how well they do—

But that's going to still continue, isn't it?

That's going to continue. But we also want to have a conversation at a more senior level with the additional accounting officer who's nominated the accounting officer of the sponsored body with the deputy director, who's actually about strategic things. And then we also hope that in the public leaders forum, they will have a forum for all of the chairs and the chief executives to come together and share the kind of issues they think are of concern. So, we hope we'll have a more quality dialogue as a result.

I'm still struggling, Chair, if I may, in terms of what you feel you've lost. Obviously the call-in procedure, but if you've got adequate and appropriate mechanisms, as you've just addressed—. That's what I can't understand.

I don't think we've lost anything. I think we've gained, and that was the whole point of the exercise. So, I think it was my fault for not expressing it clearly enough at the beginning. I really believe we have gained, and sitting talking to all of them at the first public leaders forum absolutely convinced me of that.

Okay, thank you. 

Jenny Rathbone.

Given what happened at NRW in two successive years, how is cancelling this calling-in procedure going to ensure that we don't have these car crashes again in the future? Because everybody was astonished that we had a second year of failure to play by the rules. So, I'd like to know why the Welsh Government thinks that not having this calling-in procedure is going to actually improve the performance of an arm's-length organisation.

Well, I'm aware that you had an evidence session—

We did.

—with the new CEO, Clare Pillman, this year, and I think she explained to you the work she’s putting in place in NRW in particular to respond to the situation, and she’s including an independent review, as you know. I think, in relation specifically to the timber contracts, she very clearly agreed with all of the WAO recommendations and has been implementing them, and it will be for the public bodies unit to make sure that that happens.

I’m not questioning her rigour and the vigour with which she will deal with the matter. The point is that we've had the problem two years running and she wasn't around at that point. So, I'm concerned that the Government seems to be taking its hand off the tiller when we continue to have some organisations who don’t understand the rules that any Government body are supposed to abide by.

Well, I think that has been one of the positive outcomes of the arm's-length body review, to make sure that we are giving very clear guidance and more support to them. We are communicating more regularly with them, we're setting out very clear guidance about expectations that we have, and, as I said, bringing them together three times a year for this forum to talk through priorities and share best practice, basically, on how we can manage public money most effectively.

And if I could just add to that, we won't apply this as a totally blunt instrument, of course. So, where there is an organisation that we feel we have particular concerns about, we will stay particularly close to it. In the case of NRW, they did have the calling-in procedures, and we did have the opportunity to attend the boards, and we still had problems over a number of years. What we have done is second a senior member of Welsh Government—

I know. I saw that in your report. 

—to go and actually help them and work with them. 

I saw that in your report. But I think, given what happened, it does rather question the rigour with which the Government was using its call-in procedures to interrogate exactly what was happening, given that you would expect the Government to have had an extra spotlight on this particular matter as it had been so well rehearsed in 2016-17.

It didn’t come through. We were surprised, too, to find that the same problem that arose in the first year came in the second year. Despite the calling-in procedures, we weren't aware of it until it had got to the stage—. But the system worked because the external auditors picked this up as an issue.

Well, indeed, but in the meantime, the Welsh pound—. We lost a considerable sum of money to the Welsh public sector, which is obviously deplorable. So, I’m glad that your public service get-together is going to improve governance, but have you also taken steps to ensure that your internal procedures are in order so that you do spot things where particular attention needs to be paid?

This is partly why we’ve created the public bodies unit, in order to bring together that expertise in one area because, previously, it was more scattered across the organisation, whereas now, pooling it together means that there is a centre of expertise within the organisation.

And just one last thing, if I may—we're also rolling out a programme of board training in these issues for boards, so we’re going round to each of our boards giving them presentations about just the importance of this and particularly for induction for new board members, but I shall be working my way around all the boards.

Neil Hamilton.

Thank you, Chairman. I’d like to ask some questions about governance and internal controls, but before I do that, I'd just like to follow up one point that occurred to me as a result of your answers earlier on to Adam Price about the guarantee fee arrangement with Aston Martin. In the reply given by the Cabinet Secretary to one of his questions, it says that

'the Office of National Statistics has not been notified of the guarantee as this is only necessary if the guarantee is called upon.'

It strikes me that this is a different approach to that which was taken in the case of the circuit of Wales, where the existence of the guarantee itself, regardless of whether it was likely to be called upon or not, was the deal breaker. So, I’d like to ask for your comments on this apparent inconsistency.

I don’t think I really can, I’m afraid. This is taking me into commercial and in-confidence information. I'm very happy, as the Chair suggested, to see what I can write to you about, but I feel that the Cabinet Secretary has made a clear statement on 4 October. The report reflects what we can say in public, and, I think, that is all I'm able to say.

Well, we know that there was a headlease guarantee in the case of Aston Martin and the way that was treated. We know about that because the Cabinet Secretary has already made a public statement in answer to this written question—

I don't think I would make any comparison between the two organisations and the kind of funding that we were offering, to be honest.

Well, I'm making that connection. And I'm asking you, therefore, whether there is a consistency of approach here or not.

I think there is an appropriate approach for the different situations—

That's not the question I asked.

But it's my answer.

I want to know whether you think there is an inconsistency.

I believe there is an appropriate approach for each of the different situations—

Yes, but is it consistent or not?

Chair, I'm very happy to come back to you in writing with whatever my legal advisers tell me that I can reveal in terms of—

I think the Permanent Secretary has undertaken to write to us following legal advice.

I would just like to make it clear that my question arises out of the mention of the Office for National Statistics in the answer given by the Cabinet Secretary, and I assume that the Welsh Government tries to be consistent in the way it treats different cases, and, therefore, the policy of the Government in relation to how it treats information that should be given to the ONS is an important part of that.

I will promise to follow that up in writing, Chair, with your permission.

I think you'll get the same answer if you ask that question any more times, Neil Hamilton, so we'll move on.

Right, we'll postpone that to another day and move to a less controversial topic, if possible. You've had a Government review of governance and internal controls, which has included, as far as the Welsh Government board is concerned, a review of how you review performance, and you took the decision to review board performance throughout the year rather than in a more structured way with an evaluation on top of the ongoing performance review that everybody has in the background. Could you perhaps explain why you did that and what difference this different method of approach has made?

I took that decision this year for purely practical reasons. There were quite a lot of changes to the board in terms of personnel plus the remit of the board over the course of the year, and therefore it seemed sensible, rather than have a snapshot at some point in the year, which might not be representative of the work of the board, instead to discuss progress and performance during the course of the whole year. But, just to emphasise, I have regular feedback from the non-exec directors in particular on the performance of the board and regular dialogue with them. I would expect this year, the current financial year, to revert to the annual stock take because the board has now reached a much more stable position in terms of membership and remit.

Thank you. There's also been an internal audit review of governance arrangements, and I wonder if you could tell us what prompted this, what the findings were and how the new structure will aid transparency and clarity around decision taking.

The internal audit governance review, which we cover on page 31 of the report, really sort of flagged up some broad areas where we could improve things. My director of governance, David, undertook a follow-up review. I had felt when I first arrived that the board needed to be refreshed a bit, and I changed the remit so that the board would provide me personally with a great deal more challenge on our progress and performance. So, those was the origins, the internal audit report, followed up in a lot more detail by the director of governance reviewing the system, and it’s been part of a much wider look at how we govern ourselves across the Welsh Government as a whole.

You’ve had an assurance stock take as well, a consequence of which was—and this is on page 37 of the consolidated accounts—the assurance given on individual audit reports resulted in 11 per cent, seven reports receiving a limited assurance, including financial information in ministerial advice. I wonder if you could tell us how you’re addressing this deficiency.

On ministerial advice, what that audit found was nothing to do with the systems and processes—we have a very rigorous template for submitting ministerial advice—but it was more about the skills of the individuals who were following that template. Therefore, we’ve followed it up with extensive training, mandatory training for senior civil service staff, and that will include a kind of case-study module, looking at providing financial advice on ministerial submissions. Gawain, the finance director, is managing that whole training programme.

We've also, and this, I think, is also relevant, recently introduced a new integrated impact assessment system that really makes it easier for people to make the right policy choices, looking at all the information and bringing all the information together. So, the integrated impact assessment system goes wider than financial information, but it’s part of our response to that, which we’ve already taken forward. I have made it clear to all my staff that I expect every member of the senior civil service to go through that training course.

Good. Thank you.

Jenny Rathbone, did you have a question on that?

Yes. I just want to ask about the ICT arrangements. We see there’s been an increase in the number of incidents where the Information Commissioner is unhappy about the way Welsh Government has handled information. So, I’d be keen to understand how we’re ensuring that, in future, there are fewer of those sorts of things. But, I’m also interested in knowing how well the Welsh Government is protecting itself from industrial levels of cyber invasion. Was this covered in the Deloitte report, or how else are you doing that?

If I can start with information governance and data losses on page 40, as you said, we had 40 data losses in fact reported. In the end, only four of them needed to be reported to the Information Commissioner’s office because of the seriousness of them, and no further action was taken, because it was felt that we’ve got the right systems and processes in place. We believe that it’s probably  because of the lead up to the introduction of the general data protection regulation that people were much more sensitised to data protection issues and, as a result, were probably more sensitive to recording data losses. But we’ll continue to monitor that. Frankly, that kind of sensitivity is a very good thing, so we will want to maintain sensitivity.

We learn the lessons that we can from each case. We have a staff training programme, we have regular security bulletins for staff, messages go out on the intranet and, obviously, there are training courses available to make sure that people understand this. And I think, actually, as part of our preparations for the introduction of GDPR, we, at all levels of the organisation, put out a lot of communications about the importance of data protection, so it is something that I would hope, for the future, people are very, very conscious of.

So, looking at it down the other end of the telescope, there are criminal organisations who are obviously trying to both capture and destroy our systems. 

We follow the highest cyber security standards. We are part of UK-wide cyber security improvement networks, and we maintain very close contacts, obviously, with Cabinet Office and others in London to make sure our systems are absolutely up to date. 

Thank you. 

Mohammad Asghar. 

Thank you very much, Chair. Thank you very much, Permanent Secretary, for all the answers, very patiently, you are giving to everybody. But, when you look at the issues of the financial statements, there are certain issues there. It was very much an eye-opener, comparing the value of losses between 2016-17 and 2017-18, which has increased by £6 million. Also, variation in budget and outturn, especially on student loans, which is a serious figure—£294 million, which is underspent. In other areas, as the Welsh Government, you're trying to set up the Welsh Revenue Authority, costing over £6 million. Finally, also, profit has reduced on the wholly owned companies by the Welsh Assembly in 2017-18 from £16 million to £3 million. So, this is not—. Just earlier, you mentioned, and I very carefully listened, the new, talented team, and I hope you achieve and that these things never happen next year when we sit here and ask you the questions. Can you expand on the disclosure of special payments made in 2017-18, and explain how you obtained the required assurance that these represented value for money in your department? 

I think this whole area is quite volatile. You mentioned student loans. Those figures are expectations of what we can expect to receive as a return on student loans, which is notoriously volatile. But, turning to the accountability disclosures on page 63 in particular, the losses statement refers to, essentially, things like physical losses, abandoned claims, fruitless payments, those kinds of things. You highlighted the special payments. Those are normally compensation payments, ex gratia payments, that kind of thing, and in this particular case, there was, unfortunately, a very serious road traffic accident claim that was settled after a court case. This was an accident on the A470 around the Storey Arms, and the Welsh Government admitted some liability and made a 30 per cent contribution towards the total losses that were claimed, because the case was about road conditions and liability. It was, obviously, a serious accident and a tragic one.    

Thank you very much. And the overall underspend is lower this year than in 2016-17. Do you have any targets around expenditure, how do you ensure that the Welsh Government makes the most of the funding it receives, and what carryover mechanisms exist for departments? 

Any underspends—we transfer to the Welsh reserve, so they are not lost to the Welsh Government, and I think that's probably the most important thing. You mentioned, if you like, how do we make the most of the funding that's available to the Welsh Government. We have to make sure that we are maximising value for money across the budget. That's a big part of my role as PAO. That is an important element of our planning and resource allocation process throughout the course of the year, and also financial management across the Government as a whole. The supplementary budget is obviously a part of that in-year management, and it enables us to respond effectively to any emerging pressures and opportunities. So, I think a focus on achieving value for money, making sure that no money is lost to Wales, but is transferred to the reserves to be drawn on for the future, is an absolutely fundamental part of how we make sure that we make most of the funding that we have.

Thank you.

Neil Hamilton.

I'd like to ask a couple of questions about the grants management report to understand the progress made in the last year in the administration of grant schemes. Can I ask: what purpose do you see in this annual report and do you think it's delivering on the objectives?

The grants management report is there to set out how we have used hypothecated grants over the course of the year and they are, of course, £2.8 billion out of the total, just over £14 billion-worth, of grants. It's a very significant figure and I think it's important that we are seen to be directly accountable for that. Last year, I'm conscious that it was published separately from the annual accounts; it was earlier in the year. This year, we responded to the request by the PAC to align publication with the annual accounts and, if you have further suggestions for the future, I'd certainly be very happy to accommodate those. We could, if you prefer, incorporate the grants information into, probably, part 1 of the annual accounts, but I wouldn't want to lose the information that is in there about how we have been improving the governance and accountability for those funds.

I understand that. The report notes the stakeholder survey that was undertaken during the course of the year, and the outcome of that was that grant recipients were fairly positive and returned satisfaction scores of over 60 per cent for all statements about each stage of the grants process. Can you outline to us whether this survey was completed as planned and whether you regard that 60 per cent figure as adequate in responses?

My understanding is that, for the stakeholder survey, we had a lower response rate, which is apparently absolutely typical for online surveys—apparently, it is a lower response than, for example, telephone or face-to-face surveys. We did contact over 1,900 organisations to try and get their feedback. We haven't actually had the results yet. Our knowledge and analytical services team are analysing the responses at the moment and we expect to be able to put the results on the website, I think around about November this year.

Right. I understand that you're pushing on a piece of string to an extent—you can't compel people to respond—but, obviously, the more people you can get responses from, the better you can evaluate your own actions.

The latest report says that new offers through grant schemes were 323, which was a substantial reduction on the previous year, when the number was 418. Was this in line with your expectations? Are there any policy areas that have seen a notable decline—that's on average—within it?

I'm not aware of that. It's certainly not being flagged up to me as a problem. I think the numbers do fluctuate, inevitably, over time, depending upon the size of the projects and the amount of money we have available. Gawain, do you have any further information on the details?

Yes, with that question, the report refers to the number of new grant offers, 323—that was the question. The 323 reported this year is actually the number of live grant schemes where offers were made. So, that's the total number of grant schemes that we had in place last year. So, I think there's a slight misunderstanding between the question and the report itself. The report actually says that

'The number of grant schemes which have made new offers totalled 323'.

So, just to reiterate, 323 is the total number of schemes where offers were made, so, effectively, the live schemes we had in 2017-18. There were another 43 grant schemes actually on our systems, because we have a grants recording system, but there were no offers made and we go through a cleansing arrangement with the policy teams, and because there were no—. There were no grant offers made, there weren't expected to be any made, so we actually cleansed those off the system.

Right. Thank you very much for that. Can I ask also about refocusing the grant certification process? You had pilots with Neath Port Talbot and Wrexham local authorities. Can you tell us what progress has been made since those, and how do you intend to take this work forward?

Yes. That was a pilot that started, I believe, in 2015-16 and the overall aim of that pilot was to test out how to get the right balance of assurance versus use of resources by both ourselves, WAO and local authorities in fact—you know, what was the right balance. We reviewed the outcome of those pilots and that approach that we took in the pilot has now been rolled out across all 22 local authorities for the 2017-18 financial year. Once we have the audit statements for that year, we will review very carefully to make sure that we're content with that process. But it seems to us to be a useful way of really focusing on the essentials without putting undue burdens on the local authorities. 

At the other end of the scale, after the event, what procedures have you got in train to monitor the outcomes or outputs of the grants that you made so that in future you can inform your subsequent decisions by the experience of earlier ones?

Do you mean the grants as a whole—

Yes.

—or that particular pilot? Grants as a whole.

No, as a result of that pilot. 

Well, we are going to review how the—. Once we've had all the audit statements in for 2017-18, we will review how it went with the 22 local authorities and make sure that the Welsh Government, WAO and the local authorities are content with the outcome. 

Right. Okay. Then, lastly, as part of your improving efficiency board, you're undertaking work to develop a grants assurance panel. Can you outline the intended role of this panel and how it'll work with other groups, such as the good governance group?

Yes. The chair of the grants assurance panel is sitting next to me. The grants assurance panel is there really to give advice and support, bringing together expertise from across the Welsh Government to people who are developing new grant schemes—not just the individual applications for an existing grant, but new schemes. So, it's a panel that will give advice, it's chaired by David, it brings together the grants centre of excellence, state-aid team, legal services, internal audit, tax experts and our Cabinet office, as well as the relevant policy teams. And there is a process of constructive challenge and assurance that the schemes that are being proposed are actually using the best possible delivery route, they're meeting our standards. That assurance group will make sure that they both meet ministerial priorities, they add value, they are proper use of Welsh Government money, and that all risks are mitigated. So, that grant assurance panel comes in—sorry, I'm looking at my complicated diagram of all the different assurance measures—at the point where a new scheme is being developed and therefore before any individual bid comes in.

Right. And then, finally finally, I'd like to ask about your central due diligence function and to ask how this is going to integrate with the due diligence within policy teams. Is there a process of reportage from one to the other and two-way discussion as projects are advanced?

This is one of the developments that came out of the improving efficiency board that I mentioned earlier. It's one of the projects to develop a target operating model for grants that would streamline how we go through these sorts of processes. What we're doing is pulling together a team so that the due diligence work that protects Welsh Government from fraud and so forth is streamlined into one location. That due diligence function brings together experts who are then able to feed into the process of an application, and they will provide checks on organisations and give advice on the quality of the organisation that is claiming funding. But you're quite right: there will remain due diligence functions in each policy team. We don't want to strip that out totally, we want to centralise and streamline as far as possible but without taking away individual responsibility.

If I can just add, the due diligence team work very closely with the centre of excellence, who are responsible for providing overall guidance to the whole organisation and support and training and due diligence function. It's part of the same overall group. In fact, I've been tremendously impressed by them. I spent half a day on one of their training courses, which again was something I promised to the PAC, I think, when I first appeared, so I followed that up and learnt a great deal about how we approach the grant awarding process. It gave me a great deal of reassurance that it is a solid process. 

Good. Thank you very much. 

Great. Thank you. The next part of our session today will be focusing specifically on the Welsh European Funding Office and we have a few questions on that. I propose we take a short break to comfort yourselves. Also Peter Kennedy, I believe, is leaving us, so thank you for being with us, Peter. 

Welcome back, and welcome back to our witnesses, and also Peter Ryland. Thanks for joining us for the second part of our session today on WEFO funding.

I'll kick of with the first question. The auditor general's report highlights some uncertainties about the exact nature of the UK Government's guarantee. Have you now got clarity on this, and does the guarantee now mean Wales will still get the same amount it would have if the UK was not leaving the EU?

Thanks very much, Chair, and we certainly welcomed the conclusions of the WAO report. I think it's particularly helpful where it set out, very clearly, the potential risks for the future.

Personally, I'm very pleased that WEFO has continued to make very good progress on programme delivery, despite all the uncertainties that we're up against. Peter will talk you through exactly where they are, but I think it's very impressive how much they've awarded so far. And, obviously, the Welsh Government is hoping that there will be a positive EU transition deal, and that would enable WEFO to participate in the 2014-2020 EU programmes until their natural end, but, obviously—we were touching on this in the earlier session—we're preparing in case of a 'no deal' outcome, and Peter will talk a little bit more about what he's doing.

Fortunately, as the report makes clear, Treasury very recently, and I think in quite a late stage of the drafting of the report, announced the extension of its expenditure guarantee to the end of December 2020, so that particular risk has reduced. The precise meaning and impact of that guarantee is still very much under discussion with Treasury, but we are—

When do you expect to get some more clarity on that?

We don't have any firm dates on that. The Treasury's given us no indication of any clarification beyond what they issued just in the week or so before the WAO produced their report. They indicated that at some point in the autumn they would try and put a value on the guarantee, which was one of our questions—actually, how much this is worth in pound signs? We're in the middle of October already, so we're well into the autumn and we don't have anything clearer than that.

So, we're still not sure about some of the other big questions, like: are they going to support the overall value of the programmes, or are they just going to support the individual projects as they stand at the end of December 2020? Where is the funding coming from for this guarantee exactly? Does it have other impacts on the Welsh block and so on? So, some of those other big questions are still outstanding. 

But, we do have very regular contact with our Treasury colleagues; for example, on Wednesday, I should be seeing my Treasury counterpart in London, so it's an opportunity to make it clear to him exactly how much this matters to us and how much we need to understand the detail of the impact.

Thanks. Jenny Rathbone, a supplementary.

Obviously, the mood music goes up and down on this one—today, this not-very-good news. What if there is a crash out of the EU? What guarantees do we have from the Treasury that we will continue to get that money up until the end of 2020?

The Treasury guarantee at the moment tells us that they will honour any commitments that we have made—any contractual commitments, effectively, made by the date of their cut-off, which was originally March next year and is now December 2020. That is our main concern, actually, in respect of this guarantee: that it is in respect of those individual commitments. Now, whether there's a transition deal or not, we actually have until the end of December 2023 to deliver all of these projects that have been approved.

That's the big difference, effectively, between a transition deal and a 'no deal': either we will be able to retain some flexibility to manage those projects as a coherent programme beyond the end of December 2020 or we won't. If we have to rely on the Treasury guarantee, the expectation is that each of those projects will be frozen as it is at that point, which gives us no room to manoeuvre if some of those projects are underperforming or if we find other opportunities to do other things elsewhere, and all of the usual programme management tools will no longer be at our disposal. That increases the risk, effectively, of not being able to deploy all of the potential funding that we will have because if there is a project that runs into trouble for one reason or another, we can't then redeploy that funding somewhere else.

It's all very difficult. Given that up until the end of July you were assuming that you might have to commit all of the funding by March 2019, what impact has that had on the type of programmes in the pipeline that you might otherwise have felt were too risky to contemplate?

When you put the question that way, not much, really, I suppose, in the sense that, as we've always said, I don't think we would have chosen 29 March at 11 o'clock in the evening as a deadline for anything in particular if it weren't for Brexit hanging over us, but sometime around about then would have been a fairly sensible point to aim for as our 100-per-cent-commitment target, just because of that one deadline that we were never going to be able to do anything about, which is the end of December 2023, and the projects need to have room after they've had approval to mobilise and deliver. So, in one sense, the uncertainty hasn't made an awful lot of difference to the day-to-day work of WEFO over the last couple of years since the referendum, because we'd still be working to that point as a matter of good practice in any case. What the change in the Treasury deadline has given us some room to do, though, is to think about options. It allows for the possibility of some of the things that are in the pipeline to—. If they represent not so much less risk, but better outputs and better results, if we can achieve better results by hanging on to our money for a little bit longer and still have room to deliver, then we have options, so it does give us a bit more flexibility in that sense. And the other big change that it gives us is that we have, since the WAO report was finalised, agreed with the European Commission that we can introduce a new priority into the European social fund programme, which will support the reforming local government agenda. Now, this is something we've been able to do because the exchange rate has shifted permanently since the programmes were first agreed, five years or so ago. So, we've been able to do that without diluting any of the existing commitments in cash or results in the ESF programmes. Clearly, that's a new priority, so the changes of committing all of that by the end of March are fairly remote, but it's given us an option to do that sort of thing, which we wouldn't have had if we had that deadline of 31 March next year.

Okay, because, obviously, the exchange rate mechanisms in this case work in our favour, because we've got a lower pound since the Brexit result, so therefore the amount of money in euros actually translates into more money in pounds. So, that's presumably given you more money to play with, in terms of projects.

It does to a degree, yes. It goes both ways. It's got to be good in the end. It makes that target of hitting 100 per cent by March a little bit harder if they keep shifting the—'they', if the goalposts keep shifting, because the potential value funding, which is denominated in euros, goes up. Then, depending on what your estimate of what that value of funding is, then obviously the existing levels of commitment could go up or down. And it gives us, actually—. The single biggest dilemma now, at this stage, is judging effectively what we are working against, in terms of what we're aiming for. So, are we aiming for an average value of that euro-denominated funding over the remaining period up until the end of December 2023? Or are we aiming for 100 per cent commitment as against whatever the Treasury might decide that value ought to be, and that they would hopefully set some time in the next few months. So, '100 per cent of what, exactly?' is a bit of a tricky question. We use the planning rate of €1.17 to the pound, and have been doing so for over a year now.

Okay, but given that for the last two and a half months you've been working to a March 2019 deadline, until the Treasury gave you an extension, I'm a bit surprised there haven't been more projects committed than there were at this time in the last seven-year programme.

Okay. Well, the programmes do vary quite a lot from one round to the next. It's not just a question of repeating things that we did last time around, and we are making good progress. We're about 85 per cent committed now, and I think we were about 74 per cent when the WAO report was finalised back in June, so we are making good progress. Some of the projects that we're doing towards the back-end of this round are in priorities that are new. So, the marine energy side of things, for instance, has some big projects in it that are still under way. We haven't done that sort of thing before. The metro area involves some big infrastructure projects, which, again, are weighted towards the back-end of the programme, and, actually, we're not that different to where we were this time seven years ago, especially when you allow for some of those things, and it's comparable on the expenditure side as well.

Okay. So, you've already told us that you're now able to consider using some ESF money to support local government reform. I wondered if you could tell us a bit more about how you might be able to adapt the programme to respond to the risks and opportunities of Brexit. For example, Robin Walker appeared before the external affairs committee last Thursday. We had some discussion about the technical papers that have been written about what if there was a 'no deal' Brexit, and I was somewhat surprised to hear Robin Walker say that there'd been no planting whatsoever of vegetables or fruit, given that they are perishables that could be very badly impacted if there was chaos at the ports. So, I just wondered if you've been looking at those sorts of risks and how the programme could be used to mitigate them.

Yes. We do give it some thought. Given that the nature of what we're doing is investing in growth and jobs—it's all about creating opportunities for business to thrive, creating opportunities for individuals to find their way into employment and to improve their opportunities while they're in employment—those challenges, those needs in the Welsh economy, those structural needs in the Welsh economy, don't necessarily change an awful lot. So, there is a balance to be struck, as in—actually, there are lots of balances to be struck across the whole business of these programme management things, but one of the balances to be struck is to make commitments that allow people the space and the time to get on with things and deliver with that degree of planning certainty that the money will be there on the one hand, but, yes, to be able to retain some flexibility to redeploy.

Such flexibilities as we have around that would be mostly within the Welsh Government projects and mostly within those projects that have some capacity to be delivered in chunks, if you like. So, a project that is going to build a new road can't just stop halfway through; that would be clearly poor value for money. With projects that are producing lots of smaller units of output, yes, we do have some manoeuvre on that sort of thing.

Sticking with my vegetables example, the LEADER programme has, in the past, been very successful at getting more people growing vegetables and fruit. Is this not something that you might be looking at, particularly in light of the weekend's reports of areas where there are food deserts, even in Cardiff?

Personally, no, actually, because that's one of the rural projects, and my side of things is structural funds—the ESF and the European regional development fund, so I'd have to check with my rural colleagues a little bit on that one.

Okay, all right, but there are other things where you could very quickly adapt to an emergency that might arise.

Within reason, yes. Remember that, when all is said and done, the European funds are a Government budget, and like any other Government budget they have an agenda attached to them. They are for a specific set of things, so we're not completely at liberty to spend them on whatever might come up. That said, as I say, it's all about jobs and growth, so, with a bit of imagination and so on, they're reasonably flexible.

Okay, thank you.

Rhianon Passmore. 

Thank you, Chair. You've mentioned previously the regular Treasury dialogue that you undertake. So, in that regard, when are we expecting the updated guidance from the UK Government in regard to the extended guarantee?

Well, we're still waiting for it to come through. We were pleased that we heard it, but the details remain to be clarified.

They've given us no indication of if and when there might be any further detail. If we are forced to rely on this guarantee then there'll have to be more detail, but there's still quite a lot of thinking to be done, I think, within the UK Government. I think, frankly, that it's not ready to do it. While they're still exploring what they don't know, it would be difficult for them to put a specific date on when they're going to come out with more detail. So, without wishing to delve too deeply into it, for instance, there's this concept of survivable obligations, which is the degree to which we would continue to be obliged to comply with EU funding as a result of each individual operational programme, which is a legal agreement separate to the UK's membership of the EU through the treaty. So, there's a lot of thinking for them to do still around exactly how that would work and when they would take over responsibility, what the cut-off arrangements would be and all that sort of stuff.

Shan, did you want to comment on that?

I was simply going to say that it may be that Treasury will wait until after the summit this week to see what the timescale looks like.

I think so.

Jenny Rathbone, did you have a quick supplementary?

One thing I forgot to ask was that, in the light of all the uncertainty, how much importance are you giving to ensuring that project sponsors are submitting their expenditure in a timely fashion so that they can then be processed by the EU before any potential breakdown in—?

Well, yes, I think they get a bit sick of us ranting about this because we do go on about it a lot. It's a funny one, this, in the sense that we're not actually in a bad place. We in Wales have drawn down about 20 per cent of the value of the funding that's going to be available to us, and that compares with about 8 per cent for the UK as a whole. So, that 20 per cent is propping up that 8 per cent, which—even allowing for the fact that there may well be quite large claims in the pipeline from other administrations, you can see that we're doing all right. It's one of these things where you can never have enough. Until you've got it all in the bank, then it's something we do need to press for. So, we press for it through our regular meetings, we concentrate on those areas that need to be concentrated on in terms of our own processing to make sure that those claims can go in after they've been checked. So, we prioritise some of those things towards those areas of priority where we need to make sure that we're keeping up with our targets. In the end, there's no substitute for delivery. So, what it's all about is pressing for that delivery, pressing for the claims to come in and helping people understand what the agenda is, if you like, helping people understand that they are part of a team, if you like. These are Wales-wide programmes—everybody benefits when programmes run well, everybody benefits when the Commission perceive the programmes to be running well and thereby leave us to it. 

Rhianon Passmore. 

Thank you. Carrying on from that, what contingency arrangements are in place for the probable drop-out in match funded projects that we anticipate? And then, in terms of UK Government's ability to be able to then absorb that in terms of the agreed projects as variable commitments, where do we stand on that? 

Sorry, can I just clarify what you mean? The drop in match funding—?

Yes. So, for instance, there's a lot of discussion around those big projects and a few that may skew that proportion of those able to receive the funding as necessary. So, if there's a drop-out within those proposed projects as to whether they're able to then carry on with gaining that European structural funding, there'll be a drop-out in terms of those projects. So, what contingency arrangements are there for being able to bring in new projects to be able to fill in that gap and, therefore, what is the UK Government's overall ability or communication around this to be able to take on new projects flexibly within that basket? 

Well, this is the challenge that we'll face if we have to rely on the Treasury guarantee; this is exactly the problem. So, we have a healthy pipeline of projects—this is always quite a big ask, actually, on our part, to work with potential project sponsors to keep projects warm that we may be able to support should funding become available for one reason or another, but with no promises at all, of course, that that situation will ever actually arise. So, we do have a pipeline that's reasonably healthy—better in some areas than others, naturally—but that would be the issue. If the projects are frozen as at December 2020, then the only thing we can do is—well, two things, really—. One is to make sure that as at that point, all the agreements that we have in place are as up to date as possible for what we know about where those projects are at that point. At least putting back this deadline by another 21 months gives us a bit more space to do that and gives us a bit more space to actually have delivered things in the meantime, which reduces the amount of uncertainty that's left. 

Okay. That's from our end, and that's fantastic and has to occur—

From the UK Government's point of view, well, that's the point, though, that's when they're drawing the line, which they will want to do, from their point of view, to achieve some degree of certainty about what it is that they let themselves in for by making the guarantee. 

So, we have no indication from the UK Government as to that extended guarantee being able to backfill any new projects. 

No. That's the point. Beyond that December 2020 point, it's frozen as it is at that point. 

That's very unsatisfactory. Okay. 

Yes.

Jenny Rathbone, do you have any further questions, or are you—?

No, I'm fine now. 

Good, thanks. Mohammad Asghar. 

Thank you very much, Chair. To the panel now, the auditor general's report explained that WEFO commits funding based on need and that more match funding is allocated across the programme than is required. Is there not a major opportunity cost in having domestic funding unnecessarily tied to projects that are restricted by EU rules when that money could have been put to a good use elsewhere in your department and in Wales? 

It's another one of our balancing tricks. The reason we seek to lever into the programme a little bit more domestic match funding than the bare minimum required by our agreement with the Commission—there are a number of reasons, really. One is it gives us a little bit of a cushion, frankly, to deal with potential disallowances for audit or whatever and still have more than enough eligible expenditure to be able to claim all the funding that we're ever going to be entitled to. So, it deals with a few allowances. There is a point of principle here, in the sense that we fund funding gaps. We could claim 40 per cent, say, for any given area of the programme, but that doesn't mean we'll give 40 per cent to anybody who comes along with a project in that area, because they don't necessarily need that, so why would we put public money into something when the funding is already there?

Certainly, in the case where the match funding is private, that's definitely an entirely defensible position to be in. Where the match funding is public, that's less of an issue. I don't know about opportunity cost, I don't know if they're determined in that way, but there is certainly a risk that you'd end up with more domestic funding than necessary being tied up in the whole business of compliance with EU regulations and so on. We do push back about that sometimes, particularly when people come to us looking to extend or expand an existing project. We do question that somewhat and say, 'Why would you want to do that? Why wouldn't you just go away and do what you want to do?' They're not always asking us for more money, but they just want us to pour more money into an existing project, and we do push back against that. There is a good reason for having a degree of overcommitment, but once it goes beyond, perhaps, 10 per cent then we've got more than enough than we need to secure the EU funding at that point. Beyond that, we wouldn't be seeking to achieve any more leverage into the programme.

So, overprogramming is another topic in its own right, if you like. Every programme that involves a wide range of projects across different areas should be overprogramming, to some extent, to allow for some slippage, some disappointments in—you know, we've got over 200 projects already. Not all of them will make it in quite the way that everybody hopes. So, we need to do that in any case, and being able to do it this way just gives us that little bit of a cushion and helps us defend, if you like, the point about not investing in things just because we can—we invest to close gaps in need.

In practice, that works out about right, because when the intervention levels, the percentage of support, is agreed with the Commission right at the beginning of the programming round, some thought has been given to the average likely level of support needed in that area. So, the level of intervention that we can secure from the Commission reflects that estimate of what the average level of support is going to be, and it's not usually very far out.

Adam Price.

In relation to that area you've just been referring to, in terms of WEFO's current record of committing for 106 per cent of the value of the programme in the previous round and spending 99.8 per cent of the funding, you're fairly confident, on that basis, that we'll avoid the underfunding scenario that—I think the figures are, for about 1 per cent of the value of the funding underspent, we'd lose around £21 million. You're fairly confident, based on previous practice, that we'll avoid anything significant or any substantial amounts of funding being lost.

At this stage, I'd say 'yes', if we have a transition deal and we are still playing by the same rules through until the end of 2023. If we are forced to rely on the Treasury guarantee, where we don't even know what some of those rules are, then I'd have to be a bit more cautious. 

What overcommitment figure are you aiming at, basically, in order to—you aim high in order to arrive at 100 per cent. So, is it around about 106 per cent, similar to the previous round?

This is a question that my accounting officer is quite interested in as well, actually, in the sense that if I get this wrong and I overcommit and find myself with an income stream that isn't valuable enough to be able to support those commitments, then obviously the risk falls back to the Welsh Government. So, it comes back to the question of: what are we overcommitting against? At the moment, our estimate of the average value of the potential funding to Wales over the next five years is based on a planning rate of 117, as I said. We've got another five years to deal within, but, then, to the extent that that's inaccurate, we can deal with it.

So, we are at the stage where we are approaching—. In fact, some of our priorities are just over 100 per cent committed now at that planning rate of 117, but within the limits of what we can manage already. I think when we get a better idea by, say, Christmas, of whether we're aiming for that five-year current rules-based approach or whether we're aiming for something that is based on the Treasury guarantee, then I'll have a better feel for what that figure ought to be. It'll probably be a little less. You mentioned 106 per cent just now, which will be the average across all the programmes. We went to 110 per cent or up to 110 per cent on the ESF programmes and 105 per cent on ERDF programmes, which again comes back to this question of flexibility: how fast can you put the brakes on some of these projects if you have to, or, indeed, just want to redeploy for whatever reason? I think we'll probably be a little bit more cautious than that this time because one of the levers that we had last time around was the knowledge that there was another EU funding round coming so that we had the option to push any overcommitments, or some of the commitments in respect of such areas as were still going to be funded in the next round, into that next round without the knowledge that we'll have that kind of fallback—then we might be a little bit less enthusiastic about overcommitment than we were last time around.

But it comes back to your point also about the pipeline that can swing in.

Yes. I wanted to ask about that as well because that's the alternative scenario—that it undershoots, effectively, and then you have to bring forward sufficient projects that you have held back in a contingency that you can then accelerate. How are you organising things so that you have a sufficient shovel-ready pipeline, and how does that work in practice?

It's easier in some areas than others. So, for instance, we did a call over the summer in respect of some of the research and development projects that we run and we had a really, really good response—so, quite a large number of relatively small projects, if you like, compared with, say, infrastructure projects, which simply couldn't be called upon to deliver in the event of, say, a windfall on the exchange rate or something. With only a year to go, you can't expect somebody to say, 'Yes, I can build you a road in that kind of time'—it just doesn't happen. But they might be able to pull off some sort of research project. So, if we find ourselves in that space, then we have options. We have enough in the pipeline to be able to soak up the money, but it would involve some fairly rapid redeployment of the funds across the programme from some priorities to the other—some of which, if it were on a big scale, would need commissioning consent, but under the closure rules for the last few rounds, and would be expected again under the current round, if we have a transition deal, then there's up to 10 per cent flexibility across those programmes, no questions asked, and we'd be able to use all of the funding with that kind of flexibility. Again, it comes back to this kind of thing—that 10 per cent flexibility to deal with those kinds of circumstances is really important to us. If our projects are frozen at the end of next year—the end of December 2020—then that wouldn't be available.

In seeking to populate that contingency pipeline, is one eye at least as well on what happens next after any transitional arrangement in terms of a shared prosperity fund? Because there could be a potentially chilling effect because of the uncertainty so that project proposers are not now thinking about medium-term possibilities, but there will be some kind of successor regime in terms of regional policy and so you do want to encourage people still to be starting to do that thinking, and that contingency pipeline could help you in that interregnum?

Yes, certainly, and, of course, there's lots of work going on all across the regions—the city region boards and the North Wales Economic Ambition Board—and there's lots of thinking about this kind of thing going on and lots of ideas about individual projects going on so that there's no shortage of people looking to spend the money, if you like, on really useful things. 

Right. So, the supply of ideas will always outstrip the availability of funds.

Absolutely, so don't lose sleep over it in that sense. There is more of a worry, perhaps, in terms of an interregnum, as you put it, between the physical arrangements for getting the money out of the door. Under any scenario, we will still be delivering well into 2023, but, yes, there comes a point where the money that's going into regional economies from Europe through us will start to dry up. It won't happen overnight, but progressively, as we get towards the end of the programme period, it will, and if we don't have something else in place by then that we can transition into, then that would be a headache.  

I am aware that we are running quite short of time. Are you okay to be with us for a couple more minutes? 

Of course. Can I just add to that? There's obviously a great deal of work going on across the whole of the Welsh Government to influence what comes next, and our Ministers have made very clear what their priorities will be in terms of a fund that respects devolution and gives us the same amount of money. Mr Drakeford will be making a statement tomorrow in this respect as well. 

It's also worth saying, perhaps, that quite a lot of thought has been going on on this, certainly internally, and externally as well. The Finance Committee of the Assembly in its report a couple of weeks ago noted that it would be worth while giving some thought to retaining the skills and abilities that we've built up over the years in some kind of coherent form, to enable precisely that kind of transition. It is something that, if I may say so, we're reasonably good at, because a lot of these concerns were voiced from around about this point seven years ago, as we had the next European round approaching: how do you make that transition, how would you deal with those people who are currently in the habit of getting funding and aren't part of the next programme one way or another? So, we do have experience of this kind of transition. We would be dealing with something like it around about now in any case, which isn't to say it's easy, but we do know how to set about it. 

Okay. The last couple of questions—if Members can be succinct, that would help. Rhianon Passmore. 

Thank you. To follow up, has there been any confirmation from the UK Government that the extended guarantee will not impact on funding that's already earmarked for Wales? 

That's our assumption. Peter will correct me if I'm wrong, but we really haven't seen enough of the detail of the operation of the guarantee to really know the precise impact on Wales. 

Okay. And, again, any anticipated timeline of when we will know? I know I'm rehashing from earlier, but the same question, different issue. 

One of the big outstanding questions is: when will they set a value on the guarantee, and what mechanism will they use to establish what that value should be, because rather than just plucking a figure out of thin air, what are they going to use and at what point will that decision be made? It would be useful, for instance, if they said, 'We will go with an average of forward rates over the next five years across a basketful of banks', at whatever point they happen to be at the end of February or March, say, to some kind of a formula that gives us some indication of a method that everybody can see is transparent. Something like that would be nice, but they haven't indicated that yet, either.    

And in regard to, in a sense, a nightmare scenario, not ever getting to a point where there is any clear indication, what impact will that actually have in terms of funding currently? 

There would have to be absolute clarity before the end of March, wouldn't there, about how things were going to operate after that, but it all depends—? I mean, you'll be well aware that this is quite a crucial week in Brussels in terms of EU transition. There is an awful lot still up in the air, and it's incredibly hard to predict where we're heading for at the moment. 

Okay, thank you. 

Finally, Neil Hamilton. 

I've got every sympathy with the staff and the uncertainty that currently surrounds them as a result of the Prime Minister's negotiating strategy, if we can exalt it with that description. I'm sure that a lot of staff are wondering whether they're still going to have jobs and do the sort of work that they are currently doing in future. Has this had an impact in terms of retention of staff or—? 

Not noticeably, no. It's a reasonably large division, so we do have churn. We're still part of the Welsh Government when all is said and done, and people are naturally keen to progress their careers and I wouldn't want to keep them in WEFO forever in any case. So, there is churn, and every now and then we have a week where we happen to have two or three leaving at the same time and you think, ‘Is this the beginning of the rush?’, and then a week or two later, we find that we've been joined—or sometimes re-joined by people who've left us in the past—by some really good people, and you think, ‘Well, no, we don't need to worry about this after all.'

So, it's naturally a risk, something that we do keep an eye on, but we've got quite a lot of people who've been in there a long time. It's a close-knit division, it's very successful, and I'll take the opportunity here: one of our projects won a RegioStars award last week, and these things aren't common. There's a dozen or so categories, and we've got 200 projects just in Wales and it is a competition across the whole of Europe, so there must be thousands and thousands of projects out there, and we’ve won several of these things over the year, and we had another finalist as well. So, the Nant Gwrtheyrn project won an award and the ASTUTE project was a finalist. So, there’s a good track record of delivery. Morale is actually pretty good—they work closely together, they know what they're doing, they know where they're going—and however things turn out, we've still got a job to do, in the sense that we've still got these projects to deliver through until the end of 2023. So, people know what the mission is, they know what they're doing. It is a risk and that’s something we need to keep an eye on. On the whole, I'd say they're bearing up reasonably well.

I was just going to add that this is a risk that was identified in the WAO report, again, rightly—will we be able to retain staff who know that there’s an endgame down the track? So, I think that was a very helpful reminder that that’s a risk we need to keep an eye on. But, as Peter said, I've always been incredibly struck by the quality and the motivation of the staff in WEFO; they really are an absolute credit to the Welsh Government. The First Minister, of course, early on made a guarantee that they would be treated as employees of the Welsh Government, and I think that played a part in it; people didn't feel that when the programmes ended they would be out of a job. I think that that gave them immense comfort. And, finally, I shall embarrass Peter, and Sioned as well, by saying it’s a real tribute to the leadership of WEFO, I think.

Well, thank you very much for that encouraging answer. I see a continuing role for myself, post Brexit, too. [Laughter.]

On that positive note, I’ll draw that session to a close. Can I thank our witnesses, Shan Morgan, Gawain Evans, Dave Richards and Peter Ryland for being with us this afternoon? We’ll send you a transcript of today’s proceedings for you to check for accuracy.

I move 17.42—Standing Order, that is—to move into private session.