Cynulliad Cenedlaethol Cymru

So, with just over a week before we published our second supplementary budget, we had notification on a Friday evening from the UK Treasury that there would be both positive and negative adjustments for our budget for 2019-20. What that meant in material terms would be a small increase in terms of revenue, but also a simultaneous reduction of £106 million in financial transactions capital and a reduction, also, of £100 million in general capital. Clearly, that's entirely unacceptable at this stage in the financial year.

We knew about some of the positive consequentials, because those had been discussed with Treasury throughout the year, but, actually, those negative adjustments came as a complete surprise to us, and, obviously, we had to work to find a way forward to deal with those adjustments.

I feel that it's entirely outside of the statement of funding policy, and it's a real concern for this to have happened, and, of course, it's just another in a long line of ways in which the statement of funding policy hasn't been respected. For example, we have the issue of public sector pensions and the work that we've had to do to try and accommodate the less-than-full amount of funding that we've had from the UK Government for that.

We've had the additional funding for Northern Ireland, which, of course we don't begrudge, but it does impact on devolved areas, and we would certainly have expected to see a fair consequential to us from that. And, of course, the Minister for Health and Social Services has talked quite a lot about the NHS pensions rules, which have also impacted on Welsh Government and our budgets as well. So this is another in a long line of issues that we've faced in terms of the statement of funding policy.

We're still trying to understand some of the detail of it. Certainly there's a lack of transparency, I think, so some of these consequentials relate to both negative and positive adjustments within the same UK Government department, which is so difficult for us to understand. So, we're exploring some of that. And I have discussed this with both the then Scottish finance Minister and the Minister in Northern Ireland just over a week ago, and obviously they would share concerns about the way in which this has been dealt with.

Did you say there were both positive and negative adjustments within the same department? Surely either they or you net them off?

So, Matt has the list of—. It comes as a grid, essentially, of consequentials, and some of the detail is less than clear, but I'll ask Matt to give some of the detail on that.

I think it depends on the nature of the changes that have been made by the UK Government departments, so there is an argument that that is the correct way, and that's how we'd expect the statement of funding policy to be applied. We have seen across-the-board cuts, certainly in 2010. I remember some in the summer budget then, made to UK departments, which are dealt with in one way, separate from any later additions. What we haven't got—we have asked for some clarification; the Minister wrote to the Chief Secretary on this—is clarification of exactly the nature of those changes when the UK Government publishes its supplementary estimates this week. We'll be able to scrutinise that, as will Parliament, and that hopefully will give us some more detail behind the nature of the changes that were made, and whether Barnett has been applied correctly here.

It reminds me of the issues that we faced with the non-domestic rates adjustments for the budget. So, you'll recall that there was that large reduction there, but then there was an issue there in terms of transparency and information. So we were extremely persistent, and I know officials worked really hard, and we were able to ensure that we actually had £40 million back to Welsh Government as a result of that. But that was purely because of our tenacity in pursuing the need for more information.

So how effective or efficient are those communication channels for you to be able to pursue these issues and to get the information that you require? Do you feel that you're coming up against a wall all the time? Or is it a very amenable sort of process?

I know that Matthew and the team do have good and frequent discussions, I think it's fair to say, with Treasury officials, but then sometimes it can take some time for things that have been agreed in principle with Treasury to actually become formalised at ministerial level. Is that fair to say?

Yes, I'd say generally we've got good working relations at official level. Of course, the amount of political flux in Westminster will have meant that, for instance, there would normally have been an autumn budget, and so there may well be these changes that were supposed to be applied earlier. But generally, yes, we've got good working relations with the Treasury team.

And is it worth just setting out how we're dealing with this unexpected situation? So, we had asked the UK Treasury for some flexibility to carry over some financial transactions capital into next year, outside of the Wales reserve. Treasury didn't agree to that, but that does mean now that we are able to absorb the financial transactions capital reduction in this year, whilst we've agreed with Treasury the maximum flexibility to take over the reduction in general capital to next year as well as a small uplift in revenue. So, if there is additional funding coming at the March budget for next year, then obviously the first call on that then will be to replace the £100 million. It does smack a little bit of the UK Government clawing back money from departments only to give a big announcement and then—

And if there's not new money forthcoming, how does that impact your budget?

That will obviously impact on our spending plans, and that's £100 million less of capital investment than we would have planned on being able to spend.

What we would certainly believe was the right thing to happen would be for Welsh Government to get its fair share of those consequentials. So that could potentially be in the region of £5 billion.

And would that be in the March supplementary, or would it be a one-off?

Presumably, it would be over a period of several years into the future.

I see.

Mark wants to come in first and then we'll come to Mike. [Interruption.] Sorry, go on.

I was just going to say that governments announce things and then it catches up, but we'd certainly expect the longer term impacts of HS2 to form part of the spending review that will come in. 

Yes, that'll be down the line. 

Down the line a bit, again, yes.

Down the line. 

Mark.

Minister, could I clarify with regard to HS2 that, if Scotland gets 100 per cent consequential and we get zero, is that simply because rail is currently devolved to Scotland but not to Wales, or is the UK Government making an assessment of the relative benefit Wales and Scotland get from HS2? And perhaps coming from that, is your desire as a Government to have rail devolved driven by the potential of getting this £5 billion of consequential that might be incumbent on that?

I think the First Minister set out in First Minister's questions yesterday some of the issues relating to this: the percentage of track that we have in Wales, the percentage of passengers and so on, and then compare that to the percentage of funding that comes to Wales isn't a fair reflection of the track and so on that we have in Wales. So there's that part of the argument. We don't know yet what the consequentials might be, if any. As Mark said, some of this looks back to previous spending rounds and what the comparability factor is there and it also looks ahead to the comprehensive spending review. So, at the moment, today, we don't have the detail as to what it will mean for us, but as soon as we do have further clarification, through discussion with Treasury and so on, we'll be keen to let the committee know. 

I don't want to get too far into HS2, because clearly the focus is on the second supplementary budget, but I'll come to Mike and then to Rhianon very briefly. 

It depends how the Treasury treat it. If they treat it as rail expenditure we get nothing, but if they treat it as transport expenditure then we get not the 5 per cent but we get our share of transport expenditure. It's a bit like Crossrail, isn't it? With Crossrail, we got money from Crossrail even though it was rail expenditure because they treated it as transport. So, it really depends how the Government treat it, rather than what it's spent on. 

Yes. Sure. Rhianon. 

Just very briefly—and apologies for being late, I got caught in traffic this morning—with regard to the fact that we do have 11 per cent of the track and 20 per cent of crossings, what is the potential for those consequentials to come down from HS2? Is that an expectation, because I would have thought that, if it is treated as transport and infrastructure rather than rail, it would be absolutely acceptable for us to be asking for and I would expect us to be doing so? 

We'll be pushing very hard to make sure that we get our fair share, which we believe would be £5 billion of a £100 billion project. But, as I said, those discussions are at an early stage and there's a lack of clarity at the moment as to how the project might be funded, but we'll certainly be pressing the case. 

I think Matt just wanted to provide a bit of clarity on the Crossrail issue. 

I was just going to say that, with Crossrail, it's less the nature of the project and more the way that it is then funded and the timing of that funding. If adjustments are made as part of a spending review, then it becomes part of the overall departmental budget and, as the Member mentioned, yes, we would get consequentials, where they're one-off additions, otherwise you get the situation that you referred to, where something is either zero or 100 per cent comparable. 

And the Crossrail funding was just loan funding, so we've decided not to take it for next year because the interest that UK Government wanted to charge us on that loan would be in excess of what we could access from the national loan fund.

Okay. Thank you.

Sorry, Chair. 

No, it's okay; there was an opportunity to ask, wasn't there?

The budget notes that revisions to the block grant adjustment have resulted in £9 million additional funding. Now, I presume there's scope for further changes following the UK budget in March—you might tell me otherwise—but if there are changes, then how will these adjustments and the 2019-20 devolved tax forecasts be reported back to the Assembly?

In terms of the 2019-20 block grant adjustments, they won't be revised again this year, but in terms of providing information back to the Assembly, there will be reconciliation payments that will take place as outturn information becomes available to us, but they will apply to future years' block grant adjustments, in accordance with the methodology in the fiscal framework agreement. So, that won't be in the 2019-20 financial year. I don't know if Matthew or Sharon want to talk a bit about Welsh rates of income tax and when we'll have that data.

As the Minister has just said, as far as the 2019-20 block grant adjustments are concerned, those are now fixed so we won't see anything changed in that. There will be reconciling adjustments for that as the outturn is known and, obviously, tax information does come a lot later after the financial year, but the mechanism for the block grant adjustment is set up in such a way that those adjustments affect future years' block grant adjustments, so that's when you'll see that happening. 

For 2019-20, for the Welsh rate of income tax block grant adjustment, as this was the first year of Welsh rate of income tax, it is a transitional year as agreed within the fiscal framework, which meant that there would be no overall net impact, regardless of what the outturn would be for 2019-20. So, whatever the outturn on the 2019-20 Welsh rate of income tax is, that will equal the block grant adjustments, so we wouldn't see any change in the actual overall spending capacity.

There will be revised tax forecasts that we will see as a result of the March budget. Obviously, there won't be an opportunity to change those forecasts within their supplementary budget now, so what we are expecting is that that will be reported through the outturn report, and that will be part of an outturn adjustment that we normally would have done. That will be reported in the outturn report that comes to Finance Committee in line with the protocol that we have in place. More detail of the devolved taxes will, of course, be part of the Welsh Revenue Authority tax statement, when that's published in the summer. 

Okay. Thank you for that clarity. Rhianon wants to come in, and then Nick Ramsay. 

Thank you. That's interesting, but just for clarity and so that I can understand—2.7 on pack-page 48 discusses the total net decrease in terms of forecasts of devolved tax revenues. Can you explain to me why they are decreased figures in terms of that forecast, rather than what I would have expected? 

I think this is because it was the first year of the landfill disposals tax and land transaction tax figures, so we have the first full year now. Previously, we'd been looking at data on best estimates as to what might happen, but for future years we should be able to get more accurate—. Is that fair to say? 

I think so, yes, and it's just worth noting that the forecasts that are in the second supplementary budget now are the same forecasts in-year that were published alongside the draft budget. So, all of the detail around what was affecting those forecasts is in the detail that was provided alongside the Office for Budget Responsibility's independent assessment of the Welsh taxes is also part of that report.

Okay. So, basically, then, that OBR forecast—and we've discussed this previously—is a revised figure, and it's less than we thought, basically, in a nutshell. 

Yes. 

Okay. Thank you. 

But it's a case of learning as we go along, I suppose. Okay. Thank you. Nick. 

My question dovetails, actually, with what Rhianon just asked, and it links in with something that Sharon said earlier. You said quite matter of factly that the block grant adjustment will relate to the tax revenue—

The Welsh rate of income tax. 

Sorry, say that again. 

For the Welsh rate of income tax. 

Yes, sorry—for the Welsh rate of income tax—but in previous evidence we've taken, there's—. Will that happen in practice exactly as you would expect it would, or if they get that wrong at the outset, will there be an adjustment later on to make up for any incorrect forecasts? It's along the lines of what Rhianon was asking and, in fact, you got there before me, Rhianon. Are we absolutely confident that we are going to get that replacement in tax revenues to make up for the block grant decrease? 

So, the way that the Welsh rate of income tax is actually paid to us is that the figure that was published as part of the second set—I think it's £2.059 billion, if I remember correctly. That is actually—. We don't collect that directly; that is still collected by HMRC, and then it forms part of the estimates process with the UK Government, and that gets paid over based on that number. So, that doesn't change, and that's the money that we have been receiving throughout the year. That's what we can call down. The block grant adjustment, then, has also been agreed as £2.059 billion.

And the block grant adjustment relates to forecasts from previously. 

Not from 2019-20. 

Because we're in the first year of it. 

The first year, yes.

Okay. So, the first year of it—it's a direct like for like. 

Absolutely. 

So, we don't need to worry about these things until next year.

Absolutely.

Okay. Thanks. 

There we are. Thank you very much. The supplementary budget allocates additional funding, clearly, but could you tell us what proportion of that funding is previously unannounced funding?

So, there are £1 billion of additions to the Welsh Government spending plans, but almost 80 per cent of that relates to non-fiscal measures, and, primarily, they relate to student loans, and then provisions and impairments within the NHS. Over 40 per cent of non-fiscal measures score as annually managed expenditure, and I think that highlights the volatile nature of those budgets. But the expenditure that's scored as AME is managed annually, and it's HM Treasury that provides the additional resources there. And the remaining element of the non-fiscal expenditure then scores within the departmental expenditure limit, and, in the main, those costs do relate to student loans, which I know the committee's been interested in previously, and that increase is covered by an allocation from the UK reserve. 

And, obviously, those non-fiscal budgets are ring-fenced, so that's not money that we could otherwise spend to meet other priorities in Government. It's very specific. 

Sure. Okay. How do you balance the competing demands between, or demands from ministerial portfolios, because, clearly, things will emerge during the year? You can probably tell us that it's as and when they require it, but there's still a bit of a bartering process going on, I'd imagine, within Government. So, could you just tell us a little bit about how that might differ, of course, to the draft budget that you recently tabled as a process?

So, I meet regularly with all Ministers to discuss their particular budgets, looking at the pressures that they have within their budgets, also looking at new opportunities that they might have identified as arising throughout the year. I have, as I say, meetings with all Ministers. I meet more frequently with the health Minister, given the size of the budget that he has. And those meetings are interspersed, then, with my monthly meetings with the team, where we look at the in-year budget. And even from month one, we start to look ahead at what the forecast outturn might be, and where pressures we might be expecting to arise might arise throughout the year, and when we would expect them to do so. And, again, Matthew and the team meet very frequently with finance officials across all departments to understand in detail the kind of pressures that they've identified. 

When we look at spending throughout the year, you asked what percentage of the spend was new spend in the previous question, and around, or just under £300 million of the spend was new spend. And part of that, of course, was the second capital package that we put in place, and that spend looked right across Government at opportunities to stimulate the economy. And that was part of our response to what was an extremely uncertain time in terms of Brexit. Business and industry needed a boost of confidence, and we felt that this was an opportunity to do that, but in a way that did provide investment across Government. 

So, there'll be other things that I agree with Ministers to manage in-year, and an example would be the additional £6.4 million to the energy, environment and rural affairs portfolio in respect of the demand-led pressures related to TB compensation, because, clearly, the Minister will have an amount within her budget, but, of course, as it's demand-led, I came to an agreement early on in the year that we would seek to meet those additional pressures from reserves, just in response, really, to the level of demand. 

Well, we'll come on to the individual portfolio areas in a minute, I think. Some Members, I know, want to ask about those. But a decision was taken not to increase borrowing, and I'm wondering whether that was due to reprioritisation of projects such as the M4 project, of course, which we've touched on in committee before, or whether it was because you identified available capital funding within the budget for other things. 

The reason was because, since we set our plans for 2019-20, additional consequential funding came from the UK Government, in respect of NHS estate funding. So, that was a fund that was an injection of capital funding that we hadn't been expecting, so that allowed us, then, to not borrow, but then to obviously continue with our planned projects. 

Thank you. Mark.

You say that there is an allocation of over £300 million from reserves in this supplementary budget. Why were reserves so much higher for 2019-20 than they are in the draft budget for 2020-21?

That was part of the strategic approach that the Government took in terms of being able to have funding to call on, because we knew it was likely to be an uncertain year with regard to Brexit. So, there was particularly a focus on some capital being within those reserves, in order to call on that, potentially, then, to create those stimulus packages, which I was able to do twice in that year. So that was a planned approach. This year, the level of contingency is lower, but that, again, is a planned decision that we've made across Government. And colleagues are aware that there will be more expectation that there will be fewer calls from them on reserves, as we move throughout the year. So, it was a planned approach.

So, is the Welsh Government position that the uncertainties around Brexit have somewhat lifted, and are less now in terms of justifying reserves than they were in the year—?

If it is our expectation that the transition period comes to an end at the end of this year, and our relationship will be different, and our trading relationships will be different, it would be our expectation that any impacts of that would probably be felt in 2021-22. Because, obviously, things will take some time to feed through, in terms of impacts on the economy and other sectors. And as yet, we don't know what those might be. But it is our expectation—just because of the time lag between events taking place, and impacts on business—that it would be the 2021-22 budget where we would see some of that.

And—

Sorry, Mark, Rhianon would just like to pick up on that, if that's okay.

Just because I'm seeking clarity, how much of unallocated reserves are there in proportion to the overall budget?

So, for next year, around £100 million, at the moment.

Okay. So, is that the total reserve, or unallocated reserve?

That's a contingency within the reserve.

Within the reserve. So, as a percentage of the overall budget—[Inaudible.]

It's very small.

Yes. So, we don't know, you can't—. Oh, sorry.

Did you want to make a point, Mike?

Yes. We also know that departmental reserves don't—. But we know that the health department have reserves that they use to make up for overspends within health boards.

It's our expectation that the health main expenditure group will come in on budget this year, and those decisions really are for individual Ministers; I try not to—

Sorry, I was just saying for completeness that the reserves you're showing are not the total reserves, because health would hold its own reserves, which it then uses to fund overspends by the health boards.

I—

Very, very briefly then.

Very briefly, I was just going to say, I wouldn't call it a reserve as such, but we would expect all departments to hold a level of contingency and flexibility, to cope with competing pressures during the year, rather than—

Yes, because if we have individual departments holding reserves, then there's a whole other inquiry for this committee, I think. [Laughter.]

Can I just follow up on that? How does departments having money to meet with contingencies differ from departments having reserves? To me, they're exactly the same things.

I suppose it's the level of funds available, I'd imagine.

It's a way of—[Inaudible.]

There we are, that's the right answer. [Laughter.] Back to Mark, then.

So, of what you're still defining as reserves, rather than in-department contingency, is any of that earmarked for particular purposes?

For this year, the 2019-20 budget, we wouldn't expect to be making any more allocations, but there is scope to do so under a section 128 process, which would allow us to do so. But then, for next year, we do already have an idea where pressures might occur, but nothing has yet been agreed.

Okay. The Chair asked you earlier about some difficulties with the financial transactions side in terms of the late changes from UK Treasury. So, you've got £44 million of that held in reserves, and I just wonder, are you expecting to be able to deploy that?

Is this looking towards next year?

The £44 million—is that 2019-20 that's still in reserve, remaining financial transactions this year? Is there any chance of that being spent now, or used, to—[Inaudible.]?

Yes. If the reserves detailed in this supplementary budget can't be used in this financial year without either coming back with a third supplementary budget for this year, or there is, as the Minister referred to, a contingency power in the case of emergency, to draw on those. They will, all things being equal, be carried forward into the next year in the Wales reserve and are able to be drawn in future. 

Even though, when you asked the Treasury, UK level, for extra flexibility, that was denied.

Yes. We would have to carry these amounts forward within our existing limits this year. 

Okay.  

We'd ask to carry it outside of the Wales reserve.   

Yes. So, one of the big uses of the financial transaction side that developed has been for property development with small and medium-sized enterprises and securing and recycling the money. Have you seen any evidence that availability through the Welsh Development Bank of these different funds has improved the availability of finance for Welsh SMEs for development construction work, compared with elsewhere in the UK? 

I think it would always have been our preference to have general capital, rather than financial transactions capital, because of the restrictions that it places on us. So, it has to be spent outside of those organisations that report within the confines of the Welsh Government budget, and so on. But, that said, I think that we have been able to do some really creative things with it. So, the stalled sites fund I think is particularly, potentially, important. Obviously, Help to Buy has been very successful in terms of being a project to get more people into home ownership.

But, also, we're looking at more creative ways to use funding in the future. So, for next year—. I know that committee made a recommendation that Welsh Government should look at using financial transactions to support registered social landlords to build, and that's a particular project that we're working on, hopefully with a view to bringing that forward next year as well. So, we try and be as creative as we can, but obviously this kind of funding wouldn't be our preference, but we'll seek to use it as best we can. 

Okay. Mike. 

And the advantage of the financial transaction fund is that it's taken off the public sector borrowing requirement, because it's going out into the private sector. But I thought, and you partly answered it, that one of the reasons we voted to give greater freedom and take registered social landlords out of the public sector was to allow them to access money like this. I would have thought that, as we're looking for registered social landlords to build substantially more houses, so we would be asking them to produce a plan so that any money we had that had not been allocated could be given to them and they could set about building the houses that, we've all agreed, we desperately need. 

Yes. One of the projects that we're working on for next year is the suggestion that committee came forward with in terms of that kind of funding for RSLs to help them build more, and more quickly. 

Yes, absolutely. Okay, diolch. Siân. 

As you say, in November, there was the £130 million funding package to provide that confidence—that boost—that I was talking about earlier. There is, as you've noticed, the decrease in the overall package and that's as a result of two of those particular projects. So, the first was a package that I sought to introduce, which was a £20 million fund to establish a mid-market fund to support medium-sized businesses. Between the submission of the outline bid from the economy Minister in June, and then, in December of last year, the Development Bank for Wales undertook some further work on that, and they looked particularly at the Economic Intelligence Wales report on medium-sized firms and Welsh business structure, which was published in November, and they concluded at that stage, then, that there wasn't the need to establish this particular fund, because those businesses would be able to receive sufficient support through other funds, such as the Wales flexible investment fund. But, of course, we'll keep this under review, but that's the reason that that particular fund didn't go ahead.

And then, there was also an allocation of £1.7 million for multispecies Wales, and there were some delays in agreements at a UK level, which resulted, then, in delays for Wales in terms of the IT system that was needed to underpin that. But that project is being reprofiled and will be managed within the existing capital budget for the environment Minister in 2020-21. So, that will go ahead—it would just be delayed, unfortunately.

It was the fact that the Development Bank for Wales advised that those particular sized businesses could receive support from elsewhere, so there wasn't a need to duplicate—

Yes, but have you topped up some of the other—? When you say 'elsewhere', have you topped up the 'elsewheres'? 

No, it hasn't been topped up. There hasn't been a request from the economy department to do that. But, obviously, we're keen to monitor that situation, and should the Minister come forward with a request for additional funding through, for example, the Wales flexible investment fund, then obviously, we'd be very open to having that discussion. 

We've had repeated reassurances from the UK Government that we wouldn't be a penny worse off in terms of the funding, but that said, one of our key concerns also is how that funding is distributed. So, we believe that, obviously, it should be Welsh Government that administers those funds, and we've set out in one of our Welsh Government publications how we might see the future of regional investment and the European funds, going forward. So, our concerns are partly about ensuring that the UK Government stays true to its pledge about the amount of funding, but then also these arguments that we need to continue to have about how that funding is deployed and by whom in future.

Okay. So, there's nothing new to report at this stage, really.

Nothing new at this stage, no.

Rhianon wants to pick up on that.

Following up on that then, with regard to the fact that there's nothing new to report, I take it that we're no further down the road in terms of clarity around the shared prosperity fund, and we're no further down the road in terms of any clarity as to what that means in terms of Welsh spend, then.

No, we still haven't had the detail of the shared prosperity fund.

And when would we expect to have that? I know this is unprecedented territory.

About two years ago. [Laughter.]

If we could answer that—.

It's very unsatisfactory, I would say, in order to plan for Wales.

It is—completely, yes.

And we're still no nearer about what the criteria will be around accessing funds from—if there is a UK fund. We don't know whether it's going to be bid by bid, or whether it will come directly to us. No?

No. We haven't had any detail.

So, the sharing of the details of the shared prosperity fund would be a start.

But in terms of EU funding that we're currently still entitled to, and the match funding required to release that—then you're committed to making sure that we maximise what we're entitled to.

Yes, we expect to spend all of the funding. I think all of the funding is committed. Clearly, there are always challenges in terms of making sure that the money is spent, but that side is committed, and we have an excellent record here in Wales in terms of spending European funding.

Okay. We're coming to Nick next anyway. So, Nick.

Oh, it's me, is it?

Yes, but you can pick up on—

I was just going to say—. Can I ask a slightly different question about the shared prosperity fund then, accepting that you haven't been given any detail and that you'd have liked that quite some time ago, and you're not aware of a timescale? Are you, or are your officials at least aware of work going on into the shared prosperity fund, which you don't have any information about? Or is it just a blanket—? It's even more Yes Minister than you were before, isn't it?

We would hope that there is substantial work going on within the UK Government to define the programme, but the fact that we haven't been involved in it is obviously of concern, and we haven't had information shared with us.

We've been undertaking work. So, there's been a group, which has been chaired by Huw Irranca-Davies, which pulls together organisations across the board that have benefited from European funding, and those that represent groups that would benefit from European funding and so forth, which sets out, and starts to work up, how we would develop that scheme here in Wales and how we would administer it. I know that there is an interest in decisions being made as locally as possible and ensuring that there's a regional fairness to this. So, there is significant work going on in that area on our part.

There are questions, but, clearly, it's not relevant to this secondary supplementary budget, as such, so—

Oh, I'm being closed down by the Chair.

—as interesting as it is, and as much as we'd like to get into it, I think we need to keep our eye on the ball. [Laughter.]

I will focus. My initial question—. A lot of it has been covered, about reserves—not the green side of it, though. It's becoming one of my pet subjects to ask you about the greening of the budget—this one and future budgets. There are allocations within the supplementary budget attributed to climate change. Do you feel that these allocations sufficiently reflect a factoring in of the need for a green budget?

I think that the second capital investment package did give us the opportunity to take that first step in terms of ensuring that decarbonisation and biodiversity are demonstrably priorities for us. So, there were some really good items within that package—for example, the funding for modular factories, looking towards building homes to no- and low-carbon standards in future. That's really exciting. There was funding in there for the national parks authority, and, again, that had a focus on decarbonisation and biodiversity; additional funding for active travel, so, now, we're investing more than ever in that particular agenda; and then funding for maintenance of schools and colleges, again with a view to ensuring that those premises become more energy efficient and so on. So, there was—

There's a reduction in flood-risk management and water allocations. Is that a change in policy or was that a change in timing of the projects?

That's not a change in policy—that's a change in the profiling of the projects. So, it's not a change in policy and it's not a change in the volume of work that will be undertaken either.

Okay—

Before we move on to other areas, I just wanted to ask—it just caught my eye, really—there's an increase of £8.5 million in the fuel poverty programme, and some of that is taken—there's £1.6 million taken from radioactivity and pollution prevention. I was just wondering what work isn't happening, then, in relation to that that was budgeted for initially. Sorry, I know it's quite a specific question, but it just caught my eye, really.

I think that might be as a result of reprofiling of flooding funding, so that allowed additional work to be undertaken in that area.

But you've taken £1.6 million out of radioactivity and pollution prevention to contribute to that increased funding for flooding, and my question is: what's not happening, then, in relation to radioactivity and pollution prevention that allows you to release that?

Shall I ask the environment Minister to provide that clarity on that particular item?

That would be interesting. It's just something that caught my eye.

It's a bit of an odd one that, isn't it? You wouldn't expect there to have been that much work on radioactivity—

Well, yes, quite, but there is a—

—unless there's something that we don't know. [Laughter.]

Okay, sorry, back to you, Nick. I did interrupt, sorry.

That's all right. Okay, so, the economy and transport portfolio and Cardiff Airport—the budget narrative highlights that there were a number of reallocations within the economy and transport portfolio following a mid-year review that reprioritised budgets. There were also multiple flows in and out of reserves. Can you explain how and what are the key elements that have been reprioritised?

I think that some of this is a reflection of the nature of the E and T department and the work that it does. So, it differs from, for example, the health or local government portfolios, because much of the funding goes direct from those Government departments to, for example, local authorities or to health boards, or other organisations in grant in aid and so on. So, the work that's undertaken and supported through the economy and transport department is different in the sense that it responds to economic conditions and there's lots of restructing as a result of it.

Has the development bank made a difference?

Yes, the development bank makes a big difference in the support that we're able to provide to businesses, so it's much more linked in to the advice side of things, so that businesses are getting a much more holistic kind of level of support now, and I think that's been very well received.

Are there any particular reflections on some of those E and T movements?

Yes. As the budget notes, it runs through some of the transfers there within the MEG, detailed in page 26 of the note. As the Minister said, the nature of the economic development and transport portfolio can mean that expenditure can fluctuate more. There are specific large movements around a £71 million transfer that was part of the track access charge reimbursement we agreed with the Department for Transport. There was a smaller amount in the supplementary budget last year.

Sorry, what was that? Track—? 

Track access charges. It's around the rail franchise.

Okay.

Then, within—. Obviously, the Minister for economy and transport decides decisions within the overall MEG, but two I'd probably highlight were that £10 million capital was moved out of the Transport for Wales budget to network operations to fund road maintenance this year, and also £6 million was reprioritised to enable further investment in our public sector broadband network. So, those are some of the larger transfers. The rest are detailed in the documentation.

Okay. Moving on to the airport, there's an additional allocation to Cardiff Airport of £16.8 million. What's the overall level of Welsh Government loan funding to the airport and what are the expectations around the repayment schedule?

So, the allocation of £16.4 million has been made in 2019-20 and then you'll see an additional allocation of £4.8 million in the draft budget, and that reflects the profile, then, of the recent loan that was agreed by Welsh Government for Cardiff Airport. The level of loans that have been provided to Cardiff Airport I think reflect positively as compared to the loans that have been provided to other airports. I think that's an important reflection to make as well.

Mark wants to come in.

With the expansion of Bristol Airport now blocked, would you anticipate earlier repayment of loans from Cardiff, as they can boost traffic and income, or would you expect Welsh Government to have to provide further debt finance in order to support, potentially, faster expansion by Cardiff?

I think, were Cardiff Airport to be seeking further loan support, it would obviously have to be subject to robust analysis and so on and due diligence, which you'd expect, in line with the long-term ambitions for the airport. The airport's set out its master plan in terms of how it will seek to become more sustainable into the future. So, we've looked at that, but we haven't had any discussions about further funding.

But we only learned yesterday that the planning committee have blocked any further expansion of Bristol beyond the numbers they expect it to hit next year. Surely, that is a very significant matter for Cardiff Airport in terms of its potential expansion, and we'll need to have a review of that plan. Does Welsh Government stand by, potentially, to provide more funding if expansion could be profitable and positive for the economy?

As I say, any additional funding for the airport will have to go through the process. We haven't—or I, certainly, haven't—had those discussions. Those discussions would be ones that the economy Minister would be having with the airport in the first instance, and I'm sure that he'll be keen to explore the impact of the announcement and what it might mean for the airport. But I haven't had any discussions since yesterday on this. 

On this key question about the repayment of the loans and the future repayments, the Minister—Deputy Minister, actually—for transport has confirmed that repayments would start after the funds have been fully drawn down and the Welsh Government's position is that it will be fully drawn down—or has been—by the end of 2020-21. So, is that when you would expect, when you do expect, it to be fully drawn down and can we expect to see the repayments of those loans starting at that point?

That's when we'd expect it to be fully drawn down. So, it's over the period of two years. So, as I said, it would be the £4.8 million that we've included in the draft budget for next year, and then, in terms of the repayment profile, perhaps Matthew has got some information there. 

Well, just that it's—. The details are that we've agreed a repayment profile, as you would expect with a loan. Clearly, economic conditions can change, but our current forecast is it will be taken up to the profile laid out at budget and repaid, and that, if something changes, it will come back in future budgets to inform the Assembly.

The cynic would obviously—. I see you're laughing already. We've seen these loans that were predicted before, so, when we get to 2020-21, what confidence can we have that there's not going to be more of the same, that actually, 'Another loan's provided. Oh, that hasn't been drawn down yet, so the repayments won't start yet'—you know, this could go on way beyond the next Assembly election, couldn't it?

Well, I haven't had any approaches for additional funding.

That remains to be seen, doesn't it, really? Okay. Rhianon, thank you.

Thank you. Bearing in mind the significance of Cardiff Airport to Wales economically, and the fact that you've stated there's been repeated evidence that the loans are comparable to other airports, do you anticipate that there will be any change to how the airport is to be supported after we go through the EU transition period, bearing in mind the impact that that is going to have, and is having already, on all airports?

At the moment, we don't know what agreements might be reached in terms of state-aid support, so, in that sense, we don't know what that impact might be, potentially, on support for the airport in future. So, lots of this is very much in the unknown area at the moment.

Okay. So, it's just a matter of dealing with what we've got to deal with, at the moment. Thank you.

We'll move on to health, then. I wouldn't mind asking, really, about how would additional allocations to meet in-year priorities, pressures, and winter pressures in social care be shared, and, of course, maybe you could tell us a little bit about the latest position regarding health board forecast overspends for the financial year.

So, within the second supplementary budget, you'll see £10 million allocated in January to regional partnership boards, and that's to support greater resilience amongst urgent health and social care services, and that, really, is a reflection of the demand that we have seen over the winter period. And, obviously, that supplements the additional £30 million that was allocated to health and social care organisations in September.

The £10 million allocated to regional partnership boards will be used to prevent unnecessary hospital admissions, and then enable people to leave hospital and go back to their homes or a step-down service within the community more quickly, and to do so when they're ready. So, that was the focus of that additional funding. 

Some funding has been able to support a number of pressures that the health Minister identified within his MEG—so, an example would be making provision for the 4 per cent increase to payments to the NHS providers for the treatment of Welsh patients. You'll remember some controversy about that a little while back, and that pressure only became evident after our 2019-20 plans had been agreed, so you would see some funding as a result of that.

So, that is now being covered by Welsh Government.

Yes. Did you want to say something about the PPR scheme—or Sharon?

Yes, I'm happy to. That's another pressure that the health department has faced this year. The pharmaceutical pricing regulation scheme is one negotiated by the UK Government with the pharmaceutical industry, where they give a percentage of their profits back into the NHS system, effectively discounting that.

Those discussions around negotiating it with the UK Government and the industry lead to fluctuations in the rebates, and I think the rebate is—. Although we are still expecting £48 million this year into the Welsh NHS, it's a little lower—about £5 million to £10 million, potentially—than we were originally planning for, when the budget was set.

Yes, okay. So, that's quite a difference. What about the overspend by health boards? Clearly, there's a discussion to be had between yourself and the Minister, and what approach you take to that, because, clearly, we've had strong messages in the past, but also, in the past, we've had boards being bailed out, eventually.

So, I expect the health and social services MEG to break even in 2019-20, and I wouldn't expect any further approaches from the health Minister for additional funding.

So, it's a matter for the Minister, then, in terms of how he deals with any overspends. I wish it was an underspend, but—

Yes. I know health officials are working with their relevant counterparts in the various NHS organisations as well.

Okay. Thank you. Mike.

I was going to say, just on that, health boards are wholly owned subsidiaries of the Welsh Government, so any overspends there eventually become the Welsh Government's responsibility, don't they?

Well, yes, but obviously it's important to us to support health boards to come to a better, more sustainable financial position.

I don't think anybody would disagree with that, it's just that, if they overspend, whatever happens, somewhere within the Welsh Government it has to be found, and if they overspend to such a level that it takes us beyond what the Welsh Government is able to spend, you'd have to seek special Treasury permission to borrow in order to fund it.

That's a bit of a nightmare scenario, though, isn't it? But, yes, ultimately, you're absolutely right. Yes, of course it is.

Because local government doesn't get the same.

No, that's true of local government and others as well.

Anyway, can I move on now? I want to talk about the Help to Buy scheme. Additional money has been given to the Help to Buy scheme. Two questions on this. Why can't financial transactions capital be used in Help to Buy? Because it is money going into the private sector. And secondly, how are we sure that the money we're giving to Help to Buy is actually increasing the number of people buying properties and increasing the number of properties, rather than just putting money into the demand side and increasing the crisis?

Financial transactions capital is used as part of the Help to Buy scheme. That's one of the positives to the scheme, in the sense that we are starting to see that financial transactions capital coming back, so we're able to recycle that funding. So, that's a positive. And again, those concerns that Mike Hedges has articulated have been made previously in regard to the Help to Buy scheme. The Minister's agreed that the scheme should be continued until March 2021, but obviously is considering the way forward after that, especially in the light of our particular focus that we have now on decarbonisation and so forth. So, obviously, this will all be part of her considerations as she explores what might happen following the date of March 2021.

Can I ask a question on student loans? And you're going to say, 'It doesn't have a material effect on the money the Welsh Government spends, because it's not under its annual managed expenditure', but it affects the public sector borrowing requirement and has an effect on the amount of money that the Government has got available, if it stays under its public sector borrowing requirement cap. To me, it just looks like a giant Ponzi. If somebody was running it in the private sector, they'd be being prosecuted. I mean, are we concerned that, at some stage, as more and more people reach the stage where they're getting it written off, it's going to start having an effect on the overall amount of money available within the public sector?

I remember that you raised these concerns in the last second supplementary budget as well, and the points that you make are very real. But in terms of this financial year, I'll perhaps ask Sharon to outline what some of this means for us in the current year.

So, what we've seen in this second supplementary budget is that there is quite a large increase in the education MEG's overall budget, mainly because of the non-fiscal requirement reflecting the cost of student loans. That is primarily as a result of the policy that was put in place back in October 2017 when the repayment threshold at which former students had to repay their loans increased from £21,000 to £25,000 a year.

What we haven't seen, and why we keep seeing these increases at the supplementary budget stage each year, is that there wasn't a revision of that non-fiscal baseline as a result of that policy, which of course has happened in England as well. So, the way that the Treasury has always approached that—as I said, rather than increasing the Department for Education's baseline, of which we would have had a consequential as a result of that—is that they will deal with it as an in-year measure.

So, every supplementary estimate, there's a claim on the UK reserve for the amount the Department for Education requires. Obviously, it's a lot larger than the claim that is put in from Welsh Government. That's why, each year since that policy change, we've seen this quite significant hundreds of millions increase. We'd expect, because that baseline still hasn't changed for plans next year, there to be a similar claim, hopefully—and we haven't had those communications from Treasury as yet—as part of the spending review, and that baseline, which reflects the cost of student loans, being reflected and properly looked at. 

Chair, just very briefly on student loans, we know, don't we, according to information that has been published, even if it weren't for the new loans, for the current loans, the amount being paid back isn't paying off the debt. So, even if we didn't give any more loans now—. This is a political statement rather than a question: it would be a lot cheaper to actually give free education than it is having this loans system, because with the interest being piled up on the loans system, we've got a situation where it's just growing and growing. Sorry, that was more of a statement than a question. 

It was more of a statement than a question.

Can I ask one final question?

Go on then, yes. 

We've had a lot of money allocated; can I make another plea for the £1 million to be returned for free swimming for pensioners? It is a matter that causes huge concern amongst a large number of older people who had the advantage of free swimming. It's only £1 million, which is a small sum within the Welsh Government. Can I ask for that to be added to this supplementary budget?

We can't reopen the supplementary budget at this stage, unless it was an emergency kind of situation, but the arguments that you've made and others have made in the Chamber in the scrutiny of the draft budget have all been well made. 

But you could spend money not necessarily in the supplementary budget. We bought the airport, for example, outside the supplementary budget under the ministerial powers of the finance Minister, who was then Jane Hutt. We're just asking for a small sum that would make a huge difference to very many of my constituents and make a difference to the health of the people of Wales. 

Mike is never one to miss an opportunity, as you see; and I think Rhianon wants to jump in as well.

Yes and no. It was just really a quick comment in regard to the £48 million in terms of the discounted price flux negotiations that you mentioned with the pharmaceutical companies earlier. If we are left with a £5 million or potentially £10 million shortfall, the £5 million could support music support services for Wales. So, in that regard, how are they able to dictate that to us? Is that normal practice, if we're expecting £48 million or £58 million?

It is, unfortunately, part of the terms of the scheme, which are renegotiated every couple of years with the pharmaceutical companies. We're part of those negotiations, but they're led by UK Government. Clearly, we have to set forecasts at the start of the financial year. Basically, the income from the scheme can fluctuate in-year. 

Part of it is a reflection of prescribing patterns. So, greater prescription of generic drugs, rather than branded drugs, and so on. That's partly a feature of it as well. 

Fine. I think that brings us to the end of our scrutiny session this morning. Can I thank the Minister and your officials? You will be sent, as always, a copy of the transcript to check, and we as a committee will be tabling our report by 28 February in readiness for the debate on the second supplementary budget on 3 March. Diolch yn fawr iawn.

Diolch yn fawr. 

Thank you. 

So, we'll move into private session, then, as a committee. I propose, in accordance with Standing Order 17.42(vi), that the committee resolves to exclude the public from the remainder of the meeting. Are Members content? Content. Diolch yn fawr. We'll move into private session.