Y Pwyllgor Cyllid - Y Bumed Senedd
Finance Committee - Fifth Senedd21/06/2018
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Jane Hutt AC|
|Mike Hedges AC|
|Nick Ramsay AC|
|Simon Thomas AC||Cadeirydd y Pwyllgor|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Alan Bermingham||Y Sefydliad Siartredig Cyllid Cyhoeddus a Chyfrifyddiaeth|
|The Chartered Institute of Public Finance and Accountancy|
|Dr Victoria Winckler||Cyfarwyddwr, Sefydliad Bevan|
|Director, Bevan Foundation|
|Professor David Bell||Prifysgol Stirling|
|Professor Steve Fothergill||Prifysgol Hallam, Sheffield|
|Sheffield Hallam University|
|Professor Terry Marsden||Prifysgol Caerdydd|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Gareth David Thomas||Ymchwilydd|
|Georgina Owen||Dirprwy Glerc|
|Leanne Hatcher||Ail Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Dechreuodd y cyfarfod am 09:32.
The meeting began at 09:32.
Bore da a chroeso i gyfarfod y Pwyllgor Cyllid. Yn gyntaf oll, a gaf fi ofyn am ymddiheuriadau? Rydym wedi cael ymddiheuriadau gan Steffan Lewis, wrth gwrs, ond hefyd gan Neil Hamilton a David Rees—neb arall. Rwyf jest am atgoffa Aelodau i dawelu unrhyw ddyfeisiadau, a bod cyfieithu, wrth gwrs, yn y cyfarfod—mae'r cyfieithiad ar sianel 1 a'r sain wreiddiol ar sianel 0.
Good morning and welcome to this meeting of the Finance Committee. First of all, could I ask for apologies? We've had apologies from Steffan Lewis, of course, but also from Neil Hamilton and David Rees—no-one else. I'll just remind Members to put any electronic devices on mute and that interpretation is available on channel 1 and amplification on channel 0.
Rydym ond yn nodi cofnodion y cyfarfod diwethaf. A yw pawb yn hapus i nodi'r cofnodion? Dyna i gyd sydd angen ei wneud.
We are only noting the minutes of the previous meeting. Is everyone happy to note those minutes? That's all we need to do there.
Trown at yr ymchwiliad y bore yma, sef y paratoadau ar gyfer yr hyn a fydd yn disodli ffrydiau cyllidol yr Undeb Ewropeaidd. Rwy'n croesawu Victoria Winckler o Sefydliad Bevan. Diolch ichi am y dystiolaeth. Os ydych chi'n hapus i fwrw ymlaen gyda chwestiynau yn syth, fe fyddwn ni'n ddiolchgar.
A gaf fi ddechrau trwy ofyn i chi—? Rydych chi yn y dystiolaeth ysgrifenedig yn nodi gwahanol senarios a gwahanol olygfeydd o ran y lefelau datganoli cyllido—yr hyn sydd yn bosib i'w wneud yn sgil gadael yr Undeb Ewropeaidd. A ydych chi'n meddwl fod Llywodraeth Cymru yn arwain ar y drafodaeth yma ar hyn y bryd, ac a ydych yn meddwl bod digon o gig yn y trafodaethau rŷm ni'n eu cael?
We'll turn now to our inquiry this morning, namely the preparations for replacing EU funding for Wales. We welcome Victoria Winckler from the Bevan Foundation. Thank you for the evidence. If you're happy to press on with questions immediately, we'd be grateful.
Could I start by asking you—? In the written evidence, you note the different scenarios in terms of the different levels for devolving funding—what will be possible after Brexit. Do you think the Welsh Government is leading that discussion at present and do you think that there is enough meat in the discussions that we're having?
I'm not aware of preparations under way, but that could well be because we've not been actively engaged in the management of current European programmes, so if any preparation work is being done through that mechanism, that would mean that we were not necessarily aware of it. What I've learnt over many years is that the best outcome is achieved if Governments are prepared—whether that's in negotiations with the European Commission or indeed in other situations. Being clear about what you want, why you want it and what you're going to do with any funding that you achieve is what helps to win. What I would urge, above anything, is that the Welsh Government is very clear about how it would use the shared prosperity fund, whether or not that's devolved. That clarity of purpose not only makes for a good negotiating position, but also makes for good use of the funds.
I appreciate you're not one of the delivery bodies, in that sense. However, you are quite an influential think tank and you have already done a lot of work, jointly with the WLGA, on the shared prosperity fund, which is just one of the funds, of course; there are others. Throughout this morning, we're looking at some aspects of others as well. Just to take up your point, in a sense what you're saying is the political argument that we could and are having to a certain extent—around whether this is devolved, whether it's Barnettised, whether it's done this way or that way—needs to be if not set aside then at least treated separately to the issue around how would we apply such a fund and how would it work in Wales. Is that a fair assumption?
I think the argument about whether or not any shared prosperity fund should be devolved or not would be hugely strengthened by being clear about what you would want to use that funding for. In particular, if the purpose of that funding—although uses to which it would be put in Wales would be different to those in England—I think that would hugely strengthen—. But, at the moment, I'm not aware that that argument's been made.
We're not as well, which is part of the reason for the inquiry, to obviously try and move that argument along. So, in a sense, I think the way that this committee has started to look at it is that we need to make the Welsh case. There needs to be an offer on the table to say, 'This is what we would deliver in Wales, now please match it', and the UK Government, as the inheritor, if you like, of leaving the European Union, would have responsibility for that. Obviously, you've also done some work on the risks and the different consequences if there were to be a failure to address that funding gap. What do you feel are the major risks from that? In particular, is there sufficient time allowed in the promises of ongoing funding, to whichever date it will be—it varies; CAP is slightly different to structural funds—is there enough there to give us the transition period to deliver these ideas?
I think the debate about funding has mostly focused on the quantum, the overall size of the cake. I think where the real difficulties come is, because structural funds have funded some activities that nobody else will fund, the impact of losing that particular funding stream—and I'm thinking, for example, of funding that comes into certain actions to promote equality—that will be lost altogether. On the scale of the overall spend, that funding might not be very much, but the impact on that particular area of activity and on particular groups of people could be very much more significant. That's actually one of the concerns that we've got around the possible agenda for a shared prosperity fund—that it will be very narrowly focused on a particular conception of what prosperity means. Whereas, I think, not only the structural funding but other EU funding has been much more broad and has enabled and in fact facilitated particular activities. So, clearly, one would be worried about the mainstream kind of stuff like the apprenticeship programme, like a lot of investment in skills, even the Welsh Government's highways programme, but in a way, those are the visible ones. It's the ones that are much less high profile, much less visible, that we would be concerned about.
They would historically have tended to be described as soft measures.
Yes. It depends who you are as to whether you perceive them as soft.
I appreciate that, for the person who's received the leg up, if you like, from some of those measures, it makes a great deal of difference.
Could I come in here?
One of the great strengths of the European structural funds has been those mainstreaming commitments for all programmes: promoting equal opportunities, tackling poverty and sustainable development. But, one can argue, from an economic perspective, that we know that those have got, not just soft outcomes, but, actually, they're structurally tackling socio-economic inequalities in Wales. Could you say anything in terms of your vast experience, Victoria, not just as the director of the Bevan Foundation, about how you feel we can learn lessons to make this case for Wales?
I think it's really important to remember that the structural funds weren't allocated to west Wales and the Valleys on a plate. Lots of organisations, at the time led by local government and by me, but with widespread support from coalfield communities and basically anyone who would chime their voice in, it was—. The funding was the result of a campaign and the campaign was one that was both based on need, but also one based on opportunity and potential. It was a wide-ranging campaign, both here and in Brussels.
And, on top of that, the measures that then were introduced into that funding were also the result of a broad coalition of organisations saying, 'This isn't just about roads or a particular type of economic development, a particular model—it's about mainstreaming equality in particular'. And, we shouldn't forget that that, actually, met a lot of resistance at the time. Maybe it was done a bit cack-handedly, looking back, but there's not an entitlement, if you like, and getting together that groundswell of support and that consensus and that sense of, 'This is money for us, because of our needs, not something that's calculated as so much per head.' And that gets forgotten, because it was a long time ago.
And we need to re-learn some of those lessons now.
Absolutely. The real push did not come from the then Welsh Office and the Assembly in its early days—it came from civil society.
Just while we're on the nature of the structural funds, you've talked about the way the themes are somewhat different to perhaps more, shall we say, traditional UK ways of thinking of, say, regional development, but also the nature of structural funds themselves; so, they deliver programmes over several years. That doesn't strike me as the usual way when you look at what UK Governments like to do. They like to have bidding processes and they like to be very geographically narrowly-focused. We've got city deals at the moment, but we've had garden festivals, city renewals, Heseltine interventions, all these kind of—. There's a pattern of behaviour there that is very different to what structural funds do. How important is it, from the experience that you've had, that we try and re-pitch for that programme approach, or can we, indeed, perhaps, have a different approach? Perhaps it's time to see a different way that has been tried in the UK, and simply try and adapt the Welsh way into that. What would be the most successful proposal in your view?
I think the programme approach was a radical change in thinking when it was introduced in the late 1980s. There was, actually, a little pilot programme in the then Mid Glamorgan. And I think there are a lot of advantages in that approach, in that it requires—. Well, it's longer term than most Government administrations for a start. I think it requires clarity of what you're trying to achieve, what outcomes, what your targets are, which is no bad thing. I think where the weakness has been in the approach in Wales and probably elsewhere in the UK has been the translation from those targets and aims and ambitions into the actions that you need to achieve them. Sometimes, we've had a mismatch between what we want to achieve and the actions achieved, and you haven't had that coherence then. So, you might want to increase employment by x, but then the actions that you've done, which might involve—I don't know, I'm making this up—investing in a road, or in a particular set of industrial units, or in business support schemes, they're not necessarily the kinds of interventions that will achieve those targets. So, I think the programme approach has a lot of merit, but I think it can be very much improved. What I would strongly not want to see is a project bid approach into the UK Government. I think Wales would really struggle to have the clout and the impact, not because of any inherent weakness, but because we're competing in a competition where the odds could well be stacked against us, rather than, you know—. But I think the advantage of the programme approach is also that it allows you to put together physical and social measures, so you can have your capital investment, but you can also have the training and the equality and whatever other measures alongside it, ideally in a coherent package. And, as I've said, I don't think we've really delivered that yet, but that's not a problem of the programme approach.
If we were to adopt that programme approach and there were to be such funding, of course, we could no longer blame Brussels for the failure to deliver on those targets.
So, it's over to us in that sense. Mike Hedges, then. Thank you.
You, in your written evidence, talked about future investment being targeted to areas of greatest economic challenge. Other people we've talked to have said that we need to look at travel-to-work areas, and they didn't quite say this, but they certainly implied it—that we've seen population movement and employment movement down towards, in south Wales certainly, the coast, and to a lesser extent, in north Wales, towards key sectors on the coast like Bangor. Should we be trying to develop in areas where employment is easier to create, or should we be trying to bring employment into the areas of greatest deprivation? And this has been something that we've discussed since the 1930s, and the Treforest industrial estate.
I think it's very—. The funding is secured, or has been secured—the EU funding was secured for Wales on the grounds of the very high levels of disadvantage in west Wales and the Valleys, and that has to be held onto. The idea of that money therefore, should it come to Wales, being spread across the whole of Wales, I would find quite difficult to agree with. So, first of all, that was and should remain the purpose of any funding. How that is then used within that area—so, within west Wales and the Valleys—is a matter for looking at where you get the biggest bang for your bucks. So, there is a case for increasing the scope of travel to work. Across Wales, across the UK, people are travelling greater distances to work. However, we've said many times as the Bevan Foundation—many, many times—if you want to solve the challenges that exist in, for example, the Heads of the Valleys, you will not solve them by large-scale out-commuting to Cardiff, because it's too far, it takes too long, it costs too much and it doesn't fit in with people's lives, and it's just not numerically feasible. You just cannot have a mass migration.
So, if you want to solve the challenges in the Heads of the Valleys, which is where the justification for that funding comes from, then you have to have a comprehensive programme to redevelop that area. And you could say the same for parts of Swansea bay because, actually, on a lot of stats, Swansea bay does not perform particularly well. The idea that the whole of the Swansea bay area needs to commute into Swansea itself, or even into Cardiff, just doesn't stack up. It's not achievable. It's not desirable, and it won't work.
Well, speaking as somebody who spends a lot of time on the A4232 and the M4, and has to start off fairly early in the morning, there's not a lot of additional room for more traffic anyway. But that was what somebody said to us previously. The other point I was going to raise is the shared prosperity fund. If you go back to when the Barnett formula kicked off, they took the amount of money being spent in Wales and then they used the formula to calculate it going forward. One of the things that I've been thinking about is that if we took a snapshot of where we are now in terms of European funding, both agricultural and what used to be the Objective 1 areas, and then transferred that in so that, in the future, we actually had—we started off from where our share was—. How it went forward, that would be a matter for debate, but at least we would be starting from where we are, rather than potentially starting at a disadvantage. Any thoughts on that?
I think the idea of using the Barnett formula to allocate a Wales share of a fund is totally unacceptable. That funding is earmarked for Wales on the basis of its need. You could use receipts in a baseline year as a benchmark, but—. Have I misunderstood?
I think you have.
My point was that you would reset the amount of money Wales has by putting in what we're getting now, both agriculture and Objective 1, so you put that back into the current baseline rather than having us competing against others. You actually start off where we are now so we—
You build it into the—
You'd rebuild the baseline so you would be no worse off in year 1 than you would have been if we hadn't left the European Union.
Right, apologies, I misunderstood.
That's understandable. [Laughter.]
Thank you, Nick. [Laughter.]
He's making a complex point.
'I don't know' is the answer right now. I can see that that's an attractive position, but I think it all depends how the Barnett formula moves forward. I can see it's attractive because it locks it in for ever more, but I think it all depends on whether the Barnett squeeze applies in future years.
Can I just ask the question in a slightly different way, but—
Preferably better. [Laughter.]
Well, no, not necessarily. Because it's how you can have a robust formula going forward to ensure that some needs allocation continues to be reflected. I think that's the principal point. If we all understand, and particularly in terms of agriculture we understand that Barnett is way out of kilter with what we get at the moment, and possibly Mike Hedges is a little too optimistic in the sense that, if we accept that the UK Government isn't going to touch Barnett for some time to come, how do we ensure, I suppose, that there's an ongoing mechanism? It goes back to the earlier points about that, if there isn't a mechanism, then we're constantly having to bid and that destroys the nature of a structural programme of any kind.
Yes. Basically, somebody with more resource and expertise than me needs to be doing some calculations in a back room somewhere working out what's the best deal, and that's what we go for—simple as, really.
And that would be the Welsh Government, really.
But it needs to be done quickly to build up that head of steam of support so it's unthinkable that you would do something else.
I was going to say just very briefly that, of course, on the Barnett squeeze, we've got the Barnett floor, which stops the Barnett squeeze being as bad as it was, and that seems to be locked in. An awful lot of things that are one-offs for one year or two years seem to get locked in forever. I'm not quite sure whether you agree with me, but I think that actually getting a start point from when we don't have European funding to be exactly the same start point as when we had European funding would be a good start point. Where we go on from that is another matter, but actually having that start point—. Don't you see a problem that, if we're bidding for the shared prosperity fund—based upon the very large regions in England that are set up, we'll be bidding against people with more ability to put together bids?
I wouldn't necessarily think that Wales is any worse at putting together bids. What I think is that it may be playing in a game where the rules don't suit, so if our concern is sustainable growth and someone else's concern is GVA pure and simple, then the odds are stacked against us. I can see the appeal of looking at receipts, and that's the approach that was taken in Scotland on welfare. So, there is precedent.
That's me. Fine.
Just a sort of more historical question, because you mentioned that the interests of Wales might be slightly different to the interests of the UK Government: has there, in the past, been experience of being able to find allies at the European level to build fellow countries or regions that are interested in, say, sustainable growth and therefore will work with Wales on that aspect of structural programmes, and is that something that we're likely to lose as well, now that we have a different relationship and a different need?
European funding's been—. Why I used to work on European funding was it was really interesting, because the approach to regional development was often rather different to the approach that was being taken in the UK, and in Wales in particular, and it often opened up new and interesting areas. So, the enjoyment, if I can say that as someone who works in it, was in bringing some of that back and then trying to develop that and take that forward, and there was a lot to be gained and learned from other European countries. That was sometimes difficult because sometimes what the Commission was saying wasn't what people in Wales wanted or felt that they needed. So, a lot of the development of research and development, for example, wasn't something that was coming from outside Wales. It was that kind of interplay and that development. I think what I would be concerned about after Brexit is that that sort of developmental approach could be lost. I think it's for our academic institutions and Welsh Government and think tanks, even, to make sure that external good ideas and thinking continues to feed in and, where it fits, inform policy.
Clearly, we have a lot of experience with the Welsh European Funding Office and a couple of decades of EU policy in one shape or form of administering EU funds, we have considerable experience, from what you've been saying, of being part of planning those and influencing them, but since devolution in particular, and since the establishment of a Welsh Government, would it be reasonable to say that, in effect, inside Wales regional development has been outsourced to the EU and, in effect perhaps, we don't have a very strong national Government view of regional development, which we need to develop quickly now in order to put that package together that we started this discussion on?
I would certainly agree that we don't have a strong regional economic policy in Wales. We have a lot of very high-level ambitions in several different documents, and then a rather patchwork approach to delivering them, and they're not necessarily joined up with achieving them. We have virtually no spatial policy. So, that's why there's still all the tensions about Cardiff versus the Valleys, north Wales versus mid Wales, north-east Wales et cetera et cetera. Those aren't resolved. Part of the reason that they're not resolved is that we don't have a mechanism for addressing those issues.
We did have a spatial plan—[Inaudible.]
We did. We did, but even that, in my view, kind of fudged some of the difficult issues. But I think we do need that because otherwise these tensions won't go away, they take far too much energy, and you actually have kind of conflicting approaches. So, I agree that we haven't had that. I don't think that it's been outsourced to the EU because I think that that kind of lack of clarity has just been translated into the Wales structural fund programmes.
Obviously, there's some urgency about this, really, isn't there, about making the case; this inquiry is, I think, timely. It strikes me that, of course, the Welsh Government did produce their paper, 'Regional Investment in Wales after Brexit'. I think it was back in December, in fact. Of course, Welsh Government has been involved in the negotiations in terms of Brexit, the withdrawal Bill, et cetera, but that paper did say that the Welsh Government proposed to
'develop a framework for regionally-focussed economic development in partnership with stakeholders across Wales...consult on a set of core objectives and priorities'
et cetera, 'flexibility for regions'. So, that has to happen. You would sign up to that in order to address some of the points in your evidence, which are about how we—. Whatever funding we have, we've got to look for those longer term outcomes that you talk about, particularly looking at the most disadvantaged and the least well off.
I think that touches on what the role of Welsh Government is, and, in economic development, is it a deliverer itself, or is it an agent for change and puts in frameworks and tries to trigger and catalyse growth, and it also touches on what the purpose of the funding is. In the past, structural funding was more than just money. It was policy as well, and, I suppose, depending on your point of view, the opportunity comes because you can ditch the policy and you can just treat it as a funding mechanism for your own set of priorities.
My worry about using the four economic areas—although I think it's probably the best that there is, there are still some pitfalls attached to that, which I've said in evidence to other committees, which is that they're not self-contained areas and they're not uniform areas, so they're actually quite a crude way of cutting the cake. I don't know that, even within those four economic areas, there are the mechanisms there to harness and generate a consensus about what should be done. So, Cardiff city region, Swansea city region, they're still at very early stages. And, for example, a lot of people would question some of the actions in the Swansea city region city deal as not being comprehensive—there's nothing there about equalities. It's all about hi-tech growth; there's nothing about poverty. So, they're partial, they're a start, but they're not enough on their own. And that work really needs to start quickly.
I'm going to move on to points you've made in your evidence about, if we get control of a fund and funding in Wales, you've talked about the need for an arm's-length—you know, looking back to how we've managed it, your views on alternative administrative arrangements that we could have. Obviously, we've had WEFO. Can you clarify what you feel would be most appropriate in terms of that independent arm's-length body, administration?
I think one of the things that followed from the broad-based campaign to get much bigger structural funds—Objective 1 funding and others—to Wales in the first place was that people had a sense of ownership and then were concerned that, if the funds were absorbed into the body of the Welsh Government in its early days, they would not be used in a way that people had wanted them to be used, so there was an element of—. I remember people saying, 'Well, it's our money. It's not Welsh Government money; it's our money'. And that was good, because there was that groundswell of support, and having an arm's-length body gave a sense of transparency and accountability and control—that it wasn't all going to go to pet projects.
If a very different funding arrangement comes about, as Mike Hedges has suggested, then I can see that that may not work. So, it's about what your organisation is for. It doesn't have to be an arm's-length body. I think what is more important is that the principles of transparency and accountability and fair play in everybody having an opportunity to access the funds still apply, including, possibly, things that are perhaps unpopular and a bit off the wall.
Yes. We took evidence from a lot of organisations that, lessons learnt, expressed the same frustrations about bureaucracy and delays in funding decisions, and you've also got a lot of experience with that in terms of just observing, as well as engaging with that. Do you feel that there are ways in which we could improve all of that in terms of the administrative process?
Absolutely. The fear of a European Commission audit was always said to be the reason why so many checks had to be undertaken on project applications, and rightly so, because there were some misuses of funds many years ago. I think what would be good is that you only have one set of checks. What was always, and I think still is, very frustrating is you have multiple checks. So, your project's already been accepted for x, and then it has to be checked all over again—some sort of passporting or streamlining of that, and also funding for packages, rather than for lots of small-scale projects. But I have to say I'm not close enough to that at the moment to comment further.
We have got examples, I'm sure, where funding streams—they can always be improved, but where there is more satisfaction in terms of bodies being able to—civic society bodies, private, public and third sector—assure that they're getting fair play in terms of the—. But, yes, those are important points.
For me, it's all about outcomes. It's about achieving the change and the improvement, and we so quickly get bogged down in all the technicalities and focus on the money, and not on the outcomes.
Cheers. Can I ask you about the post-Brexit participation in Horizon Europe? The Welsh Government has said that it's interested in following through with participating, even after we've left. Do you think that's feasible or advisable? How should Welsh Government go about making those representations?
I would have said, in principle, that it's desirable. It's not an area of expertise, and I can't comment further, I'm sorry.
That's fine. We like clarity on the committee; it saves us time.
Better than waffle.
Yes, sure. The Institute for Fiscal Studies has commented that Welsh universities traditionally have been relatively unsuccessful in winning research funding—you touched on research funding earlier—from either UK or European institutions. Do you have any thoughts on funding mechanisms that might be most advantageous to Wales once we see a UK funding allocation, rather than coming from Brussels?
I don't know in respect of universities. I—
I think you may have jumped ahead, Nick, possibly, slightly, in the questions. If I can—. Before we—
That would explain your lack of expertise in this area. [Laughter.] Not that the questions are scripted.
While, potentially, Nick has a look at some other questions, just to come back to something that you were talking with Jane Hutt about, which I thought was something we'd like to look at as well, which is what do we learn from our experience of EU funding and how we apply that to a new proposal, if you like. So, one of the issues, for example, in another committee, which Mike Hedges chairs, looking at common agricultural policy programmes has looked very much at an outcomes-based approach to that, and you've mentioned that in the context of structural funds as well. We don't really have much experience, though, do we, of setting outcomes and then empowering people to work towards outcomes without constantly checking them and saying, 'Have you included x? Have you included y?' This more free approach, if you like, which I think New Zealand is starting to talk about in terms of its low-carbon economy, for example, is quite alien to our European culture, which is quite a checking, checklist kind of culture. Are we prepared to free ourselves from those shackles and become that more adaptive, slightly more entrepreneurial way, and would that be beneficial to us?
Absolutely. We've argued before that a whole change of mindset is needed in how we go about our economic development and to think about what we would like to achieve by year x, what will it take to achieve that in terms of the number of jobs, who gets those jobs, et cetera, and what investment then—so, it's an investment, but what investment would we need to achieve that. It depends on your view of economic development, but there is a view that actually intervening at firm decisions and being a provider is not particularly effective, and where Government's key role is is in creating the conditions for economic growth.
Just to go back to your earlier question, about 10 minutes ago, when you said 'What does Government do, does it enable or deliver?', you're on the enabling side.
Yes. So, it provides superb infrastructure. It offers fantastic education and post-16 and adult learning. It might enable, by bringing people together, but what it doesn't do, unless there's a really strong case, is give money to businesses. That's quite a different approach, which also means you have to be very clear what you want to achieve.
And you have to hold your nose for several years for that to work, and have faith in what's happening.
Yes. It means you can't cut ribbons and stuff, and things like that. What I would say is that our argument is that that vision, that aim, needs to be around inclusive growth, so it needs to be about not just achieving the growth then thinking about redistibution, whether that's geographical redistribution, which is what a lot of the connectivity stuff is about, or a social redistribution through the tax and benefits system; it's actually building in your approach, a different approach, so that your economic development, by its very nature, is one that's more inclusive.
I'll just return to Nick—if you have any questions further.
I'm on the right hymn sheet now, but I think you've answered the questions I was going to ask.
I think we have touched on the regional stuff.
Going back to an earlier answer you gave, though, when you said how it wouldn't work if you moved people from the Heads of the Valleys to Cardiff or whatever, do you think it's an irony that those areas that did receive a lot of structural funds support actually were pretty vociferous in backing Brexit? In terms of future funding, it's not just a question, as you said, I think, about what Europe thinks is right for those areas, or we might think is right, but you've got to actually bring in the people who are the beneficiaries as well. I'm not sure they were entirely involved as well as they might have been in the first few phases.
I'm not surprised, and I wasn't surprised, that large parts of Wales voted the way they did, because they hadn't seen the benefits of EU membership in terms of an improvement in living standards. So, they could point to this shiny building, that road, this sculpture in the town centre, but they could not say, 'There are now jobs that we didn't have before', and in parts of Wales they could actually point to jobs that had gone elsewhere in Europe because of lower labour costs. So, I personally wasn't at all surprised, and that is a failure—. It was partly that expectations about what could be achieved with European money were too high, and what it achieved was too low.
I think it also reflects on my earlier question, where I didn't tempt you completely in agreeing with me that too much reliance had been based on European funds to deliver regional growth, and not enough on Welsh Government—as it then became, although earlier it wasn't a government—to have a more coherent policy themselves for these areas.
Because I think there was a mismatch between very high-level ambitions, which are fine—who wouldn't want prosperity for all—and then a raft of projects that may or may not have helped to achieve that. There was something missing in the middle that was about joining the two up.
We're just concluding, but Mike, did you want a final question?
Just one thing. If you look at the south Wales Valleys and other poorer parts of south Wales, including my constituency of Swansea East, what we tend to lack is growth clusters. In growth areas of the economy, the clusters—. It's not just Silicon Valley, it's not just Cambridge, it's a whole host of other European places. I talk about Aarhus and Mannheim, which are cities roughly the same size as Swansea. You have these growth clusters and that's what drives it. All the regional money we spent in Wales, we never managed to get within the communities that were meant to be growing growth clusters.
The high-tech industries that are targeted, particularly in the Swansea city deal, employ very, very small numbers of people. So, even if those sectors have stellar growth—double, treble employment—the impact on people in Swansea, the mass of the population, will be really small. So, there's first of all that. I think there's a strategic question: have all the eggs been put in the right basket in terms of what the city deal wants to achieve? But I also think there is a lack of aspiration, I suppose, and ambition across Wales, because economic development has been mostly stripped out of local authorities. I've been to any number of talks from all kinds of different places in Europe and you sit there and think, 'If only'. I don't know why that is, but I think we risk having almost identikit models of growth. So, we've got the same model for Swansea as in Cardiff, as in Manchester, as in Leeds, as in Birmingham, and we can't all have that.
Can I just ask one final question for you to answer? Out of frustration and the points that you've made so clearly today, is there anything that you feel that we should bring from our experience of the structural funds that should influence the way forward? I know you said that we must concentrate on west Wales and the Valleys. That's critical in terms of where we're going to target those funds we get, but is there anything else that you feel are those lessons that we should take from the use of the structural funds?
I think the lessons are negatives rather than positives, and the negative is that the pattern of investment hasn't benefited people in the bottom half of the income spectrum in a way that they can feel and sense, and that's why we're advocating inclusive growth, which means investment at the bottom. So, yes, universities can invest and can have some, I would argue, more limited support for some of their functions, but the real money needs to go into—. Post Brexit, you can spend on pre-16, but in Brexit terms, you couldn't spend on school age. But real investment in FE and adult learning at the bottom, so on those level 1, level 2 and level 3 courses: getting people through, and boosting pay and investing in those sectors—the cinderella sectors that we now call the foundational economy—and the things that make a difference to people's lives.
On that note of lesson, thank you very much to Victoria Winckler. There will be a transcript just to check if all words have been captured correctly, but thank you very much for your evidence. Diolch yn fawr iawn.
We'll continue with our evidence and have a short break at about 11:00, because I realise that we've got a small committee and we've got a lot of questions to ask—to spread them around.
Let's move on. Can I welcome Alan Bermingham—
croeso mawr ichi i'r Cynulliad—
a warm welcome to you to the National Assembly—
from the Chartered Institute of Public Finance and Accountancy, popularly known as CIPFA? We're very grateful for your written evidence. If you're content, we'll start with questions straightaway.
Thank you again for the written evidence. To start with, clearly we're leaving the European Union. We're leaving a very clear, albeit sometimes multilayered governance structure—a way of relating to decisions around structural funds and a way of relating to decisions around the programmes and the policies within those. One of the points that you make in your paper is we need to have some kind of relationship between the Welsh Government and the UK Government in any replacement for structural funds, to not necessarily replicate but have a mirror image of some sort of governance structures. What would be your preferred way of trying to do that?
I suppose the submission was really reflecting the fact that, perhaps through some experience of working with the devolved Governments in Northern Ireland, Scotland and Wales, there is a bit of concern that the Joint Ministerial Committee doesn't work as it should do, or doesn't pay due respect to devolved matters, necessarily. I'd be conscious that it has met fairly infrequently and things like that. So, there does seem to be a lot of issues around that. So, it's a call to strengthen and review those arrangements. I'm aware that some people have called for something similar to a European setup where you'd maybe have a ministerial council of some sort—
The Welsh Government has talked about a council of Ministers, for example.
Exactly, yes—with maybe more formal decision-making powers and things like that. Beneath that, maybe there should be a committee to look at funding matters for the devolved Governments, particularly as they're getting more complex with Scotland getting more tax powers and things like that, and the Barnett formula being adjusted and so on and so forth. Obviously, what's going to happen with this shared prosperity fund or replacement for EU funding—I think there's a definite case to make changes to the JMC to reflect that.
Do you see the JMC, in that sense, or a potential council of Ministers, replicating what the Commission would now do in terms of approving the programmes, the thematic approach—not approving projects as such, but the overarching design of such a programme—so that the shared prosperity fund, which—? To date, I have to say, as a committee, we have not seen much evidence for what it will be or what it will do, but the word 'shared' in that should actually mean not just sharing the wealth, which I think is what the UK Government means, but actually sharing the way it's done as well. That's what you're pressing for, it seems to me.
It is, yes, because I think, at the moment—. We're in agreement that the JMC is perhaps consultative in nature rather than having any formal decision-making powers. It would be more advantageous, I would think, for the devolved Governments—and bear in mind this is probably true for the devolved regions in the UK as well—to have an input into what those overall measures or principles will be in any shared prosperity fund going forward. Assuming that one might be to address regional deprivation or something like that, as an example, that's where I think the devolved administrations need to be in at the start to actually agree that and agree that that's the right use of it, bearing in mind that it may be slightly disproportionate to other areas of England—you get a bit more out of the previous EU structural funds than, say, the south-east of England does, obviously.
Yes, definitely, and obvioulsy a concern from the Welsh perspective would be that any UK fund would row back on that, in effect. How much flexibility do you think should be in such a system, then, to allow, for example, for Wales to pursue quite a radically different approach, if it was to decide that—? We've just heard from a previous witness, for example, if Wales were to decide, 'Our big investment is actually in further education and adult learning', but on the English side they were to decide, 'Well, no, actually, we're going for a city deal approach', just to be very extreme—how much flexibility should there be? Or, does the very title 'shared prosperity fund' mean that you have to agree the common aims as well?
No, I don't think it's about the common aims. I think it's more about high-level principles—that the shared prosperity fund wants to address, say, for example, regional disparities in income or whatever it happens to be. I think it's for the Welsh Government and respective devolved Governments to come forward with their own programmes that meet some of those objectives, and obviously fit in with your local objectives around either the national performance framework or the well-being of future generations Act—those type of commitments you've got in your programme for government. So, I would say that there should be full flexibility and that the principles agreed at any revised JMC should be fairly high level to allow that. So, it shouldn't tie you down in the sense that it's specifically going to be used for educational purposes or something like that—that should be a decision for the locally devolved Government.
Okay. One specific proposal you have, which I haven't seen in other evidence, is that the Development Bank of Wales could become almost like a co-investor in some of this—it could sit alongside the shared prosperity fund in Wales. How would you see that working in terms of, first all, accountability, because once you mix funding, you're not quite sure which targets are being met, if you like? And how would that be measured as a unique tool of the Welsh Government, again within the overarching principles of a UK fund?
I suppose I'm looking at it from the point of view that, obviously, local government has a big involvement in structural funds now. I'm a Government policy manager, but it's my punt for local government if you like, in the sense that if they're involved in that side, the Welsh development bank is also looking at co-financing, and co-financing can be anything from grants to private sector—[Inaudible.]—Government, or whatever. And given that local government might want to, obviously, invest in its area and so on, but also that local government finances are squeezed, there may be an opportunity in terms of co-financing with the development bank post Brexit. Bear in mind, local government has a general power of competence to do these things—it might be more restrictive for the Welsh Government to do that, but local government, in theory, could. And that kind of patient capital idea might provide them with a future longer term revenue stream if, say, they're developing infrastructure for employment opportunities and supporting the development bank with co-financing to do that. The idea of patient capital being that the local authority would get some investment from that in the future—some kind of pull-back. They would have the power to do that under a general power of competence. So, there maybe is an opportunity for local government to look at more structured investment like that going forward, given that their finances are being restricted too. I know that councils elsewhere are exploring those more quasi-commercial opportunities through funding necessities, maybe, in the main, but nevertheless, they're looking at that more actively.
And this may be getting into some detail of an idea that exists on paper and hasn't even been—. But we have the luxury, I suppose, of thinking of these now, because we don't have any firm proposals from the UK Government. So, in that model that you've outlined, would you see the return on such investment capital? Because, hopefully, there would be some return—some of this would be successful and you'd get some economic growth back at some stage. Would you see that then being, rather than shared back to the UK level, something that could be kept within that local economy and reinvested or recycled?
Absolutely. Yes, absolutely. That's the idea of that, yes. It's twofold from the local government perspective: one, obviously, is that employment is likely to drive the local tax base, in terms of property taxes and rates and things like that—non-domestic and so on; and, secondly, it could be part of the council's longer term investment strategy to generate other sources of funding by investing in that and getting returns, either from investing in the property or investing in the business itself, which, in theory, they have the powers to do, but don't necessarily exercise that well at the moment.
We do have the opportunity now in Wales with full devolution of land transaction tax, business rates, the whole property tax area, a potential vacant land tax as an innovative tax in Wales—we have the potential of putting that together in a more coherent way to match or be complementary to such a shared prosperity fund.
I suppose what you have, in my view, and it is really my view—I don't have a lot to back this up—is local government, maybe, being a bit risk-averse at the moment, conscious that they don't want to get into areas where they maybe don't have the exact competence to do that. But if you're doing it alongside a partner like the Welsh development bank, I would argue that they have, maybe, the expertise to look at the longer term and do that analysis on behalf of the council. So, there's a good fit there, I think, in terms of addressing some of the council's concerns about risk.
Okay. I'd like to turn to Mike and just say pick up anything you want, Mike, but also we've got some questions on CAP and agriculture policy, so feel free to ask any questions in that area as well.
Can I just carry on from where you were? I think one of the weaknesses of the Welsh economy is the lack of availability of capital and the number of firms that stall. They either stall on the movement from small to medium or they stall in the stage of medium to large through lack of access to capital. Those that don't need much capital for growth aren't hit by that, but an awful lot of firms in manufacturing and construction need that access to capital. We heard the answer you gave to Simon Thomas earlier. Do you think that local authorities working with the development bank and also working with commercial banks should actually get together and help get over those two humps?
Well, I suppose the general power of competence would allow them to do that. Now, I think it's straying into slightly different areas from, say, a start-up company that needs capital, which is kind of where I see the development bank and their focus being, as opposed to on somebody who has maybe gone to a bank and the bank, given their current view on things has said, 'Well, we're not quite prepared to give you that facility.' I think that's a bit of a leap to say that the council could step in and give that facility. That, to me, would be maybe something they wouldn't want to do, being more risk-averse than probably the bank is in that sense. So, I think there are two different elements there that you're kind of bringing together in some respects.
Okay, thank you. Going on to CAP, the farmers' unions have said, 'Well, we get 9.4 per cent of the money at the moment. If it comes from Barnett, we're going to get a total of about 5 per cent; it'll have a serious effect on farm income.' What they've said is for that 9.4 per cent to be built into the base of the Welsh block grant, which, if you remember back, that's what happened with Barnett. Barnett was initially made up of how much money was being spent in Wales and putting it all together to make a start rather than Barnettising things that aren't currently in. Do you see advantages in actually resetting the baseline?
Yes. The advantage is obviously the simplicity of it, the fact that it's out of the way, it's done and dusted, and obviously you just manage on the consequentials going forward. So, it's totally within the local Assembly's remit then as to how that's spent. So, that makes clear sense in terms of simplicity. What I would argue is that re-basing Barnett, if it was done particularly just for Wales—and I'd be conscious that you've already got a floor or something, which creates controversy elsewhere—. The other devolved administrations may have a different view. The other thing I would say is that there's an opportunity post Brexit to redesign CAP, and I think there is a school of thought around that. It's maybe not as efficient as it should be. So, my argument would be that maybe there is a case for still having direct payments to farmers nationally but a fair element of that payment being devolved to the Welsh Government in some way for you to manage on how you see your responsibilities for agriculture going forward, be that through encouraging biodiversity, encouraging farm sustainability or whatever. So, you could manage quite a large chunk of that yourselves. So, I see CAP, in my personal view and probably CIPFA's view, as being addressed outside Barnett.
Okay, which isn't very different—. Are you saying that we will still get that extra 9.4 per cent that is being spent now when it comes in within—? If it isn't put into Barnett, how would it grow in two or three years rather than just being stuck at the absolute amount that 9.4 per cent gives us?
Well, I suppose a fundamental of that debate is whether you're going to maintain it at the level it is now. I suppose that, given there is a lot of clamour—. Now this is, I suppose, me researching things and talking to people within CIPFA's own Brexit commission and things like that who work in other policy think tanks that have views on this. I would say there's a clamour post Brexit to review CAP rather than just re-base it in your Barnett formula. While I agree that that's a good solution and it's simplistic and works well administratively and things like that, I'm not sure it addresses the fundamental question of CAP itself and whether those payments are correct, fair and will support British trade and agriculture going forward.
Now, recognising that agriculture is different across different regions—you would have a different kind of agriculture to England in parts of Wales, and the same in Northern Ireland and elsewhere—there's an argument to say that, yes, there might be something required to support farm incomes and protect them from market volatility, which is part of what CAP is at the moment, but there's also a huge argument to say that, with your agriculture responsibilities, you'd want to develop payments that target what you want to do locally with agriculture, and that might be, as I say, about anything from biodiversity to encouraging fishing or, generally, whatever. So, to me, it's more about arguing the case for—. Obviously, you want some level of maintenance or transition period to new arrangements, but I wouldn't say there's an absolute guarantee that Welsh farmers could be getting the same level of support that they're getting in five or 10 years' time that they are now. That's a very difficult question. Now, I agree you need support, but I suppose my argument would be that the Welsh Government need to put a case in to say, 'This is why we need a long transition period, and this is why we need to manage an element of those CAP payments ourselves and target those ourselves at our own objectives.'
I would think probably most farmers are more worried about next year and the year after than they are about five or 10 years' time at the moment.
Eighty per cent of Wales is classed as less favourable areas. We haven't got the advantage that places like Norfolk have of huge farms. If you did away with CAP completely, what you would do is change the whole make-up of Wales, because Wales is predominantly farming and rural. That money actually keeps the whole of the economy going in some parts of Wales, and also it has importance in terms of the Welsh language, and importance in terms of Welsh culture. Some of these are not measurable in terms of finance, but they would make the place less like rural Wales if they didn't exist. Any comments?
I totally agree. I'd certainly recognise the fact that, obviously, that's a large part of farmers' incomes, and therefore that is a huge element of income going into a local rural community and so on and so forth—so, the knock-on impacts of all of that. I'm not saying that you should have your funding reduced in any way. I don't believe that either. What I'm saying is that, for fairness throughout the UK—and I think if you looked at the case of Norfolk, the argument there would be that, because of the land-based element of part of the direct payment, big landowners are therefore making more money than small farmers are. Now, I'd be conscious in Wales that there might be a lot more small farmers than in Norfolk, but UK-wide—and that's the issue I'm saying is being looked at—just re-basing Barnett for you not only raises issues for the other devolved administrations, but it raises issues fundamentally for maybe what the Westminster Government and others want to do with CAP. So, an alternative solution is to say, 'Well, yes, we need an element of direct payments to farmers to maintain income levels, but we also need an element that the Welsh Government can target at how they want to develop their agricultural policies and support for that.' Now, to me, that can't be done through Barnett—that's really what I'm arguing.
You were saying about the other devolved administrations, and as somebody who's looked at this in some detail, you have Scotland, which, due to the population reductions that took place in the 1990s and early 2000s, actually gets substantially more per head than Wales. Northern Ireland, leaving aside the bung they've had from the Westminster Government in order to get people walking through the right lobbies, have also been allowed to overspend on a fairly regular basis, and are better funded than, even, Scotland. So, I think that even if we were given this additional money we'd still be less well funded than Northern Ireland and Scotland. So, I don't think they'd have any cause for concern, surely.
I accept that, but I suppose CIPFA's policy viewpoint on Barnett is that it's not fit for purpose anyway. I accept what you're saying about the disparity in Wales, and I totally agree, and if it was needs-based delivered, rather than just population-based, it might equal that situation out. Now, I don't know the answer to that, obviously, but I'm just saying that I don't think Barnett is a particularly effective method of funding Wales, going forward.
I don't think any of us do, but it's a formula likely to be used next year and possibly the year after. So, yes, we'd all like a needs-based formula calculated and agreed, but that's unlikely to happen in the very near future. So, consequently, we need to work out how we can maximise the amount of money we're getting now.
Yes, and I suppose rebasing it if that was part of a transition arrangement would be perfectly fair and reasonable, I think, and it is the most simplistic approach. And, given the timescales we're talking about, it's probably the best thing to opt for. But I think, longer term, there is a question mark about the whole area of CAP payments.
There's a question mark about a whole range of payments, but how we get through the next couple of years is really the position that Welsh farmers and the rest of the Welsh economy is worrying about. That's all, Chair.
Okay, thank you. We've come to the place that you wanted to come to and were eager to come to, Nick.
I have some very enthusiastic questions on Horizon Europe.
Good. That's the response I wanted [Laughter.] The previous witness wasn't sure.
The UK Government has stated its intention to discuss post-Brexit participation in Horizon Europe, and the Welsh Government is for that. Do you think that that's a good idea? How should the Welsh Government approach it? Is it viable? Will it work in the long term?
Yes. Obviously, if you take the view that most people do that the economy is going to be impacted by Brexit, and research and development is an important long-term factor in productivity improvements and so on and so forth, obviously, access to research funding is useful.
I'd be conscious that maybe there's a view in Wales that you haven't been totally successful in that, although there is evidence that you do get some research projects. It's totally unclear what's going to happen post Brexit. There may be a contribution from the UK Government to stay within that. You might find yourself as being what's called an associated non-EU member that can access that. I think that's maybe not the best place in the world to be because, generally, you'd have to demonstrate that some of your work is contributing towards the objectives that are put in place by the EU. And that might not always be the case. And that's the difficulty with being an associate to that scheme, as a non-EU member—it's harder to demonstrate that you're meeting all the criteria, perhaps.
You'd end up in a Norway situation too, where you could be paying a lot and following, but actually not really having a seat at the table that determines the policies.
Yes, and I suppose it's a difficult one. If you're not in Horizon 2020, obviously, the institute's view would be that research and development funding is so important, long term, that the UK research councils need to be funded to the equivalent to sort of access that level. And that's an important part of underpinning things like productivity and industrial strategies and so on and so forth. So, whatever happens, whether there's more than one funder to avail of Horizon 2020 or research councils in England and elsewhere, or whether Horizon 2020 is out of the picture and it's just this pot, that needs to be funded to the same level, if not more, if possible.
The issue, I think, for governments is more about facilitating the research environment, making sure that people are aware of the research capabilities available in Wales, internationally and elsewhere, and fostering that environment. I'm not sure that it's right for governments to make decisions about how research funding is spent and on what projects it's spent on, because, to me, that's a case for the researchers to determine that and it's more about government actually exposing the benefits and making sure that that collaboration can happen and making sure that people are fully aware of the research capabilities available in Wales. To me, you'll get more success for a policy that delivers that, rather than interfering directly in what research funding should be spent on, because that's a decision for researchers, in my mind, not for government, per se.
The Institute for Fiscal Studies said that Welsh universities had traditionally not been very successful at accessing funding from either the UK or EU. In terms of the future of funding, do you have any thoughts on funding mechanisms that might be better suited to us?
That's what I'm saying. The assumption is there that they're not successful because there are difficulties in accessing the funding mechanism. I'm not sure that that's the case. I think there's a lot of evidence from Universities UK, and so on, that what helps people access funding is support from government to say, 'These are our capabilities,' and encouraging international collaboration and breaking down those barriers for people. So, that's more, I think, the kind of policy that Welsh Government should be looking at, rather than trying to think, 'They're not successful at accessing research funding, and that must be problems in the process or something like that.' The evidence would suggest there aren't any problems in the process; it's more about how they're collaborating with the research community and the support that the Government can put in place to do that or help improve that. That's the argument, I think.
Just on that, clearly there are strong European research funding streams at the moment that we are, or not, successful in. Anecdotally, I'm told by people who are working in universities that they are no longer receiving invitations to join funding bids and there's radio silence out there when it comes to European projects, because nobody is quite sure how the relationship will work. But in terms of the mechanisms, I think you're suggesting that the shared prosperity fund idea should be completely separate from a research council, in effect, idea. So, the research councils we have at the moment, albeit that Wales does not do particularly well in most of them, are research led—they are led by the researchers themselves. There is some Government direction in very broad terms to them, but they, on the whole, are led by the researchers themselves. So, would you want to see that beefed up in terms of the money going into that stream, rather than being retained in a shared prosperity kind of stream?
Well, obviously, I suppose a—
Because there is some European money that should be available. It's coming back home; we're supposed to be having this money to do something with.
Absolutely. The alleged dividend, as they say.
That's the one, yes.
I suppose I'm saying that that research, or the level of funds that researchers can access in Wales, should be at least maintained. That would be my view. I certainly see the research side as separate to the shared prosperity side, which I see as more akin to cohesion building and the structural fund-type role, and not research. So, I think you would be having much more—. If you combine the two, it's my view you would have that situation where Government are directing research activities, which is what I'm saying you certainly want to avoid. You want that position you have at the moment where researchers are driving research activities, and the Government should be in there facilitating that kind of international collaboration and doing whatever they can do to promote the capabilities of Wales to do that, and that will underpin their success there.
Thank you. Jane Hutt, please.
I'm moving on to the administration replacement funding arrangements, and there's been written evidence from many witnesses and organisations about bureaucracy—wanting a reduction of bureaucracy in EU funding arrangements. That would be a key requirement coming forward. But, obviously, we know why there have been a lot of checks and balances in terms of European funding. How would you balance this against the need for robust monitoring of funding?
I suppose, being an accountant, I'm pretty much thinking, 'Bureaucracy, what bureaucracy?' No, I understand, and, obviously, there's an important point about managing public money and things like that. If, in some way, it can be tiered or—. What I mean by that is, obviously, what you'll find, I think, in the bureaucracy agrument is, particularly, the smaller organisations saying that this is an administrative burden, usually because, I suppose, if you're a local community group or a project like that, or a charity and others that are getting funds for something, they don't generally have a massive administration back-up—a couple of volunteers and others that are doing work like that. So, obviously it is an administrative burden. There may be a case, post Brexit, to look at the level of regulation and how people access funds with a view to streamlining that in terms of maybe certain organisations availing themselves of the self-certification process, or something like that. Then, if people do want to go and dot the i's and cross the t's and check the objectives, and check that financially the governance is working fine, or whatever, they can do that via selection—a proportion of them that they can go and have a look at every now and then. Maybe opportunities like that to deregulate a little bit and cut the bureaucracy would be worthwhile pursuing.
I suppose, where I stand, there's a risk attached to that, and certainly in bigger, more complex projects I think you'd still want to see the business case and the fundamentals in place to ensure there's value for money. So, I'm not wholly convinced by the bureaucracy argument. I think there's certainly a case for smaller projects and so on, but certainly not for larger ones.
Thank you. You also, like several other organisations, called for multi-year funding arrangements to continue, and currently, obviously, the seven-year cycle—this also leads to longer term planning and commitment of funding for the outcomes that need to be achieved. Do you want to say anything more about why you think this multi-year funding cycle arrangement is appropriate for the future?
I think obviously, if you're looking at replacement of structural funding and things like that, particularly if these are projects that are going to take a longer period of time to deliver results, having multi-year financial settlements, be it five or seven years or whatever—that type of ilk—at least gives a bit of certainty over funding. I think, obviously, the problem is the way Westminster do their spending reviews, and they seem to be annual these days, rather than going in for comprehensive spending reviews and things like that. So, fundamentally there are problems with that process, I think.
The other thing to think about in that idea of multi-year settlements is the idea of having end-of-year flexibility, which I'm not sure everybody thinks about. At the moment, as you probably know, there is a bit of a spend it or lose it mentality in the public sector, starting at 2010 when end-of-year flexibility was pretty much withdrawn from those people. There is an argument to say, with projects, they should be able to carry forward commitments and things like that, and roll through those multi-annual settlements. So, to me, that's a fundamental part of it as well. You get a lot of short-term thinking going on if you don't have multi-year settlements and also you don't put in place some flexibility around carry-overs for commitments at year ends, and things like that. So, I think that's another issue that supports the idea that you need longer term settlements to do that.
That's helpful, thank you. Also, obviously, we've had the Welsh European Funding Office managing funds. Have you got any views on whether there's a need for an office of that kind or another body to administer any funding arrangement for Wales that emerges?
I suppose it depends on the model you end up with, but the model we had in mind in our submission was one where obviously there was a kind of partnership agreement, if you like, between the Welsh Government and the UK Government, agreed at this revised JMC, or whatever it happens to be. Now, that partnership agreement, in my mind—. So, the JMC will obviously have a view on their high-level principles of what the money's going to be spent on and how it's allocated. Your partnership agreement is you accessing all those funds for your purposes, which you're then going to go away and deliver. So, in that model, yes, I do think there's a need for redirecting the European funding office towards that work of allocating out that money that's in that partnership agreement for those projects, and probably also co-ordinating the compilation of that partnership agreement to go forward for the Welsh Government to the JMC, or revised version of it. Because, obviously, there's a lot of different bodies involved in those projects and that will need a little bit of compiling and compilation by somebody within Government, and that's likely to be the body that also administers the funding, I would suspect, so they're fully aware of what these projects are and where they're coming from and so on and so forth. So, I think there still is a role, definitely, just kind of redirected in a different way.
Okay. I think that brings our evidence session to an end, but we're very grateful; thank you very much.
Thanks for the opportunity.
And there will be a transcript, just so that you can check that all the words have been correctly recorded.
Diolch yn fawr eto. Diolch yn fawr iawn i chi.
Thank you very much indeed.
Thanks. Can I suggest we take a short break before the next set of witnesses, so that we refresh ourselves? Perhaps you can come back by about 11.05 so that we get cracking. Thank you very much. Diolch.
Gohiriwyd y cyfarfod rhwng 10:56 ac 11:06.
The meeting adjourned between 10:56 and 11:06.
Galwaf y Pwyllgor Cyllid yn ôl i drefn a thrown at y panel nesaf o arbenigwyr. Rwyf jest am eich croesawu chi i gyd yma a gan eich bod yn banel amrywiol, a gaf i ofyn i chi gyflwyno eich hunain a datgan eich swyddogaethau os gwelwch yn dda?
I call the Finance Committee to order and we'll turn now to our next panel of experts. I'd just like to welcome you to the committee and since you are a mixed panel, may I ask you to introduce yourselves and give us your roles for the Record please?
I'm just asking you to introduce yourselves and your roles, as it were, if you will. If I could start with you, Professor Marsden. Just give your name for the sake of the Record.
I'm Terry Marsden from Cardiff University.
I'm Steve Fothergill. I'm a professor of regional economic development at Sheffield Hallam University, but I also have a second role that's relevant in all of this, in that I'm the national director of the Industrial Communities Alliance, which represents the local authorities in Britain—so, older industrial areas, including, I've got to say, all of the Valleys authorities here in Wales.
I'm David Bell, and I'm professor of economics at the University of Stirling.
Thank you very much and welcome to the committee and thank you for your written evidence. Terry Marsden, we had your written evidence this week and we're very grateful for that.
It was a bit late, I'm sorry.
No, that's fine. You've provided evidence; the UK Government hasn't, so we'll start with where we are.
Could I start with Professor Fothergill, but you might all want to chip in on this? It's a more political question, perhaps, than an academic one, but clearly leaving the European Union begs the question of not only what kind of funding replaces structural funds, but the quantum amount that replaces structural funds. You make, in your paper, a very clear case that if we don't get something similar to the current amount, then Wales in particular will have, I think you say,
'a devastating blow to economic development'.
Can you just elaborate on that in terms of what you think should be the case from Wales in trying to make the claim to the shared prosperity fund, whatever that is? Do we just plead poverty again or do we have something better to say?
It will come on automatically. Don't bother, it's fine; it'll all be done.
Forgive me if I give a slightly lengthy answer to this question and one that may, at times, seem a little complex, because it's probably the issue on which I can contribute most to this discussion this morning.
Can I take the politics of all of this first? There are big questions, of course, about how big the UK fund will be, but there's also this subsidiary question then about how it might be carved up across the United Kingdom. Given that the funds at the moment are very strongly skewed to the less prosperous areas of the country, including Wales, and especially west Wales and the Valleys, there's obviously a question of whether or not that's going to be perpetuated into the future. I suppose there will be many jealous areas in southern England that will look at the funds and think, 'Couldn't we have some more of the cake?'
Of course, as well, you have to bear in mind that the political heartland of the present Westminster administration is in those very areas. So, there is a distinct risk there, I've got to say. Although, I haven't personally noticed any organised pressure yet from southern England to say, 'We want a different share of the funds.' But there again, I think the civil servants that I speak to on a fairly regular basis are acutely aware that to tinker with the division of the funds between the four countries of the United Kingdom really would open a can of worms and lead to all sorts of potential political conflict. They, I'm sure, would advise their Ministers only to go there with trepidation.
I don't think you'll get pressure from northern England authorities to reduce Wales's share of the money from the new fund, because they will see Wales as setting something of a precedent, in that if Wales gets a big share of the funds it makes it easier for the less prosperous areas of northern England to argue against southern England in terms of the allocation of the money. So, that's the politics.
Then, there's an issue of numbers. In the system that the European Union has operated, Wales has done so well particularly because of the low GDP per head in west Wales and the Valleys. There's then an obvious question: if you start using a formula-driven allocation for the UK, can you replicate something like that division? I've been experimenting on this, along with some colleagues, and the unfortunate answer is 'probably not'. Certainly, if you let just the numbers drive things, you won't get so much money coming to Wales in terms of the share of the pot. That's because there are a couple of big English sub-regions that have slipped down the rankings in terms of GDP per head. They're now below the 75 per cent of the EU average threshold that normally would have triggered big money. So, with a fixed pot of money, there are claims from elsewhere on that pot and that would tend to reduce Wales's share somewhat.
The third thing, I would say, on shares of this new shared prosperity fund is maybe Wales would be better off arguing for a similar amount of money, the same amount of money in real or money terms, rather than a share of the pot that's similar. Because, if you're on about a share of the pot that's similar, it leaves you exposed to the pot in total being reduced. There are also further issues that I could explain at length about what might be put into the pot in England that would alter shares, but I think you're on stronger ground if you argue for similar absolute amounts, rather than similar shares. My reading of the situation would be that that would be a powerful argument. So, that's a rather long and complex answer, I'm afraid. But, I've thought very carefully about this issue.
Before I bring in other Members, and possibly your colleagues as well, I'll just ask one particular thing. You talked about the English sub-regions, so are we making an assumption here that the current sub-regions, whatever term you use for them, are going to continue? Because obviously Wales will make an argument, I would imagine, that this is Wales now. West Wales and the Valleys is a construct for the purpose of European funding. It's not a community that anyone lives in naturally, but it's been a very effective construct. Maybe Wales will start to make a national case, but will England still be using the European regions, or will there be a different approach? Do we have any light around that?
My reading would be that, in England, the Westminster Government will be looking to use not the EU sub-regions, but actually the local enterprise partnership areas, of which there are 38 at present, and that's allowed really quite a targeted focusing of the EU funds. The present EU funds are allocated by LEP area, so there is a certain logic in working at that scale because economies work at a rather smaller level than standard regions, but at a bigger level than local authorities, and so, when we've been doing the experimental calculations, we've had Wales divided into its two component parts, and England into its 38, and Scotland into about four. It's a problem for Wales because of a couple of big sub-regions dropping in England, and therefore having a competing claim.
Anyone else on this point?
Just adding to that, I think the geography does matter a lot, how the geography is chosen, and probably we won't stick to what the rather larger EU areas that the EU used. I haven't done the extensive modelling that Steve has done, but figure 2 in my paper shows that the worst part of Wales in terms of nomenclature of territorial units for statistics 3 regions is still considerably lower than the worst part of either Scotland or England. And I haven't worked out whether, overall for Wales, that would matter and whether these are appropriate areas. But a strong case can be made in area terms.
I might just add too that the current arrangements we have, effectively, are a cliff edge—that if you're below 75 per cent, you qualify for quite a lot of funding, and if you're in between 75 and 90, some, and then, none, and it isn't necessary that we stick with those arrangements post Brexit. So, the differentiation needn't be quite as strong post Brexit as it is under current EU rules.
Do you want to come in?
I'll just come in with just a brief point on this, and, again, in terms of articulating the Welsh case, I think there are two things I'd like to say. One is that, clearly, we'll probably have to articulate it, and battle, and put our case in Wales in a differential way, in a bimodal way in a sense—one in terms of regional development funding, or whatever that becomes post Brexit, and, secondly, in terms of agriculture. My point in the paper is that, actually, internally and domestically within Wales, we need to put those two things increasingly together, and that even if the two forms of funding may remain separate, as they may well do, in Wales, we need to think about them as a pot for creating—
They need to work together.
Work together, yes. It gives an opportunity to bring those things together, such that we're not seeing them as a separate set of economic development issues.
Mike on this.
One point and one question. Of course, west Wales and the Valleys doesn't meet the NUTS 2 criteria because it's not contiguous—the Powys bit that sticks out through the middle, so we've gone away—
It's only a river. [Laughter.]
It's Machynlleth, for example, and a number of other places. So, it doesn't actually make it—. That was the point I wanted to make. But if we were in 1978, and Joel Barnett was putting his numbers together, he would actually put in, wouldn't he, agricultural money and the amount of structural funds that we're getting now in his baseline, which is how he made his baseline up? Surely, our argument should be that we should be resetting the baseline, putting in the money we've got now. How we take it forward is a matter for long discussions and arguments, but for year 1, which is probably the thing most people are worried about at the moment, shouldn't we be putting forward the argument that we should be resetting the baseline, taking into account the money we've got now, rather than bidding against other parts of the United Kingdom, some that may well be able to put forward cases that may be looked more favourably upon by Ministers?
Does that answer the question, I wonder—?
Can I take that one?
We'll start with Professor Fothergill, but I'd be interested in all your views on that one.
I disagree quite strongly—well, vehemently, indeed—with the idea that the new shared prosperity fund should be managed within the remit of the Barnett formula. I think that would be deeply damaging to Wales in terms of the amounts of money that you would get.
Can I interrupt you? That wasn't what I said. I said that the money we get now gets added into it, like when the Barnett formula was set up, all money that was spent in Wales was put into it, so we wouldn't get our 5 per cent, we'd get what we get now.
No, I mean, I remember—. When the Barnett formula was set up, the European structural funds were a great deal less than they subsequently became, and there was a very famous battle in the early 1990s about the additionality of European structural funds. At that time, if you got more structural funds from Europe, the financial rules with the Barnett formula and so on meant that you could not spend extra money here in Wales, and this led to a loggerhead conflict between UK Government and the European Commission. The solution to that problem, which allowed the European money to be extra money over and above what you anyway would have got, was to take the European funds out of the Barnett formula. That was a major step forward. It's allowed that extra money that you've received over the years for west Wales and the Valleys to finance extra expenditure in a way that it wouldn't have done if it had been within the remit of the Barnett formula.
Now, given that Wales receives some 23/24 per cent of all of the EU structural funds coming to the UK, it would be very hard to design a formula that would automatically assume that you would get a similar proportion of the shared prosperity fund. That would be very difficult.
There are obviously other implications from the Scottish perspective as well. I don't know whether you have any comments on that.
I think that from both the Welsh and the Scottish perspective, the issue is that how much money Wales receives through the Barnett formula—once you're committed to that, you have a starting point and then what you get depends on how much equivalent funding in the UK as a whole changes. In a sense, then, you're taking a punt on which direction you think that funding is going to go in the future. We may come back to this, but I suspect that agricultural funding is actually going to fall. If you, on the other hand, go because, in essence, the EU structural funds are the only major—well, they're not that big, but they're a source of funding that's really based on need on an indicator, at least a very simple indicator, of need—then the punt is, well, will Wales do better or will Wales do relatively worse in the future? So, if, let's say, the north of England's economic fortunes suddenly got highly depressed, would money be taken away from Wales for that to support the north of England? Again, irrespective of what is done in relation to the way that subsequent funding is done, a key question is whether the shared prosperity fund will be split between the component parts of the UK and then the component parts of the UK allocate it and have some, but perhaps not complete, control over how it is utilised because there will be some concern about the integrity of the UK single market. So, for example, at the moment, as I was reminded before we came in, Scotland does still use regional aid, which is within EU rules. Now, England doesn't. So, how much latitude there will be on that is probably something that the UK Government is going to take an interest in at least.
I'd just like to, if I may, follow that up and then perhaps bring Professor Marsden in on that. I declare an interest; I think I'm the only person here who's fought a by-election on the basis of EU additionality funds—[Laughter.]—and won as well. What a marvellous thing.
Just on what Professor Bell's just set out, how can we approach the UK shared prosperity fund, which is just a title at the moment, and how can we put together a coherent case, which has to, I would imagine, marry what our needs are here in Wales with what the UK Government talks about, which is an industrial strategy, an innovation strategy, city deals, a particular approach to regional development that is quite inimical to the way that European funds have been working, and how do you see that we can make a coherent case to have the right level of devolution and Welsh decision making within that shared prosperity fund? Perhaps I will invite Terry Marsden first on that.
I take the point that my colleagues have made here about Barnett, but I think there are several principles that we've got to think about in terms of the long term. One is sort of long-term planning, really, and also a level of control in Wales about what we strategically do within Wales in directing funding. I'm not sure again that the spatial west Wales and the Valleys is the way to go here—the urban-rural divide. So, I think we've got to have a debate about how we deal with the principles of trying to ameliorate disparities across Wales, actually, and we've got to articulate that, it seems to me, within a UK context.
What worries me is that we enter a sort of short-term continuous bun fight in the UK—you know, a race to the bottom—about competitive funding. That's what worries me about the shared prosperity process. That's why I'm advocating that, actually, if we could get a Barnett plus—a revised Barnett approach to this—it might aid long-term planning and know where we're actually going a bit more, as we have with seven-year periods of planning in Brussels. So, I think there's room here for putting across a particular Welsh approach, which might not be dividing up Wales into particular zones, but demonstrating the need to create regional balance.
The other problem that I see with the city deal approach is that it's very urban-based, it's very centred on agglomerative economies, and Wales isn't just about that. So, what worries me is the hit-and-miss attitude to this competitive funding process that, you know, we might get—. We've got Cardiff and Swansea, we might have one for mid Wales, but other parts of Wales will miss out. So, it's a bit haphazard, it seems to me, and that's what worries me about the post-Brexit process.
I talk to civil servants quite a lot on these issues, and I keep my ear to the ground. So, I think I've got a sense of the way in which the wind is blowing. Now, don't take this as gospel truth, but my reading would be that the decision making in London is likely to be a little hierarchical. The first question will be: what should be the carve-up between the four countries of the United Kingdom? Then, downstream from that, there will be an issue of how it's allocated internally in the four countries. Now, Westminster won't stick its nose in in a big way to the internal allocations in Scotland and Wales. I think that they know that there are certain places that they should not go, and that's one of them. Having said that, given that this is a UK shared prosperity fund that the Conservative Government has promised, it's likely to have some UK strings attached to it. It's not going to be a pot of money simply handed over to the Welsh Government for the Welsh Government to spend absolutely on whatever they want—hospitals, social housing, schools. It will be a fund for economic development. But within that broad priority, I would imagine that you will have a lot of devolved latitude in Wales to work out your thematic priorities, and also, in fairness, your geographical priorities. Those things are no longer the business of Whitehall and Westminster. They're for you to determine, but within the broad guidelines of, 'Look, this is about economic development.'
But then surely it's got to be about needs, because the problem with Barnett is that it's population-driven—. You know, we've got to have a needs-based—
Yes, that's relevant to the allocation between the four countries. That's why Wales at present gets 23/24 per cent of the total pot of EU structural funds, because of the very high needs of west Wales and the Valleys. I think with careful politics, and especially if you make common cause with the Scottish Government, who I think are coming from the same places as yourself—saying, 'Not a penny less than we get now'—then you should get some sort of allocation like that. If it's a purely needs-driven formula—to go back to what I was saying before—there is a danger that the percentage going to Wales might slip a little bit.
What about the point made in the previous evidence session, which is that if you give a lot of latitude to that money, then could it be argued you could put it in—? I think the example used was a school building—
Well, it was further education.
Further education. At what point would you say that money isn't for regeneration any more? Because you can make a case that any funding in all sorts of infrastructure is going towards—
We're using EU funding for apprenticeships now, for example.
That's general human capital; it's not specifically advantageous to particular enterprises. So, it's the sort of general support for infrastructure, both human and physical, that is not out of line for any government to get involved in.
I mean, let's not believe that EU funding, or indeed its successor, will all be about hard spending on infrastructure and buildings and so on. There's already a large part of it on softer things; it's on knowledge creation, innovation, skills. But I think the steer will be to keep it directed at those things that help, ultimately, strengthen the economy. That will be the steer.
From a UK perspective, you're saying there'll still be strings.
I think there will be; that's my impression of the way the wind's blowing in Whitehall and Westminster.
But obviously there's a fear there's another power grab here. I mean, the Secretary of State has declined to come to this committee to give evidence.
A point we rarely mention.
That doesn't surprise me, because what you do need to bear in mind is that, although there is a commitment in the Conservative Party manifesto from the last general election to establish this fund—and it sets out a broad direction of travel about narrowing the differences between communities across our four nations—the real details aren't there, and Ministers, in truth, haven't yet got their heads around the details. They're rather more preoccupied, it would be fair to say, with the negotiations in Brussels, whereas actually this is ultimately a downstream domestic decision that needs to be made. We won't see some firm ministerial positions evolve, I would imagine, until early next year.
Can I just bring in Professor Bell?
Just to say—you mentioned the industrial strategy here, and I have difficulty understanding how the industrial strategy will marry up with the shared prosperity fund. Because effectively, if it is a descendent of the structural funds that were actually about cohesion and reducing inequality across the EU, the industrial strategy seems to me to be really about growth. I mean, they're not necessarily inimical, but the focus, certainly, is on growth and innovation.
I have a concern, partly, that if Scotland and Wales are allowed to do their own thing in relation to the shared prosperity fund, the engagement with the industrial strategy, which already isn't that high in Scotland—I don't know what the situation in Wales is—but there's a lot of money out there for what are called the grand challenges, and Scotland and Wales may get left behind as far as that particular policy focus goes.
You go back to the election in your report, and my understanding is that additional money that came to Wales was because they decided certain projects in England that were to do with transport were to be—that Wales would get its 5 per cent or 6 per cent of them, in order to give Wales additional money. It was a case of decision first, reason second. The question I've got for Professor Fothergill is: I and Professor Marsden are in favour of actually having exactly the same money next year as we've got this year by just setting up a means by which it all transfers across, but you seem to be of the opinion that we ought to be looking to be engaged in a bidding process with the money; do you think we'd get more money by bidding into it than we would by just a straight transfer in now?
I'm not arguing for a bidding process. I'm arguing here for laying down a political marker, which is that, really, the world hasn't changed so radically since the EU structural funds were last allocated between the four countries of the UK, so there is nothing wrong, in principle, with rolling forward that division between the four countries of the UK. That won't work internally within England, I've got to say as a starting point, but in terms of carving up between Scotland, Wales, Northern Ireland and England, it's a very plausible position to adopt, at least this time round. The relativities of the Welsh economy and the rest of the UK economy may change through time, in which case, I think you would then have to accept that, in 2027 or whenever—somewhere long over the horizon—you might be getting more or less money than at present. If you were to lock it into the Barnett formula, there is a danger that you've locked it in for all time, as David was saying, and if your economy went down relative to other places, well, it would be tough. But there again, I suppose you'd win if your economy went up relative to other places.
I think you misunderstood what I suggested earlier, because I wasn't talking about locking it into the Barnett formula. I said about transferring the money across, as it would've been if it had existed at the time the Barnett formula was created. It would actually have been part of the baseline—. Move it into the baseline of the Welsh budget; how you deal with it afterwards is another matter. But to leave us financially no worse off than we are now.
To go back to what I said earlier, I can't see that that would give you a 23 per cent or 24 per cent share of the new pot of money, like you get out of the EU funds—
But it's got to give us that, because it's just a transfer across of it.
I don't think we're going to get any further—. Go on, have a try.
Can I just make a point, in relation to this, that I made in relation to something quite different, actually, but that's applicable here? That is that Scotland is about to take over some welfare powers, and those are going to be included in the Barnett formula after these powers are taken over. The point I made was that, effectively, that means that they're competing against other priorities—health, education, industrial and economic development and so on. They're not, in any sense—
So, you're losing a purpose.
Yes. The Scottish Parliament might try to do that, but they wouldn't be guaranteed, for all time, to stay in that particular priority.
But they're being carried forward, aren't they, as actuals at the moment.
Yes, that's how it starts.
Which is the point I was trying but completely failing to get across, which is that it's starting year 1 on actuals.
Okay. We'll move on. Nick, your allocated questions have all been covered, I feel, if you're content that we move on with Jane.
I think they were covered in the first answer. [Laughter.]
I'll invite Jane in, but if you think of any further questions, please come in. I'll invite Jane now, because we've ranged widely.
We've also been looking at lessons learned from structural funds and taking evidence from organisations. We're very familiar with their concerns about bureaucracy and, you know, whether we have an opportunity in terms of the new shared prosperity fund, however much it's devolved to us, and what freedoms we have on this. But, obviously, there is an issue—and we were talking to CIPFA just now—about the robust monitoring of funding, but there are opportunities in terms of lessons learned and new arrangements. Equally, Professor Bell, you very clearly highlight the need for robust evaluation of funding, and that's part of the Commission's expectations as well, and that funding should be conditional on achieving outcomes. The Bevan Foundation has just been talking about the importance of outcomes and not just targets and objectives. So, what have you all got to say on these matters?
I included that argument in my paper. Earlier on, we were saying that maybe the UK Government would let the different parts of the UK do their own thing in relation to the shared prosperity fund. One thing that crossed my mind was that Governments always like to see badging. I'm sure you can go around Wales and see lots of EU flags associated with structural fund projects. That's not really what they're about. They're not really about creating political advantage; they're about outcomes, as you say. One of the concerns I have with the proliferation of different things that are going on in the UK as a whole, including the city deals, is that it's extremely difficult to evaluate whether they have achieved what they were intended to achieve. So, I think if we can—. There's certainly a clear case for reducing the kind of administrative overhead associated with projects, minimising that, but in such a way that, post the project having taken place, there is the possibility for evaluating outcomes within some broad economic context or socioeconomic context for Wales as a whole. I noticed that, in the 'invest in Wales' document, there was some argument that Wales should be experimenting to find where—you know, trying out new innovations and policy to see if they actually achieve what they intended. I'm all in favour of using evidence to try to determine how you allocate scarce public funds.
We've got to be careful about exactly what we mean when we talk about achieving objectives. I think it's perfectly reasonable to say to somebody who receives funds that they should deliver whatever they said they would deliver in terms of hard outcomes—ever so many apprenticeships or a new building or a new stretch of road or whatever it might be. Those are the things you can monitor very easily. It's very, very difficult, however, to measure outcomes in terms of overall impact on the economy, on socioeconomic variables, because the shared prosperity fund, or, indeed, at present, the EU funds, are only one relatively modest element of the jigsaw with lots of other things going on simultaneously. Therefore, establishing the outcome in terms of economic outcome really requires you to define what would have happened in the absence of it, and that is a hugely thorny question. So, to set up an objective like, 'The new fund should raise GDP in Wales by 2 per cent', let's say—it's almost impossible to really reliably measure whether or not you've raised GDP by 2 per cent. It's much easier to say that we've built so many roads, trained so many apprentices et cetera, et cetera. Tread very carefully in that area.
One other thing I would say on bureaucracy and monitoring is that there probably is a case for a lighter touch than happens at present. At the moment, my reading of EU funding is that it's very closely scrutinised. The auditing processes are really quite exhausting, in particular because the EU set up processes that are designed to stymie the sort of fraudulent activity that happens in several other member states, but I don't think happens to any significant extent in the United Kingdom. Now, if we can take it on trust that that fraudulent activity is not happening here in the UK—and I think we can—then a much lighter touch on the auditing would be possible, and that would help a great deal in reducing bureaucracy.
I think we need to remember—and I made the point in my paper—that we have an extremely good and visionary approach embodied in the future generations Act. That is not just an environmental bit of this story; it actually needs to be built right into the centre of the economic development and regional development approach. So, my advice on this is, as I've suggested here, to set up a strategic unit on regional economic development that includes rural and urban, and develop a vision around delivering on future generations, and take a much broader view of the economy—okay, GDP on the one hand, but all sorts of other measures about growth or sustainable growth, inclusive growth, particularly in Wales.
So, it seems to me that we shouldn't forget that—that what we have in Wales, which no other part of the UK has, is that statutory framework, and the economic development could be linked, needs to be linked, and aligned to that.
I'd like to have some discussion around the common agricultural policy and post-agriculture stuff as well now, particularly from Professor Marsden, but maybe not so much from Professor Fothergill. I'll invite Mike, anyway, to ask questions.
The first question to Professor Marsden: you say that the Welsh Government should establish a regional rural development agency to control devolved funding allocations and negotiate with Whitehall around funding. I assume you don't want to call it the development board for rural Wales. How would it differ from the old development board for rural Wales?
I'm old enough to remember that, and it was very innovative. I don't think we should forget what the DBRW actually did. Of course, it was only part of Wales, so what I'm suggesting here is—. I'm not suggesting a massive, big new bureaucracy—don't get me wrong here—but what I'm saying is that I think we do need to have some sort of strategic unit—other people have mentioned this point—that brings together and focuses on strategic aspects of economic development and rural development, because I'm a strong believer in the fact that, in the future, the rural will become much more central. It will not be the periphery. It will be the centre of bio-economy, it will be the centre of eco-economy, it will be the centre of the green economy, and we should really promote that in Wales. This is one of the distinctive features that Wales has in the UK context. So, if you're looking for winners, investment and a transition to that, that's where we need a strategic unit.
I was going to say that a lot of people in rural Wales do actually miss the development board for rural Wales.
A lot of people in rural Wales do actually miss the development board for Wales. They felt it gave them much more of a structure.
And also in terms of encouraging inward investment. I think we should also think about that. There are also a lot of ways of bringing in inward investment, which that body did.
I'm going to try and summarise the views of the Farmers Union of Wales, Professor Bell and Professor Marsden, and tell me if I've got this wrong, but, with the new money, assuming we get the 9.8 per cent of the money that we currently get under CAP, what we should do is decide what we want to achieve by it as opposed to just feeding it out to different individuals.
This is going to be quite a long answer. We have Michael Gove producing his 'Health and Harmony' White Paper, which basically says public money for public goods, and essentially, I think, in England, what that means is public money only for environmental improvements, for things like, for example, improving soil quality, wildlife habitats, and that sort of thing. Scotland, I think, and probably Wales, would probably be a bit hesitant about that approach. If you try to apply that in Scotland and in Wales, I guess there is certainly, obviously, room for environmental improvements and trying to incentivise these, but, in addition, because we have very remote communities that are very much at the margin in terms of their ability to survive, part of the public goods, essentially, is money that isn't really for agriculture; it's for rural support.
So, there's going to be that difference in the approach of England relative to Scotland and Wales. Then the question, I guess, is around partly the funding of that. So, Scotland, I think, gets about 16, 17 per cent of total CAP funding, and Wales gets above its population share.
Yes. How is that going to be allocated, and is the amount of money that is used to support farming in England going to increase or decrease? I was listening to the Farming Programme, because I wake up very early, yesterday, and there was a debate about this issue. The response of the Department for Environment, Food and Rural Affairs to the particular argument that was being made in the programme was that they would continue to support CAP through to 2022, or something like that, and thereafter they would support environmental work in relation to farming, and that suggested to me that the money that they're going to allocate to that priority is probably going to decline over time. So, that would pose a challenge, if it was Barnettised, because the money for England would be coming down. So, the change would be a negative change, and, therefore, the change for Wales would be negative, and for Scotland. I won't go into what is known as the 'reverse Barnett squeeze', but the effects are—
That sounds like a martial arts term. [Laughter.]
The effects are slightly different on Wales and Scotland, but the general drift would be a downward drift in agricultural funding.
I argue in my paper that we need to develop our own approach, which is okay within an umbrella of a UK policy, which we'll need for things like food standards and trade, but we urgently need to develop a vision for Welsh farming, which I call 'farming plus', which includes and incorporates sustainable food production. I think this is the difference. I think the 'Health and Harmony' paper is built on an assumption of a too rigid binary between public and private goods. We need to put the argument forward that we want to keep small farming—family farming—explicitly. That's what's going to disappear in England as part of this process. With the opening of the planning system in rural areas, it will allow farmers to adjust, sell their barns off and move out. We don't want that; we want sustainable production. Small farming can come back, and I think we need to put the case here for continuous support or a longer tapering model for sustainable production as part of public goods, actually, in this model. So, I think we have to put a strong, distinctive case for agriculture as part of rural development. We should remember that something like over 30 per cent of farms now are producing some form of renewable energy. So, farms are no longer just one, monocultural platfrom; they're multifunctional. So, we need to encourage that. I think we need to distinguish ourselves from these—
Are you suggesting that, rather than simply, as we've done over the past several decades, having farming subsidies—what most people would call them—we could move towards more of a rural community support-type—
Yes, I'm arguing for a system of delivery and not allocating funding directly to farm businesses, but to do it on a partnership basis and on a spatial basis with catchments or in particular areas. I think we could get hung up on scales here, but there are a lot of very good examples in Wales—the Black Mountains in the Brecon Beacons and the Wye Valley catchment, where farmers are coming together. This argument that farmers won't come together—they'll come together, if they're given encouragement to do so, to plan these sorts of things. So, my argument in here is that any type of funding that we allocate to the former CAP-type arrangements should be partnership based and conditional on working on a collaborative basis in that. But it doesn't exclude subsidies for, or support for, sustainable production as part of what that catchment or that place would be delivering, but it would have to think through carefully what sustainable production would be—whether you wanted more sheep or less, or what it does to water courses and soil types.
Just to give an example, I visited the Black mountains myself and the project there during the Hay Festival, as, you can imagine, I was in the area. If we're going to have this construct of public good to say, for example, that the habitat and skylark restoration is a public good, then surely the habitat for the Welsh language and Welsh-speaking communities is equally a public good. In the Welsh context, this binary approach that you do criticise—these are closely intertwined in living in rural communities in Wales.
Yes, that's why I'm very strongly proactive for family farming in Wales, because it's a cultural heritage that we need to protect and develop as part of the language and as part of culture. This is getting lost, unfortunately, in England, because there's a lot of that there too. So, I think there's a really important element to this, but also people in the countryside and keeping businesses. Europe has lost a quarter of its farms in this century so far, so the downward—. If you don't arrest that and address that problem, that's what will happen here.
We've almost run out of time, any final questions or points that the witnesses would like to make? So, Nick, first.
I was horrified by the accuracy of your assessment of the Conservative manifesto. I think you're right—with the shared prosperity fund, we've got a lot of headline terms but little work has gone into what's underneath. When we took evidence from stakeholders, they were really concerned that, at this point in time, they would be thinking about how they would be putting bids in for the post-2021 funds and they said they really don't know what to do because they don't know what the structure's going to be like and how the bids will be made.
Those stakeholders are running far ahead of the game, frankly. At the moment, it's the big questions that are absolutely up from grabs. Those are the things on which it's important that the Welsh Government and this committee lays down a marker. There are four big questions: how big is this fund going to be, how is it going to be allocated across the four countries and within them, what can you spend it on, and who's going to manage it? We don't know the answers. Ministers haven't made up their minds on those issues. There is a huge opportunity for you to lay down a marker here.
Just a final point. We've talked about the CAP, but, in relation to agriculture, it seems to me to be really important for the Welsh and, indeed, the Scottish Governments to be engaging with UK Government in relation to trade talks, because they may have even more importance in relation to the viability of farming in different parts of the country and they are even more complex than the matters we've been discussing today.
I think that's a good point. We've got to be very careful here about not letting the British Government, the UK Government, whack us over the head with tariff issues and amber box and green box issues that will restrict what we can spend the money on. We need to be smart about that.
I'm sure we could continue for another hour as we open up new facets on this, but we will bring this evidence session to a close. I'm very grateful for all your written evidence and your oral evidence this morning. It's been very useful to the committee. You will get a transcript just to make sure that all the figures and words have been transcribed correctly. Thank you very much.
Diolch yn fawr iawn i chi. Siwrnai saff adref.
Thank you very much. Have a safe journey home.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).
Cynigiwyd y cynnig.
Can I ask the committee to agree the motion to go into private session under Standing Order 17.42? Are you content? Moved. We'll go into private session. Diolch yn fawr.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 11:59.
The public part of the meeting ended at 11:59.