Cynulliad Cenedlaethol Cymru

Yn ôl i Chwilio

Y Pwyllgor Cyllid

Finance Committee

19/09/2019

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Alun Davies AC
Llyr Gruffydd AC Cadeirydd y Pwyllgor
Committee Chair
Mark Reckless AC
Mike Hedges AC
Nick Ramsay AC
Rhun ap Iorwerth AC

Y rhai eraill a oedd yn bresennol

Others in Attendance

Dr Joachim Wehner Athro Cysylltiol mewn Polisi Cyhoeddus, Ysgol Economeg a Gwyddor Gwleidyddol Llundain
Associate Professor in Public Policy, London School of Economics and Political Science

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Ben Harris Cynghorydd Cyfreithiol
Legal Adviser
Georgina Owen Ail Glerc
Second Clerk
Leanne Hatcher Ail Glerc
Second Clerk
Martin Jennings Ymchwilydd
Researcher
Samantha Williams Dirprwy Glerc
Deputy Clerk

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 09:30.

The meeting began at 09:30.

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

Bore da i chi i gyd a chroeso i gyfarfod y Pwyllgor Cyllid. Gaf i nodi bod clustffonau ar gael ar gyfer yr offer cyfieithu ac i addasu lefel y sain? Gaf i atgoffa Aelodau hefyd i ddiffodd y sain ar unrhyw declynnau electronig sydd gennych chi? Ac a gaf i ofyn i Aelodau os oes gennych chi unrhyw fuddiannau i'w datgan ar gyfer y cyfarfod heddiw? Na. Iawn, diolch yn fawr.

Good morning to you all and welcome to this meeting of the Finance Committee. I'd like to note that headsets are available for translation and for amplification. I remind Members also to make sure that any electronic devices are silent. Do you have any interests to declare? No. Okay, thank you.

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

Ymlaen â ni at yr ail eitem, felly, papurau i'w nodi. Fe welwch chi fod yna nifer ohonyn nhw. Mae yna dri chopi o gofnodion o gyfarfodydd ym mis Gorffennaf 2019. Mae yna bapur i'w nodi, sy'n llythyr gan y Llywydd at Gadeirydd y Pwyllgor Cydraddoldeb, Llywodraeth Leol a Chymunedau ynglŷn â hawliau pleidleisio i garcharorion—i'w nodi. Mae yna bapur sy'n llythyr gan y Gweinidog Cyllid a’r Trefnydd ar y datganiad o egwyddorion ar gyfer cyrff a ariennir yn uniongyrchol, ac mae hwnnw wedi'i anfon ymlaen at y cyrff hynny hefyd. Mae yna lythyr gan y Gweinidog Cyllid at Mike Hedges ynglŷn â chyfalaf trafodion ariannol; llythyr gan Lywodraeth Cymru at y Gwir Anrhydeddus Nicky Morgan Aelod Seneddol, sy'n rhoi tystiolaeth ysgrifenedig i ymchwiliad Pwyllgor y Trysorlys i anghydbwysedd rhanbarthol yn economi’r Deyrnas Unedig; a llythyr gan gomisiynydd cenedlaethau'r dyfodol ynglŷn â chyfrannu at yr adroddiad cyntaf ar genedlaethau'r dyfodol, a dwi'n nodi bod y comisiynydd yn ymweld â'r Senedd yn yr hydref ac fe fydd yna gyfle i ni siarad â'r comisiynydd a'i thîm adeg hynny. A'r papur olaf i'w nodi yw ymateb y Gweinidog Cyllid i adroddiad y pwyllgor ynglŷn â gwaith craffu a wnaed ar gyllideb atodol gyntaf Llywodraeth Cymru 2019-20. Fe welwch chi ei bod hi wedi derbyn 11 o'r argymhellion ac un mewn egwyddor.

Iawn, fe nodwn ni'r papurau hynny i gyd, felly, ac mi awn ni nawr i mewn i sesiwn breifat.

We'll go on, then, to the second item, papers to note. You'll see that there are a number of them. There are three copies of minutes from the meetings in July 2019. There is a paper to note, which is a letter from the Llywydd to the Chair of Equality, Local Government and Communities Committee on voting rights for prisoners.  There is a paper, which is a letter from the Minister for Finance and Trefnydd on the statement of principles for directly funded bodies, and that has been forwarded to those bodies. There is a letter from the Minister for Finance to Mike Hedges regarding financial transactions capital; a letter from the Welsh Government to the Rt Hon Nicky Morgan MP, giving written evidence to Treasury Committee inquiry into regional imbalances in UK economy; and a letter from the future generations commissioner regarding involvement in the first future generations report, and I do note that the commissioner will be coming to the Senedd in the autumn and we'll have a chance to talk to her and her team then. And the last paper to note is the response from the Minister for Finance to the committee's report on the scrutiny of Welsh Government's first supplementary budget for 2019-20. And you'll see that she has accepted 11 of the recommendations and one in principle.

Okay, we will note those papers and will now go into private session.

3. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 4-9 ac 11-12.
3. Motion under Standing Order 17.42 to resolve to exclude the public from the meeting for items 4-9 and 11-12

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o eitemau 4, 5, 6, 7, 8, 9, 11 a 12 y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from items 4, 5, 6, 7, 8, 9, 11 and 12 of the meeting in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

Felly, yn unol â Rheol Sefydlog 17.42(vi), dwi'n cynnig bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 4 i 9 ac eitemau 11 a 12. A ydy'r Aelodau i gyd yn fodlon â hynny? Iawn, diolch yn fawr. Fe symudwn ni, felly, i sesiwn breifat.

So, in accordance with Standing Order 17.42(vi), I propose that the committee excludes the public from parts 4 to 9 and parts 11 and 12 of the meeting. Are you all content? Okay, thank you very much. We'll nove into private session.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 09:32.

Motion agreed.

The public part of the meeting ended at 09:32.

11:00

Ailymgynullodd y pwyllgor yn gyhoeddus am 11:01.

The committee reconvened in public at 11:01.

10. Ymchwiliad i broses ddeddfwriaethol ar gyfer y gyllideb: Sesiwn dystiolaeth 4
10. Inquiry into a legislative budget process: Evidence session 4

Croeso nôl—welcome back to the Finance Committee. We move on to the next item on our agenda, which is the final evidence session in our inquiry into a legislative budget process. I'm pleased to welcome Dr Joachim Wehner, who is joining us, who is the associate professor in public policy at the London School of Economics and Political Science. Croeso—welcome to you. We'll go straight into questions. I think that's best, if that's okay with you. I'll kick off, if I may, by asking you to briefly explain the remit and the aims of the work that was commissioned by the Scottish budget process review group. There's no need to press the button; it's automatic. That's fine.

Excellent, good. So, my brief, really, was to bring an outside perspective to the deliberations, because a lot of the experts there were very focused on the particular Scottish setting, and I was there to inform their deliberations with some possibly relevant practices from elsewhere that focused on some particular elements they were interested in. I was also asked to develop some recommendations, which is a challenge if you do it in the abstract, because I think the idea of having best practices that are universal is a very difficult one, but I tried my best, given my understanding of what the aims were of the Members of the Scottish Parliament, or what some of the reforms were trying to achieve, and then I thought what might be relevant practices to bring to that debate. So, my remit was to synthesise best practice standards and bring some relevant examples from elsewhere to their deliberations.

Thank you. And could you tell us a little bit about your interaction, then, with the group, and the way you fed back and discussed your findings and recommendations?

I was there several times. I didn't look up how many times I did go to Scotland. I worked very actively with the secretariat of the finance committee, and then I had a session with the group where I presented my draft report and was questioned on it.

How did the group respond to your recommendations? Did they accept them or, what we often have here, accept in principle, which is a methodology used by the Welsh Government to not disagree with something but not have an argument over it?

Certainly, I think there was one case I tried to make in my report, which was to say, 'If you want a greater role in the budgetary process, then here are some ways you could give the Parliament more tools to be an active player in the budgetary process in Scotland.' I think there was more hesitation to move in that direction, and a bit of status quo bias. That's putting it negatively, but there was a bit more hesitation to move in that direction than, maybe, could have been possible.

But in almost every legislature there is tension between the government or the executive and the parliament over a number of issues, and the budget is probably the biggest of those. Have you a view on whether Scotland have got it right in terms of the mix between legislature and executive, or do you think that, from what you know of us, do you think we've got it right, or do you think both could move further forward, giving greater powers to, I would say, the legislature, and you might say the executive? 

11:05

That's actually a really helpful question, because my starting point is always the following: that is a purely normative decision, and it's up to the legislature to take. There's no outside standard you can bring to that question. You have to say what it is you want from the budgetary process as a legislative body, and if you say, 'We want to become more activist, we want to have more of a role, we want to scrutinise more', then it's easier to say, or it's relatively easy to say, 'Here are the four, five, six things that you might look at in order to achieve that', but, in the abstract, it's actually a question that is beyond what I should be saying, because that's your role, to say, 'This is the role we envisage for the legislature', and that's why, when you look across the world, you see everything from the United States Congress to the British Parliament. We have a centenary of the last Government defeat over estimates in 2019. So, the last time the Government was defeated over estimates at Westminster was in 1919, and so it's a 100 years of non-defeats over estimates. And on the other hand you have the US Congress that, every year essentially, writes the budget, does what it wants, and that's a normative choice.

It might be 100 years on the budget, but we're only 40 years away from the Rooker-Wise amendment, aren't we? The Rooker-Wise amendment—the amendment to the budget proposed by Jeff Rooker and Audrey Wise, which made substantial changes to the budget against the will of the Government of the time.

That was on the revenue side, was it?

And the final thing from me is that we have moved the budget timetable. Has that had an effect on the work you did, and do you think it will have an effect on the work we're going to do?

So, one of the differences I picked up, comparing the Scottish approach and your approach here, was that, in Scotland, there always seemed to be a hesitation to get going with the budget process before the autumn statement had been tabled. And that introduced some uncertainty into the process, which isn't really desirable, and I think what you have, what I understand is the practice here, is a better approach, where you say, 'We have our timetable, but then we also build in some flexibility to respond to any developments that may materialise in the autumn statement'. Of course, as I was writing this, it was in the context of the announced move to a single fiscal event, which in principle is a very good idea, and was also supported in an International Monetary Fund report on transparency in the UK. The big downside, and the missed opportunity here, in my view, was they only did that for taxation. They didn't combine it with expenditure. I would always say the two sides belong together, and having a unified budget process, like Britain had for a few short years in the 1990s, makes a lot of sense to me.

Coming back to this tension between the Parliament and the executive, I'm just interested in whether you have any reflections on how that dynamic played out within the review group. Because clearly there was a balancing act in terms of membership, and there were independent members, and I'm just wondering whether some of those tensions were palpable in that forum.

I quite enjoyed coming to that as a relative outsider, but it is certainly not only in Scotland—very broadly speaking, that is always a tension, and finance ministries, finance departments, are very dominant, and finance Ministers are very dominant, and I think I could see that also in the deliberations of the group, but I don't see my role as commenting on that in a very specific sense.

I understand. It's just that I'm intrigued, really, by how you get so many people with different priorities in a room and coming out the other end with some degree of consensus.

But can I add maybe one thing to it? Of course, if I was the finance Minister, I would love to have the most passive legislative body I could possibly get. That's perfect because it makes my life easier. So, from a finance ministry perspective, not having very detailed scrutiny, not getting too difficult questions, having a process that gives me a lot of flexibility, is actually what I want. So, it's a kind of natural tension to occur, given the roles that exist.

11:10

And you're right, of course. A Minister wants scrutiny at a distance and over very quickly, with the minimum disruption to their lives. There's nothing wrong with that; that's completely understandable, and that creates a tension, of course. You've discussed the comparison between Germany and Australia in terms of, potentially, two extremes of an Executive-dominated process in Australia and then I think you described the hundreds of amendments in Germany—I presume you meant the German federal Parliament.

To what extent is that German model real, in the sense that it's possible to have 100 different amendments, none of which is ever agreed? And so, in reality, the process is as Executive-dominated as, perhaps, Australia, except Australia has got the distinction of being a little more honest about it, whereas in Germany there's the pretence of a legislative process but, in reality, the budget that is passed is the budget that the Executive wanted and proposed in the first place. So, to what extent is that, in the legislative process, a real process, as in having an impact in the nature and shape of the budget?

Legislative, or parliamentary, engagement in Germany usually affects a small but noticeable share of the overall budget envelope. It could be a couple of percentage points of overall spending that gets moved around, for example. One thing to note is that the German budget is very detailed. So, it has several thousand line items, not just like in the UK at the central Government level. I understand here as well the budget is very highly aggregated in Wales. So, engaging with more nuances in the budget is less threatening to the overall policy direction of the document. So, a lot of the detailed engagement in the committee is often about very particular lines in the budget. It could even be the budget for a particular position in a ministry that can get altered. 

Having said that, you do get these fairly bold statements as well. There was an incident—this was a little while ago, but the committee noticed that the finance Minister at the time was hanging out in the press gallery instead of attending the committee session. So, they took 0.5 billion Deutschmarks—as it was at the time, so it's slightly dated—from his budget that he wanted to use to renovate his customs offices. So, his customs offices were a bit more shabby for a few years, and hopefully he learned a lesson from that. That's certainly a sizeable sum of money. I think it's real, the engagement, but it's also focused at a level of detail that I don't see here and that isn't really foreseen in the way the budget is presented, either. 

From my perspective, you see, a very detailed budget like that—. There are half a dozen of us as Members here today representing, I think, almost every part of the country, in fact, and we could all turn up to committee and say, 'Do you know what? In my constituency, I want this: the fourth train down the line from Ebbw Vale will arrive in the following financial year, because I'm going to propose this.' And there's a danger then that you don't have a debate about the purpose of Government and what the Government wishes to deliver, but you end up with a pork-barrel approach to politics, where each one of us—. You know, I'm fighting for a train from Ebbw Vale, Mike here is arguing that it should come out of Landore in the morning, or whatever. And you don't have, then, a strategic approach. So, is there a danger in providing the legislature with the opportunity at that very detailed level, which I find superficially attractive, I have to say, that essentially, rather than having a debate about the budget, you actually open up something different?

I think you've captured the basic tension very well. And at the heart of it, if you want a passive legislature, you don't have that danger; if you want an active one, you need to think about ways of minimising it, and that is where I think procedures are very important. So then, if you want to give a more active role to Members of Parliament, legislators, to Members of the National Assembly, think of institutions that preserve the strategic nature of the budget, so that allows them to engage, but puts constraints in place—procedural and possibly numerical—that guide and contain their activism within prudent limits, if that makes sense. In the cases that are looked at in the report for the Scottish Parliament, for example, the case of Sweden is a very good example of this, where they tried to design a legislative budget process that does give Parliament an early role in the process, also a potentially powerful role later on, but guides that process very clearly through the way the process is structured and constrained. 

11:15

Just a question: if we were to move to an amendable legislative budgeting process, is it necessary to also move to a more detailed budget, or can you also have a legislative system that is at that highly aggregated level that we currently have here in Wales? 

I think there's a balance that can be struck. If the totals are too large, then you're not really controlling anything—then you're just controlling a ministerial total or departmental total, but there's a lot going on underneath. And if you look at the way—. At Westminster, for example, the appropriations, the appropriation Act itself is at a very high level. You get the entire transport budget, essentially, on a single page, and it'll contain all the programmes the money could be spent on, and it'll go from ports to roads to airports to royal transport, and whatever is written in there. That, essentially, gives huge amounts of flexibility in terms of what can be done within parliamentary authority to individual departments with Treasury control, and so on—but Executive control mechanisms, not legislative control mechanisms.

I see the sense of allowing a budget that gives flexibility to the Executive; I think that's important. Having too many line items also makes the budget very rigid and difficult to manage, often inefficient. But there is a balance, and my favourite approach now—I'm being normative, which is something I said I'd be cautious about—but I think it makes a lot of sense to appropriate by programme. So, to have, essentially, not just the ministerial total but also clearly defined programmes within that that you put money against, and then allow for some flexibility in terms of shifting the money between the different programmes. So, rather than just say, 'There's a transport budget, it's £12 billion or £15 billion, you do what you want with it', focus a bit more on the priorities within that. 

Wouldn't that make it easier again? When ministerial areas of responsibility change, you could actually follow the money under the heading, as opposed to having to look at it again and every time you raise something, they say, 'Well, that's gone up because something's moved and that's gone down'. You'd actually be able to follow it across. 

That's a tricky one in general, because you can have programmes—. If it says 'interior' or something like that, you can have a programme that migrates around to other ministries fairly easily, and that's always a difficulty in budgeting—how you label these things. You can hide stuff and it can move around. 

The one thing I would say, though, which is really helpful in this regard and that speaks to your point, is that I very strongly support budget documentation at the programme level that gives you consistent information for medium-term periods in addition to past spending information. That should be part of the budget documentation that's given to a legislature, so that you can see. Within a document, it should always be consistently classified, so if you then look at a programme and you have maybe the past year's spending, the current year spending and a three-year estimate of continuing the programme given the current policy, then you can look across five years and you can say, based on consistent spending classification at the programme level, 'Do I like this trend, why is it not going up more, why is it going up so much?', and I can ask questions around that, which is otherwise very difficult.   

And that lack of consistency is always a frustration, not only for us, but for all committees here, I think. Mark. 

11:20

What do you see as the key benefits and drawbacks of our current approach in Wales in having a motion-based process for the budget rather than a legislative process?

My answer to that would be that I think, in and of itself, changing from a motion-based process to one where you pass legislation that gives statutory footing, through legislation, for the budget doesn't make that much of a difference. It is true that most legislatures, many legislatures, use an Act or they pass a Bill that becomes the annual budget Act. I was just looking this up yesterday as I was preparing for this, given that this was one of your starting points. Sweden doesn't, for example. So, the Parliament in Sweden does not approve an annual budget Act. And in many ways, it's not that important. There is an Executive proposal, and funnily enough that's a Bill. So, the Executive does table a Bill, but then all Parliament does is it takes a series of decisions that relate to that Bill. In the end, the finance committee sums those up in a report, the Speaker signs the report, and that's it. 

So, in what sense is it a Bill if it never becomes an Act? Is it defeated at some point, or is there a special thing that means it doesn't become an Act?

It's an idiosyncrasy, but it is like that. 

Does the analysis vary between the spending side and the tax side as to which is more appropriate?

Here, you get really very different models in terms of what the budget should cover. In some places, tax and spending decisions are completely divorced, also procedurally as well as in legislation, and in others they're fully integrated. So, you get some places where you have one finance Act that will cover both the spending side and any tax decisions, like in France, and you will get a process where the two are completely separate, like in the UK but also the US, and then also procedurally these are often decoupled. A good example is Germany, for example, where you have an annual budget that covers the spending side of the federal Government, but tax legislation is much more irregular and gets processed by a different committee and so on. I don't really have a view on—. If improving the budget works without making it an Act—. In Sweden, I don't have a view on whether the spending or revenue sides are very different in this regard. It's more about—. How it is approved doesn't matter as much as that it is approved and the way that process offers a meaningful role for Parliament, I think.

Is there anything to learn from the historical Westminster-based development of MPs giving permission—a law—to allow their constituents to be taxed and the Government having to come and ask for that, but then the money and the priorities then being with the Government in terms of what's being raised? Is there any ethical or constitutional validity in that split, or is that just a product of historical happenstance?

I think a lot of things—. If you look at the British model, the central Government budget process as it works at the moment, there are many really good elements. So, if I sound critical in some regards—there are some very strong elements as well. But, in terms of the role of the Parliament, a lot actually has to do with how things came about many centuries ago. If you were to design a rational process nowadays, you probably wouldn't do it like that. There are many very idiosyncratic things that are still in place today which make no sense whatsoever. For example, appropriation Acts are voted in the summer. A third of the financial year has expired when Parliament approves the appropriations and they become an Act. That just makes no sense. Where does it come from? Parliament, in the very old days, wanted to force the Crown to spend its own money before relying on funding from the Parliament. So, it made sense to wait and push it out as far as you could. But if you look at it nowadays, it no longer make sense. It makes sense from a Treasury perspective, in the sense that it makes for a very weak approval process, and Treasuries—

11:25

And by an appropriation Act, do you mean the spending estimates? 

Yes, or the legal authority that's—. But, actually—. You have the estimates, and then they get approved through the appropriation Acts, and that is essentially what constrains in legal terms, what constrains the Executive, and those are approved in July—somewhere in the summer months—and that's one example where the practices I think make sense if you understand where they came from some centuries ago, but they don't make sense nowadays if you're interested in legislative scrutiny. 

You don't actually support the idea of the legislature making amendments after Stage 1. And I can understand the reason why you would say that, because amendments after Stage 1, if they went through solely by a majority—if three people were ill on the same day, you could end up with the whole budget being rewritten. But do you ever consider actually asking for a super majority to alter it, which is what we have for a number of things we do here? So, it wouldn't be three people missing and you have a majority of one to change it, you'd actually have to have two thirds of the people present wanting to change it, which would not be caused by ill health affecting one body, but it would be the will of the whole Parliament.

I don't know what the rules are, in terms of how many Members need to be present in order to take majority decisions on the budget, but in terms of super majorities being required to make an amendment to the budget, none of the legislatures I can think of, at the moment, would require that.

But I think what you're saying makes some kind of sense, because especially when you have the relatively small legislative body, you need to make sure that it's not driven by someone who got ill on the day and two people have other things going on and you happen to have a very unrepresentative selection of Members present.

I was going to ask at this point about the differentiating between approving budgets at a departmental or more detailed level and perhaps overall spending envelopes, and we've talked about that. But you've since mentioned the lack of flexibility that you get for Government if you approve a budget in too detailed a manner. In order to get over that inflexibility, what kind of virement rules are in place where you have good practice or should be considered if we were to go down a more detailed approval route? 

You can, quite simply, set numerical limits on what, in some countries, are called 'transfers' between programmes, so lines in the budget, within a department. So, in New Zealand, for example, there's a numerical limit in the public finance sector of 5 per cent. You can transfer between output classes up to the money that was put towards output classes—they appropriate by output—up to 5 per cent of the amount that was appropriated by the Parliament. Some other countries—. There's nothing that says it couldn't be 10 per cent—South Africa made it 10 per cent, for example. So, somewhere in that range, you can say—.

Programmes are still fairly large categories, at the end of the day. So, if you have a programme that's £100 million, and you allow 5 or 10 per cent of that to be moved to another programme, that's a pretty sizeable amount. So, it would allow for some flexibility if you say, 'This programme is much more effective than we thought and we actually can use some of those freed-up resources for this other priority where we could really use a bit more scale or whatever it is.' So, you'd want to preserve that but within some sensible limits, and you can do that simply by saying, 'We approve on the programme level, but we have this general rule that says 5 per cent or 10 per cent of the amount appropriated against the programme you can move. If you want more you need to come back to us—you need to explain.'

And it would be the Executive, obviously, making that decision on whether a particular programme has been successful and whether it deserves a bit more money, not Parliament. So, does having that kind of pretty solid virement package make sure you do get that balance right between the Parliament and the Executive?

11:30

It seems to me like it's a sensible compromise. Just saying, 'Here is the total budget for your ministry, and you choose how you do it' is a lot of flexibility, and that can also make for poor governance. You need to have the feeling that someone is looking at what you're doing, and there's a reason why it was William Gladstone who created the Public Accounts Committee—it was actually as Chancellor of the Exchequer, because he knew that without a bit of scrutiny, you’re not going to get good spending. So, there is a recognition also, in the history here of how the Treasury system developed, that a sensible level of scrutiny is actually important. So, if you take that away too much, if you aggregate so much that you can no longer ask questions about what the department is doing, then I think you should be able to have that conversation: ‘What are your priorities? Are your programmes working? Is this going up or down? Explain to us why? Are you sure this is right to give this programme more and that one a bit less? Why are you doing it that way?’ Those are the kinds of questions that makes sense to ask, I think.

And that’s in-year as well. In a way, what we want is for Government to be as strategic as possible. As well, we need the pre-budget process to be as effective as possible in corralling the Government into being as strategic as possible. What are the elements that need to be taken into consideration to make sure that we have as much influence as parliamentarians on the Executive to be strategic, in terms of allowing more time—I suppose that's the basic question, and whether you have it legislative or not is key to it. How do we influence Executive best to be strategic?

So, one of the trends, if you want, that you can see, if you look across the Organisation for Economic Co-operation and Development countries at a national level, for sure, is that there’s an increased move towards a pre-budget statement, so where the Executive will come to the legislature and outline its broad fiscal policy objectives and priorities for the future years within a medium-term envelope. And, a little bit, the spending reviews have played this role at the central Government level here. But other countries have—. In the UK, at the central Government level, the spending review has been a periodic process, so if you have a period that’s covered by the spending review, you wait for that spending review to expire, and then it gets renewed with the new spending review, leaving aside the upheaval at the moment that is causing that process to be a little bit disturbed, in a sense. But you had this periodic approach to strategic budgeting, if you want. Other countries do it on a more rolling basis. So, every year, the finance Minister will come—‘Our medium-term outlook for the budget and our priorities and our policy objectives are this—.’ So, it will be a more rolling update rather than this periodic approach that is more prevalent here for central Government level.

And from a legislative perspective, this has given rise to changes in some countries that have taken two principal forms. One of them is to have a formal pre-budget debate where there is a pre-budget statement several months prior to the tabling of the annual budget, and Parliament has a debate on a medium-term, pre-budget statement, if you want. Another approach, which is rarer, is what they’ve done in Sweden, where you get the medium-term objectives formally debated and actually tabled in a Bill in the Parliament—a spring fiscal policy Bill—and that gets processed much like the budget: the annual budget gets processed later on in the autumn. So, in a way, you have two pieces of legislation: one focusing on the more strategic broad outlook, giving guidance to overall budget policy; the second dealing with nitty-gritty for the upcoming year. I'm not sure you need to put it in a formal piece of legislation, but, certainly, this move towards having a proper pre-budget statement and a proper pre-budget debate on these broader issues—you know, the aggregates, the spending priorities and tax changes you might be thinking about—sounds like something that should be taken care of in the strategic first stage, before you get to the nitty-gritty.

11:35

Thank you for that very comprehensive answer. To me, it highlights why it's not just a question of whether we have a legislative process or not—the Swedish idiosyncrasies, I think, confirm that. As long as you have a solid system, plenty of time and plenty of scrutiny at the right stages, whether you have a Bill that's enacted at the end of it isn't the be-all and end-all, perhaps. Would you agree?

I would agree, as long as you are content that you're controlling enough in an effective way.

Yes, but going through a process of changing to a legislative budgeting process perhaps is the way in which we can improve the budgeting process. 

Is there any way that a legislative process, rather than a motion to authorise spending and taxation, is more open to oversight through the courts? Is that just an impractical basis for enforcing what tax and spend is meant to be? Loads of tax cases go through the courts of various types. Is that an important distinction, or not practical, in your view?

I'm not a legal expert, but—. I've forgotten the exact details of this, but, if you want, I can come back to you with—some of this may be in my report to the Scottish Parliament. I may have to get back to you, if you're interested in the nitty-gritty of this. So, there are legal implications, which I'm not the right person to assess. But, at the same time, I would say, again, it depends on what exactly it is you approve in the legislation. Simply saying the fact that there's legislation may not actually give you any more control.

There was an interesting court case in Australia—I think it involved the federal level of government. It was a few years ago, where there was spending being undertaken by the Government. Essentially, someone went to court and said, 'This is illegal', based on what was appropriated. The judgment—I think it left a lot unresolved. But, essentially, the basic problem was that Australia appropriates by outcome. An outcome would be what you ultimately want to achieve, in terms of your impacts on societies—so, if it's under defence, it could be something like securing the realm, or something like that—and it's very easy to claim that a certain line of spending contributes towards that very high-level outcome. So, again, what that does show is that it's less about whether you have put it in the law or not, but what exactly it is that's in the law and how exactly you do it. The more detailed legal question, I'm not the right person to answer.

But I can give you more details on that particular case.

It would be useful—if you look at it and feel that there's stuff you want to add, it'd be great to hear, but please don't feel obliged, at least on my behalf.

The high-level takeaway was, essentially: there are appropriation Acts, but they don't constrain.

Gosh. Good morning. We touched on this earlier, and you spoke quite extensively, actually, about the different systems across different countries, in terms of finance Bills and the split between revenue and tax, and you spoke about Germany in particular. In terms of Wales, if we go down the route of a finance Bill, I know there are a multitude of models that you spoke about, but would there be any particular model that you think you would favour above any other, or any aspects of models that you think should certainly be incorporated into a Welsh finance Bill model? No.

11:40

No. I think—. I think it's more important—. So, whether there's a piece of legislation—an Act or formal Bill—or not is less important than that the decisions that Parliament takes can be enforced. And whether that is because it's based in a piece of legislation or not is less important to me. 

No. I think—. You know, there are these different options: that you put it all in one Bill, that you have separate Bills for spending and for taxation—. If tax changes take longer to deliberate, for example, they could be potentially decoupled a bit from the annual budget process, so that you take more time on them. I can't really say there's one best way of doing this. All I can say is that it could be that it's separate pieces of legislation, it could be that it's one piece of legislation, and it can be that there are processes at the same time or it can be—some countries do it separately. What is important is that as part of the annual budget process you form a coherent picture of what the budget is doing so that you understand how it adds up.

And the other thing that is sometimes a problem, which I should raise here—so, I'm sorry I'm not giving you a very clear preference—tax expenditures are a particular worry and it's not necessarily something I understand in great detail, how that would apply to devolved taxes in the Welsh context, but the basic problem is this: that you can spend money on the expenditure side, but you can also spend it on the revenue side if you give people a tax break, and it's functionally equivalent to giving people money. So, one thing you definitely want to make sure is that taxes and spending receive the same level of scrutiny. What very often happens with tax expenditures—special breaks for this particular industry or for hotels or something like that—is some very targeted tax reliefs and tax expenditures, essentially, get less scrutiny. They maybe get looked at once when the finance Bill gets approved, but they don't get annually re-looked at in the same way that public spending gets looked at. So, again, I think it's more, 'Is effective scrutiny achieved?', 'Is parliamentary authority safeguarded?' And that can be done through Acts; it can be done possibly in other ways. 

You've actually pretty much answered the next question I was going to ask you, which was: what are the options for scrutinising and approving changes to devolved taxes? Which you've just mentioned. I've got here: particularly where tax measures need to be introduced quickly or where minor amendments are needed to existing primary legislation. Is there a particular issue if—? I mean, you've spoken about where a process can be quite lengthy, but if, for whatever reason—if there's an economic shock or whatever and a Government wants to alter a tax at quite short notice, then are there pitfalls there? Are there ways that we as a Finance Committee, for instance, could make sure that that was done with proper scrutiny and didn't result in some bad, negative effects?

So, I think one of the key objectives of moving to a single fiscal event in the autumn was to say, 'We want to make sure that tax measures are approved by the start of the fiscal year', and that makes a lot of sense to me. I think policy making that's too quick sometimes ends up going in the wrong direction; it's easy to make mistakes. So, this traditional approach, that the measures take effect immediately subject to later approval—. For example, you can—. This works very differently in some other places and I think there's also merit in saying, 'You make your policy proposal, we deliberate, we see if there are any flaws, anything that needs to be fixed, and, once it's been approved, it takes effect'. So, I like the aim behind moving to a single fiscal event, which was exactly to say, 'Let's talk properly about tax changes before the start of the fiscal year and have the finance Bill approved on time for the start of the fiscal year'. And I think that—

11:45

But sometimes that might be necessary because, in Wales, we might be responding to changes to taxation in England, for example, with consequences for Wales if we don't reflect that or at least consider it, so—.

But should that mean—? I mean, in a way, it's for you to answer whether you think it's desirable, then, to say, 'Okay, we give carte blanche to the Executive to formulate that response and implement it subject to our later approval', or would you rather have a process that says, 'We're happy to work with you really quickly to respond, but you need to come to us and we need to talk about this'?

I was going to say, to take an example, we recently brought in a new devolved tax, land transaction tax, and we had a debate around whether the rate should initially be on the face of the Bill and subject to change through statutory instrument, or not even on the face of the Bill and brought in later by SI or looking at other processes, but, in the principle, you say, of having the same level of scrutiny for tax and spending, isn't that hard to do when taxes are in legislation and Ministers are moving SIs to change rates and spending is by motion? Is there any way we can make the scrutiny equivalent in those circumstances?

I'm not sure I have a very strong view on this, I would say, but it makes sense what you're saying: why should one side of the budget be on a legislative basis and the other not? One could say, if it works that's fine; if it works you don't need to fix it, essentially. But if you think there's an inconsistency and it causes problems from a legislative perspective, then—. I see the exact form as less relevant than the function, what it actually does. 

I was interested in your earlier answer to Mark Reckless. You described elements of the Swedish model, which was a two-stage model as I understood it, which would be to set objectives in the first half of the year, and then allocations, as it were, in the second. So, I'm interested in understanding how that works in terms of measuring and linking allocations, budget allocations, to the outputs of Government. Because it would appear to me that we could spend every year, for the rest of our lives, debating and discussing the allocations of expenditure in different headings without ever really using this process to address, 'So, what does that mean to my constituents and the people we represent?' And it would appear to me that, whilst we can do that through the general scrutiny of policy and the rest of it—I accept that there's that role there—is there a way—? Do you have—? Does the Swedish model, for example, provide an opportunity for greater scrutiny of the linkages between budget allocations and outputs of policy?

I don't think it's the two-stage process that does that, and there's a bit of a lesson in Sweden in the sense that, when they started the process, they put a lot more detail into the spring decision and they subsequently realised, 'If we set indicative allocations across departments already in the spring, it's too early. There's too much detail in the spring budget and we need more—', and they kind of felt that they were budgeting twice a year. So, there the spring budget is really about the big political priorities that are in spending, where you say, 'This year, we want to focus more on education and less on something else'. It is more about those types of questions. I think the links to outputs—you can't do that without looking at programmes; you need to know what the programmes are that you have in the budget. So, for example, if you have—. And, quite naturally, you can't do that at high-level strategic debate, I think. So, if you have road safety programmes, you can talk about outputs like breathalyser tests, for example, you can say, 'We want to do a million breathalyser tests and those are my outputs under the road safety programme'. And then maybe the auditor general can do an audit and find out whether that's effective—are fewer people dying on the roads—which is a process that takes longer still. But that kind of upward linked debate I think needs programmes—you can't have it divorced from programmes—so, you can only do it in the autumn.

11:50

And that also tends towards the more German approach, which would be a more granular approach, I would have anticipated, in terms of analysing the overall spending priorities of Government. Can I ask a question? We talked earlier as a committee—and we're going to look at this, I believe, later in this process—about the New Zealand approach, which is to emphasise—I think it's happiness, which sounds quite a curious way of putting something, doesn't it, or well-being in terms of its budget objectives. Now, I'm interested in that. Do you have any experience of understanding what they mean by that, and how that is actually built into a budgetary process that can, on the face of it, be a very dry and almost mathematical exercise?

I think that's a relatively recent development, so I haven't looked at it. I've heard about it; I haven't looked into it. Historically—. So, there are two main approaches to performance budgeting: one is to focus on outputs, which has historically been the New Zealand approach, and New Zealand has appropriated money by output. So, they will do—like I described, they will have a road safety programme and it'll give you a number for how many breathalyser tests are going to be carried out under the road safety programme. So, you get the unit cost and you can monitor that unit cost, and you can say, 'Oh, we want to double the number of breathalyser tests, so we'll give you double the spending,' or something like that. That is linked to outcomes in a way that the link is clear, but not in a mechanical numerical way, which I think is very, very difficult.

So, thinking about something like happiness or well-being, these are very broad outcome categories, and you really need to then think very carefully about how individual programmes that produce goods and services are linked to the achievement of those outcomes. But that is very difficult to explore within the context of the annual budget process. I think where that is easier to explore is when you have ex-post scrutiny processes, when you have the auditor general come in and exploring the—producing a report evaluating the effectiveness of the programme.

Okay. So, the Welsh Government has spoken at length, in terms of some of their correspondence with us, about well-being objectives and the well-being of future generations and all the rest of it. Your initial view—I accept you haven't seen some of this paperwork—would be that that would be a very difficult thing to achieve as part of a budget process and would probably be best achieved as part of a different process.

'Yes' is the very brief answer, and I think you've summed it up very well. So, what are the constraints of the annual process? It is an annual process that's meant to control, to varying degrees, what the Executive is doing. It's the most regular control mechanism that most legislatures have, so it's extremely valuable. You cannot control outcomes within an annual time frame, you cannot control, through an annual process, something that has a 30 or 40-year perspective. You cannot hold people to account, because multiple people will be involved, multiple departments will be involved, you don't know how to allocate responsibility across multiple actors and over a very extended time period. Also, whether people are better off in 20 or 30 years will not only be affected by Government action, but by all kinds of external influences that you can't foresee and that you can't hold people to account for. So, there are inherent problems with focusing budget scrutiny on something that is too tightly linked to outcomes.

What you can do within the annual process is to see if the outputs that the budget is producing—because those are controlled by each organisation. Each organisation should be able to tell you, 'We are producing this with the money you are giving us in this accounting period', and that's the point of scrutiny. But that doesn't mean you throw away the idea that you should be thinking about how to make people's lives better. I think that is very important. So, how you—. The last bit of your statement was extremely important—within the context of the annual budget process, I think to keep it effective you can't really go beyond outputs. Being aware of what the broader outcomes they should be linking to are, but there are probably other processes that are better geared towards evaluating whether the programmes are working, whether you are producing the right outputs to achieve those objectives. 

11:55

So, in your view, from your studies and your understanding, you would say a budget process is well suited to the analysis of inputs and outputs, but not well suited to outcomes in a wider societal environment. 

Well, we've covered a lot of ground in our allocated time. Are there any further questions? Are there any further comments that Members wish to make? No. Okay. Oh—go on.

Yes. Well, you took the words right out of my mouth. Can I thank you, then, Dr Wehner?

Yes; 20 years I've been doing this. [Laughter.]

It was very stimulating, actually. We're very grateful to you for that. 

Yes, it's been a really stimulating session. Can I thank you very much for being with us this morning? Certainly it has given us a lot to consider and reflect upon as we discuss, in our next item on the agenda, where we go next in terms of this inquiry. So, thank you very much for joining us. Diolch yn fawr iawn. 

The committee will now move into private session. Diolch.

Daeth rhan gyhoeddus y cyfarfod i ben am 11:56.

The public part of the meeting ended at 11:56.

Archwilio Cynulliad Cenedlaethol Cymru