Cynulliad Cenedlaethol Cymru

A warm welcome to the three of you. I'll kick off, if I may. I was reading in your foreword to the budget that you tell us that these are

'the most challenging and uncertain financial times.'

You tell us that you don't know what form our exit from the EU will take. You don't know what our budget will be after March 2021. You don't have certainty on replacement of EU funding and, of course, there's the prospect of a UK budget before the Welsh Government finalises its spending plans. So, clearly, this budget has been drawn up in very difficult circumstances for the Government. So, maybe you could tell us a little bit about what scenarios you've been planning for in advance of the UK Government budget and some of the other elements that we've touched upon, and, of course, what implications a UK Government budget so late in the process will have for this draft budget before us today.

Great. Well, good morning, Chair, and good morning, committee. As you say, we've crafted this budget in a period of real uncertainty, and I would like to take this opportunity to thank the committee for the way in which you've worked constructively with us to ensure that we're able to operate the exceptional circumstances for laying the budget this year, which obviously has been delayed until after the general election. And, as you said in your opening remarks, we've faced a huge range of uncertainty, and some of that still exists. So, we think about Brexit—we still don't know yet how we will leave the EU and what kind of deal we might have, and what the implications might be for us of that. And I would expect that, between the laying of the draft budget on Monday and when we finally debate the final budget, there would be a UK Government budget within that timescale as well. So, there is a lot of ongoing uncertainty, but what we have done is planned on the best information that we have, which is the UK Government spending round that it announced in September. So, we've used those figures to plan our budget this year.

In terms of what a UK Government might mean for our plans, there could be some significant changes. So, those changes might include an increase in the amount of money we might have to spend next year. It could even lead to a decrease in the amount of money we have to spend next year. So, I think we need to be agile in terms of the final budget. We would expect that any changes, really, we would need to be aware of them by the end of January to be able to factor them in to the final budget. But, that said, were changes to come later, we could introduce changes to our budget through a first supplementary budget, which we could bring forward earlier in the year than we normally would.

Right, okay. Yes, well, that was going to be my next question. So, clearly, you envisage that the greatest changes reflecting any significant shifts in the UK Government budget would happen through a supplementary budget, but what you're saying is that that might be brought forward sooner?

Depending on what happens in the UK Government's budget. I think that we do know some of the differences that there will be next year already because the UK Government made some quite major announcements ahead of the general election. So, we already know, for example, the consequentials relating to capital health spending and we already know the consequentials related to an uplift in education spending in England. So, we have that information already factored into our budget.

Okay. Tell me a bit about the reserves that you're utilising this time because you're drawing down the limit that you have in terms of reserves—the £125 million revenue. Why is that, given that, of course, there is an uplift in the money coming from UK Government?

Well, even with the budget that we've been able to bring forward, which I think is a good budget—it gives increases to all departments, it gives a good and fair settlement to local government, it reflects the priority that we put on health—even within all of that, within Government there are still pressures that we have been unable to recognise. So, departments are going into the year in still quite difficult circumstances in some cases. In terms of the levels of reserves, in terms of revenue, we're holding around £100 million, which, when you look at the size of the overall budget, is quite small. So, we're holding that amount in reserve. And then, in terms of capital, we're holding £37 million general capital, £46 million in financial transactions. Of the general capital, much of that is earmarked already for specific projects, such as the city and growth deals, but we've tried, really, to strike a balance between spending money that we need to spend in terms of maintaining our important public services and keeping a degree of flexibility as well.

Okay. Thank you. Alun.

I'm interested in the working of the fiscal framework, and I'm interested as to whether you would have any observations to make on the way in which the fiscal framework is actually working at the moment.

I think it's working well for Wales in terms of the additional funding that we have seen. Obviously, the negotiations that the former finance Minister undertook with the UK Government did see an uplift to Welsh Government funding, and that will continue until we converge with the UK Government's funding. So, in that sense, I think it's working well. The information that we receive from the Office for Budget Responsibility, we're very satisfied with. We think that they provide us with some excellent work, and it is, I have to say, entirely independent work, and you will have seen, alongside the publication of the budget, the document that the OBR published, and we think that's a really high-quality piece of work. So, in that sense, I think things are working well.

Maybe I would just add that I think the misalignment between the timing of our budget and the UK Government budget has put particular stress on the mechanism of the fiscal framework this time around, because it's not really supposed to work in the kind of order that it's been working in. So, the OBR have had to produce block grant adjustment figures, for example, ahead of producing UK-wide forecasts for the period. So, I think, given the difficulties of this particular process, it's gone as well as could be expected in terms of its operation.

It's still very early days for the fiscal framework—we've not been running it for a very long time yet—and we're putting it under particular strain by having this complicated misalignment between the timings of the various fiscal events in Wales and the UK. But it's just about working, I think.

I think, when we look ahead now to the next UK Government budget, obviously, it'll be accompanied by a new economic and fiscal outlook from the OBR, and that then might have implications on the prospects of the devolved tax revenues and the associated block grant adjustments there as well. So, again, this is another one of those factors that give some uncertainty in terms of our final budget that we'll be laying. But we wouldn't expect that to be of any particular magnitude.

Why would it have implications for devolved tax revenues?

Because of the associated block grant adjustments. So, in terms of revenue—

So, not the revenues themselves.

No, but the impact—the overall workings of the framework.

There's a possibility that the economic forecasts might be so different from the March ones on which these forecasts are based that that would have some effect on revenue. So, the OBR, in forecasting Welsh taxes for next year and beyond, have gone off their March economic forecasts, and whenever the next UK fiscal event is, as the Minister says, there'll be a new set of economic forecasts, and that might have some effect on their forecasts of devolved tax revenues as well as on the block grant adjustment side.

The statement of funding policy, as far as I remember it, states—and this isn't a direct quotation, obviously—something like, 'Wherever decisions are taken by the UK Government that imply costs for the devolved administrations, those costs are covered by the Treasury.' Is that actually happening in reality?

The short answer is 'no'. We see that particularly in respect of the teachers' pensions issue, which we saw earlier on this year, and I made a statement to the Assembly, or a written statement to the Assembly, setting out how disappointed we were in the way in which that statement of funding policy was working, because the UK Government made a decision relating to teachers' pensions unilaterally. It affects us in devolved Wales, but they didn't give us the full funding relating to that. They only gave us funding of 85 per cent. So, obviously, there was a funding gap left, and the worst of it is, of course, that that is baselined now. So, that funding gap continues again for this year. We estimate that that gap is in the region of £50 million this year. 

So, that's £50 million. 

Yes, £50 million. 

Which is a pensions issue. 

Yes, and £50 million, of course, that we could be spending on other priorities. So, that's been disappointing. We continue to raise these issues with the UK Government and, obviously, intend to raise it with the new Ministers, when they're in post. 

Thank you. 

One of the frustrating things about the statement of funding policy is that it has a kind of get-out clause for the UK Government. 

Everything's got a get-out clause for the UK Government. 

So, there is that statement that you referred to there, about one Government's decisions having an impact on another and the financial consequences of that being taken into account, but it also has a bit in it that says, in effect, if the UK Government doesn't fully fund UK departments for these costs, then they won't fully fund devolved administrations either. So, in that sense, we're not getting any less fairly treated than UK departments, but it's still—

Except this isn't a UK department. 

Exactly.

One point to make on the fiscal framework as well, though, is the funding floor. So, so far over the period of [correction: between 2018-19 to] 2019-21, the funding floor has delivered around an additional £160 million to Wales. So, in terms of what you asked about how the fiscal framework's working, that's one element where it is delivering a benefit to Wales.  

On that, is that the figure that we often quote in the Chamber—the £1.20 for each £1 spent? Is that what—? The £1.50, or whatever it is. 

The fiscal framework now—. Rather than having the raw Barnett formula that we used to have, where we got a pure population share of changes in England, we now get a population share multiplied by 1.05. That was something that was agreed in 2016 and helps ensure funding in Wales continues to be closer to the level it needs to be relative to need. So, that was a new element inserted into the Barnett formula in 2016.

It's closer to need, isn't it, but it doesn't reflect need.

Yes, I would agree with that. Other people might disagree. 

That's the figure that's been agreed. Okay. Thank you. Mark. 

Looking at the tax forecasts and the relationship with the OBR—thank you for the full suite of documents you've published—. Looking at your draft budget, paragraph 4.06, you talk about the tax policy work plan, and then we've got the Welsh tax policy report that's come out now, and I think would have come out a bit earlier in a usual year. Can I understand how those relate, if at all, to the OBR Welsh taxes outlook, aside from that Welsh taxes outlook being published at the same time as the Welsh tax policy report? What are the interconnections between those documents? 

The annual report, the tax policy work plan, is a forward look in terms of what our priorities will be over the next 12 months for taxes, exploring new taxes, for example, looking at the administration of the taxes that we currently have, and it is very much an invitation for people in Wales, be they organisations or individuals with an interest, to become involved in that piece of work. And it describes what we would intend to do and invites ideas as to whether these are the right things or if people have particular skills they'd like to bring to bear on that work. So, the tax policy work plan describes, really, the kind of work that we intend to undertake over the next 12 months. 

And we have an ongoing relationship, then, throughout the year, particularly at official level, in terms of our relationship with the OBR, providing the OBR with the information that we have from the Welsh Revenue Authority, for example, to enable them to undertake their work, which is published, then, alongside the budget. But it represents a series of pieces of work that have gone on throughout the year with officials. It's fair to say that. 

So, are these two documents co-ordinated? For instance, would your officials share drafts of this with the OBR, and would the OBR share drafts of this with you before it's published? Is there an iterative process to ensure consistency between those two documents?

Well, officials do see the documents, but the OBR's work is entirely independent, so we wouldn't seek to influence the document. 

I think 'iterative' is the right word. Our relationship with the OBR is ongoing. We speak to them regularly. The process of producing the Welsh taxes report takes some months. Some of the inputs into that come from the Welsh Treasury team, some from the Welsh Revenue Authority. Obviously, the OBR have their own work as well. So, yes, we collaborate very closely on that. But, as the Minister says, it's the OBR's words, as it were, and their judgments in terms of the—

I recognise the OBR is independent, but does it follow from that that you would never try and influence their document? They've just started doing this Welsh taxes outlook and there's an awful lot of expertise within the Welsh Treasury. Surely, if the OBR was drafting a document and you questioned an approach, or thought even perhaps there was an error in how they'd done a particular aspect of it, you would raise that with them and seek to have that reflected in the—?

Yes, definitely, because some of these things are—. There's quite a lot of subjectivity in forecast assumptions. For example, these are the kinds of things that those who are very specialist in these areas love to debate at great length and do, and that's a very productive process. It's really great, from my perspective, for my team to be able to work closely with the OBR and bounce ideas off each other and learn from each other's knowledge and expertise. So, that's a very productive relationship, I think. And, yes, we do have debates about things, and I'm sure if there was something the OBR were planning to write that we radically disagreed with, we'd let them know that, and there would be a debate about that. But, ultimately, the forecast judgments—it's very important that those are the OBR's, and that they carefully guard their independence and autonomy to make those judgments, because it's important for public scrutiny, I think, that there's that separation between the Government's view of the world and the independent forecasters' view of the world, because they won't always be exactly the same.

So, the OBR owns the forecast, the OBR is independent, but in point 234 of your 'Welsh Tax Policy Report 2019', you say

'The Office for Budget Responsibility (OBR) will provide Welsh tax forecasts for future years.'

When we had the OBR in—and we were very grateful to have them and their engagement earlier in the year—they emphasised that the initial forecast was provided by the Welsh Treasury to them, and they saw their role as one of testing that forecast and the assumptions behind it and quality control, and then signing off on forecasts. So, I just wonder if the OBR providing Welsh tax forecasts overstates their role and understates the analysis and the providing of initial forecasts that happens within Welsh Government.

So, for the two fully devolved taxes—so, landfill disposals tax and land transaction tax—Welsh Government analysts run the forecasting models for the OBR, and then provide that information to the OBR. And then, obviously, in terms of Welsh rates of income tax, there's a role for the Welsh Revenue Authority [correction: for HMRC], which provides the data that it has, and that's incorporated then into the models and the forecast that the OBR look at there as well. So, WRA [correction: HMRC] provide information on Welsh rates of income tax and the [correction: and the WRA on the] other two taxes, and we run the forecasting models.

Okay. Is there a distinction there between Welsh Treasury and Welsh Revenue Authority doing the Welsh rates of income tax, and then the LTT and the landfill disposals tax? Are they done within your department directly, rather than within the WRA at arm's length?

So, my team run the forecast model for the devolved taxes. Data comes from the Welsh Revenue Authority, obviously, on receipts and other factors that are relevant—transaction volumes et cetera. So, we manage and run the model for the devolved taxes, but the structure of the model is something that we discuss and agree with the OBR, and crucially, also, it's not purely a mechanistic process—there are judgments required and adjustments to be made to the output of the model in light of previous experience with previous forecast errors, that kind of thing.

It's worth just clarifying, on the income tax side, we do have our own model for the Welsh rate of income tax, which we use to model policy choices, but the actual forecast that the OBR publish on Welsh rates of income tax is derived from Her Majesty's Revenue and Customs's income tax modelling.

So, those two different models—is there a process of reconciling them or sort of testing different—

On income tax?

Yes, on the income tax, given the importance of that. That's the point of tax.

Yes, so we do—. We obviously talk to HMRC about how they model Welsh income tax and our model reflects that. Ours is much simplified, but, you know, what we try and do is calibrate them to make sure they produce the same kind of output.

So, does the OBR look to you for an initial forecast of the Welsh rates of income tax in the same way it will for land transaction tax—

No, they get that from HMRC.

They get that from HMRC, but you separately have your own model within Welsh Government that you're looking at.

For policy costings, yes.

Okay.

And the 'Welsh Tax Policy Report 2019' then provides an evaluation of the forecasts over the previous year, so we can learn from what's happened over those previous 12 months.

So, at a Westminster level the OBR has to forecast per year and then the ongoing iteration and relationship with Treasury officials testing assumptions and potential changes to that. In Wales, do we just have this from the OBR or will we be getting a second one of these at a different time of year? I was worried before, when we had the supplementary budget, that there were no changes at all in the forecast for the Welsh tax take, despite the passage of six months and the potential for more information to have come forward in that time. What's our system to have the OBR review new stuff within year?

So, it's probably worth mentioning that the process is intended to have a second round before the final—. In a 'normal' year, if we ever have one of those, we would have an initial forecast from the OBR, which would be before the UK Government's budget, which goes into the draft budget, and then the OBR would do another forecast for the final budget, which would be revised in light of the UK budget. So, you'd see two iterations, if that's the right word, of the OBR's forecasts for the year ahead. When we do a supplementary budget, we do re-forecast our expectations of tax receipts in year. We don't look at the years ahead in that exercise, but we look at the in-year data that we've had on Welsh tax receipts when we're doing a supplementary budget. And where there's enough evidence to suggest that we need to change the forecast, we do that, but we don't publish at the moment a revised OBR forecast at supplementary budget.

Thank you. Finally, could I just ask a little bit about Wales Fiscal Analysis at Cardiff University? Previously—[Inaudible.]—Bangor University and I understand that role has now been taken over by the OBR. What is it that Wales Fiscal Analysis at Cardiff University are doing and what is their status or how official is that work as far as Welsh Government is concerned?

So, that's a unit in Cardiff Business School. It's an independent academic entity and we work very closely with them. They're very good at what they do and they produce some very interesting analysis. We don't always agree with everything that they produce, of course, but they're basically an independent academic—

But are you sort of indicating to them what you would like to see produced with your money, the importance of the subject area rather than necessarily sort of controlling the exact sort of output—

Yes, we certainly talk to them about— 

Are you tasking them as to what you want them to do?

Yes, but they obviously have their own views about what the best things to do with their resources are over the next period.

I spoke at one of their recent conferences when they were launching a really interesting report on the future of EU funding in Wales. That was a really useful report for Welsh Government, so obviously we take their work very seriously as one of a number of sources of information and—

But this money, do you just give them a pot of money and say, 'Produce some stuff on Wales fiscal policy, sort of, about issues', or do you tell them what you want them to do?

They have in the past done work through the Welsh Centre for Public Policy for us, so they produced a very good report a year or so ago about the Welsh tax base. The funding we've given them more recently is more just sort of general support to enable them to develop their work.

Thank you.

Okay. Thank you. Alun, did you want to come in?

Yes. I was just listening to the exchange there and reading through some of these documents. I'm tempted to think that, Minister, Theresa May was right, wasn't she, when she made her conference speech a year or so ago—austerity is over?

I wouldn't say so myself, because, when we look at the Welsh Government's budget for this coming year, we're still £300 million lower than we were a decade ago. So, I think also it's important to reflect on the fact that almost 50 per cent of Welsh Government spend goes on issues relating to pay. So, as pay inevitably keeps increasing, the pressures also keep increasing on Government. So, I think there is often an expectation, when you see an uplift in funding, that we're going to be able to do a huge amount more, but, actually, a great deal of that money is already allocated, if you like, with the increases to pay across the NHS and other areas.

But that's the same for everybody. It's the same in the NHS across the border. As we've already heard, there is some additional funding coming to Wales as a consequence of the fiscal framework, and your officials have told us that the fiscal framework seems to be working reasonably well. In terms of your tax policy report—I'm just reading through this now—you've got some next steps here in terms of the future development, and you talk about a tourism tax and a disposable plastics tax. You don't have any other revenue-raising plans.

So, the documents that we've published and the Welsh Government's approach in terms of additional or new tax ideas have identified four new tax ideas, the first being the vacant land tax, and then others being funding options for social care, a disposable plastics tax and permissive powers for local authorities to implement a local tourism tax. Now, all of these ideas, should they come to fruition and become taxes, will be some time off. The vacant land tax was the first that was chosen, in terms of being the one to test the mechanisms of the Wales Act 2017, and that's proven to be more protracted and more difficult, I think, than first envisaged—

Why?

—and that's for several reasons, really, relating to the understanding of what level of information should be given when we are developing these tax ideas. So, we want to make the case to the UK Government that the powers for this tax should be devolved to Wales, but we need to do so in a way that doesn't move over, really, into discussing the policies—so, it's not for the UK Government to decide whether or not to devolve a tax based on what they think of what Welsh Government would do with that. So, it's a real balance in terms of the level of information that we provide to the UK Government, and, at the moment, there is pushback on both sides, really, in terms of what level of information we're willing to share. I think it's important that we get it right in the first instance, because, when we move on and start looking at potential social care levies, for example, the policy considerations there will be quite significant. So, it's important that we get it right the first time.

So, the process is a bit like the old legislative competence Order process, which some of us will remember with absolute horror.

It has been really difficult. We're hoping now, again, to start reopening these discussions with the UK Government as soon as—

So, it's a good opportunity, at the beginning of a new UK Parliament, to look at the operation of the 2017 Act in order to see if it's actually delivering the capacity within the system that is required. But in terms of the Welsh Government and looking ahead, the documentation says that there's a level of fiscal instability in current forecasts. Given that there's that instability there, as a Government, of course, you have a responsibility to respond to that instability. If you are planning to invest in public services in the way that you describe, then there are a number of different ways in which you can respond to that. One of them would be to increase the tax take, in terms of increasing revenue from existing forms of taxation, and the other would be to change the balance of taxation and so you would be looking at expanding or broadening the range of issues that are taxed. Of course, there are other issues about growing the economy, and I understand all of that, but I'm looking at what the Welsh Government is seeking to do. You don't intend to increase the tax take, as far as I can see. Is that the case?

It is the case that, in terms of Welsh rates of income tax, we made a manifesto pledge at the start of the Assembly not to raise Welsh rates of income tax within this Assembly term, and we don't intend to do that this year, so the rate will remain at 10p. I think it will be, then, for all political parties to think about the importance of this agenda for the next Assembly, bearing in mind that were there to be a tax reduction of just 1p, then that would mean a reduction to the overall Welsh Government budget of £200 million. So, I think it's important to demonstrate where those cuts might fall if taxes were to be reduced in that way and obviously look at the opportunities were taxes to be increased as well.

In terms of land transaction tax, we're not looking to change the rate this year, but that said, we need to keep a close eye on what happens over the border and any changes that the UK Government seeks to make to its stamp duty land tax, because, inevitably, there are implications, I think, either way. I know the committee's going to start looking at a piece of work on that within the context of Welsh rates of income tax.

On landfill disposals tax, the proposals within our draft budget are to increase it by inflation, and that's the same, actually, as what the UK Government is doing. And, again, I know the committee's had concerns in the past about waste tourism and this addresses that concern. But also, you'll remember that Wales has that higher rate, which they haven't had elsewhere and which does give us, I think, a better system in terms of landfill disposals tax. But the room for manoeuvre is relatively small. Given that we have these three taxes and the pledge not to raise Welsh rates of income tax, there's only a limited amount you could do, really, with the other two taxes.

We can talk about pledges in manifestos—I'm sure other people will remind the Government that there are a lot of other pledges the Government has walked away from in recent times. So, you're in very difficult terrain there sometimes. But in terms of what you're describing, Minister, it's a very conservative approach to policy, and given the uncertainty, that might well be a prudent approach. But also, given the knowledge of future uncertainty, wouldn't we be right to anticipate and expect the Welsh Government to be looking at taking steps today in order to guard against future uncertainty, because otherwise you simply allow yourself to be a ship in a storm, unable to control the environment within which you're operating, so you'll always then be a victim of other people's decisions, rather than taking a greater opportunity to take control yourselves?

In terms of addressing some of that future uncertainty, you'll know that we expect a comprehensive spending review now to start in spring of this year, and we would expect that to be over a three-year period, although potentially it could be up to a five-year period. And I think that when that takes place, it will give Welsh Government a greater level of certainty in terms of its funding over future years, and hopefully we can give a greater level of certainty, then, to others as well. So, I think that that will be positive.

But, again, Minister, that depends on somebody else's decision. I'm talking about the Welsh Government and the decisions that the Welsh Government have taken in order to guard against future instability.

As I say, given the levers that we have, they are relatively limited and we do depend in large part on the funding that we receive from the UK Government. You made the point that austerity seemed to be over, but, of course, if our budget had risen in line with public spending over the longer term, we would be £6 billion better off next year, and if it had risen in line with economic growth over the same period, we would be £4 billion better off next year as compared to 10 years ago. So, there's a lot in the mix and those figures themselves demonstrate that we are very much reliant on the bigger picture.

Look, I understand the numbers. I think all of us understand. We've all made speeches on those matters, but we're talking about the actions here of the Welsh Government. This isn't the scrutiny of the UK Government, it's the scrutiny of the Welsh Government, and I'm interested in what you are doing in terms of managing that potential instability. But that's—

You'll be aware as well that the Wales reserve provides us with a certain level of protection, so up to £350 million, but that's actually relatively small in relation to our overall budget. But we are going into next year with a pretty good reserve within the limits of what we're able to take forward.

Okay, thank you. Nick, you wanted to come in.

I did, yes. I don't want to veer too far into the party politics element of it, because we're not here on this committee to do that. But you did mention a few minutes ago that there was an explicit commitment in the last Labour Party manifesto not to raise income tax in this term. So, I'm just wondering, looking beyond the next Assembly election, if there is an intention within the Labour Party to raise income tax after the Assembly election, will that be also made explicit in the manifesto, or will the manifesto simply be silent. I understand that you're speaking as Minister, not as rep of the Labour Party, but I think it's an important question as to whether people—. Because Alun said that there'll be manifesto commitments from all parties; I wonder whether it will be explicit to the people of Wales that there will be a rise in income tax after that election.

We haven't made any decisions yet in terms of what might happen in terms of Welsh rates of income tax for the next Assembly election, but I do think it would be strange for any party to stay silent on its plans for Welsh rates of income tax, given the significance of it and given the fact that this provides us with a new opportunity to have a different relationship with the people of Wales, because now, in Wales, we are raising around 20 per cent of the money that we spend here in Wales. Of course, the other 80 per cent does come through from the UK Government. But I think it is important that members of the public understand what each party is offering although we've got no firm plans yet.

I might differ from some people in that I don't technically see income tax changes as a policy in the same way that I would see other policy. I'd see a policy as being that we'd want to increase spending on social care, for instance, and then I would see the income tax changes as a consequence of that, as a part of that policy. I understand that you haven't made a decision yet—I wouldn't assume you to have made that decision—but I'm just asking, if and when a decision is made to, for instance, raise income tax after that Assembly election, then will be that be implicit in the Labour Party manifesto going into that election, in the same way that my party might—well, we might make a commitment not to increase income tax?

In fairness to the Minister, that's a matter for the Labour Party and its manifesto, I suppose, isn't it? It's—.

Well—

You may respond if you wish to. 

The Minister did say a few minutes ago that there was an explicit commitment in the Labour Party manifesto last time not to do it, so I'm just saying—

To which this current Government is— 

I'm just saying: if there is a decision to do it, will that be in that manifesto? I think it's a fair question.

I'd just reiterate the point that it would be strange for any party to be silent on its plans.

Not to have something, yes. Mark, you wanted to come in as well.

Yes. On manifestos, I was quite struck in the Conservative manifesto just now, on which the UK Government was elected, in terms of relevance to Welsh spending and your role, it says that:

'A Welsh Conservative Government would deliver the M4 relief road',

and there's been some discussion about them taking powers or giving you money to do this, but it does specify that that relies on a Welsh Conservative Government, should that come to pass. But it then says above—. There's an unqualified commitment on transport:

'To support our Union, we will upgrade the A55'.

And I just wondered if you'd had any discussions with UK Government or the new Welsh Secretary around that and whether the proposal is to give money to the Welsh Government to do that, or whether they're planning to take powers, notwithstanding the Government of Wales Act 2006, and spend their money themselves directly in Wales on that route.

No. I haven't had the opportunity to speak to the new Secretary of State yet, so I'm not aware of any explicit—

But are you aware of their unqualified commitment:

'To support our Union, we will upgrade the A55',

as in the UK Government?

Although there were reports at the time that it was the A55 in England and not in north Wales, but that's unclear at the moment, isn't it? But those certainly are discussions that the Government will—

It says:

'we will upgrade the A55 as the main road transport artery for North Wales'.

Well, there we are. Well, okay.

So, lots of discussions in the period ahead, I think, Chair. 

I'm glad your knowledge of the Conservative manifesto is better than mine. Right. Okay.

Can I just ask as well, because we've mentioned HMRC and income from the Welsh rates of income tax: how confident are you now that all Welsh taxpayers have been identified, that we are receiving our fair share of income tax? Because, clearly, there's a risk there, isn't there, as others have seen—in Scotland, particularly?

So, HMRC has now undertaken two of those data scans that we've talked about before. One was in June and one was in September, based on the April and July payroll data respectively, and the latest data shows there was a 67 per cent reduction in coding errors, so down from 173,000 to 57,000 employments, and employments, of course, is different to employees, because some people, obviously, have more than one employment.

We expect HMRC to undertake another one of its scans at the end of this month, and we expect the number to fall significantly again. Any errors in the amount of tax paid will be resolved through the standard tax reconciliation process of pay as you earn, so no action will need to be taken by Welsh taxpayers, and there won't be any effect on revenue. So, I'm happy to update committee when we have the latest figures in December.

Yes. Mike, very briefly.

I think I'm next on as well, so—

No, I think Nick is next because there's a section on borrowing, as well, before we move on.

Borrowing was the bit I was going to ask a question on.

Oh, go on, then.

The revenue cost of borrowing: where is that being held? Will it come out of departmental budgets or will it come out of central services budgets? And do we know what percentage of each departmental budget is going to be made up of the revenue costs of borrowing?

So, there's some legacy borrowing, which is being paid for out of—I think it's in the economy and transport main expenditure group—

Yes, it's the old Welsh Development Agency borrowing, which is hanging there.

Yes. I think—

And the old land body and the WDA money, which just got held there. I'm talking about new borrowing. We're talking about new borrowing, we're talking about borrowing and different ways rather than traditionally just using capital expenditure. What I'm asking is: who's going to be funding it? If we fund it centrally, is it going to be funded by departments? Whichever one is funding it is important, and how much is it going to be in terms of percentage terms?

So, costs of borrowing under the new borrowing powers are funded through the central services administration MEG as a budget line, which I'm just trying to find at the moment, but it's in there. The cost of borrowing, the expectation for 2021 is that that will be about £4.7 million a year, based on our current plans in 2021.

And that'll be held centrally.

Yes.

And do you know what percentage of the central administration budget that is?

It's a relatively small percentage—1.5 per cent—[Inaudible.]

Fine. Sorry.

Thank you. Nick.

Yes. I'd agree with what Mike was just asking. You've just given a figure; I think you gave a figure for the anticipated level of the revenue budget. Do you have a figure that you'd think is a manageable level for the revenue budget, using that to repay the cost of the debt? Sorry, I said that in a rather garbled way. But at what point would you think that the payments would be unmanageable so you obviously plan not to go beyond that?

I think we've discussed this in the past in committee, and I think committee agreed that it was probably not sensible to put some kind of notional limit on it, but actually to take a wider view in terms of our investment plans for capital. So, I know committee's done the recent report on capital spending, and I'm really pleased to have been able to respond positively to the recommendations in that report. But I'm not sure that a notional cap would be the way forward.

I'm sorry, Mike.

But there's an absolute cap, isn't there, which is set by the Westminster Government?

On the amount, the capital amount—

That can be borrowed. Yes.

Yes, but that was a question about the revenue costs.

Sorry, Nick.

I've forgotten whether it was my question or yours. Am I interrupting you or are you interrupting me? I don't know.

We're sort of doing it in tandem.

How lovely. The Christmas spirit. [Laughter.]

Just going back to that question, I suppose the fear would be—and I understand why you're saying setting a notional limit is difficult—I suppose the fear would be that at some point in the future, once borrowing has happened, you could kind of stray beyond a sort of red line, and if the amounts of revenue aren't sustainable to finance the borrowing, then, suddenly, you get in almost spiral, don't you, where it's unaffordable? A bit like if you had a credit card and you can't pay off the amount, you pay off the interest. So, I suppose that's some of the arguments for having some sort of notional amount. But I'm not sure how you would do it, I agree, because, if you set a notional amount, in a few years that's probably meaningless anyway. But that's the worry, isn't it—you're going to have to keep a very tight rein on this borrowing to make sure we don't go into a spiral that we can't get out of?

Yes, and it just shows how important it is for borrowing in that way to be planned and to take into consideration the capital element of it, but, of course, the revenue that's needed to service the borrowing as well. Yes, it's about ensuring that you do consider both aspects together.

Is it worth also just mentioning that, in addition to the revenue costs of the direct borrowing the Welsh Government is able to do, there are also revenue costs relating to other forms of revenue-financed investment that either we've done in the past or are contemplating doing in the future? So, we're still paying private finance initiative costs from projects done quite a long time ago, which are in various budgets here and there. We do keep a central track of all of those commitments and have a sense of the scale of those at any given time and what our future plans entail for growth in those costs. So, it's a really important area of planning future spend.

And this is where the fiscal framework is worth its weight in gold, isn't it? In the future, it's very important that we make sure that we keep having or we develop some sort of Barnett system that's fairer, because we don't want the borrowing to have to be used to cover gaps in funding that we're not getting through our block grant.

And it's about always seeking to use the cheapest form of borrowing first. You'll know that previous finance Ministers set out, really, a kind of list of borrowing that you would go through, ending up in things like bonds and so on, but starting off with, obviously, using conventional capital in the first instance and moving the way through the cheapest forms of borrowing.

Can I ask you about a not particularly controversial issue, but the M4 relief road—as controversial within parties as across parties? Clearly, we had the decision yesterday, I think. The commission—

There was a publication, yes.

—reported yesterday and said about pretty minor stuff—well, I say minor, but towards one end of the minor spectrum in terms of altering speed limits and things. Does that decision or recommendation of the commission mean that there's now a lot of capital financing available that would have been used for an M4 relief road or some sort of structural change to the road? Was there money set aside for that in any way that would now be released? So, in other words, have you got more money available for capital projects as a result of that recommendation, or did it not work like that?

No, in the sense that those recommendations, obviously, now will be considered by Government. But, for the original M4 relief road, the bulk of that cost would have been in years for which we don't have a budget anyway. So, it doesn't, in that sense, release a lot more money, but we'll obviously have to look very closely at the recommendations from yesterday and explore what the costs might be attached to those.

Obviously, these are just very early stage outputs from the commission. We're expecting things that perhaps have a price tag attached in due course from the commission, as they get to the end of their work.

The recent report is mostly about immediate things—you know, fairly short-term, initial actions that could be taken—

So, there's another stage.

Yes.

Mike.

Just on that—to continue Nick and my double act—you've seen a 40 per cent increase in borrowing from the Public Works Loan Board, haven't you, which will have an effect?

So, for local authorities—

Yes, but also—. The cost of borrowing from central Government has gone up for local authorities from 1.5 per cent to 2.5 per cent. Yours has stayed the same.

Yes, because we don't borrow via the public works—

No, but you borrow from Government in the same way—

The national loan fund's a slightly different vehicle.

Yes, and they kept that at the same rate. Are you expecting it to go up, or do you expect that to stay the same?

We're not expecting it to go—. So, there's a difference between gilt rates, which fluctuate, obviously, and any margin that the Treasury would put on that, which is what they've done in the case of the Public Works Loan Board. But we're not expecting Treasury to make any changes to the margin, but I don't think local authorities were expecting it would happen recently, so—.

Well, local authorities have also got protection by being able to go to the bond market instead.

But, can I move on now to how allocations are allocated? If I read some numbers out to you, you tell me if they're wrong. They're not my numbers,  they're numbers I've been given, therefore I give that caveat. I see that health is going up by 2.8 per cent in real terms, local government is going up by about 1.5 per cent in real terms, economy and transport and education are going up by about 2 per cent in real terms, and environment, energy and rural affairs are going up by 1 per cent in real terms, and central services and administration are going up by just under 7 per cent. Are those numbers that you recognise, or do you want to change them?

We're all reaching for our tables in our budgets now. [Laughter.]

You cantered through those—

A festive pop quiz. 

Can you give me what you think the numbers are, then, in real terms?

It's all in annex B of the budget document. Yes, that's it. 

Pages 60 and 61 in the budget document show the increases, and they show, really, essentially, that all departments have seen an increase this year. Are there any particular figures that you were concerned about?

Yes, a number, not least of which is the environment. But the figures I seem to be running with here, from the list I've been given, and the numbers you've got—. You seem to show an environment increase of 14.29 per cent on—. Sorry, 16.39 per cent on the main expenditure group. 

The first set of tables in annex B are the total expenditure, so that includes resource and capital. And then the second set of tables are resource only, and the third set of tables are capital, and then you've got annually managed expenditure as well.

You also have the year-on-year percentage change as well as real-terms change. You've got two different sets of data on each page. 

I know. There are lots of different numbers, but do you agree with the figures that I've got in front of me, that the increases for environment and energy, and local government, are less than those for education, economy and transport, and for health and social services?

In terms of the year-on-year percentage change in real terms, health and social services has a 2.9 per cent increase, and then environment, energy and rural affairs has 14.29 per cent, and education has 5.28 per cent. But then, of course, we're starting from a much smaller budget in terms of environment, energy and rural affairs, so the increase shows differently. And that is revenue and capital. 

Yes, and AME—annually managed expenditure. 

That's the overall budget. 

If you're interested in changes in day-to-day expenditure, then it's the resource table that's the one to look at. So, that's where you've got health with a real-terms increase of 2.7 per cent. It makes a difference whether you're interested in resource or capital, or—.

Resource, because it's—. Anyway, I'll return to that. Is that the page that starts at 2.68 per cent for health and social services and 1.42 per cent for housing and local government?

Yes, that's revenue. 

Okay. We're on the same page. And 0.7 per cent for environment, energy and rural affairs. Really, I'm asking how you decided to go along with those figures. Environment is meant to be important because of the climate change crisis, and education, I would argue, is the most important thing that we do because all of our economic development is dependent on a highly skilled and educated workforce. So, how did you decide on those percentages outside that of health?

We start off the year in terms of the budget discussions having a Cabinet discussion to explore what our priorities are and what we would like to really focus on with the budget. And this is before we know the figures. So, that meeting took place in March, and there we identified again that we want to see health remaining our priority, we want to give local government the best possible settlement. We also talked about the importance of climate change and decarbonisation, and the prevention of and tackling poverty. All of these things were particularly high in our discussions there. 

In terms of education, for example, you'll know that the vast majority of funding that goes to education goes through the local government settlement, and that's one of the reasons why I was so keen to try to give local government the best possible settlement. And I'm pleased that they've recognised that we've tried to do that as well, referring to it yesterday as an exceptionally good settlement, and obviously now we're keen to see that money going into schools particularly.

In terms of the environment, energy and rural affairs portfolio, capital funding is actually really important for that department, and you'll see that the capital table shows an increase of 65.74 per cent, and that, obviously, helps them with the flood alleviation schemes and various renewable energy schemes, and so on. So, I think that capital in that portfolio is particularly important in terms of addressing climate change.

Fine. Can I come back to this? I know I'm jumping on a bit, but I think we are on these now. It has done relatively poorly, and in fact it's done more poorly than anybody else in terms of revenue, and revenue is what funds National Resources Wales, revenue is what funds the national parks. Revenue is the key bit. I'm trying to tease out why you've decided that's the lower priority. Despite the fact that we're in a climate change emergency, you think that's a lower priority than things such as international relationships and Welsh affairs, which, although in absolute terms it gets less, it's actually getting twice as much in percentage terms.

I think Mike's question is fair, isn't it? In your answer to us previously, you explained what the figures are and what they might use it for. What we're asking is: why have you given certain areas priority over others, and what criteria have you used, as a Government, to come to those decisions?

Thank you, Chair.

So, prioritisation is, obviously, guided by a number of considerations, including contribution to 'Prosperity for All', and the commitments that we have in that document. Then, within departments, then, Ministers will be considering value for money and deliverability of various schemes.

But I think it's important to recognise, particularly with the decarbonisation agenda, that this spans Government. So, when you look at investment in transport, for example, in the south Wales metro and the work that's going on there, that has a huge contribution to make in terms of decarbonisation, but you won't see it in the environment portfolio, you'll see it in the economy and transport portfolio. Equally, the mutual investment model and the way in which we're funding the twenty-first century schools programme—again, you won't see that in the environment portfolio, but what you will see is schools being built to BREEAM 'excellent' standard, and ensuring that we have a much more sustainable schools estate in the future. So, I think it is important to recognise that decarbonisation flows through decisions that are made across Government, and it would be wrong, I think, to see that just reflected in there. And I think Matt can provide some information on the NRW issue in particular.

So, yes, in terms of NRW, they have their core budget, if you like—their grant in aid fund—but they do receive funds from elsewhere in Welsh Government to perform certain functions. So, within the housing and local government MEG, for example, they've received funding for things like the Wales coastal path or Fly-tipping Action Wales.

I'll have a last go at this, and then I'll pass it on to somebody else. You've decided that the percentage change for environment, energy and rural affairs is 0.7 per cent in real terms. It is by far the lowest. What drove that decision?

And the capital increase is one of—

But the question was about revenue.

Yes, but you have to look at the budget in the round in a department, and the capital increase there is by far one of the highest, so I think that you need to look at the overall budget. But what drives decisions were the importance of putting health at the top of our priorities, knowing all of the pressures that there are within the health service, the health and social care portfolio. So, that drove our initial decision to put the bulk of the money into health. I think it was the right decision.

It's also important to put as much money as possible into local government because of the importance we put on education and schools, and the fact that many of the preventative services, which are so important for us in Wales, are delivered through local authorities in Wales as well.

But, then, I think this is the first time ever, with one exception of one department, that we've been able to give an uplift to every single department in a budget.

Okay, fine, I give up.

Did you—?

Yes, if I could. Can I say, Minister, I very much welcome the announcement that you make in this budget on additional funding for education, particularity additional funding for additional learning needs? You'll be aware, certainly as the Minister who took that legislation through this place, that I'm concerned that we didn't have the funding available to actually implement it in the way that we envisaged doing. So, the additional £8 million is something that I very much welcome. I'd like to understand how you intend to allocate that £8 million. That's my first question. 

My second question is on the wider education budget. You will remember the Children, Young People and Education Committee report on school funding, which I thought was an extraordinary read in many ways, but what it demonstrated very clearly was that the structures of funding education are as important in many ways as the actual amount of funding that goes into education. And what it demonstrated was that there is too much complexity in the system and that simply putting more money into the education budget isn't a sufficient response to an issue of money and funding in the classroom. So, are you and do you intend, Minister, to actually address the issue of the structure of funding within education as well as the overall sum available to the education budget?

So, in terms of the ALN funding and exactly what the plans are for that, if committee doesn't mind I will ask the Minister for Education to provide the detail behind the plans to allocate that £8 million. I agree that the findings of the children's committee have been really important in terms of challenging Government and local authorities in terms of how we get that money into the classroom and what the appropriate formula is for doing that. As Alun Davies says, it's not just about putting more money in, it's about spending it in the appropriate way. The education Minister has recently asked for an independent piece of work to be undertaken that does some analysis as to funding in schools and what the formula is and how it potentially could be improved. So, we look forward to that. I know that the children's committee has written back to the Minister for Education very recently asking for some further detail. I was able to have a meeting with Julie James and Kirsty Williams about this to ensure that we do try and respond in a cross-Government way and in a way that respects the role of local authorities, but at the same time ensures that Welsh Government is there to give the appropriate support and direction if it's needed in the places where it might be needed. 

I've—. Seriously, the calls from the Conservatives in terms of direct funding for schools in Wales, that's not something that we're exploring as a Government. We're more keen really to explore how we can respond to those education committee recommendations.

But, of course, the key issue is the education of children and that should be the guiding priority. And if the Government is unable to deliver the streamlining of the structures of delivering funding to the classroom then, you know, I think the people I represent would want to see the Government stepping in and being more muscular, frankly, if it can't deliver that funding to the classroom. There's no point putting it in the budget if it doesn't get through to the classroom. But I won't pursue that this morning.

In terms of other aspects of the budget, I notice you're putting a great emphasis, as part of the decarbonisation agenda that Mike has discussed, on investing capital in renewing the bus fleet in Wales—in electric vehicles and the rest of it. My constituents tell me that they would like to see a bus. Whether it is electric or whatever the form of propulsion is a secondary issue for them. And if there aren't sufficient bus services available then surely investment in the means of propulsion is very much an investment in some of the cities rather than in the rest of the country. So, you say in the budget document that you're maintaining support for—and 'maintaining' is the word you use—public transport subsidies. Does that mean that there's no increase for public transport subsidies?

There's additional—

We're just checking our figures.

But in terms of the overall contribution to the buses—. Shall we have another question and I'll allow officials some time to search through the documentation—

Okay. I've got another question.

Yes, if you ask another question now, but we would like that—

—while we find out the figure for the buses?

There was a commitment to £100 million to improve school standards, or to maintain investment in school standards, and you say that a further £25 million has been allocated in this budget. I assume that that £25 million is the final tranche of the £100 million, rather than an additional £25 million.

That £25 million is the final amount, which does take us up to that £100 million over the course—

So, it's part of the £100 million; it's not additional.

Yes. It's part of it, but it completes the £100 million.

Okay. Nick wanted to come in as well.

Just going back to another question that Mike Hedges asked, you said earlier that the local government settlement that's been released, understandably in tandem with this budget, has been universally welcomed. It will come as no surprise to you to know that it hasn't been welcomed by my local authority in Monmouthshire, which, I think I'm right in saying, at 3 per cent, is receiving the lowest settlement of any council. I think I'm right in that. Would you accept that, once again, we've got a situation where there are winners and losers in the dividing up of this money, and what reasoning has led you and the Welsh Government to deliver that type of settlement to that type of rural authority? Should there—? I keep coming back to this in the Chamber and in committees: wouldn't it be better to have a revision of this formula so that rural authorities, which have costs over wider areas, are in some way supported on a sparsity basis?

Well, I wouldn't say that it's fair to say that there are winners and losers because, actually, every single local authority in Wales has seen an uplift, and the lowest uplift is an uplift of 3 per cent, which, as compared to previous years, I think is a positive settlement. I do recognise, however—

I do accept that it's better than previous years, Minister. I accept that. I'm just—. I'm still intrigued that it's the lowest.

I do recognise—. Though, of course, when you do have a funding formula, there will always be somebody at the top of the table and somebody at the bottom of the table. Things that really do influence the table are population size and the number of children in schools. Those are two things that are particularly strong in terms of the formula, and that reflects, I think, the position that Monmouthshire is in. However, there is a rurality element within the formula as well. Julie James and I have been really clear that, actually, if local authorities, through the Welsh Local Government Association or the distribution finance sub-group, which we work with on the formula, have ideas as to ways in which the formula could be amended or changed, then, obviously, we'd be keen to have those discussions. But, as yet, there hasn't been anything come forward as a group that would demonstrate a keenness to pursue a particular new approach in any of the areas. But, as I say, we are open to these discussions.

Overall, local authorities, on a like-for-like basis, will see an increase of 4.3 per cent.

Just on a technical issue with those figures—I haven't got them in front of me at the moment—is that a cash-terms percentage increase? It's not real-terms. 

Yes.

So, it's cash-terms and then you take the inflation out of it to get the real-terms, then.

Yes. So, 4.3 per cent on a like-for-like basis. But then—. So, compared to the current year. Local authorities will receive nearly £4.5 billion from Welsh Government core funding and the NDR money next year, but, in real terms, every local authority will receive an increase.

Mike.

On local government funding, I have asked the local government Minister to publish the calculations of how we get to these figures. Because all we do is get the final figure, and I think that—. Does the Minister agree it would be very helpful if the calculations were published so that people can actually see? Newport's done very well, but I guess that's because Newport's population has gone up substantially. I don't know about any others, but Newport's population change has been well documented as having gone up substantially. I think we really do want to see the calculations. I'm not quite sure whether Monmouthshire has been badly treated. Monmouthshire always has the least. But isn't it true that this really replaced the old rate support grant and it's based upon the ability of people to raise money? Now, the median council tax band in Monmouthshire is D, and I think that's also the modal council tax band, whereas in Blaenau Gwent the median is B and the modal is A. So, the ability to raise money is substantially different between different authorities.

Can I say that Mike makes an exceptionally good point? Blaenau Gwent is 17 out of 22, and it's neither rural nor in north Wales. As a consequence, I think there's a great deal of misinformation surrounding this debate. And I have to say, when I was a local government Minister, the press releases I saw on numerous occasions from people saying very similar things were never repeated in private meetings when we were discussing reviewing the formula. So, an explanation of the formula would actually be very useful.

Yes. Is that something that you'd be willing to do?

Yes. I think the formula itself is published, but potentially not the workings. I'll speak to the local government Minister with regard to that request.

Okay, thank you.

I think you'll find that it would be—. Yes, it'd remove that opaqueness to it, but at least people then would understand the workings and they would probably find it more acceptable.

Okay. Did you want to come in? No, sorry. Before we move on to Rhun, who's been very patient, in fairness, can I just ask as well—? You said earlier that you were very glad that all departments were having or seeing an increase in the resources made available to them. One element that's seeing its budget being maintained is the Welsh language, which, in effect, is a real-terms cut. So, how does that tally with the Government's ambitions in terms of a million Welsh speakers by 2050?

I think there are several areas across Government where Ministers have maintained the funding at the existing rate, so the like-for-like, year-on-year funding, and haven't been able to provide a real-terms increase. There are difficult decisions for every Minister in different departments, because, as I said earlier, even with an uplift this year, we still haven't been able to recognise the pressures that Ministers have been bringing forward. And there'll be difficult choices for each Minister, which I know that they'll have questions on in their respective committees over the coming weeks.

And that brings us all the way back to where we started this section, really, in terms of Mike's questioning around how those decisions are made, how those trade-offs are made, in effect, and to what criteria Ministers and you as the finance Minister are working to. You mentioned the eight cross-cutting themes that you refer to in your budget. Is it too simplistic to say that, if they don't meet any of those, then they don't make the cut?

Yes, I think that is too simplistic. We use those eight cross-cutting themes, particularly in some areas where we looked at the additional funding and how we would use it. So, you'll see that some of the additional funding and the additional new things that we're able to do this year very much reflect those, so there are several actions in relation to tackling poverty, for example the extra years now where Pupil Development Grant—Access will be available to families, the PDG early years uplift. Those things have been really important, and they've come through that cross-cutting work. The additional funding that we're putting in in terms of biodiversity and decarbonisation measures—they, again, came through that cross-cutting work. So, it was an interesting experiment, really, and we're going to take some time to reflect on it. But I think that it did come forward with some interesting things and useful things, which we'll be taking forward as a Government over the next year. But it was a new way of doing things.

Yes, and reflecting on that is very much something that we as a committee are keen to do as well.

I don't think it is fair to say that if you don't demonstrate that you're delivering in those eight areas then you wouldn't be funded. Those are the areas where we've determined that, if Welsh Government acts together across Government with a focus on those areas, you could have the greatest impact on the lives of people and their prosperity over the longer term. But that's not to say that there aren't areas that are important beyond that.

Okay, thank you. Moving on to Rhun, then.

Yes, and I've got some—[Inaudible.]—on the those eight targets as well, but before I go on to questions on—

Sorry, Rhun. Sorry, we're used to waiting for buses and we're still waiting for the figure on the buses as well. Sorry. Alun reminded me. 

My questions are on buses and climate change as well.

Okay. Yes, fine, we have time. So, did you find those figures for us?

Yes. I think the total funding for bus subsidy in the budget is about £60 million a year, so that's revenue funding for various things, including bus support and concessionary travel and those kinds of things, so that's over and above the additional capital spend that was announced in the budget.

My question was whether that represented a standstill or whether the budget was being either increased or decreased.

It's a small increase but—

So, it's a real-terms cut, then.

It's gone up by about £0.5 million, about £0.5 million.

So, do you have a percentage?

That's beyond my maths, I'm afraid. It's a little bit below 1 per cent.

So, it's a real-terms cut.

Yes.

Okay. Thank you. We are coming on to climate change later on, but if you want to ask about buses now, you can do that.

I'll just ask about buses, and we have a section in the budget—just over a page—on modern and connected infrastructure. It says an awful lot about rail; it doesn't mention buses once. You have £29 million for electric buses, but I understand that, per bus, they're at least twice as expensive as conventional buses, and we've heard about the real-terms cut to the bus subsidies. How on earth are we going to get modern and connected infrastructure with this level of priority for our current bus services?

So, Andrew's just demonstrated that, even understanding the comments that have been made, there is still almost £60 million of funding going into the bus services in—

But it's a real-terms cut, isn't it?

Well, this reflects, actually, the point I was trying to make earlier, that there are still difficult decisions to be made across Government even when there is additional funding available.

And one of those decisions is to cut the bus revenue budget.

Well, one of those decisions is to still provide almost £60 million to the bus line.

And that £29 million for electric buses, where are they going to go? It comes in the decarbonisation section of the budget, but isn't the more urgent priority, in terms of buses, moving them from the more polluting diesel buses, particularly in the most polluted areas? So, isn't that capital investment inevitably going to be concentrated in the major cities and we won't, for instance, see anything in Blaenau Gwent, for which I recently put in a petition about the cuts we have seen to the bus services, particularly into Ebbw Vale?

Again, on the particular routes for the new buses, I'll ask the economy Minister to provide the detail on those routes. I don't have that.

Okay. Thank you.

A very good morning to you. Before I launch into some questions, can I just echo some of the comments that were made earlier on local government funding and the need for real transparency in how those formulas, when they are applied, actually turn into figures to be allocated to local authorities? I see my local authority of Ynys Môn is among the lowest, again, in terms of uplift, and, for example, rural poverty may be different to urban poverty, but it's still poverty nonetheless and we need to look not just at population size but at how the influx of an older population, for example, makes a difference on demands for social care. So, I look forward to being given that transparency.

I'll ask some questions on preventative spend, if I can, or, to give it a more positive spin maybe, the long-term effects of making decisions on spending now. Do you think, given that there is a little bit of leeway now to make some investment in the future, that this is the time for a real step change in how budgeting addresses the issue of preventative spend? Do we need to be more preventative in the way we budget?

Yes, and we've reflected that, I think, throughout the budget and the documentation, but particularly in terms of the discussions that I had with Ministers. So, when we had our bilaterals with every Minister, looking at the pressures that they've got, looking at their ability to deliver on the commitments that we've made and so on, always there were discussions about prevention and always there were discussions about the Well-being of Future Generations (Wales) Act 2015 and how we're seeking to embed that and the inevitable preventative approach that it takes within the budget discussions that we had and the decisions that we've made. You can see some of that—

Okay. The preventative spends that I'm seeing—. Sorry to interrupt. The kind of preventative spends that I'm seeing are pretty small numbers. Maybe you could guide me to those areas of the budget where we're seeing that real, substantial change in how you're targeting preventative spend.

Well, you can see preventative spend right across Government, and I think that this goes back to the fact that we have quite a wide definition of prevention, as agreed with the well-being of future generations commissioner during last year. So, some of the funding that you can be looking at: you could consider the funding on the integrated care fund as preventative; it certainly prevents unnecessary admission to hospital and then helps prevent people staying in hospital longer than they should do. You can look at the investment that we're making in terms of air quality. That's really important as part of our preventative spend. Looking at the homelessness work that we're undertaking, again, really important preventative work. Work on our mental health delivery plan: that had a particular focus, actually, on prevention and you can see that in the way in which that plan is laid out. So, it's certainly embedding itself right across Government.

And you can see more detail of that, as well, in the budget improvement plan, which we have developed. We developed that alongside the future generations commissioner, using her journey-checker approach, and that's there, really, to demonstrate what steps organisations have taken in terms of embedding the Act and the preventative nature of it within the decision-making process that they have, and what steps they plan to take in future years to further embed that. So, I think that it's—. To be fair, I think that you do see more of this in this budget than you will have seen in previous years.

What kind of percentage of the total health spend, though, for example? Because health is one area where the benefits of preventative spend are quite clear. What kind of percentage of the total £8 billion spend on health goes into preventative measures?

It's really hard to put a percentage on the preventative measures and the cost of that for so many reasons, but partly because prevention is so difficult to demonstrate, and partly because when you're investing in a mother, for example, actually, the preventative spend is on the children and the impact that will be had will be on the children. So, it's hard to focus in that way exactly and demonstrate preventative spend.

Could you try and tell us? Could Government try to work out a kind of figure for preventative spend that you think would be appropriate and would reflect a real determination to spend today for the future rather than just for dealing with day-to-day pressures?

This is definitely an area that we've been looking at. As we've been looking at it, actually the complexity of it has really come to the fore. So, I think one point to make is that the actual relationship between investment and increase in outcome isn't a linear one; that sometimes an investment, like the Minister is highlighting, in a mother, for example, that can have an impact on children towards different kinds of prevention. I think, as well, prevention is kind of like a spectrum in a way, as well. For example, in health, there are many different types of prevention. There's prevention in terms of hip replacements, for example, being a form of prevention from quite acute things. But then, also, environmental investment as well is a much longer term form of investment in prevention. So, it's made us appreciate, I think, the shifting of investment into preventative action and that not being a linear relationship, as opposed to a straight relationship between more money equals more outcome.

Yes. I can certainly understand that this is a complex issue and that some things are more linear than others. But can you provide for us, as part of our scrutiny process, at least the closest thing to a comprehensive guide that the Government works to when it tries to assess that balance between how much we're spending to deal with day-to-day pressures and how much is preventative? I used to work for an employer who was meant to put 5 per cent into training, for example. So, there was a clear 5 per cent allocation in order to prepare the workforce for future challenges. Can you provide as comprehensive a guide as possible for us for our scrutiny process?

I think we can provide further clarity and description in terms of what we are doing on the preventative agenda. People say in the Senedd all the time that the most important preventative measure that you can take is investing in children's education. So, the education budget, £1.5 billion [correction: £1.8 billion]; the additional funding that goes into schools via local authorities; the local authorities' budgets are £4.5 billion. So, there are large sums of money going into the preventative agenda. Much of the work that local authorities undertake anyway is of a preventative nature, looking at the support they provide for local services and so on. So, I mean, we are talking about large sums of money, but I appreciate that it is difficult, then, to pinpoint that in terms of particular impacts that it might have on individual people.

Mike is keen to come in, if he may, Rhun.

Yes.

There's one area where it's worked, though, hasn't it? Designed to Smile. That's reduced the number of children having teeth extracted. That's reduced the number of children needing fillings and it's had a fairly substantial effect. But that seems almost like a one-off, and it doesn't seem to have made its way through the rest of the health budget, or am I missing something?

So, health and education, this year, are both contributing in their ways to the whole-school approach to mental health, for example, and that is a really clear example of when we invest in young people and their mental health and resilience at a young age—

If I can interrupt there—

—then it will lead on to—

If I may interrupt, though, that's £0.5 million, is it not? It's £500,000—

And I was giving an example that matched Mike Hedges's example of a specific scheme that has a difference, after referring to £1.5 billion [correction: £1.8 billion] for education and £4.5 billion for local authorities.

But the point I'm making is you happened to pick on one area there, but I happened to have the number in front of me here: it's £500,000 allocated towards that whole-school approach on mental health. We know the scale of mental health problems we have. That £500,000 seems to be very small. There is £2.7 million to help seven to 11-year-olds be more active and healthy. That, again, seems to me to be very low when we talk about the epidemic of child obesity, for example, in Wales. Or £5.5 million for the Healthy Weight: Healthy Wales programme, when I think 10 per cent of the NHS's budget goes on tackling diabetes, a lot of it driven by obesity. These figures seem to me to be very, very low in terms of investment today in the future. I, for example, would love to see part of health budgets going towards the building of sporting and physical activity infrastructure. I'm just not seeing signs, unless you can point me towards it, of a real step change in a move towards preventative measures in this budget.

So, the £0.5 million for the whole-school approach is an additional £0.5 million, building on previous work.

I think this perhaps highlights the point, again, about the relationship between investment and outcomes. So, for example, through the way teachers teach children about diet, that doesn't necessarily have a straight relationship to investment. There are some preventative things you can do that aren't actually monetarily driven, as well, so, I think, again, this probably perhaps highlights some of the complexity and some of the things we've actually realised and appreciated. I think, this year, this is why we've looked at different preventative approaches, which is why, working with the future generations commissioner, we've looked at the social impact bond approach as a potential new thing to look at in terms of how we might look at different ways to invest in that kind of preventative action.

And in terms of money—

Okay, thank you—. Sorry.

—mental health is the largest area in terms of being ring-fenced within the NHS, and that's £700 million, so that is a serious investment in mental health. But the extra funding I was referring to was additional this year, going straight into schools.

Thanks for that, and, of course, I appreciate that there is preventative spend in there. The point I'm trying to get across is that I'm not seeing that serious step change and, 'Right, we have decided that we're going to head in this direction.' Maybe you can provide us with more evidence of that.

Looking at the budget improvement plan, how has the new budget improvement plan affected this as opposed to future budgets? You're telling us how you're going to be operating under the new budget improvement plan, but how's that plan affected the figures that we're seeing in front of us today?

So, the budget improvement plan sets out where we've got to today, and then it sets out the progress that we intend to make over the coming years as well. So, you'll see within the budget improvement plan a list of things that we have achieved in previous years, but also, under 2019, you'll see the ways in which we've changed the way that we're working in this particular year. So, a number of actions there.

But, in terms of the plan, this is the first time it's ever been published, and it was published alongside the draft budget this year. So, the work has been going on to get to the point of publishing the plan, rather than the plan influencing this year. What I have to say about the plan is that it is about the process of the budget and demonstrating how we're embedding the well-being of future generations Act, for example, within that. It's not a decision-making tool in itself, it's a journey by which we can demonstrate the improved way in which we make decisions. The actual place for those decisions to be made is still within the normal budget-setting process.

If I might just add to that, Minister, I think, one of the helpful things in working with the future generations commissioner and some of the other stakeholders we've engaged with this year to help develop this plan, the Equality and Human Rights Commission and Chwarae Teg—they've undertaken a gender review—is that perhaps the journey is the important point. Because perhaps we've realised that the machinery, if you like, that's been operated behind the scenes—for no other reason than it's the machinery—it's not been perhaps clear to everybody. I think some of the things we've tried, some of the different approaches, some of the things, different ways, we've tested, tweaked and looked at different improvements we could make to those processes—. This is about trying to set out, I think, the journey we've been on, the things we've tried in the past that led us to where we are today, but also then what we're thinking about trying in the future. So, I think one of the intentions behind the plan, then, is it will be published annually and always show that five-year horizon to show how the journey changes year on year as well, because there'll be things, of course, that we'll try and they might not work in the way that we thought they would work, and therefore this is a way of trying to show, I think, how that journey changes as we move forward as well. 

Okay. And, again, because of my interest in the preventative agenda, could you give us an idea of the parts of the plan that will tell us a little bit about the journey you're going on in terms of assessing, measuring the impact of the preventative budgeting elements?

So, one example that you'll see within the plan is the application of the preventative definition as part of the delivery of the mental health delivery plan. That was really about focusing that delivery plan around the definition that we had agreed with the future generations commissioner. And so you'll see that as a new way of working and a new focus, really—a new structure, if you like—for some of the work that goes on within individual departments. You'll also see the approach that we've taken this year in terms of the cross-cutting priorities, those eight areas, in terms of maximising the impact of resources, and you'll see the ways in which we intend to reflect on what's happened this year, in terms of the budget-setting process and the specific impact that it will have on prevention as well. 

You'll see the 'Prosperity for All: A Low Carbon Wales' plan detailed in here. That, if anything, is a really good example of preventative work in terms of our response to the climate emergency. And you'll see the work that we do in terms of future trends to understand what might happen in future and how we might have to respond to those changes in the make-up of the population and what preventative action we should be taking in that regard as well. And that's supported by the work that the chief economist has done in his report, which outlines where we might see Wales going in future years if current trends play out as it's suggested they might at the moment. 

One last question on the welfare of future generations Act: you say—I can't remember where; somewhere in the documents—that you are guided by the Act in terms of your budgeting processes. I'd argue that, if you have an Act, it should be more than guidance, it should be taking you in a statutory direction. But, given that at least one former Minister says he took little or no notice of the demands of the welfare of future generations Act in deciding on the budgets of his department, what signs are there that that's changing?

Well, as I said earlier to the Chair, every meeting that I've had, or every series of meetings that I've had with Ministers, has explicitly talked about the well-being of future generations Act and the need to not just be, obviously, working within the context of the Act, but being able to demonstrate that we're able to do so as well. So, I know that, when Ministers attend committees, they'll be able to give examples of how the well-being of future generations Act is impacting on the way in which they work: the five ways of working, the consideration of prevention, the engagement that we have with the future generations commissioner and her office, because I've met with the commissioner a number of times this year, and she's quite rightly very challenging to Government in terms of her expectations as to how we can demonstrate the Act is being brought to life in the decisions that we make. So, I think that the well-being of future generations Act has been at the forefront of our considerations and the way in which we've worked on this budget. 

Okay. 

Only one question, really, on climate change and decarbonisation. Where can I see in this budget—? How does this budget demonstrate a step change in the Welsh Government's approach, following the announcement of a climate change emergency?

Well, you can see it, in the first instance, in the new capital allocations that we've made. So, over £140 million of additional capital funding has gone into a series of investments that are specifically aimed at tackling decarbonisation and also addressing the biodiversity issues that we're facing at the moment. So, you can see that very clearly in the new spend that we're making. I'm really pleased to see the beginning of a new national peatland restoration scheme and the ambitions for a national forest for Wales. That's going to be really important, not only in terms of carbon capture, but also looking at the real success of the Wales coastal path—you know, what more can we do in terms of tourism and making the most of those natural resources. So, lots of exciting things there.

Just looking just simply at changing the refuse-compaction vehicles that we have to ultra low emissions vehicles. So, currently, 180 vehicles of this type in Wales are responsible for an estimated 4,000 tonnes of carbon dioxide emissions every year. So, addressing that and investing there is a clear and demonstrable area, albeit small, where we can be making a real difference. So, it is focusing on the areas where we think that our investment can make the most important impact.   

It might reduce the amount of emissions from those vehicles, but, if they're going to take it to somewhere that's going to incinerate the waste, then you're going to be pumping carbon dioxide out in very large quantities. 

I know Mike Hedges's concerns about incineration—we talked about this in the recent business statement, and I know that the Minister with responsibility for waste is considering those comments, and she will be writing to you shortly.

Mark.

Yes. On the point of those ultra low emissions refuse vehicles for local authorities, you're spending £1 million in capital, you say, but you say there are 180 vehicles that need replacing. That suggests just £5,500 each. Isn't it rather more than that?

Yes. This is the start. Obviously, we won't be replacing every vehicle in this year. But it's an area where we can show that a difference needs to be made. And also it's an area that is quite visible for individuals as well, because people at home go now to great lengths in Wales in terms of household waste recycling, and it's important that they see that this is part of a wider effort in which local authorities and Government are also playing their part.

So, you want to spend the money in this climate change area on projects that appear to make a difference and are visible. Wouldn't it be better to spend the money on projects that would reduce emissions by the largest amount?

Again, this is one of these areas, very much like prevention, where it's really hard to demonstrate exactly how much you will be saving in terms of emissions. So, an example is our investment that we're making in electric vehicle charging points. So, yes, it's great that we're doing that, but we can't actually demonstrate what carbon we'll be saving, because we don’t yet know the uptake of them. Some of this is reliant on the UK Government's regulatory framework around vehicles. Are they going to take action on petrol and diesel vehicles and so on? So, uptake is really important in some of these areas.

So, you're spending this money without a clear idea as to how much it would reduce emissions?

Well, we take our advice from the UK Committee on Climate Change, and they have told us that decarbonising road transport is one of the most important things that we can do in Wales. And that's one of the reasons why we are focusing some of our efforts on here.

So, the investments that are being made are where UKCCC evidence suggests these are the areas where you can have the greatest impact. As the Minister says, some of these are—. It's not—. Again, this is the new relationship point between the investment and what you see. So, for example, if we're establishing a fund, it's then how that fund is used that will start to determine that carbon impact. But this is where the current evidence suggests are the areas where these investments will make a bigger difference. 

But the only evidence that the Minister's mentioned is the Committee on Climate Change saying that road transport was a key area, and then we have these various projects that are referenced in terms of visibility or appearance, and I just wonder is there anything that links that very top-level advice about road transport to the specific projects that have been chosen.

Well, as I say, we take advice from UKCCC, but, actually, we're aware of the advice and the information and the evidence that is available to everyone. So, for example, the work on peatland restoration—that's one of the single most important things that you can possibly do in this particular area. So, I'm keen that we start this work now. But this is an area—

Start it? I started it six or seven years ago.

We build on the good work of Alun Davies now, but then we—

It should have been finished by now. That's the reality of it.

—continue investing in this area as part of the national programme, given the importance of this.

So, when I chaired the climate change committee, I was struck by there being good evidence of peatland restoration delivering a substantially large amount of carbon reduction for a relatively low level of spending. I'm not aware of similar evidence, for example, about the electric buses at £29 million, given just how much more expensive an electric bus is than one that would produce a lot less carbon than the buses we currently have at Blaenau Gwent, because of their age and lack of pollution controls that more modern buses have. And I just wonder what analysis Welsh Government was doing about the relative bang for its buck it could get in terms of carbon reduction as well as the other things we would like to see, like better bus services in Blaenau Gwent. How are these projects selected? How do you compare them with each other as to which give the best carbon reduction for the amount spent?

So, what happens during the budget-setting process is that departments will come forward with their proposals for projects that—. Obviously, we want a big difference in climate change, so they'll come forward with proposals based on the evidence that they have considered within their departments. But, actually, this is only part of the picture, isn't it? So, I mean, you look at a bus and how it's used and by how many people is what's going to make the difference in terms of looking for both value for money but also the impact it makes in terms of climate change as well. So, it's one of those things, again, which isn't—you know, it's not straightforward. So, I think a bus has to have nine people on it, if I'm—. Oh, no, the average bus has nine people on it, but it has to have more than that on it, in carbon terms, to be better than if those people, those individuals, were travelling by car. So, all of these things are in the mix and it becomes quite complex.

So, these projects, when they come forward to you, and evidence is presented by the departments—are they just saying that, 'The climate change committee says road transport is an area that has to be tackled' or, 'This is going to be visible and people will notice the small number of new refuse things'? Or are they giving you a number for how much they estimate this will reduce carbon emissions relative to the price so you can compare the relative value of the projects?

It would be great if we were able to do that, but it's very unusual to be able to reduce down to that purely quantitative comparison between competing projects for resources. So, it's a more complex assessment that's required to enable decisions to be made about the relative benefits of different options. And, of course, Government only has levers in certain areas, so that kind of rules out maybe some of the areas of activity that maybe have the biggest impact.

The public transport fleet is something the Government has quite a lot of leverage over, and so—. Deliverability is one of the considerations, in addition to maximising carbon reductions. So, some of the interventions that perhaps have a bigger carbon impact are things that we don't necessarily have the levers to do.

So, finally from me, Chair, there are, I think, 15 projects that were listed in terms of the capital spend that are new and you're doing, at least on the sheet that I've got here, and two of them I just thought might enable a like-for-like comparison. A national forest in Wales—we're looking to spend £4.5 million on that—and then we're looking to spend £0.5 million on tree planting in Uganda. Do we have an estimate for how much each of those projects will absorb carbon relative to each other? How many trees are being planted in each one, and do we assess what value for money we get for that £0.5 million versus the £4.5 million? Surely we should be able to compare at least those two projects.

I'm sure that we can. In terms of the comparison of the projects, I don't have that information in front of me now. I do know that we recently celebrated planting 10 million trees in Uganda as a contribution to our overall concern about climate change.

And I think to make the point as well about it matters what kind of trees you plant as well. So, if your interest is biodiversity versus—[correction: versus decarbonisation]. There are obviously different trees you can plant to have different carbon capture. So, I think these are some of the considerations around how this funding will be deployed.

Does the Government have a target for tree planting? I asked the Minister this last month. She didn't seem to know.

Two thousand hectares a year. Two thousand hectares a year, I think, in the—

But it's going to take us 100 years to reach the European average. So, I'm just looking at the national forest, I think it's a good idea, and I welcome it. I welcome the investment in it. But I would assume that that would then influence and create a context for future agri-environment schemes, yes? And I also assume, and my assumption was, that future agri-environment support schemes would actually bear the brunt of this funding, rather than the general budget.

I think that the future of the agri-environment schemes is yet to be determined, the work which the Minister has been undertaking, so I can't explicitly answer that today. Some of the investment of the £5 million, or the funding that we've announced for the national forest in the first instance will be about protecting and maintaining what we currently have, and then also planting additional trees as well.

I think it's also important to recognise where we are, as Governments are the world over, at the moment, in terms of learning about how we have that relationship between investment and decarbonisation and biodiversity. So, at the moment, next year, we'll be receiving further Welsh-specific advice and recommendations from the UK CCC. We are in the process of developing our next carbon budget, and HM Treasury are also undertaking a review of how the transition to net zero will be funded, and they're also undertaking a review of the economics of biodiversity at the moment. So, I think, as Governments, we're trying to work together with other people to understand as well, as this new evidence comes out, how you do this and as we learn ourselves about how we take these forms of investment. It's a learning process as well.

I understand that. I don't have an issue with that at all, and I think it's the right thing to do, but there is an equation that is available to Government—I've seen it myself—where the investment in tree planting, for argument's sake, or peatland restoration takes a period of time to actually reach a negative, where you take more carbon out than you're actually putting into building, and there's an equation there that is reasonably well known. But I'm anxious to ensure that the Government has clear targets in place so that we can understand, then, what you're seeking to achieve by this investment.

I'm sure much of that can be pursued by the climate change committee, but, certainly, we'd be interested, if you want to send us a note, maybe, articulating a bit more broadly how that sort of balance is struck in terms of funding vis-à-vis the impact in terms of climate change.

You mentioned, at the beginning of this section, actually, the £140 million that you're allocating for climate change and decarbonisation. Of course, your Government has spent £100 million on an M4 relief road that's not going to be built. So, that puts the £140 million into context, somewhat, doesn't it? So, what does that tell us about the level of ambition that you have as a Government in terms of decarbonisation and climate change?

So, the £140 million is just, again, additional funding. So, one of the things that always strikes me when we discuss the budget is that we only ever talk about the additional funding. We don't ever talk about the billions of funding that is already—which is in departmental budgets and which moves over to the next year, and the changes in the way that we're spending that money. So, I gave the example of the school building and how we're changing the way that we build those schools, the investment in the metro—

But BREEAM excellence has always been the expectation, hasn't it, in terms of—?

Yes, but the sheer investment that we're making in the largest ever school-building programme since the 1960s in Wales I think demonstrates the difference and the scale of that particular project, and the difference that that can make as well.

And then, just looking at the ways in which—. So, within my own portfolio, in terms of procurement, we have a decarbonisation dashboard now that local authorities and others can use to understand better the impact of their spend on decarbonisation and then explore how they can reduce or improve, in terms of decarbonisation, the impact of their particular spend. So, there are different things going on, right across Government, within existing spend. We're just spending it in a different way, which I think doesn't get recognised, because the focus is always, this time of year, on the additionals.

On the additional spend. Okay, I get the point you're making, and I'm sure the committee and other committees in this Assembly will reflect on their particular areas.

We have about 10 minutes left, so I'm going to jump ahead now, maybe, and ask Rhun to come in on some questions around the implications of leaving the EU.

Yes, just a few general questions. Firstly, how much money has been allocated to address our departure from the European Union that could otherwise be spent on other priorities? Is there a figure?

So, we've allocated just over £46 million so far of the £50 million EU transition fund, and you'll see that our spending plans for 2020-21 provide for £8.6 million revenue and £0.5 million capital in this regard. So, an example of some of the things that we've spent money on would be: £7.5 million on business resilience schemes to aid businesses to adapt to a post-Brexit environment; £1.7 million to help Welsh small and medium-sized enterprises weather the challenges and the uncertainties of Brexit; £6 million funding for training and upskilling the workforce in the automotive and aero industry; and £5 million to support the farming, food and fishery sectors post Brexit. So, some of those are examples of things that we've done. They're things that we could just not have done, essentially, given the serious challenges of Brexit. The funding that we've had to spend on a warehouse to store medicines and medical devices should there have been, or should there be a 'no deal' Brexit—again, that's not money that we would have normally spent. We've been trying, when money is being spent, to try and find those projects where there is value in doing it anyway, but this is money that we could have spent elsewhere.

And the total you say for all of those elements that you mentioned there is the £46 million. Is that correct?

Yes, through the EU transition fund.

Fine, okay. I just wanted to have it on the record that that wasn't money that had come in addition from UK Government in order to deal with Brexit, and that that was money being diverted within Welsh Government funds.

Just to be clear, Chair, we have had some consequentials from the UK Government in terms of money that they've spent in preparation for Brexit. So, money relating to various transport aspects, the Food Standards Agency and elsewhere as well. So, there has been some consequential money.

Okay. Give us your latest assessment, if you could, within ranges and scenarios, of the likely effect of leaving the European Union, which, of course, as it stands, is due to come in before the end of the next financial year that we're talking about. And what are the risks within the budget as being offered to us in draft form now?

Perhaps I could respond to that. So, I think there are two different aspects to think about here. One is the general impact of leaving the EU on the UK economy and hence on tax receipts and the fiscal position more generally. We're still using—. Our plans are based on the forecasts done by the OBR back in March this year, which, obviously, isn't that long ago, but it's quite a long time in terms of the dynamics of the situation that we've found ourselves in. So, it would be really interesting to see what the OBR's forecasts are for next year in light of the Brexit scenario at the point they make those forecasts. We don't know yet when the UK budget will be, whether it will be after 31 January or before then, and to what extent the future will be a bit clearer than it is now. So, there's that kind of uncertainty, but just to be clear that our plans are currently based on the forecasts done back in March, which were premised on a relatively benign scenario from Brexit in terms of the impact on the economy.

The other big moving part in all of this is funding that we currently get from Europe directly through structural funds, agricultural funds et cetera. So, our expectation is that that money will be fully replaced. In 2020-21 we'll probably be in the transition period, so there'll still be some funding flowing from the EU in the next financial year, but when it comes to farm funding, that's not covered by the—sorry, when I say 'farm funding', I mean the basic payment scheme. That's not covered by the transition agreement. So, we've been in discussions with the UK Government about exactly what kind of cover they're providing for that programme. There have been some commitments made by the UK Government about that in future years. And, again, these plans are based on receiving those funds in full in the next financial year.

Mark would like to come in on that specific point.

I was concerned by your statement then that in 2021, Welsh Government still expects us to be in the transition period. Surely the transition period is going to end at 31 December 2020, and the UK Government's now stated they're putting that in law.

Yes, so an interesting question, in respect of structural funds, for example, is whether we can expect to receive—sorry, let me say that again. When it comes to structural funds, what we think the transition period means is that we'll get all of the money that we would have got from the current multi-annual financial framework for the full life of that, even after the—

But that ends at the end of 2020, doesn't it?

But the money continues to flow beyond that on the N+3 basis, so we would expect to continue to receive those funds after we've left the EU.

Understood. Thank you.

But not agricultural—

No, so that stops in 2020.

On 31 December 2020, potentially, and there's no clarity yet in terms of beyond that.

So, the basic payment scheme that we're currently in finishes—the last payment window is the one that we're in now. So, the one that will start in December next year will be under post-EU—assuming we leave on the thirty-first.

Yes, and there's no clarity, as yet, in terms of whether the UK Government is going to cover that.

There have been various commitments made—

That's what I was asking, yes.

The exact details are still being discussed, and we would hope to get those resolved very quickly now.

And you wouldn't be the only ones, I'm sure.

Yes, sure.

Okay. Sorry, back to Rhun.

Just to finish off, would it be fair to conclude that the risks then and the need to build flexibility into budgets would fall in 2021-2 and onwards, rather than there being concerns about in-year pressures due to the negative potential effects of Brexit in 2021?

Yes, I think that's fair to say. This is going to be something that is going to impact on us in future years, no doubt. But we were concerned about a potential 'no deal' Brexit. That was something that could have impacted on us this year, which, clearly, is something that we couldn't have budgeted for. So, the consequences of that would have been so large that we've been clear all along that we would be looking to the UK Government to provide us with additional funding in that eventuality.

But it might still be the case at the end of 2020, of course.

Yes, indeed.

Okay, thank you.

Thank you, Rhun. And the last question to Nick.