Y Pwyllgor Cyllid

Finance Committee

19/01/2022

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Mike Hedges AS
Peredur Owen Griffiths AS Cadeirydd y Pwyllgor
Committee Chair
Rhianon Passmore AS
Sam Rowlands AS Yn dirprwyo ar ran Peter Fox
Substitute for Peter Fox

Y rhai eraill a oedd yn bresennol

Others in Attendance

Alex Chapman Uwch Ymchwilydd, Sefydliad Economeg Newydd
Senior Researcher, New Economics Foundation
Ben Cottam Pennaeth Cymru, Ffederasiwn Busnesau Bach
Head of Wales, Federation of Small Business
Dr Victoria Winckler Cyfarwyddwr, Sefydliad Bevan
Director, Bevan Foundation
Leighton Jenkins Pennaeth Polisi—Cymru, Cydffederasiwn Diwydiant Prydain
Head of Policy—Wales, Confederation of British Industry
Sara Jones Pennaeth Consortiwm Manwerthu Cymru
Head of Wales Retail Consortium
Sophie Howe Comisiynydd Cenedlaethau'r Dyfodol Cymru
Future Generations Commissioner for Wales
Suzy Davies Cadeirydd, Cynghrair Twristiaeth Cymru
Chair, Wales Tourism Alliance

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Ben Harris Cynghorydd Cyfreithiol
Legal Adviser
Christian Tipples Ymchwilydd
Researcher
Georgina Owen Ail Glerc
Second Clerk
Leanne Hatcher Ail Glerc
Second Clerk
Mike Lewis Dirprwy Glerc
Deputy Clerk
Owain Roberts Clerc
Clerk
Owen Holzinger Ymchwilydd
Researcher

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Cyfarfu’r pwyllgor drwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:30.

The committee met by video-conference.

The meeting began at 09:30. 

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

Bore da iawn i bawb. Croeso cynnes ichi i'r cyfarfod yma o'r Pwyllgor Cyllid, ac i bawb sydd yn gwylio hwn ar Senedd.tv. Bydd y Cofnod ar gael fel arfer. Ar wahân i'r addasiadau gweithdrefnol sy'n ymwneud â chynnal y trafodion o bell, mae'r holl ofynion eraill o ran y Rheolau Sefydlog ar gyfer pwyllgorau yn aros yn eu lle. Buaswn i'n hoffi nodi ein bod ni wedi derbyn ymddiheuriad gan Peter Fox ei fod o'n methu â bod efo ni, ond rwy'n falch iawn o weld Sam Rowlands efo ni, a chroeso cynnes iddo fo i'r Pwyllgor Cyllid—mwy na thebyg am y tro cyntaf. Felly, croeso cynnes iawn i chi, a diolch yn fawr ichi am gamu i mewn i'r adwy. Dwi jest yn tsiecio a oes gan unrhyw un unrhyw fuddiannau i'w datgan. Na? Iawn. Grêt. 

Good morning to everybody. A warm welcome to you to this meeting of the Finance Committee, and to everybody watching on Senedd.tv. The Record of Proceedings will be published as usual. Aside from the procedural adaptations relating to conducting proceedings remotely, all other Standing Order requirements for committees remain in place. I'd like to note that we've received an apology from Peter Fox, who can't join us today. But we're very pleased to see Sam Rowlands joining us. I'd like to warmly welcome him to this Finance Committee—probably for the first time. So, a warm welcome to you, and thank you for stepping into the breach. I just want to check whether anybody has any interests to declare. No? Great.

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

Awn ni ymlaen i eitem 2, felly, papurau i'w nodi. Mae gennym ni'r papurau ger ein bron ni. Byddwn ni'n trafod y rhain mewn cyfarfodydd eraill later on, ond os cawn ni jest nodi'r rheini o ran y drefn. Diolch yn fawr. Dyna fo. Felly, fe wnawn ni symud ymlaen.

We'll move on to item 2, therefore, the papers to note. We have the papers before us. We'll be discussing those in another meeting later on, so we'll just note them for now, in terms of the usual procedure. Thank you very much. So, we'll move on.

3. Craffu ar Gyllideb Ddrafft Llywodraeth Cymru 2022-23: Sesiwn dystiolaeth 5
3. Scrutiny of the Welsh Government Draft Budget 2022-23: Evidence session 5

Good morning. Welcome to our first witnesses this morning. We've got a packed session for this committee meeting. I'd just like to invite you both to state your names for the record, and your roles, if you would.

Bore da. I'm Sophie Howe. I'm the Future Generations Commissioner for Wales.

Hi, everyone. I'm Alex Chapman, and I'm a senior researcher at the New Economics Foundation, supporting the office of the future generations commissioner with their work on the budget.

Fantastic. Thank you very much, both, for making time available to come and speak to us this morning. After this session, the transcript will be sent out to you, so that you can just double check that as well. What we're going to do is take it in turns to ask some questions and go into further detail on the things that you've sent to us around the budget, and to tease out a bit more of that information and to scrutinise that budget. I'll start with the first question. This is the first draft budget of the new Welsh Government. To what extent does it utilise the Well-being of Future Generations (Wales) Act 2015, the seven well-being goals, and the five ways of working to set allocations? Maybe, Sophie, if you could respond, that would be great.

Diolch. You're absolutely right; this is an important budget, because this is the first one that's been set in this term. It's also the first budget that we're seeing post COP in Glasgow and a lot of the focus around achieving net zero, and so on. I think there are a number of positives to flag in terms of budget. It's the first multi-year budget since 2017. Obviously, we would have aspirations for much longer term budgets again, but anything that's moving upwards of annual budgets is progress, so that's good.

We've also seen a distinct improvement this year in terms of the connections in the budget narrative between what will be spent in the budget and the well-being objectives that the Welsh Government have set. There are a couple of examples of that: there's a well-being objective on the push towards a million Welsh speakers, and enabling our tourism, sports and arts industries to thrive. And then we see that listed under the narrative—so, it's commitments like an additional £14 million for a new cultural strategy, £165 million capital on sport, tourism and culture. We're seeing that right throughout the document. So, they've done a much better job, I think, this year in terms of linking to the well-being objectives. I suppose the particular thing to highlight—and maybe we'll get into this in more detail later, so I won't go into it now—is the infrastructure investment strategy. I think that's really shifted on from where the last one was, to really clearly align to the well-being of future generations Act. That's incredibly positive.

I suppose there are some things that we would flag as needing more work. It's not clear how the Welsh Government are using future trends, prevention and involvement as three of the five ways of working in particular around the budget. That's not to say that they haven't involved people, but it's not clear from what they've presented how that's happened. Members who were in the last Senedd term might recall that the Welsh Government actually piloted a participatory budgeting approach and it wasn't actually that successful at the kind of macro level of the Welsh Government budget. Participatory budgeting tends to be more successful with local initiatives and so on. But nevertheless there is still that involvement process that they need to meet. Prevention is only mentioned seven times in the budget narrative and that's relating to mental health, homelessness and pollution. There's also a case study on looked-after children and preventative budgeting. I think we'd like to see a much fuller analysis of how spend in the budget is preventative.

We can, however, see some significant and encouraging new investment, particularly around the climate and nature emergencies. Again, I'm sure we'll get into that in a little bit more detail, so I won't go into that now. But from our perspective, I suppose those are the headlines on our perspective on the budget. 

09:35

Thank you very much. Do budget allocations in the coming three years sufficiently support the aspirations of the Net Zero Wales plan?

Again, positive things there. The £1.8 billion, which has been the headline capital figure for net zero or for climate and nature emergencies, is certainly positive. If you look at that as £600 million per annum, our estimations are that that's probably an increase of about £380 million based on last year. So, that's significant and welcome. We do think, however, that it's perhaps lacking a really clear assessment back to Net Zero Wales. What we're not clear on, because they haven't done this analysis, is which of the Net Zero Wales commitments—and there are over 100 of them—are being funded as part of this budget, which aren't, or which are only being partially funded and perhaps need more work. I think there we need to be seeing that kind of analysis so that we can see where the gaps might be—where we're making really good progress and where the gaps might be.

I'll bring Alex in perhaps on more detail in terms of what the spending needs to be looking like in order to meet our climate change targets. But what I will say is that the UK Climate Change Committee say that by 2025, we should be spending—the whole of Wales now, so that's not just Welsh Government investment, but the private sector and others as well—around £3 billion per annum on tackling the climate emergency. That is a huge, huge challenge that we're talking about—£1.8 billion over three years; we're talking that we need to get to £3 billion per annum. As I said, it's not necessarily all Welsh Government funding, but this needs to be new money, so it needs to be—. The premise of that is based on the fact that all existing programmes and ways in which we work and spend need to be decarbonised, and this is then additional investment that needs to go in. 

What that means particularly for work with the private sector is that Welsh Government have to take a decision: either they're going to find the whole £3 billion per annum themselves or they're going to do some really significant investment and pump-priming within the private sector to enable the private sector to help them meet the burden of that cost in terms of the transition. And at the moment, we're not necessarily seeing that really significant pump-priming in that private sector investment. That would need to be backed by things like regulation—so, things like making sure the private rented sector are decarbonising their housing stock, and, indeed, home owners. It would need to be really flowing through things like procurement, driving that sort of need to invest by the private sector. So, there are some concerns that we've got there, particularly in terms of procurement.

So, perhaps I could just take a moment to give you some analysis of procurement, because we're spending between £6 billion and £7 billion per year on procuring goods and services, infrastructure and so on, in Wales. In 2019-20, I did a section 20 review into procurement, and we looked at 363 Sell2Wales contracts. So, tenders, if you like, that were published on the Sell2Wales website. Not a single one of those tenders referenced carbon reduction as a requirement in terms of those tenders. We are just going—. I issued recommendations and I did a further look at nine public bodies in terms of their approach to procurement and made specific recommendations around how they should be using their procurement process and mandating things around carbon reduction in that process. Only three of the nine were able to give me any response in terms of how they were intending to do that. I've just gone back in now. We're in the process of looking again at those Sell2Wales tenders. We've got through 41 at the moment, looking at construction and food procurement, and again, not a single one has a reference to decarbonisation. This is when we're in the middle of a climate emergency.

So, whilst the budget is really encouraging in terms of that additional investment, elsewhere in the public sector—and this will be money flowing from Welsh Government to other parts of the public sector and so on—that money does not appear to be being spent in line with the climate emergency, in terms of procurement in particular. Could I pass to—

09:40

Yes. If we bring Alex in, maybe, to look at the climate change portfolio and whether or not the commitments there and the targets are in the right places, and whether they are going to help deliver the climate change ambitions, and anything that you want to add to some of the comments you've just heard.

Thanks. Yes. I want to start with that £1.8 billion figure. The first critical thing to remember here is that this is what they're calling a 'zero base' review, which means we're starting from the assumption that Welsh Government spends nothing on capital, and we're setting a whole new allocation of capital spend. Now, obviously it's not really; that's a semantics issue. Lots of areas of capital spend were pre-determined, but that's the kind of way in which this has been approached. Now, that has lots of strengths to it. It means you are really evaluating your portfolio and looking at where the money's going, and we're seeing good progress in terms of measuring that portfolio against the Act. 

However, it does mean that there can start to be some confusions around what is new money and what is stuff that was already kind of in the capital allocation. So, if we look at the £1.8 billion figure, that includes things like, in relation to the retrofit of housing, I believe it includes the major repairs dowry fund funding. Now, that has been in place for many years, you know; it supports repairs of social housing. Yes, if managed well, it can support decarbonisation, but it's not new money per se. There are also other lines in the £1.8 billion that address things that are key priorities for the Government but don't necessarily address decarbonisation. So, you've got £100 million in there for flood protection, which actually, if done in a what you might call a 'hard infrastructure' way, might increase emissions, because you might be building concrete structures. So, that £1.8 billion, while good and serving lots of well-being goals, I don't think is something that can be cross-compared with the CCC and what they're saying needs to be spent where we should be spending money. 

So, we've got the £3 billion or so by 2035, and by about 2025, we're talking about £1.4 billion. Now, as Sophie has critically pointed out, that needs to be additional. That's on top of what is already pre-existing. So, if we take the £600 million per year, which the £1.8 billion implies, I don't think that figure can be used to stack against that number. Actually, the true figure, I would suggest, is quite a bit lower in terms of what the Welsh Government is bringing forward in terms of new and additional capital spend, targeted at the climate emergency.

Since we've been doing this process with the future generations commissioner, we've been trying to track what we're calling decarbonisation or direct decarbonisation spending lines in the budget over time, and looking at where they're going and from where that additional money is actually coming. And it's crude, it's difficult, because budget lines are complex, and behind the scenes there are all sorts of things spent under every budget line, but we would say the figure is closer to something like a £290 million increase between 2019-20 and today in terms of what can truly be called new and additional decarbonisation spend. So, still, good positive progress. Hundreds of millions more is being spent on a critical issue, but to stack that £290 million against where we need to be in 2025, £1.4 billion, as Sophie says, first of all, does Welsh Government need to be doing more? I would certainly argue 'yes'. And also, is Welsh Government doing enough to drive more investment from the private sector to make up the gap? It's unlikely that that full figure will be tackled on its own by the Welsh Government.

So, that's kind of the headlines. I can go into what we have sort of categorised as decarbonisation spend versus what's in the Welsh Government's portfolio, but I'll leave it there for now.

09:45

I think we're a little bit pushed to go into more detail at the moment. But I'll bring Mike Hedges in now. Mike.

Diolch, Cadeirydd. My first question is: there's the budget of £180 million to decarbonise homes next year and it has £580 million over three years; if we spent all that only on social housing, i.e. council and housing association housing, how long would it take to decarbonise those houses?

The second question along those lines is: what can be done to stimulate private sector investment? I know Sophie talked earlier about private landlords. I mean, I've had difficulty getting them to make houses wind and waterproof, never mind decarbonised.

So, Mike, I don't have the figures around how long at that amount of investment it would take to decarbonise the whole of the social housing stock, but it's something that we could have a look at and perhaps send to you later, if we're able to identify that.

In terms of how you get the private rented sector, for example, to invest in this area, I think there's got to be a combination of support, but regulation as well. In my report, 'Homes fit for the Future: The Retrofit Challenge', that's what we have identified.

So, back to the point that Alex was making, really, in terms of how do we—. If this £1.4 billion that we need to reach by 2025 is going to be a sort of equal share, or a share of public and private sector investment, that means that the Welsh Government will have to be pump-priming that and bringing in regulations for the private sector, in order for that investment to come from the private sector. The risk of them—. And there are challenges around doing that. So, the private rented sector is potentially a bit easier than when you get into the owner-occupier situation, where there's a potential that we may need to mandate people to have to improve the energy efficiency of their homes and so on, and obviously, there are some significant challenges around that. That would have to come with Welsh Government support, and so on.

But the flip side of that is if the Welsh Government don't do that, they are going to have to make up more of that £1.4 billion themselves. So, they are stuck a bit between a rock and a hard place here, but that, sadly, is the reality of the situation in terms of addressing emissions from homes, and that in the context of meeting the wider climate change targets.

Actually, the increasing energy prices are probably getting home owners now to give serious thought to it; nothing to do with Government, it's just to do with cost.

My next question, though, is on capital funding: the £41 million from the infrastructure fund to look at prioritising nature spending. I'm one of these people who really believe we really need to look after top-end predators, and that's one of the problems we have in our seas, and certainly on land, that middle predators like rats are proliferating because the top-end predators who used to live off them are not there in the numbers they used to be. Is this £41 million a good starting point to start addressing the nature emergency? Sorry, I'll just finish on this. A lot of animals are becoming extinct in Wales, but really, it's very much at the top end that extinction is occurring, which does cause problems, in that animals that have got no natural predators left will just keep on expanding.

09:50

Well, you know, the state of nature and biodiversity is critical. To quote the United Nations, they say that we're losing the little things that run the world, and that's at all points through the ecosystem. So, there is a significant challenge there, and, of course, the Senedd have declared a nature emergency. It's often difficult to—. So, what we're seeing is that the £1.8 billion that has been allocated is predominantly for decarbonisation. Now, some things that you do with nature, for example, peatland restoration and so on, have a positive benefit in terms of decarbonisation, but it's not always quite as clear cut as that. So, it's important to say that most of that £1.8 billion is directed towards, let's say, more pure decarbonisation, rather than the nature-related and biodiversity-related spend.

However, what we can see in terms of capital in the budget is that we're seeing almost a doubling of the combined capital and revenue spend in its most direct form—so, things around forestry, biodiversity and flood risk and so on. We have found it quite challenging to understand the exact spend in relation to direct benefit to nature, and I suppose—. We've been calling for a number of years now for a really forensic analysis across budget lines back to decarbonisation, and we probably need that same thing in terms of spend on nature, if we're genuine about the actions that need to be taken in terms of the nature emergency as well as the climate emergency. 

We have seen the freeze on the budget of Natural Resources Wales, which is an effective real-term cut. So, we don't know what impact that may have potentially on its ability to deliver its biodiversity aims, but it's just something that I'm flagging is there in the budget. Alex, do you want to come in on any more of the analysis on nature?

No, I think you've covered all the key parts, Sophie.

So, a good start. Progress has been made, but it's difficult to ascertain whether that progress is enough based on the declaration of the nature emergency and the nature challenges that we face.

I was going to say that one of the problems we have, certainly in rivers, is we get this huge amount of pollution coming off, some from farmland, some from raw sewage being pumped into there, and you get rivers like the Wye and the Tawe that have got serious problems. That needs less about spending capital and more about dealing with the people who are letting this pollution go in there. I'll just leave that out there.

The final question I've got is about green skills. We need to develop green skills. You suggest that investment in this area has been inadequate, and I tend to agree with you. But shouldn't we be seeing more private sector investment in it as well? Shouldn't the private sector be training their workforce, because they're the ones who get the benefit from it?

Yes, I would agree with you there, but that also requires the whole system to respond in that way. Currently, the system is largely employer led and that does not necessarily facilitate long-term planning, for example. At the moment, there may be challenges in particular areas and those are the things that are on the minds of employers, whereas what we've always said is that the Welsh Government, rather than meeting a demand-and-then-supply type approach, what they need to be doing is pump-priming a decide and provide approach. So, if we're deciding that Wales should be shifting to a low-carbon economy, which we have decided because we've declared a climate emergency and so on, then the whole skills system, through to how to fund apprenticeship schemes and courses, and what are our regional skills partnerships doing and so on, all of that needs to get right upfront of that, because you need to have your number of years in advance to get those qualifications in place before those people start coming out to fill jobs that are needed in those areas. We don't think that the current system necessarily responds well to those trends. So, for example, by far the highest number of apprenticeships last year, so 47 per cent,were in public services and healthcare. So, around 3,000 apprenticeships. I'm not saying that there's not a need for apprenticeships in those areas, but that compares to around—. So, about 3,000 apprenticeships there, compared to 50 to 100 apprentices per year in forestry and agriculture. So, this is the challenge we've got: on the one hand, the Welsh Government are investing significant extra capital in terms of planting trees in the national forest and so on, and that's really to be welcomed; on the other hand, we don't have the skills coming through the system to actually deliver that policy aspiration.

And then, our research also shows that, in areas like reforestation, flood defences and so on, we're seeing between 50 and 120 apprenticeships per year coming through in those areas. And there was quite an interesting insight from a webinar recently in terms of what colleges were saying. They said, 'We're basically being funded to deliver—. We deliver what we're funded to deliver, and we're delivering historic qualifications.' Now, there's the challenge that you've got, and this is why all of these allocations in the budget, and I don't want to downplay the significance and the positive direction of travel that the budget is going in, but the budget is one part of a complex policy infrastructure, or ecosystem, if you like, where allocating a budget may not be effective unless the rest of the system—in this case, we're talking about skills, for example—is actually helping to deliver your policy aspirations that you funded, and we're not necessarily seeing that at the moment.

09:55

But you can also have upskilling, can't you? You've got people who are skilled—electricians, for example, being upskilled for dealing with wind turbines and dealing with solar panels. Unfortunately, the private sector caught a cold on solar panels when the Westminster Government took away their subsidy overnight.

Yes. There are those challenges, there are also the challenges in terms of loss of European Union funds. So, I think at the moment Wales has had something like £46 million confirmed through the levelling-up fund, as compared to £375 million that was coming from Europe. So, again, a lot of the feedback from professionals in the skills arena—they're saying that we're really heading towards falling off a cliff there. So, I'm not saying that any of this is easy for Welsh Government, but I think that there are a number of things that need to happen.

So, we need to, as I said, decide and provide, and Welsh Government need to show real leadership in terms of requiring our apprenticeship programmes and our higher education and further education to be delivering courses in those green industries for the future. There needs to be real targeted interventions for those people who are furthest away from those skills, so women, black, Asian, minority ethnic people, disabled people. There's some positive narrative in the budget, but I think the devil will be in the detail there in terms of the policy context.

There needs to be further investment in terms of in-work training. So, things like WULF, the Wales union learning fund, and so on. And I'm sure we haven't got time, but if we did, Alex has done a lot of work around the sorts of things that need to happen to encourage workplace learning and lifelong learning, which has seen a huge decrease over the last decade in terms of investment, when, actually, it needs to be the complete reverse. And in-work and workplace learning and lifelong learning need to become the new norm. So, what we're trying to do here is unpick some real decrease in priorities over the last decade and really turn that on its head if we're going to meet their aspirations, both in terms of good and decent jobs for people and in terms of meeting our decarbonisation targets.

I'll—. Yes. Sorry, Mike, I'll let you just finish off and then I'll move on to Rhianon.

Lovely. I think it dovetails quite nicely into Rhianon's bit as well, so over to Rhianon. Can we unmute Rhianon, please? There we are. Thanks.

Thank you, Chair, and it does, actually. In regard to what you've just said around specific interventions, I think you already mentioned, Sophie, that there's a strong equality theme throughout this draft budget, and also some specific allocations. Further to skills, is there anything specific that you would like to highlight in regard to narrowing that gap in regard to the socioeconomic inequalities that have been exacerbated by the pandemic risk? So, is there anything further that you would like to add in that regard, or do you think you've covered some of it?

10:00

We focus predominantly on the skills gap in terms of inequality, but more recently we've published some work on inequality in a future Wales, and we've identified—. We looked at three key future trends that we needed to be aware of and be on our guard about in terms of the potential to increase inequality. So, those were the climate emergency—. So, our findings probably won't surprise you, in that those who are least able to cope with the effects of climate change, so things like flooding and so on, have the potential to be the worst affected. If we look at the situation in terms of flooding in communities across Wales, and maybe I'll reference the south Wales Valleys at the beginning of 2020, so those poorer communities who often can't afford insurance, can't afford to put things right after flooding, are living on the breadline where those sorts of impacts happen. That is catastrophic for them. We can see other communities like Fairbourne in Gwynedd, for example, where coastal erosion and so on, as a result of climate change there, are meaning that people are no longer able to sell their homes. Homes are therefore being bought up at very low cost by private landlords. Those private landlords are renting to people who are probably less well off. And if that community disappears, there will be a whole chunk of people there, who are probably the lower income members of that community, who will be displaced. So, we can see there are some really clear correlations there. There's also some real clear correlation between the just transition, so the cost of doing this. So, I was just talking about how we might need to regulate in the owner-occupied sector in homes for energy efficiency measures, but home owners are not necessarily—. Many of them will be in in-work poverty and so on, so there are some real challenges there for Government.

The other two key trends that we looked at were the changing nature of work, around automation and artificial intelligence, and some of that, I think, links back to this need for increased investment around in-work skilling and lifelong learning and so on, so people are able to keep up with those changing natures of work. One of the really positive things that is in the budget—perhaps it doesn't go as far as I would like, but it's a good step—we do need to be considering things like a universal basic income, because if the nature of work is changing, if there are going to be more people working in the gig economy without, necessarily, the security of employment that people of our generation might be used to, we do need to start looking at how we might plug some of that gap as a society to make sure that people are not falling further into poverty.

And then the final area is around the ageing population, and particularly the equality impacts of that ageing population, particularly in terms of the human cost, if you like, of care. So, again, we think that there are some significant challenges there that the budget really needs to address. Perhaps I can just—

If I interrupt you on that, then, Sophie, because time is limited. In regard, then, to the draft budget, you've mentioned three key areas there, and you also mentioned the basic income and the pilot, and obviously there's £10 million going towards that as a pilot—does the draft budget address your concern sufficiently in terms of narrowing socioeconomic inequalities, bearing in mind that you've mentioned a number of key areas there for potential strengthening? What's your overall view?

I think it is very difficult to say, because what I'm talking about that's needed here is, yes, investment, and we can see, for example, that additional investment in skills, although with questions around exactly how much it is. But it's how that investment is spent, so it's policy context: are we going to target that investment to those people who are furthest away from those green skills and other skills or not? The way in which you spend the money is the key issue there.

We haven't heard much around the just transition. Now, if you look at the budget, we can see that that investment, for example in improving the energy efficiency of social housing, is clearly connected to trying to take those who are the poorest people in society out of fuel poverty and so on. So, there are encouraging things there. We don't think that the integrated impact assessment was particularly good, which is why it's quite difficult for me to give you a really clear answer. So, what we think is that there was a summary of statistics and facts with little analysis of how those spending decisions will impact different demographics in Wales, and different demographics are considered, but in silos, so they're overlooking the intersectionality issues there. So, an example of this is the inclusion of information relating to the ageing population. That made links with changes to and increases in the need for health and social care, but it doesn't make links with the likely increase in the number of unpaid carers, who will probably be women. So, you can see that we've looked at one section and identified one trend, but it doesn't then look at that kind of intersectionality. So, I'm sorry I can't give you a clearer answer, but it's quite difficult from the documentation to work that through.

10:05

Well, that brings me on to the next question, actually. In regard, then, to the evolving of the—excuse me, there's a frog in my throat—budget equality group and the emergence, then, of the budget improvement impact advisory group that would be looking at that intersectionality and that alignment, there is a lot of discussion, thoughts and ongoing work at the moment around this. So, have you had any engagement with this type of work, because one would assume that that is exactly what it would be looking at in terms of future alignment? Because the distributional impact analysis, as you've already pointed to—your comments on that are received here in our briefing. So, what engagement have you had with that particular impact advisory group in terms of its establishment? 

If you could keep this answer fairly brief so that we can move on to Sam. I'm just conscious of time and we may run over a couple of minutes, but if we could keep it fairly brief. Sorry, I know it's a big subject.

Okay. So, we've been engaged with officials in the proposed revisions to that group and I think what they're trying to do is to essentially bring in some of the challenges that we've been levelling over the last number of years around, 'How are you systematically assessing your spend across the future generations Act with the existing group that was really focused on equality from an intersectional perspective?' So, I think it's progressed. The feedback that we've given is that just—. On the membership—the proposed membership is a large number of different equality organisations, which is good, and a representative from my office. I don't think that that's sufficient. What we need to be doing is saying, 'Right, who are the climate experts?', for example, and 'How are they understanding or how are we collectively working through with equality groups what the inequality issues are relating to climate and the just transition?' Who are the experts in work and skills and so on, and how are we working through that from an equality perspective? So, there are challenges there for the Government in terms of how they do that and bring all those necessary voices in to have those discussions, whilst not making it an unmanageable beast. But we're in discussion with them on that.

Okay. Thank you for that, that's an important body moving forward. So, very briefly, if I may, finally, Chair: the Welsh Government outlined that it took a zero-based approach to the capital budgets for the draft budget. In your view, has this led to a step change in the way in which capital is deployed, and obviously in terms of the nature and climate emergency in particular, where historic investment strategies haven't, perhaps, aligned with the current climate and environmental policies? It's quite a long question.

There are mostly positives and perhaps some negatives with this. So, I'll start with the mostly positives. So, really, this is probably one of the best examples in terms of the infrastructure investment of alignment with the future generations Act that we've seen. 'Llwybr Newydd', the transport strategy, was another one, but this is really good. The whole principle of that, which is shifting away from, 'What infrastructure should we invest in?', to posing the critical question, 'What should infrastructure enable, and what should that enable in line with the long-term goals that we already have set out in law?', is a real step change in the whole approach. And you can see that coming through from the plan and also in terms of the narrative from the Minister. So, that's really positive.

We can see, in terms of actual spending decisions—. So, our analysis suggests that there has been a significant shift—and you will know this in terms of the roads review and so on—from investing about two thirds of our infrastructure spend into roads to about one third of infrastructure spend. So, that is an absolutely huge shift in terms of the shortish period of time that we're looking at. So, that's the really positive stuff. The only thing that is negative, which Alex mentioned earlier, is the fact that, if they've done a zero-based review, that assumes that they're not spending anything, so it's quite difficult to work out the actual level of increased new spend in new areas.

10:10

Thank you. I'll bring Sam in now, and I beg your indulgence to go over five minutes, but we'll eat into our technical break. So, that's all good. Thanks.

All right. Thanks, Chair, and thanks, Alex and Sophie, for joining us this morning; I really appreciate your time. And thanks also for sending through your evidence paperwork as well. I was drawn, actually, to—. I love a good table, and I was drawn to the table towards the back of the evidence that you provided, and I've a quick question on that there. So, on tier 1 there, which is the primary budget spend on decarbonisation, you see that movement there from around 2 per cent up to 3 per cent of spend on decarbonisation. So, if I were in Government, I would say, 'We've increased that by 50 per cent, moved from 2 per cent to 3 per cent', but, as a lay person, I'd probably say, 'I've only increased it by 1 per cent.' And you highlighted earlier a bunch of areas, perhaps, which aren't as clear cut. You talked about some of the Sell2Wales stuff, where the tenders aren't focused on decarbonisation. So, with all of that in mind, do you think Welsh Government are taking this seriously enough?

I think there's been a marked shift positively from the declaration of the climate emergency in 2019 to where we are now. I think that there are still some—. You know, the figures sort of—. Well, I would say the figures speak for themselves, but they don't, because of the nuances that you've pointed out there and that we've pointed out. But we are seeing significant new investments in key areas around decarbonisation, climate and nature emergencies. In particular, the problem is that we don't think that those are sufficient to meet what the UK Climate Change Committee, who are the experts on this, what they say the Welsh Government needs to be spending, and that is all—. The spend, as I keep saying, is only one element. So, things like—. I've mentioned procurement, but things like the economic contract in Government, which is this contract that, if Welsh Government gives money to the private sector, they expect some specific things in return. One of those things is decarbonisation. At the moment, there is no mechanism for monitoring what those private sector businesses are doing on any of that. So, if you ask a Minister a question, 'Oh, you've given out x thousand of grants to business'—and, of course, that has grown exponentially during the pandemic period—'You asked them to sign an economic contract, one of the requirements of which was to work towards decarbonisation, what are the outcomes of that?', you won't get an answer. So, that is a policy failing, if you like, linked to how we're spending our money. So, these things have to go hand in hand, and the budget will only ever give you one part of the story.

Yes. I suppose the old phrase, 'Put your money where your mouth is'—. There's a lot of talk; I'm not entirely sure the budget follows a bunch of that talk, as the correlation perhaps isn't as straight as people want it to be.

Just going back also to talk about decarbonisation of homes, you mentioned earlier that there could or should be more investment, or there could or should be more regulation. You didn't talk about incentives and, obviously, in this term more so, Welsh Government are looking at council tax reform. Have you considered whether council tax being aligned to energy efficiency of properties would be a useful incentive, rather than council tax being aligned to property value? Because, obviously, we saw that with cars over a 20-, 30-year period, where car tax became aligned to carbon emissions of vehicles. Have you considered whether that might be a good incentive to get the private sector home ownership incentivised to decarbonise their homes?

10:15

We haven't considered that specifically, but I think it's an interesting proposition. I'm just, on my feet now, trying to work through the potential implications of that, and you'd have to have all sorts of checks and balances there around would that actually be hitting the people who are on the lowest levels of income, who've got the poorest energy efficiency measures in their homes, and would that be increasing their burden, so, therefore, there would be equality impacts there. But I think we're in a position now where anything needs to be on the table for consideration, and we really need to be ramping up our action here. I don't want to leave the committee with the impression that we are not positive about what we're seeing in the budget now—we do think that it's a marked shift—but, as I say, whether it's a significant enough shift to meet the challenge that we face remains to be seen. 

I'm just reminded, Chair, that time is running quickly; I'm just trying to be as fast as I can here. I think it would be interesting to consider that. Yes, there's Government investment, but Government investment can only go so far, and regulation's okay, but people, I'm sure, will always try and find ways around regulation. Incentives—the carrot rather than the stick—might be something more sustainable and may actually cause people to act more quickly, so I'd appreciate it if, in your workings, you look at incentives, rather than just investment and regulation options on that.

Just a final, quick question. On the budget improvement plan, which the Welsh Government publishes alongside its budgets, I was having a good read through that, and there's a whole raft of lovely coloured Gantt charts on there. I was just wondering what your thoughts were on the budget improvement plan. One of the things that strikes me is that there are loads of things in there that say, 'Here's what we could do and should do, and will do in the future.' I wonder whether you think, perhaps similarly to me, 'Why don't they just do it now, rather than—?' If these things are going to improve the budget and the planning process for the budget in the future—they're great, lovely—why don't Welsh Government do it now? What are your thoughts on that? 

I'm inclined to agree with you. You will see that, in this year's budget, things that we had been pushing for in previous years, and were in previous budget improvement plans, such as the alignment of spend and the well-being objectives and so on, are there. I have got some sympathy for Treasury officials here, and the capacity not just in Government but all public services. People have been stripped out everywhere to go to front-line, pandemic response and so on, and, arguably—I'm sure that many people won't agree with me or support me on this, but, arguably—the Welsh Government civil service infrastructure is pretty stretched even in normal circumstances. So, there's a real balance here, isn't there, between the challenge around, 'This needs to happen now,' and the capacity to do that, but also the capacity to do that—. There's that phrase, 'If you want to go fast, go alone, and if you want to go far, go together.' So, when we're doing that collectively, involving lots of different people, voices, stakeholders and so on, which is the best way to do it, that does take a lot more time. But I'm kind of with you, in terms of, 'Look, there's a sense of urgency around a lot of this, so we really need to just crack on with a lot of it and perhaps prioritise it, whilst also celebrating some of the successes that we've seen.'

Diolch. Thank you so much for a fascinating session this morning, and your comments on the budget and answering the questions. We could have spent a lot more time talking to you this morning, and apologies to Sam there for cutting it slightly short, but he'll get to go first at some point in the morning. But thank you ever so much, and we'll take a few minutes' break now, so we'll go into a technical break, but diolch yn fawr iawn.

Gohiriwyd y cyfarfod rhwng 10:19 a 10:25.

The meeting adjourned between 10:19 and 10:25.

10:25
4. Craffu ar Gyllideb Ddrafft Llywodraeth Cymru 2022-23: Sesiwn dystiolaeth 6
4. Scrutiny of the Welsh Government Draft Budget 2022-23: Evidence session 6

Croeso nôl a chroeso cynnes i Victoria Winckler. A fyddech chi jest yn nodi eich enw a'ch rôl ar y record, os gwelwch yn dda?

Welcome back and a warm welcome to Victoria Winckler. Could you just note your name and role for the record, please?

There we are—hang on. That's it. 

I'm Victoria Winckler, and I'm director of the Bevan Foundation.

Welcome this morning and thank you very much for making the time available to come and speak to us on these very interesting subjects and to help us to scrutinise the budget of the Welsh Government. So, I'm going to crack on with the first question. The first question I've got for you: in your consultation response, you said that the Welsh Government should use this budget to put in place the building blocks that will reduce poverty in the longer term. Has the draft budget been successful in this aim, and which, if any, action would have taken this ambition a bit further?

I think the budget has gone some way towards putting in place what we call the building blocks for solving poverty. What we see as those building blocks are decent, fair work for everyone who wants to work, an effective social security system that includes devolved grants and allowances as well, and affordable costs, especially for the essentials such as food, housing and warmth. So, I think there are some aspects of the budget that we very, very much welcome, particularly around the increase in expenditure because of the increase in eligibility for free school meals, the increase in expenditure on the discretionary assistance fund and the additional funding for social housing. So, they're beginning to get those foundations, if you like, in place. That said, I think it could go a bit further. I think on all of the areas that I've mentioned there is scope to do more. I'm sure we'll come on to that in a moment in terms of additional provision for social housing, other areas of devolved grants and allowances. And I think probably the area where we think where there's reference but not a lot of evidence of investment is around fair work. Now, I appreciate that this is perhaps a slightly messy area of the devolution settlement, but I think, as we know, it's very difficult to get movement on this to shift the dial without spending any money, basically.

Lovely. So, do you think the draft budget focused on all the areas that you believe are essential to recovery as well, on the back of COVID?

I think, until people have good health, we cannot really even begin to look at the other areas, and I do welcome the proposed increases in expenditure in health. That said, in any area, it's not just how much money you spend, it's how you spend it. It's not an area of expertise of the Bevan Foundation, health, but I think it is right that there has to be an acceleration in the number of people who are treated and treated effectively, because, until then, people can't go to work, can't raise their families and all that. It is one of the foundations of a civilised society. So, yes. I think I'm probably more positive about this budget than most of the previous ones that I've talked to this committee about.

And you mentioned the linkages there between some of the things—alleviating poverty and obviously health recovery and the rest of it. So, out of those things that are in the budget, of those, how do you rank the ways that the money is being spent and do you think that it has been allocated well?

Well, I suppose, overall, 'yes'. I think the priority to health and education recovery is right; I think it has to be done. I think there also needs to be in place provision for the longer term, and I think we see the steps towards that being taken. So, there is a balance to be struck and, I think, overall, the balance is right, yes.

10:30

Perfect. Okay. So, the budget process in particular—. The Welsh Government's stated aim in the budget improvement plan is to engage and collaborate with stakeholders. Has this been realised? And do you believe that your suggestions are reflected in its aims and specific spending decisions?

We're not directly involved in the budget process, but we have had contact with the budget improvement team who have helped to spread the word about the budget process, and I think it's really important that the wider world understands just how it is that expenditure decisions are made and the points at which they can influence it. This isn't pocket money that's just dished out by mummy and daddy; this is an important, political—. I don't need to tell you that, but the wider world doesn't necessarily appreciate that. So, I think the very fact that there is a budget improvement plan and that there's a commitment to engagement is really welcome. We don't have the capacity to get involved in that, but I think it's heading in the right direction absolutely, yes.

Thank you. In regard, then, to potentially future budgets and budget preparedness, in your view, Victoria, does the strategic impact assessment, which is always published alongside the draft budget, give enough context in this year about why particular spending or policy decisions have been taken by the Welsh Government? And what more information do you think could be provided to make it more clear about how certain decisions have been taken and around the desired outcomes for those funding allocations?

At risk of sounding like we're completely happy with everything, I do think the strategic impact assessment gives some information. I think there's more in the narrative in this budget than there has been in previous ones. That said, I think there's always scope to do more, and the kind of thing that we would like to see is an approach that looks at the distributional impact of those public spending decisions. It can be done. The Equality and Human Rights Commission produced a report that looked at the impact of UK Government spending decisions on different groups of people, but it's not something that we've had the resources to be able to undertake. But I think it's an important approach so you can see that, if you chose to put all your money into something that people on high incomes access rather than people on low incomes, there's a consequence from those spending decisions. So, I think there's scope to do more, but whether there's the time within the budget process to do that, I'm not sure. But I would like to see that, if that was feasible, yes.

Thanks. Obviously, in terms of a distributional impact analysis, this is something that, perhaps, the new group would be able to push forward.

So, going on to my next question, the draft budget's budget improvement plan has committed to two further gender budgeting pilots in 2022, and I don't need to tell you the importance of the impacts around that, and that's continuing until 2024. I'm not sure if that includes the refresh of the budget advisory group for equality or whether that's a separate group. Is the Welsh Government making enough progress on this issue, bearing in mind the impacts around care, around part-time working, around equality and pay, and what are the benefits of having this type of approach, or disbenefits?

We're not involved directly in that process. Gender budgeting is something that we've been in favour of before, for obvious reasons. Important though it is, I don't think the impact of that process is yet hugely visible. Now, I know budgets are like oil tankers and you don't just suddenly change direction. I think it would be fairer to wait until the end of the process before really giving judgment on it, but I think I certainly would hope to see by then a more significant shift towards the issues that you've mentioned, such as childcare and part-time working, and other issues such as public transport as well.

10:35

And finally, if the Chair will let me ask this supplementary on the plan, then, to establish a budget improvement impact advisory group, to maintain that equality and that intersectionality in sectors, how would you like to see that group operate, bearing in mind your comments that you just made? Would that be an important platform to be able to refocus or continue to focus in those key areas?

Potentially, yes. The difficulty as always is that you can have the right structures, but whether those structures make a difference is down to the seriousness with which they're taken and the individuals involved. So, I think the best I can say is, 'Well, let's hope so.' And I think that we all need to have a watching brief to make sure that it does make a difference.

Yes, thanks, Chair, and good morning, Dr Winckler. Thanks for your time this morning—I appreciate it. I've got a few specific items to just gather your thoughts on, first around free school meals. I believe the Bevan Foundation described the free-school-meal allocation of £90 million as being adequate, so I'm just wondering whether you could expand that a little bit further first of all. And then, secondly, is £90 million on free school meals the best use of £90 million? If you had this moment of being First Minister—I'm sure it would be wonderful—and you had £90 million to spend on anything you wanted to, would you spend it on free school meals?

Actually, I think I would. We've been looking at the question of free school meals for a few years now. In the past, I suppose we didn't see it as being as significant as it is, but it is important in feeding children, for a start, and it's important in reducing the stigma for children—the distinction between those who get free school meals and those who don't. It can make a difference to the local economy, and it makes sure that nobody who's on that cliff edge of eligibility, for example because their parents happen to earn an extra £5 a week—. It irons out that as well.

We began looking at free school meals a couple of years ago now, because we more and more felt that this would make a big difference to parents, and in particular children whose parents were in work. We actually commissioned some external experts, a group called Policy in Practice, who have an excellent track record on analysing public expenditure and the interface with the benefits system, and we looked at different scenarios—we looked at what if the threshold for eligibility was increased to different levels, what if the take-up rate was this, what if the take-up rate was that, and we also looked at, or they looked at, universal free school meals as well for different groups. Now, you know, as with all modelling, what you get out partly depends on what you put in, but their estimate of the cost for universal free school meals for primary school children came out at around about £90 million. So, we're happy that that's a robust figure that the Welsh Government has allocated.

I actually would regard the free school meals for primary school children as an investment. I think it has the potential to transform the well-being of a lot of Wales's children. I accept there's some dead weight, as you might want to call it, in that children from better-off families are getting a free meal, but I think it's the price we pay for making sure our future generations are fit and healthy.

Do you think, with parents having to do less and less for their children and therefore taking less and less responsibility for their children, are there any long-term risks of that just becoming the norm—more and more parents taking less responsibility for their children? We're seeing the number of children in care skyrocketing at the moment, and it has been a trend for the last 10 to 20 years. Is there a risk that, the more that Government provides for children rather than parents providing for children, it actually increases that overall future risk?

10:40

I don't see that giving children a meal when they're in school, as many of us expected to happen when we met at conferences and events in person, for 30 weeks of the year, or 36 weeks of the year is taking away parental responsibility. Parents still have responsibility for the behaviour of their children, for feeding and all other aspects of their welfare. I really don't see giving them—most primary school meals are pretty small—a small meal at lunchtime is detracting from that. 

Sorry, Sam, I think Mike wanted to come in with a question there. Sorry to cut across. 

It's a question in two parts, Victoria. Doesn't universality mean that the people who need it will never miss out? And secondly, doesn't it mean that you could actually get children eating good-quality food from an early age and thus reduce health problems in later life?

Absolutely. Parents' incomes fluctuate, and the prospect of having children moving in and out of the free meal—getting one one week, not the next week—is an administrative nightmare, as well as that it doesn't seem to me to be very good practice for children. So, I think it eradicates that problem of stigma, of variable entitlement and also of dinner debt, which we heard a lot about just before Christmas. It eradicates that. And I think it also, as Mike said, should provide the foundations for better health. Children will be exposed to a wider range of foods, and they will hopefully have better physical health and better dental health as a result. So, yes, it's an all-round good thing. 

Thanks. And just one more thing on free school meals before I move on to my other points, in terms of value for money as well, obviously pointing to a few points that Mike Hedges questioned there, about future costs and that sort of thing. Free school meals, yes, are free at the point of provision but are obviously being paid for by your taxes, my taxes and the taxes of my constituents. In terms of value for money, you're convinced that that is good value for money. 

Yes, absolutely. I don't have figures in respect of school meals specifically, but some work we did a few years ago showed that £1 in every £5 of the Welsh Government's expenditure went on dealing with the problems caused by poverty. So, if you can reduce poverty, in the long term you should save public money, and you save it on health, you save it on social care, you save it on education. These were robust findings. So, it is absolutely—. If we see, and we should see, the benefits from that expenditure, in the long term it should save the public purse.  

Okay, great. Thank you very much. Just moving on to some other specifics, then, in terms of the Welsh Government's budget, the draft budget does look to invest around £1 billion of capital funding into low-carbon social homes. I'm just wondering whether you think that is ambitious enough and what your thoughts are generally around that budget line. 

Well, the first thing is that I'd welcome expenditure in social housing. We are living in a housing crisis at the moment, particularly for people on low incomes, but in many income brackets. We initially, in the Bevan Foundation, called for and supported that figure of 20,000 new homes. It was one that was calculated by people in Community Housing Cymru, and it seemed deliverable but still ambitious. We've been looking recently, as part of our work on the local housing allowance, at the demand for social housing, and what we've found is that, at the moment, there are more than 90,000 households in the private rented sector who are currently getting help with their housing costs through local housing allowance. Now, even if only a third of them actually want to live in social housing and would be eligible for social housing, that's still 30,000 people being in the private rented sector looking for a social home, and that's not counting new households coming into formation when children set up their new homes, or households split. 

So, looking at that, that suggests that there is actually a big shortfall between the 20,000 target and what we think is probably a better estimate of need. And certainly, the 20,000—. Why did we support that 20,000 target? But we did. I think that's a minimum; that's the absolute minimum that the Welsh Government should be looking to establish over the remainder of its term.

10:45

Thanks, and around housing, then, around 90 per cent of houses being built are built by the private sector; only about 10 per cent, I believe, is social landlords or local authorities building them. Do you think that that relationship between the Government and the private sector in terms of houses being built, many of which are—? Private sector housing developments have significant amounts of affordable housing on them. Do you think that that relationship is as strong as it could be? Could the private sector be doing more to accelerate? Welsh Government wanted the 20,000, social housing actually could—. That relationship with the private sector could be better to incentivise them to build more houses to get beyond that 20,000 number, and to the numbers you're talking about.

Our concern is about housing for people on low incomes, and for many people, an owner-occupied house is completely out of the question. Even on multiples of four, five times salary in most of Wales, an owner-occupied house is simply beyond the reach of people in the bottom half of the income distribution, which is what we're interested in. So, you therefore have to look at other forms of provision. The most obvious ones are social housing and private housing. We now find that in the private rented sector, most rents exceed the help that people can get through local housing allowance. We've done surveys of the difference between the asking rent and the level of local housing allowance. Now, local housing allowance varies depending on different parts of Wales, and less than 5 per cent—I can't remember the figure off the top of my head—but less than 5 per cent of properties on the market are affordable for somebody who gets local housing allowance. That says to me that if we want to make sure that people aren't using money that should be there for their food and their heating, if they're not using that on rent or falling into arrears, the only alternative is social housing, and that's why we think it's so important to accelerate it and increase the numbers.

In terms of the actual, you know, putting a brick on a layer of mortar, I have no views about who's best placed to do that. The sector is facing challenges around supplies and around labour, and it's really a question of who can get them up quickest.

You're right, there are some real challenges in that sector and, unfortunately, in the area that I represent, north Wales, a number of developers are just moving out of the region because they feel there are so many barriers in place for them to build houses here, and that's only going to exacerbate some of the issues that you're talking about. But there are some exciting proposals around rent-to-buy schemes as well, which do support those on lower incomes or on very little income at all. But they can be developed in conjunction with private developers really quite quickly.

I've got to move on; I'm conscious of the time. You mentioned right at the end there around arrears and, of course, there are some concerns about household debt at the moment, and there's some budget support within the Welsh Government budget around debt advice. What are your thoughts at the moment on how Welsh Government is looking to tackle household debt, and support those who may be in those difficult positions? 

We've welcomed the Equality and Social Justice Committee's report on action that the Welsh Government should take, and I believe that the Welsh Government has accepted most of those recommendations in principle. We've also called, and this was the subject of a Plaid Cymru motion, for the Welsh Government to explore the possibility of public bodies having a duty to prevent debt. That needs quite a lot more work. I think that prevention is the way forward. Yes, in the short term, more advice for people, especially people who may be accessing paid-for advice, which isn't always necessarily independent, but through charities such as Citizens Advice and StepChange providing that additional advice. I think it's hard to judge whether there's enough provision in the budget for meeting that debt crisis, because a lot depends on how—. There's not enough detail in the budget and not enough on how that translates into advisers on the ground. I don't think I can add any more than that.

10:50

Okay. And just one more point on that, if I may, Chair. Just to come back to that earlier question I asked around personal responsibility, how do you think that balance around household borrowing is balanced with personal choice and then people taking responsibility for those choices they make versus Government intervention?

I think that's a really important point, and I think the last thing that we or any of the debt charities are suggesting is that people should be able to flash their credit card without consequence, or blow the money on something rather than pay their bills. That's absolutely not what we're suggesting. But it is the case that costs across the board have gone up very quickly at the same time as many households have seen their incomes fall, and there are growing numbers of people who simply cannot afford to pay their way. By the time they've paid their rent, they've paid their essential bills, they do not have enough income. I don't think that's a question of individual responsibility. I think that's a social responsibility. I don't think debt bonfires are—. I know they're popular, but they are problematic for the reasons that you mention, and that's why we've opted to favour prevention. People should be avoiding debt, not getting into debt and then having it written off. Nevertheless, we are where we are, and people have accumulated significant arrears through the impacts of the pandemic and the cost of living going up, and we need to do something about it.

Just quickly before we move on to Mike, we were talking about the 20,000 low-carbon social homes, is the £1 billion of capital funding enough to build those homes?

Well, I'm not a housing finance expert, but it looks to me like the housing sector is being asked to do more with less. The 20,000 homes is more than has been delivered to date, the £1 billion is around about what's been allocated in the past, and costs are going up. So, it looks to me—but I stress I'm not a housing finance expert—it looks to be challenging, to say the least.

Diolch, Cadeirydd. My first question is: £8 million has been allocated to the discretionary assistance fund, is it enough?

It's hard to tell, because we don't know what the demand is. If we look at what's been spent since the start of the pandemic, I think it's around about—I haven't got my notes here—£160-something million. It's £138 million, I think. And what's not clear is what were the demands—. It is a demand-led fund, as you know. What will the demand be? What will be the eligibility criteria? Will we lose the flexibilities that we've had during COVID? And, what decisions will be taken to manage that fund? The clue is in the name: it's discretionary, and we know that a lot of people who apply don't get it. If you asked me to bet, I would bet it's not going to be enough.

10:55

Unison Wales, of which I am a member, has raised concerns about in-work poverty, and I often talk about in-work poverty, probably boring a large number of Members in the Chamber about it. Exploitative contracts and not paying the real living wage are two of the major causes of in-work poverty. Do you think the Welsh Government should be doing more on both of those?

I would like to see the Welsh Government do more on fair work in general. Pay is obviously important, but so too are hours and terms and conditions, things like whether or not people have sick pay or get their holiday entitlements and so on. So, as I said right at the beginning, I welcome the commitments that the Welsh Government's made, but we've been talking this, or they've been talking this for quite a long time and it's time to move it forward. 

I will just say that in my constituency there are a number of people who have fixed contracts with guaranteed hours of seven hours a week. They quite often work 30, 35, 40 hours a week, and they can just get by at that level. When, however, they're ill and they're on statutory sick pay, or when they annoy their employer and end up going back to their strict seven hours, all of a sudden they're in penury.

The draft budget says, and I think it's quite well known, that skills and qualifications increase earning capacity. As a quick rule of thumb, the more qualified people are, the more they are paid, and the better terms and conditions they work under, and the more likely they are, at this stage, for example, to be able to work from home rather than having to make their way to wherever they're working.

Do you agree that more needs to be done to increase skills in order to get people out of poverty, and also to build up aspirations? I taught in Pontypridd, with students from Cilfynydd, from Merthyr, from where we were based in Rhydyfelin, where there was a lack of ambition. Should we be doing more to drive up ambition amongst young people? I speak as someone who came from a council estate and went to a school in the middle of a very large council estate, so I think that you've got to get children driving themselves as well.

That's a massive question. I'll try and be brief because I'm aware of the time. Skills are crucial and not just in terms of higher education skills; vocational qualifications are at least as important. It can help individuals, and there is a relationship between people's qualification levels and their earnings level, but irrespective of somebody's qualifications, we will always need and employ care workers, teaching assistants, refuse workers, bus drivers and so on. And unless something is done about their pay rates, irrespective of their qualifications, we won't get that shift out of poverty that we want to see.

In terms of ambition, I think it's all about reflecting the opportunities that are available, or they perceive to be available, and I think that schools and parents and the careers service have a role to play in helping people to understand the pathways that exist, so that people can find a route into whatever role they want to play.

I just come back to what I said earlier about the end of exploitative contracts and the end of people being paid less than the living wage. And, all of a sudden, that puts more money into the communities and, more importantly, it means people who aren't getting by will all of a sudden start to be able to get by; not live the life of, shall we say, Riley, whoever he happened to be, but actually live a life that means that they're not worrying every day about heating, about food.

You've said that you welcome the Welsh Government decision to allocate £30 million to early years and childcare. 

But you also said that older children and young people, arguably, are the group that are most overlooked. How do you put those two together?

If you look at older children, they're not getting universal free school meals. For 16 to 18-year-olds, they are seeing their education maintenance allowance frozen for another year—it's not increased since the mid-2000s. And for over-18s, the Welsh Government learning grant has also not increased. On top of that, the thresholds for family incomes have been frozen as well. That age group has had a pretty grim experience in terms of their education, and they're coming out of school, or college, and facing quite a tough labour market. The number of people in that age group who are not in education or training and are unemployed is still way above pre-pandemic levels. And I think it would be nice to see some recognition of the challenges that that age group face.

11:00

I agree with you entirely, but I think perhaps we ought to give the Welsh Government credit for keeping the education maintenance allowance in Wales, whilst the Conservatives in England did away with it.

Yes, £30 a week is better than nothing, but, while it's in place, it hasn't kept pace with inflation at all.

I agree with you entirely. I think that many of us have been fighting to save it rather than increase it over recent years, and I think that's been a huge success of keeping it in place, and £30 is an awful lot more than nothing.

Can I return to housing now, because we talked about that earlier? Social housing is not only about the Welsh Government giving money. Registered social landlords can borrow against the value of their properties, councils can put land in that they own and don't have to pay for, so that they don't actually have to spend money on land. So, the money can be eked out by good management. Do you agree?

Thank you. I think Rhianon might have a question around the fiscal framework that I'd like to bring her back in on, please. If we could just unmute Rhianon. Thanks.

Thank you. Do you think, Dr Winckler, that Welsh Government uses its taxation powers to effectively disable poverty and inequality issues? And what further actions, if any, would you like to see Welsh Government—or what would you like to advocate around taxation in particular in Wales, with our new fiscal powers, to address poverty and inequality across Wales, now that we are in this new arena?

I think the Welsh Government's current tax powers have relatively little impact on poverty—land transaction tax and landfill disposals tax. I think the majority of people who are on low incomes are not doing activities that involve payment of those. Income tax, potentially, yes, but, again, certainly the bottom 10 per cent of income groups don't normally pay income tax, because of the bands. So, the ability of the Welsh Government to use its existing tax powers to offset poverty, reduce poverty, I think is quite limited.

What I think is interesting is the scope for it to develop new taxes. We've previously argued for new devolved taxes, not so much to tackle poverty, but to change behaviour, and in particular to make sure, if you like, on the polluter-pays principle, that you encourage good behaviour and discourage bad behaviour. In fact, some of the things we argued have been taken forward by the UK Government, so we argued for a tax on sugar in foods, and for tourists, an overnight tax—a modest tax on tourism—and a number of other things. I think it's difficult. Taxation and poverty is really difficult, because, if you want to change behaviour, you potentially increase costs, and that's not a good thing. So, it is quite difficult, and I think, other than acknowledge that, we don't have any proposals at the moment.

11:05

Thank you very much. Just one final question from me: you've advocated for a universal benefits system in Wales in the past. Given that this currently lies with the Westminster Government and is not a devolved matter, how could the Welsh Government use the powers that they currently have to get to that point?

The devolved grants and allowances, they are huge. Pre COVID, we estimated there was around about £400 million-worth of spending on all the different schemes and, post COVID, that will be even more, particularly with free school meals and increasing the discretionary assistance fund. They cover a huge portfolio of ministerial responsibilities and they make a real difference to households. The difficulty is that they're separate, discrete and quite obscure. So, people have heard of free school meals; they may not have heard of the tenancy hardship grant. They may not have heard of the educational maintenance allowance. Each one has to be applied for separately rather than being passported through—if you apply for one, you apply for them all.

So, we've called for a much more streamlined system that is both easier to administer and to access and that also makes sure that people get the full value of their entitlement. So, although we've seen some change in some areas of those devolved grants and allowances, we still don't have a coherent system that—. And I think a scheme of that value, expenditure of that value, should be managed as a single scheme. This is a lot of money.

Yes. And Welsh Government is doing some work on that—they've got an income maximisation group that's looking at that, but I think its progress should be accelerated.

Well, thank you ever so much for your contribution this morning. It's been great to speak to you and to listen to your answers to some very interesting questions. 

So, diolch yn fawr iawn am roi eich amser a diolch yn fawr iawn i chi am ddod ac am yr evidence rydych chi wedi ei roi i ni cyn heddiw hefyd. Felly, dwi'n mynd i fynd i mewn i doriad technegol rŵan tan 11.20 a.m.

Thank you very much for giving us your time and thank you for attending and for the evidence that you've submitted to us before today. So, we're going to take a technical break now until 11.20 a.m.

11:20

Gohiriwyd y cyfarfod rhwng 11:08 ac 11:20.

The meeting adjourned between 11:08 and 11:20.

5. Craffu ar Gyllideb Ddrafft Llywodraeth Cymru 2022-23: Sesiwn dystiolaeth 7
5. Scrutiny of the Welsh Government Draft Budget 2022-23: Evidence session 7

Bore da, eto. Dŷn ni nôl ar gyfer y trydydd sesiwn y bore yma, ac mae'n wych i weld y pedwar ohonoch chi efo ni. A fyddwn i'n gallu gofyn i chi roi eich enw ac ym mha rôl dŷch chi yma i siarad efo ni? Fe wnawn ni gychwyn efo Leighton.

Good morning, again. We're back for the third session this morning, and it's excellent to see the four of you joining us. Could I ask you to give your names and your roles for the record? Could we start with Leighton, please?

My name is Leighton Jenkins. I am the head of policy for the Confederation of British Industry in Wales.

Hello. I'm Sara Jones. I am the head of the Welsh Retail Consortium.

Hi, everyone. My name is Ben Cottam. I'm head of Wales at the Federation of Small Businesses.

Suzy Davies dwi, cadeirydd Cynghrair Twristiaeth Cymru.

I'm Suzy Davies, chair of the Wales Tourism Alliance.

Chair of the Wales Tourism Alliance.

Fantastic, and thank you very much for coming and joining us. We're on a bit of a tight schedule, so I'm going to go straight into some questions, and the first question is for Suzy. The WTA's evidence noted Welsh Government's draft budget documentation provides it with no useful information to be able to respond to the committee's consultation. How transparent is Welsh Government's draft budget in terms of the funding allocated to support businesses, and how would transparency be improved?

Wel, diolch am hynny.

Well, thank you for that.

Thank you for that question. I mean, we recognise, don't we, all, that actually preparing a budget for an entire Government is a tricky operation and trying to answer every single question might be difficult? But one way to improve that, I suppose, would be to make sure that you have mini sub-budgets that are accessible to the public and so that, certainly, organisations like ours could look in more depth at what's provided for tourism. Tourism, of course, is a wide, multisectoral industry, and one of the things that I've found particularly difficult working through the draft budget this year is disaggregating anything that could be useful for parts of tourism from the main budget main expenditure group lines in that budget. So, for example, the only specific mention of tourism is in the capital budget expenditure line for the economy, where there's £5 million put aside for something that's not actually fully described, but it's very difficult to pick out revenue support and it's also difficult to marry, for example, Visit Wales's promise of £60 million towards its plan for the next couple of years when the only figure I can find in the entire budget is £5 million.

Lovely, thank you. Would anybody else want to comment on that, in particular, before we move on? Yes, Ben.

Thank you, Chair. Yes, I think it is difficult to pick out, I guess, the money that's available with strategic intent. I think that reflects the fact that there isn't, clearly, at the moment, an economic strategy for Wales. It's very difficult to understand the way in which Welsh Government wants to develop particular sectors of the economy, and that's not reflected in the budget. And I think, clearly, there's transparency in terms of the fact the Welsh Government has gone out to consultation on its budget, but I think there are conversations to be had about providing a narrative with strategic intent before a budget is laid, and I think that that's absent at the moment. Certainly, the programme for government gives us indications, but at FSB, we've been very vocal in saying that the programme for government, certainly for a small and medium-sized enterprise audience, is not easy to interpret, as to the strategic attempts at growing the economy.

Okay, maybe I could ask Sara this question. How effective has the engagement with the Welsh Government been in allowing you to have input into the budget process, and suggested proposals for investment and spending? And maybe if anybody else wants to come in afterwards, briefly, then that would be great.

Thank you, Chair. Yes, just echoing the comments that Ben and Suzy have just made; I think we'd support and endorse those as well, as a trade body. In terms of engagement itself on the budget, I think it's been hugely accessible. It's been an easy process to be able to engage in, both in terms of with Welsh Government and also now with yourselves as the Senedd and in terms of the committee inquiry into the budget itself. We engaged at an early stage, so we put together our own budget recommendations paper. We do that every year. We do that proactively and we submitted that to the finance Minister. We've had a roundtable with our members with the finance Minister, and we've since written separately to the finance Minister on some specific issues—so, for example, a letter with the Union of Shop, Distributive and Allied Workers on non-domestic rates.

I think there can always be an improvement in the consultation process, but I think, given the constraints that we've been facing the last two years, I think the way in which the Welsh Government have engaged has been very positive and, as an organisation, it's been accessible for us to be able to input into it.

11:25

Very briefly, then. Just—. I don't know if we're answering slightly different questions here, but, in terms of what's just been said about the engagement being good, and being proactive around that, obviously Welsh Government has many different sectors, so if I could just ask Ben—I'm not sure if we've got time to go into it into much depth—is it the engagement that you're criticising, or is it the programme for government that you say wasn't optimum in terms of that communication with you? I'm slightly confused as to the picture.

Yes. It's really, I guess, the headlines that would underpin the budget. That's quite indistinct in terms of a plan for growing the economy and growing, particularly, the SME economy. I think, as Sara said, the engagement has been open. I understand that Welsh Government was quite hampered by the fact that it clashed with a spending review as well, as well as some real questions about where COVID was going. So, I understand the limitations of that.

I think, within the model of social partnership, we don't now have things like the council for economic development, a formal group that may have been able to provide for a more detailed look at the budget across the groups in industry, and that might be a recommendation going forward, how we use the partners around the table for that. But I think the engagement was there to be had, to be fair to Welsh Government, I guess. Just to reiterate that our point is more about the fact that it is very difficult to pin down where this aligns to strategic attempts at growing the economy.

Before I bring Suzy in, Leighton, do you have a comment there? And then I'll bring Suzy in and I've got a question specifically for Suzy about something else to follow on—[Inaudible.]

Not much of one, so I'll be brief. I think the CBI really hasn't engaged with the Welsh Government budget. It's not something we've usually done, so this is the first time, due to the pandemic, that we've taken a closer look. We found the process very engaging, very constructive and very open. I would agree with Ben; I'm sure there's more that can be done to look at the budget at a sectoral level, but, given the context, we have no complaints. And yes, we found it very helpful.

Yes. Suzy, I know you want to come in on this specific point, but, after making that point, if you could then maybe reflect on how engaged were you with Welsh Government's work on the tourism levy and what impact that levy will have on the industry. So, over to you, Suzy.

Okay. Well, it's the same answer to both questions, really. We're different from the other members of this panel in as much as the primary body that's responsible for our area of the economy is within Government, namely Visit Wales. We don't have, apart from ourselves, an external body, and so the position is entirely different.

The level of engagement that my fellow panelists have talked about didn't take place with us; that's conducted through Visit Wales and a different structure, and I have to say that the industry generally is unhappy with that structure, precisely because it can't engage in the way that the other bodies on this have.FootnoteLink A tourism tax, a tourism levy, is a case in point. We've had no direct contact on that, but we have been told by Visit Wales that consultation won't formally start until the end of this year. Nevertheless, we know that there are conversations going around in certain council areas in Wales to which the WTA is not invited, and we imagine that there are conversations with certain sectors within the industry—so, large hospitality, events, things like Airbnb, maybe—conversations happening that we're also not invited to. So, that really doesn't help when we're trying to help persuade the industry that we want to be good, critical friends of the Welsh Government and work properly in partnership, when the means of engagement seem to be very much on Visit Wales's terms, rather than what used to be the situation, where the industry itself led on this and had a very cordial relationship with Welsh Government, even if it didn't always agree on things.

11:30

So, what impact do you think that the levy might have on your members and the people you represent? And then, do you believe that any funding from that potential tourism levy should be ring-fenced for the tourist industry?

Well, we put in a consultation response on this [correction: response to the consultation on local taxes for second homes and self-catering accommodation alluding to this], but there are actually four consultations going on at the moment that will actually impact on the final results on this. So, yes, obviously, members will be affected by additional pressure on them. There are plenty of other pressures on all businesses at the moment; everyone on this panel knows that. But just because this is the Finance Committee, I just want to make the point that tourism in the UK—and, of course, we are still part of the UK—is the least competitive in terms of tax, which is why I'm raising the UK, of all 140 countries that rely on tourism being a big part of their economy. VAT, of course—that's outside the hands of Welsh Government to deal with, but Welsh Government does get, through the block grant, the benefits of VAT, and actually now the benefits of a new digital online tax for online travel agencies. So, money comes in to Welsh Government in a way that it doesn't for other parts of the UK [correction: of the world] to help support the tourism industry.

One of the main concerns about the current proposals is that ring fencing is not necessarily one of the options, and it isn't also noted who would be subject to a levy and would it be simply, shall I say, self-catering operations, which are tied up in a different conversation to do with second homes and the viability of communities. So, for the Finance Committee to look at this is in isolation would be quite difficult, I think. I'm assuming you may look at it in depth further on, but I don't feel I can do justice to a full answer for you today on that one. But, naturally, the industry as a whole is concerned about it, because they don't know how they're affected, and they're paying VAT in a way that countries that do have tourism tax don't. 

Thanks, Chair. Morning, all. I appreciate you taking time out to join us this morning. I've got a bit of a general question, perhaps leading on from some of that engagement stuff, before I come to some specifics. Because, of course, every single penny of what the Welsh Government spends comes from you, your customers and your employees. And that engagement is one thing, but do you feel that Welsh Government listens to business?

Shall we start with Leighton? We haven't heard much from Leighton just yet.

That's a very good question. I think they listen, but we have to remember that they are elected on a manifesto that has certain priorities and they are tasked with delivering those priorities. So, we're happy as long as we're listened to and we make our case, and, if we can't get what we want, that's part of the process. So, they certainly do listen.

To come back to you, Leighton, specifically, then. Do you think they take you seriously when they listen?

Yes, I think so. I think it's—. Particularly during the pandemic, I think it's been exceptional. The turnaround to the issues that we've raised and the concerns that we've raised—. We're talking a matter of hours from a concern about a group of businesses to Government policy. So, I don't think we can be concerned about that. I think where our members are focused now is the new normal: how do we keep the benefits of the approach during the pandemic to economic funding? That's going to be the challenge for Welsh Government—not to revert to type.

Does anybody else want to comment on those questions? I see Suzy and then Sara. And then Ben.

Just to say something positive here, certainly, during the pandemic era, we think that our members have been listened to—so, I would like that on record. You don't get everything you want, but, like Leighton said, that's part of the negotiation. But, yes, there's been attention paid to our industry that it hasn't felt before, and that's very, very appreciated; we'd like to see more of that in the future. As for the longer term, well, I think we'll just have to wait and see on that, Sam. We've got some concerns about that, which we may have an opportunity to discuss today, I don't know.

11:35

Yes, thank you. I can't, probably, quantify the difference in our relationship from, say, two or three years ago. It's markedly different, and I think that that's obviously borne out, to some extent, by the fact that retail has been so hit by COVID that we've had to have that level of dialogue and engagement. But, I've got to say, Welsh Government really stepped up; they've got a very dedicated team now actually dealing with retail specifically. So, again, going back to what Leighton says, we might not always get what we want, but we feel that the responsiveness of that relationship is very positive now, and we're going to be moving towards a situation where we're going to have an evolving retail strategy and we hope that that will continue to ensure that this relationship grows and develops and we don't revert to type, as has been said. So, yes, it's been very positive.

Yes. Not to add to the unanimous chorus, but, yes, I think the nature and level of engagement we've found very positive, both Ministers, through, for instance, the—. We've had the opportunity through the social partnership council, the shadow social partnership council, but also individual ministerial conversations. And I'd like to pay tribute to the team of civil servants who go out and deliver Welsh Government's priorities. We've had quite a number of conversations over the past 20 months and we've found them to be very understanding and very responsive. I think we're pragmatic enough to understand that we may not get all that we want. Our job is to bring proposals to the door; it is a political decision as to how Ministers balance the output of that. But I think, in terms of the engagement, it has been very positive and very responsive over the period of coronavirus.

Great, thanks. So, just moving on to the draft budget in particular then, and from a retail side in particular, perhaps, a question around how effective is the draft budget in providing support to businesses now that the pandemic funding is being withdrawn: so, any thoughts on how the budget for next year is going to support you and your businesses.

I think the key thing that we'll always draw back to with this budget is going to be around business rates, as you'd probably expect, because it's been our No. 1 objective for many years, and no more so than now. Let's start with the positives. So, this budget is standstill on the multiplier, which is really good, it provides some level of relief, and, indeed, this current financial year has been fantastic. Again, I've got to give credit that we've seen some really extensive support in terms of that rates holiday for retailers. But, going forward, I don't think this budget goes anywhere near far enough on business rates. We've got 10 per cent of retail rate payers paying 70 per cent of all business rates. Now, if you look at that, the £110,000 cap that's been put in place, it's just not going to be effective enough to support the industry, and they really are facing a number of pressures come April with this almost cliff-edge position, as much as, obviously, there is going to be benefit from some of the relief that's offered. So, I think that's going to be a real challenge. There's another challenge in that the budget didn't address revaluations. So, rental rates are completely out of kilter with the economy now, they're on the decline, and yet we're not going to see a revaluation now for a number of years. In England, they're moving to a three-year revaluation, and, in Scotland, they've already done that. So, again, that's something that we felt that this budget hasn't addressed.

In terms of the direct financial support and economic support, that's been really substantial over the pandemic, as you'll be aware. What that looks like in this budget—. I'm not 100 per cent clear what sort of direct financial support will be available to the smaller businesses; I'm sure that Ben will have more knowledge in that area. But, in terms of the larger businesses, it's more going to be around the policy levers, so things like business rates, apprenticeship levy, in terms of the skills funding and those sorts of areas that are going to impact us most.

Thanks. And Ben, FSB were calling for 100 per cent rates relief to continue, weren't they, so, do you have any comments on what the proposals are in the budget and how that might impact businesses?

Yes. The reason that we wanted a continuation of the 100 per cent rates relief holiday is because subsequently, since the budget was drafted and since the earlier conversations, we've seen not only the rise of omicron and the substantial hit that that's had on our high street, but also we're facing, in the run-up to April, a cocktail of issues with the rise in national insurance contributions, obviously, businesses now paying down on COVID debt, both public and private sources. We've got a substantial concern about the rise in energy costs and inflationary costs; that's very pertinent today, with inflation now at 5.4 per cent. So, what we've got is a cocktail of issues that are going to make that business operation very, very difficult. We feel that, from experience last year, what that rates relief holiday did was give headspace, give headroom for businesses to concentrate on other issues. That was very much welcomed, and Welsh Government went further than some other areas of the UK. I think there's an opportunity to do so now, recognising the financial pressures faced by businesses. It's not just on the high street, but there are particular problems facing high-street businesses and our high-street communities at the moment.

11:40

Okay. Thanks. And just one more question, if I may, Chair. The draft budget is a lovely piece of paper, with lots of words. In terms of the practical delivery of that stuff, do you feel it's clear what will practically happen and what will practically be a difference for businesses in Wales as a result of the budget, rather than just words?

It's difficult to ascertain, because it's not there in the narrative in any great detail. I think, overall, on the numbers, we're reassured that, on the lines that will be most pertinent to most businesses—. Welsh Government has, for instance, sought to protect business support. That's vitally important, and I think we have some substantial concerns beyond this budget for the future of business support in Wales caused by uncertainties around the shared prosperity fund, for instance. But, I guess the narrative is lacking with regard to businesses, because it's not underpinned by an economic strategy that I could point to and that I could help articulate to our members. So, I have to go on the themes and the conversations that we have with Welsh Government, but it is very difficult to articulate. And, I think, in terms of what yet may come—some of those concerns I pointed to just now, but also the potential for a rise in any new variant—this is going to be very, very variable. I think this is going to be a bumpy year, and Welsh Government would be right to keep some flexibility. But, nevertheless, if we are going to move to a recovery conversation, we have to articulate where we are going to put the money in that budget in a little bit more detail.

I think Suzy wanted to come in on that point. Could we just unmute? There we are.

Diolch. Just to reiterate, actually, what you both have said before. I would add staff shortages to the list of pressures that Ben mentioned, and, of course, you can't deliver tourism totally remotely. I think what I have noticed is the economy MEG is a lot smaller compared to the three main MEG lines that are above it in the current budget, and that suggests to me that part of the economic support is in, for example, the climate change MEG. It's impossible to work out at the moment what part of the climate change budget would be used, actually, for economic support, obviously in the greater aims for climate change recovery. I found this an extraordinarily difficult budget to follow in terms of what business support is actually available. I recognise that a big strand of money has gone into regeneration and development, but what that actually means for small and medium enterprises is really difficult to tell.

Okay. Thank you. If that's it, and nobody else—either Leighton or Sara—has a particularly burning desire to answer that question, I'll move on to Mike.

Diolch, Gadeirydd. An earlier witness in our discussion said that if you cut business rates, all you do is inflate rents. Their view was that the major winners in rates reduction are landlords. Do you have any comments on that?

Who'd like to start on that? Maybe Leighton, do you want to start with that one?

Because of the composition of our membership, I'm probably not the best person to speak about that, I'm afraid, because they're large multinationals, a lot of them. 

All I know is that, time and time again, when we survey our membership, when we look at the pressures that most affect them, business rates are routinely in the top three concerns. As a system, although it is predictable—and that is helpful for Government; it is easy to collect—it is an outdated form of taxation. I think we haven't yet got to that point of understanding what the alternative is that ticks as many boxes as possible, both for policy makers and for businesses. But I think the narrative that we received last year with that business rates holiday was that that created the space, the financial headroom, to focus on other areas. I think that's reflected, to some extent—. I would be very cautious of drawing a direct correlation, but reducing those financial pressures across the board through Welsh and UK Government interventions, I think, contributed to the outflow at the end of furlough being probably easier than was anticipated—not easy for all, and quite painful for some, but easier than was anticipated. So, I think we have to look at the package of support that we deploy across the board, and I can't ignore the fact that my members see business rates as particularly challenging. At some point, we will have to get into the detail of what any new system might look like. 

11:45

Clearly, there are problems with rents. Sara's highlighted the fact that the way in which business rates adjust to rents is very variable and really problematic.

Maybe Sara would like to comment on that, and I know Suzy would like to come in on that as well. Sara.

I can't really add much more, other than just to echo what Ben and Leighton have said. The No. 1 issue on our list is business rates. We typically do represent the larger businesses, so the rental issue is less of a concern. We had some positives in terms of the rent arrears moratorium. That obviously was positive throughout the last 20 months. There is, obviously, an area of concern there, because that was something that was valuable to our members. But we go back to the central premise of this that business rates will continue to be a huge problem for businesses on our high streets unless we can really get to grips with the issue. I think there are going to be moves towards that. I think Welsh Government will be looking to do more reviews alongside local government taxation, and that's positive, but this budget itself doesn't deliver far enough on business rates.

Yes. I don't actually understand what your witness has said, because the experience of any business operating in rented property is that when times are hard they go to their landlord for a rent reduction, not a rent increase. I have to say that commercial property at the moment is under the cosh anyway, because of changes in patterns of working behaviour, with more people working from home, which means that smaller commercial landlords are now finding that people want to leave their premises rather than take on new ones. 

That is what the witness said. Of course, a number of people, especially in retail, pay combined rent and rates, and when rates are not paid, the total amount they pay for rent and rates stays exactly the same.

Sorry, I thought you meant that rents were going up as a result. 

Well, they will fill the gap. The rates gap would be filled by rent increases. That was the point they were making.

I don't agree, but never mind, I've made my point.

Moving on to a different area, the budget narratives stressed that businesses need to adapt to climate change. Is there enough support for businesses to do so?

Again, going back to Suzy's point, it's very difficult, because, of course, that's spread across quite a number of budget areas. It's very difficult to ascertain where support will be aimed at. I will give an example. If there is a move to air-source heat pumps, for instance, significantly in domestic properties, what we'd like to see is looking at the opportunity of deriving the skills that are needed and angling that in, particularly on growing the small business economies. It's very difficult to get that narrative out of the budget. There is allocation there for infrastructure, for charging support of electric vehicles, for instance, and that is going to be one of the big areas where businesses can themselves decarbonise and make a credible option for electric fleet. That is, obviously, a joint enterprise between the Welsh and UK Governments. So, again, it's very difficult to unpick the levels of support that will be angled in for businesses. But I think this is, again, another one of those areas that we will have to get in some detail. I am in the process of trying to understand what the articulation of challenges for businesses in this area is. We know that we need to push businesses to do better, to understand decarbonisation, and I was involved in a conversation yesterday with other partners on this. But we don't yet know what proportion of business support will be made available to businesses to guide that conversation. And I should just caveat that business support isn't just financial support, it is signposting through things like the Business Wales service.

11:50

Apologies, I don't want to hog all this, but just to mention—. You raised it, Ben: electric charging points. Certainly, from tourism, we're very, very keen on sustainability and decarbonisation and the greener economy is a great place for tourism to actually be very active. But there are straightforward things like if we want to introduce electric charging points into various parts of Wales there's going to need to be some support for that, not least just on that but on capacity in the grid. Particularly in rural tourism, the grid isn't actually up to scratch in supporting electric charging points, for example. I don't see that reflected in the budget.

Leighton, I think, wanted to come in on this as well. Could we just unmute? There we are.

Very quickly, the Welsh Government is to be applauded on what it is doing in this space and the budgets that it's set out—we support them. One thing we found that's missing is around energy-intensive users. There doesn't seem to be much in either strategy or budget that says how we're going to help these large firms decarbonise. They're major employers, and a lot of them are not sure what support is available at a Wales level. That didn't use to be the case. I've been here for 10 years, and previous Welsh Governments have supported firms significantly to make the investments required. And this is not about Welsh Government funding everything. As multinationals, how they function is that it's an internal competition for additional waves of investment, and it's whichever site can offer the best return on investment that's often chosen by the headquarters, which can be anywhere. So, that kind of dialogue, again, would be very interesting and very useful, I think, right now with the Welsh Government, and also a stronger focus on renewable energy investment. There is a lot of money out there in the markets for the right kind of project—private sector money, no funding from the Government at all—and we're hearing from some of our members that that really isn't being capitalised on yet.

A question for Suzy this time. You said you'd like to see targeted support for digital literacy for business operators. Does the draft budget address this at all?

Sorry, I lost the sound for a moment there, Mike. Could I ask you to repeat?

Certainly. You would like to see targeted support for digital literacy for business operators. Does the budget start addressing that?

Well, it may do. It's a bit difficult to tell because it doesn't go into that level of detail. But I can see that, I think, about £1 million has been put towards digital support for businesses. I suppose I would say it would be up to members of my industry to make the appropriate bids for that level of support.

My question now is to Sara. Does the Welsh Government's vision for the future of town and city centres match yours, and do you feel it recognises the impact of the pandemic on the retail sector, especially the impact of turbocharged online purchases, which has had a huge effect on retail? But also, retailers like to use online as well. I visited a major electrical retailer and a major clothing retailer and both of them didn't have what I wanted. The first thing that they told me to do was go and visit their website. 

I think, if you look at the figures, the non-food online penetration rate at the moment is around 48 per cent, which is pretty huge if you look at it compared to two years ago—I think it's about a 15 per cent jump. We should embrace omnichannel. I think that's what we need to do. We need to support particularly our smaller retailers to be able to have a multiplatform approach to retailing to be able to fit in with our everyday lives. I think that's important. It doesn't sign the end of the high street because high-street and physical retailing is still really important. And I do think Welsh Government recognise that. I think it's very clear in the budget: there's a sentence in there that talks about wanting to invest and find ways to make each place different, finding solutions to make our cities, towns and villages even better places to live and work. So, the ambition is there. Again, the detail is not there in the budget, so I don't really know how the funding will follow. There's the Transforming Towns fund, which has been very successful over the last couple of years. If we combine that with the levelling-up fund and cultural recovery fund as well, there's a real opportunity here for us to build better high streets for the future and places that are much more rooted in community support, but also still have retail, hospitality and leisure right at the centre of them. So, I think the ambition's there and the Welsh Government certainly has a real interest in this area. The detail's not there at the moment about how they're going to make that ambition a reality.

11:55

The more successful retailers are those that have both, aren't they? They've got a major store and they've got a very good online offer, and they mix the two together. I've queued in a well-known retailer in Swansea on several occasions in the run-up to Christmas to pick up Christmas presents because they didn't have them in store. Is there more the Welsh Government could do to try and skill smaller retailers in creating an online presence, especially those who are selling more bespoke items? Some are very good at it. I'm not allowed to name people, but there are a number of jewellery stores and firms that sell trinkets that are very good at it, and there are others that are appalling.

I think so, and I'm sure Ben will have a comment on this from a small business perspective, but there are two areas here. One is making sure that we've got the digital infrastructure in place, particularly in our rural areas, to enable online activity. So, again, I don't see what's in the budget that is around digital infrastructure investment, in terms of superfast broadband. So, that's an area that we might want to focus in on.

In terms of the digital skills themselves for small businesses and others that want to get online, there's an opportunity there through the evolving retail strategy. Let's look at best practice. Let's see how we can support smaller businesses to match them up with bigger businesses to learn the skills that they need to develop that multichannel offer. But, you know, I absolutely agree, Mike: click and collect was my best friend during the Christmas period. When I went in and picked up those items, which I'd purchased online, I ended up making other spend at the same time then. So, it benefited the business and it benefited my busy life as well. So, yes.

I'm going to bring Ben in on this, and then we'll move on, if that's okay, Mike.

Thanks very much. Certainly, a number of small businesses through the pandemic, through necessity, moved to having an online option, and we do need to push more businesses to do that. There has been in the past a good level of support on exploitation. Part of the challenge is getting businesses to that point of understanding the benefit of exploitation. It isn't for all, though. I think, if you're looking at a clothing retailer, clothing is one of those things where there tends to be a significant proportion of returns, and that then represents an additional cost for quite a small business in not only the financial cost of administering that, but, obviously, the cost in terms of hours worked in administering that. So, we need to understand, I guess, sectors of the SME economy where it is most relevant. But there is more that can be done to bring smaller businesses to having an online presence in addition to that high-street footprint. I think we'd be very reluctant to see a one-or-the-other scenario emerge.

Obviously, I agree with you on that. I think the important thing is you go in and see what you want. I'm going to go with women's clothing, because that's what I was buying for Christmas—not for me, I hasten to add. You could actually see it, and if they didn't have the right size, you could see what it looked like and then you could order the right size online. It helped everybody, and I think that's the sort of thing that the bigger retailers can do, but some of the smaller retailers need to do it as well.

Thank you very much. We'll move on to Rhianon and beg your indulgence to go a few minutes over, because we're rapidly running out of time but I want to give Rhianon plenty of time to ask questions. So, Rhianon, over to you.

Diolch, Chair. We mentioned, with witnesses in the previous session, themes around the importance of apprenticeships within the budget and skills building. How effective do you feel, as witnesses to the committee, is the draft budget in supporting the delivery of a skilled workforce, through allocations made to apprenticeships and wider programmes to deliver and develop relevant skills?

Thank you. Yes, I'm pleased to see that it was headlined in the narrative as well, the whole skills-building agenda, and we would certainly be supportive of that. I suppose I would make a bid to say that there are skills that you don't necessarily accumulate through going to college or going to university, and what we learn at community level is just as important, and I didn't really get that coming through in the narrative from the budget.

I'm pleased to see—I can't remember what they're called now—personal skills passports, effectively. Personal development grants [correction: personal learning allowances]—that's it—have got quite a lot of money dedicated to them, and hospitality and tourism has been identified as one of the areas where they're seeking interest, which is very encouraging. But we shouldn't then overlook the need for the development of skills in destination management, and what that actually means, and how to build partnerships as well. That doesn't necessarily come in on a college course or a university degree. But I'm generally pleased—[Inaudible.]

12:00

Yes, apprenticeships and skills training are really important, and obviously now more so than ever—you know, the changing way in which retailing is taking place and the importance of digital skills particularly within the retail offer. Apprenticeships have been a bit of a bone of contention for us. When the apprenticeship levy was introduced—I can't think how many years ago now—it was a real challenge for us, because obviously it was a UK Government decision, but it was in an area of devolved policy making. So, we can't get easy access to that fund in Wales. It's not a very transparent process.

That's not to say that apprenticeships are not being delivered here, but we've always called for more flexibility in the way that the apprenticeship levy has been delivered anyway in England. We need to look more at level 2, level 3 apprenticeships. We know it's really important that we see higher level apprenticeships, but we actually need to look at getting entry-level people into the workplace, giving them the opportunity to upskill. We know retail is a really meritocratic place. I've met some fantastic colleagues over the last 20 months—I can't tell you how amazing they are. They've started off on the shop floor at 16, they've worked their way up, right up to senior management, and I think we need to be supporting people to do that.

We also need to see some sort of profile campaign. We did a partnership campaign with Welsh Government pre pandemic on encouraging people to think of retail as a career option for people returning to the workplace. We'd love to do that again for young people, so that 16-year-olds, 18-year-olds can actually see retail as a really valuable career option for them. So, we'd be keen to work with Welsh Government on that.

But in terms of the budget itself, I don't really understand the detail enough. I know there's some strong funding in there around apprenticeships, but how that actually plays out for retail I'm not sure at this stage.

I presume from your comments you'd be interested in vertical progression on career pathways, and assistance and support around that, then.

I was just thinking of the larger CBI businesses, how do they fit into the jigsaw, if you like, with the questions that Rhianon asked? If we could unmute Leighton.

We can send you more information about this, but I would say that we're largely happy with what the Welsh Government do. A lot of our members do their own private provision where they can, so there's limited interaction with the Government. But where it is, in terms of, for example, the young person's guarantee, which is in the budget, I think there's strong acceptance that that is doing well. I think the all-age apprenticeships could be interesting as our members consider what skills they need going forward. But I think overall there is an issue with level 2 and level 3. I think our members do want more advanced apprenticeships if possible, and the other thing is around frameworks—new frameworks. It takes quite a long time to sign them off, and if you are a big business dealing with dozens of apprentices, that can be a real frustration. But we can send you more about that if that's of interest.

That would be quite interesting, yes, please. Thank you.

I'm going to move on to my next question in regard to, I suppose, the root of the circular economy, which will be to reduce, reuse, recycle, repurpose, et cetera, et cetera. So, the £5 million fund that's been allocated to business—£10 million, actually, over the next couple of years, if I'm right—do you feel that this investment in the circular economy fund, as witnesses, is a suitable approach to supporting businesses when we look at the agenda in the climate and nature emergency? And what are your views on this additional £5 million that's been allocated to the fund in the draft budget?

Yes, I think it's positive. I think, with this, you're looking at two areas: you're looking at businesses, innovators coming up with solutions for that, and businesses as, obviously—'practitioners' is the wrong word—consumers, and the conversation about systems change. I think a lot of that is delivered, obviously, through business support—so, things like the Business Wales service. So, going back to my earlier comment, I think we'd want to understand what portion of this is going to be administered through business support and encouraging change of operation within businesses. But, I wouldn't want to lose the opportunity of realising that some of the real innovation that's going to drive that organisational change and use is going to come from Welsh businesses. Generally speaking, our levels of research and development and innovation are regrettably low in Wales. I think this is one of those areas. And we do see kernels within our membership, kernels of opportunity. So, if we can angle this money in as effectively as possible, realising that it is a finite pot, and then get the aggregation of marginal gains by pushing that out to smaller businesses through the business support function, I think we are looking at an area of sustainability that is practical and understandable for even the smallest businesses.

12:05

[Inaudible.]—looking at the tourism industry and then retail. Suzy. Can we unmute—? There we are.

Yes, thank you, and apologies for getting lost a moment ago. Yes, as I mentioned earlier, the whole prospect of a more sustainable, greener and less wasteful Wales is actually really attractive to the tourism industry and they want to be part of helping that happen for Welsh Government. They are already leaders in things like localised procurement, and so on, so I think we're in a good place to look at that. But, as Ben said, we're not really clear how our businesses could be supported to be proactive and positive contributors to that. I think the intention is there to be as helpful as possible, but quite how that pans out we don't know. And it comes back to what I think you probably missed in my last contribution: destination management. It's not something that just a local authority does or just Visit Wales does or just the private businesses do. That's a collaborative effort and the circular economy is a great place to focus attention on in that working together. 

I don't know if Sara had anything to add to that, and then we'll go on to the final question then, Rhianon.

Yes, thank you, Rhianon. Very briefly, Chair, just to say that the retail industry, I would say, is pretty much at the forefront of this agenda anyway. So, we have our own British Retail Consortium climate change road map that we've got 80 retailers signed up to, and I think we are being innovative in this area already. So, whilst we fully support the circular economy fund, and I think it would be great for smaller businesses in particular, it's got to be read alongside some of those wider policy interventions. Also, around things like a plastics tax, extended producer responsibility and a deposit-return scheme, all these things are going to start to come back on the table now as we move from this pandemic period, hopefully, a bit further forward. So, I think how that sits alongside the budget, it's going to be really interesting how that can all combine to create a greener and more sustainable economy. 

That sounds very proactive. Thank you, Sara. 

My final question, Chair, is with regard to financial transactions capital allocations in the final 2022-23 budget. Welsh Government has mentioned that it's planning to allocate financial transactions capital in its final budget. Do you feel that there are any areas that could be targeted? We've sort of gone into this in the last question, in a different area. Do you feel that there are any areas that could be targeted to maximise support to business? Who would like to take that first?

Well, it'll be quick, because I don't know what that is. [Laughter.] So, maybe I can hear what other people say and get up to speed. 

Fair enough. If you want to come back in afterwards, then that's fine. Sara. 

Ditto. I'm not sure, sorry. 

So, this can only be used for loans and investments in the private sector. It has to be repaid to, I believe, the UK Treasury. So, Welsh Government is required to pay quite a large proportion back of that, I think, to the Treasury. So, it would help to provide interest-free loans. I'm not sure if anybody else would like to kick in further to that. But, obviously, it's a tool and an enabler. I don't know if that helps in any way. 

Yes, financial transactions money is as Rhianon just explained it. It mainly goes to housing associations, to registered social landlords, and to whatever the Welsh Government bank is. But it can go out to any business. It can't be spent on public sector bodies, so it can't be on spent on roads or schools, but it can go out to businesses, so it gives an interest-free loan to businesses. Roughly 80 per cent of it has to be paid back to the Treasury, but that's over a period of time. So, it is an alternative source of money, certainly for some of the larger businesses, and can I just ask Leighton especially if he can go back and talk to his colleagues about it? [Laughter.]  

12:10

I will. Yes, the CBI has far too many economists who know all about this, so I'll go back and I'll listen intently and take notes, and send that to you. 

I think that would be very useful, and I think, as a tool, as Mike has said, it is an additionality into the suitcase to provide that equity within that framework. I don't know if there are any final thoughts on what this could be used—

Always keen for my ha'p'orth, Rhianon. I think, particularly since our industry, anyway, has lost investment that used to come in via the European Union funds, this is actually quite a useful tool for filling this space, and, in fact, it's already being used to a certain degree because the major funding stream from Visit Wales is in collaboration with the Development Bank of Wales, anyway, which itself gets some funding through this route, I think, if I'm right; I might be wrong. The point is that any repayment has to be on less than commercial rates, otherwise you're not going to get small and medium enterprises bidding for any of this money. 

Okay, thank you. So, there may be a need for greater messaging around this. Sara, I don't know if there's anything, or Ben—

I'm picking out of the air without any of the experience of an economist, but I think where we look at these kinds of things, de-risking some of that conversation about decarbonisation seems a useful area for these kinds of mechanisms, where, if I look at businesses moving to electric fleet, electric vehicles or any other more sustainable mode, there is an inherent risk there, and there is a danger that they are waiting for the market—the market is waiting for the demand. So, de-risking that, and necessarily driving that positive environmental benefit is one idea within the area. 

Gwych. Diolch yn fawr iawn. 

Excellent. Thank you very much.

Thank you very, very much for an engaging session, and I hope we'll see you all again in the not-too-distant future as well and pick up on some of the elements that especially Suzy was talking about—the tourist tax levy that we're looking at. But, diolch yn fawr iawn.  

6. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o weddill y cyfarfod
6. Motion under Standing Order 17.42(ix) to resolve to exclude the public from the remainder of the meeting

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(ix).

Motion:

that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

Yn unol â Rheol Sefydlog 17.42, dwi'n cynnig bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn. Ydy pawb yn fodlon? Dwi'n gweld bod pawb yn fodlon, ac mae hyd yn oed Suzy Davies yn fodlon hefyd, so mae hynny'n dda—wedi arfer gwneud, chwarae teg. [Chwerthin.] Felly, mi wnawn ni fynd yn breifat. Diolch yn fawr.  

I propose in accordance with Standing Order 17.42 that the committee resolves to exclude the public from the remainder of this meeting. Are all Members content? I see that everyone is content, and Suzy Davies is content as well, so that's an excellent thing. She's used to doing that, of course, fair play. [Laughter.] So, we will go into private session now. Thank you.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 12:13.

Motion agreed.

The public part of the meeting ended at 12:13.

Eglurhad gan y tyst / Clarification by the witness:

'We engage with Visit Wales through the termly Visitor Economy Forum, which includes their own Regional Engagement officers/chairs and representatives of major hospitality and events. Visit Wales also operates through their own public sector-heavy Regional Engagement offices; we are not part of that engagement.'