Y Pwyllgor Cyllid

Finance Committee

11/05/2022

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Mike Hedges AS
Peredur Owen Griffiths AS Cadeirydd y Pwyllgor
Committee Chair
Peter Fox AS

Y rhai eraill a oedd yn bresennol

Others in Attendance

David Phillips Cyfarwyddwr Cyswllt, y Sefydliad Astudiaethau Cyllid
Associate Director, Institute for Fiscal Studies
Dr Chris Llewelyn Prif Weithredwr, Cymdeithas Llywodraeth Leol Cymru
Chief Executive, Welsh Local Government Association
Dr Ed Poole Uwch Ddarlithydd, Canolfan Llywodraethiant Cymru
Senior Lecturer, Wales Governance Centre
Dr Tim Peppin Cyfarwyddwr Adfywio a Datblygu Cynaliadwy, Cymdeithas Llywodraeth Leol Cymru
Director of Regeneration and Sustainable Development, Welsh Local Government Association
Guto Ifan Cymrawd Ymchwil, Canolfan Llywodraethiant Cymru
Research Associate, Wales Governance Centre

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Ben Harris Cynghorydd Cyfreithiol
Legal Adviser
Georgina Owen Ail Glerc
Second Clerk
Joanne McCarthy Ymchwilydd
Researcher
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 yn y Senedd a thrwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:30.

The committee met in the Senedd and by video-conference.

The meeting began at 09:30.

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

Croeso cynnes ichi i gyd i'r cyfarfod y bore yma. Mae'n dda bod yma efo chi yn rhithiol. Dwi'n gweld bod gennym ni bobl yma efo ni yn dod i roi tystiolaeth, ac mae'n dda eich gweld chi, ac mi wnawn ni ddod at hynny mewn munud. Mae'r cyfarfod yma'n cael ei ddarlledu'n fyw ar Senedd.tv a bydd y Cofnod ar gael ac yn cael ei gyhoeddi fel arfer. Ar wahân i addasiadau gweithdrefnol sy'n ymwneud â chynnal trafodion o bell, mae'r holl ofynion eraill o ran y Rheolau Sefydlog ar gyfer y pwyllgor yn aros yn eu lle. Dwi yn nodi ein bod ni wedi cael ymddiheuriad gan Rhianon Passmore i ddweud ei bod hi'n methu â bod efo ni y bore yma, ac rydym ni'n diolch iddi am hynny. Oes yna unrhyw ddatganiadau gan Aelodau? Mike Hedges.

A very warm welcome to you all to the meeting this morning. It's great to be here with you virtually. I can see that we have people here with us to give evidence, and it's great to see you as well, and we'll come to that in a minute. This meeting is being broadcast live on Senedd.tv and 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 do note that we have received an apology from Rhianon Passmore, as she can't be with us this morning, and we thank her for that. Do Members have any interests to declare? Mike Hedges.

I chair the cross-party group on the Public and Commercial Services Union.

Ocê, diolch yn fawr, Mike. Peter? Na. Iawn, ocê, dim problem.

Thank you very much, Mike. Peter? No. Okay, thank you, no problem.

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

Felly, mi wnawn ni symud ymlaen. Mae gennym ni bapurau i'w nodi.

So we'll move on. We have papers to note.

We've got papers to note in our pack. I propose, with your indulgence, to take them all as one, unless somebody wants to raise any points about anything in particular. Mike, yes. You're on mute. Hang on, Mike. There we are, you're okay. 

I have. We've had letters in from PCS and we've had letters in from the Public Services Ombudsman for Wales. I've written back to the PSOW and Audit Wales to say that we will be discussing that in our scrutiny sessions when they come before us in the autumn.

Ocê, dim problem.

No problem.

So, are we content to take those papers to note, unless there's anything else to note? Okay, thank you very much.

3. Trefniadau ariannu ar ôl yr UE: Sesiwn dystiolaeth 1
3. Post-EU funding arrangements: Evidence session 1

So, moving on to item 3.

Diolch yn fawr iawn i Tim a Chris.

Thank you very much to Tim and Chris.

Thank you so much for joining us. Would you mind giving your full names and what you do, for the record, if you please? If we start with Chris.

Diolch yn fawr, Cadeirydd. Chris Llewelyn, Cymdeithas Llywodraeth Leol Cymru, prif weithredwr.

Thank you very much, Chair. Chris Llewelyn, Welsh Local Government Association chief executive.

Thank you, Chair. Tim Peppin. I'm the director of regeneration and sustainable development at the WLGA.

Diolch yn fawr. Hon ydy'r sesiwn dystiolaeth gyntaf yn ein hymchwiliad i drefniadau ariannol ar ôl gadael yr Undeb Ewropeaidd. Cyn i ni ddechrau, dwi eisiau nodi bod yr Ysgrifennydd Gwladol ar gyfer Codi'r Gwastad, Tai a Chymunedau wedi gwrthod ein gwahoddiad i ymddangos gerbron y pwyllgor hwn. Hoffwn gofnodi siom y pwyllgor bod yr Ysgrifennydd Gwladol wedi dewis peidio â rhoi tystiolaeth lafar i'r pwyllgor hwn fel rhan o'r ymchwiliad, a byddaf yn ymateb i'r Ysgrifennydd Gwladol i'r perwyl hwnnw. Ond, rydym ni'n mynd i gario ymlaen efo'r sesiwn y bore yma.

Thank you very much. This is our first evidence session in our inquiry into post-EU funding arrangements. Before we begin, I'd like to note that the Secretary of State for Levelling Up, Housing and Communities has declined our invitation to appear before this committee. I'd like to place on record the committee's disappointment that the Secretary of State has chosen not to provide oral evidence to this committee as part of the inquiry, and I intend to reply to the Secretary of State to that effect. But we're going to carry on with this morning's session.

So, what we'll do is we'll start with some questions and, again, thank you for attending. I want to start this morning to understand how the UK community renewal fund and the first round of the levelling-up fund have been operated. So, a question to one or both of you: have the funds that local authorities have been able to apply for so far—namely the UK community renewal fund and the levelling-up fund—met the sector's expectations, and what have you seen delivered? Let's start with Chris.

Cadeirydd, Chair, can I—and maybe Tim would comment in more detail on your specific question—just explain, maybe, why it is that you're having to put up with Tim and with me this morning rather than elected members? Ordinarily in a session like this we would have our political leadership, our spokespersons, and so on, speaking on behalf of the association, but although the local government elections took place last Thursday, most authorities won't have held their AGMs until the end of this month, so their political leadership won't be in place, and the WLGA, in turn, our AGM is at the end of June, so our political leadership and spokespersons won't be appointed until then. So this session is taking place in something of an interregnum, as it were, and it's been a feature of the recent discussion on the shared prosperity fund—since its launch took place during the pre-election period means that we haven't been able to engage as fully with councillors and elected members as we would like and as we would do, ideally. So, what we're doing today, what we've done both in terms of the written evidence and in terms of today's oral evidence, we've reflected existing WLGA policy, and reflected the discussions that have taken place hitherto, but the truth is it is a relatively inconvenient time from a local government perspective, and because there has been significant change—there were significant changes in the councils across Wales last Thursday—it may be that views change, going forward. So, what we'll do today, we'll reflect the views of local government as we understand them based on the discussion that has taken place, but, Chair, if you and committee members can bear in mind the context in which this discussion is taking place, then we'd be very grateful.

09:35

Diolch am hynny.

Thanks for that.

That makes a lot of sense, and obviously you're giving evidence with the knowledge that you've got, and we take that into account—that it could change, going forward, and it's likely to, with different leaders coming through, and that sort of thing. But, yes, that's great, so thanks for putting that on the record for us.

So, with regard to the question, would Tim be in a better position to be able to give us a thought?

Yes, certainly, Chair. If I just make the point to start with that the announcements for the community renewal fund didn't come out until 4 November, and, for the levelling-up fund projects, they came out at the end of October. So, there's been a relatively short period of time since those approvals to actually see delivery on the ground.

Now, with the CRF, if we take those first, they're relatively short projects. They were originally to be finished by the end of this financial year, but there has been an extension granted because of the late announcement. But they are relatively short number of months projects. The local authorities are pressing ahead with those. There was a range of projects that came forward, and obviously it was a competitive situation in each local authority area, but, broadly, the projects that are being delivered relate to skills, local business support and entrepreneurship support. There are community-based initiatives, and there are also a number of schemes with support into employment, and a range of other things like digital, green technology, support for carers, mental health, and so on. There's quite a variety of different CRF projects, and all of those now are being progressed by the successful sponsors of those projects, which weren't just local authorities—they did include third sector and other bodies as well. And it has to be said that Wales did well in getting £46 million, £47 million from the CRF, which is actually 23 per cent of the £200 million that was allocated for CRF. So, of the money that went out, it was a good share that came to Wales, and those projects are now in the process of being delivered.

On the levelling-up fund bid, that is the capital side of things, and the spend for those has to be done by March 2024, or it can extend into 2024-25 for the very large transport projects. Now, there were 12 authorities that submitted to the levelling-up fund and, of those, six had successful bids—one authority had three successful bids and two had two successful bids. Overall, there was about £120 million-worth of LUF that came into Wales for those projects, and that's about 7 per cent of the LUF that was allocated across the UK. So, again, slightly above the 5 per cent benchmark for Wales.

What that does mean, of course, is that 16 authorities didn't get any levelling-up fund money. Ten didn't bid at all, and I think that reflects the pressure some authorities were under, because these things were run simultaneously. So, local authorities were not only having to develop their own community renewal fund bids, they had to run a competition for organisations in their area that also wanted to bid for CRF and, if they were going to do it, they had to prepare the levelling-up fund bid at the same time. For some small authorities, that was incredibly challenging. But, overall, the authorities did turn it around very well, and it was quite a successful outcome in terms of the share that has come into Wales. [Inaudible.]

09:40

Sorry, picking up on your point quickly there, you talked about a competitive process and, in your written evidence, you said that it's inherently wasteful, the competitive process. Is that because of both running at the same time causing issues, or is it something else?

Well, the problem is that, when you have competition for the funding, then all the local authorities put in a lot of resource and all the other organisations that bid have to put time and effort into bidding with no guarantee of success. And then, of course, all of those applications have to be assessed. I think that over 1,000 bids went into the UK Government, which took a lot of time to assess, and not all of those were then going to be successful, and then you've got that quite bureaucratic process of assessing all those competitive bids and, as I said, only a small proportion of those end up going forward. That's why we thought it was wasteful. And in fairness, the UK Government did say that it would use the CRF and learn from it, and with the shared prosperity fund they have moved to an allocation basis, rather than competitive bidding.

Okay. So, there's a continuous improvement element to it, in that sense. 

Hopefully, yes, we will learn and improve over time, yes. 

Okay. Thank you very much. So, how have the processes of these funds compared to the processes you had around the EU funding for local authorities?

The UK Government has said that they wanted to reduce the bureaucracy and simplify the bidding arrangements. I think, if you look at the application forms and what was required for levelling-up fund bids, it was still quite an extensive range of evidence and material that had to be pulled together. And then there is still quite a lot of work to be done to get those bids in and then to monitor them. And I think that's just the nature—certainly with levelling-up fund bids, for large capital projects you do need some sensible project management arrangements around them. So, you're never going to get away completely without an element of bureaucracy.

I think, with the CRF bids, the local authorities tried to keep that as simple as possible. They had to organise the local bidding arrangements, and they tried to be as helpful as possible to the local organisations bidding in. So, you do have to have an element of governance around the way these things work, whether or not it ends up being seen as simpler or more streamlined than the EU funding, I think we'll have to see how that works over subsequent rounds.

From what you've seen so far, is it simpler than the applications for the European funding, or at the moment is it too early to tell?

Well, in the WLGA, we're not involved in the actual detail of bid writing, but from our discussions with the local authorities, there is a lot of work involved in putting in a levelling-up fund bid, and there was a lot of work involved in doing EU bids. As I said, the detail of that and whether one is easier than the other is difficult, really, to judge at this stage. 

You were talking about capacity, and obviously it takes a lot of resource to get these bids in and then possibly they would be unsuccessful. Do you think that that is reflected in the fact that some of the local authorities didn't apply?

I'm sure that was a consideration for those authorities that didn't bid for levelling-up fund round 1. They were under pressure to deal with the CRF and they decided that they needed more time to develop their LUF bids and took a conscious decision to go for round 2 instead of round 1.

Okay. And with the complexity, do you think that the sector's experience—? As they're applying for the various bids, how have the timescales impacted on the potential quality of the bids, because if you're having to produce a lot of information and produce detail, and you're under constraints from capacity, possibly the quality of the bid isn't quite as good as it could have been? And does that then—? It's like a vicious circle, then, not to be able to get selected because the bid wasn't quite good enough, so it's going a little bit like round and round.

09:45

Yes, there are two elements to that. One is the timescale to actually put the bids in, and then the timescale for delivery. And if you've got a very short timescale to bid, you will either rush something and put in a lower quality bid than if you had more time, or you're going to draw on things that you've already got on the shelf that, perhaps, if they were a priority, they would have already been funded because they've been sitting around a while. So, that may mean that they're not your top priority. 

And then in terms of the length of time to deliver, if you're trying to deliver in eight months, then you've got to pitch a bid accordingly, and that means that you're not really going to get into a lot of detail on the CRF—it's a fairly short-term period to deliver. With the LUF, where you've got up until March 2024 to deliver it, then that does allow you a little bit more flexibility to do the preparatory work, although, of course, the financial spend has to be achieved in each year, and if you don't hit your spend target, then the money would go back. So, that's another consideration. 

Okay. Thank you for that. Conwy County Borough Council notes the challenge local government in Wales faces to build up relationships with the UK Government. How do you assess the current state of those relationships between local authorities in Wales with UK Government, as opposed to Welsh Government?

Can I come in first?

Thank you, Chair. Yes, I think that certainly at an officer level, I think the relationships between local government in Wales and the UK Government have been very good and very effective. And I think in historic terms, they're probably as good as they've ever been, both in terms of the officials based in Wales with the Wales Office and other Government departments as well, and because of COVID and Ukraine and so on. So, I think at an officer level they're good. There has been considerable political engagement over the last 12 months, but I think the concern among our members was that, in many instances, it was quite general and not very specific. For example, the Secretary of State Michael Gove and the Minister Neil O'Brien held meetings with local government leaders before and after Christmas, but very often they were about the generality of the shared prosperity fund without having developed any of the detail. And by the time some of the detail emerged, we were into that pre-election period that I mentioned at the outset. So, I think that our elected members probably would have welcomed more detailed discussion early on in the process, and the opportunity to co-produce, co-construct and get into some of the detail that we've discussed already this morning. So, I think, as I say, many aspects of the relationship are good, but I think the concern would be that there wasn't a detailed discussion early enough in the process. 

Yes. I mentioned at the start of the meeting that we'd invited the Secretary of State or the Under-Secretary of State to come and give oral evidence to this committee. Do you find that the lack of engagement by UK Government with the Senedd on this issue surprising, given your dealings with them to date? 

I think that's an interesting question. In all our discussions with the UK Government, the leaders of the association have emphasised their view that, collectively, we deliver the best outcomes for the people of Wales when every tier of government works as closely and as effectively as possible. So, as Tim mentioned earlier, in addition to emphasisng the importance of making sure that Wales is no worse off with the shared prosperity fund than it would have been with other European structural and investment funds, the WLGA has also emphasised at every opportunity the importance of the UK Government working closely with the Welsh Government and with the 22 local authorities as well.

09:50

Thank you for that. The last question from me for now: the strategic forum for regional investment in Wales suggested the idea that funds have been devolved to local government was a fallacy and that local government is more of an administrator—do you subscribe to that view, and if so why, or if not why not?

I can understand the point that's being made there, because ultimately the lead authority in each region has to collate all of the suggestions and proposals and the regional investment plan and submit it to the UK Government. So, they're not taking the final decision; it will go to the UK Government for approval before the money is released. So, in that sense, we are doing the administration on behalf of the UK Government and passing it back to them to get the release of the funding. On the other hand, what I would say is, in the discussions that our members did have with the UK Government, they did stress that it would be a light-touch review and that there would be a lot of flexibility, so that provided the relevant consultation is done in the local area and there is engagement with partners and the proposals that come forward are in line with the interventions that are allowed under the shared prosperity fund, then there's a lot of discretion at the local level to put a package together that will meet local needs. I think, certainly, our members have welcomed the fact that there is a recognition that the local leaders are in a strong position to do that co-ordination at the local level, and then work together where appropriate regionally to deliver projects that are better delivered at that higher level. So, I can understand the comments from the strategic forum, but I also think that there has been a substantial element of increased decision-making power given to the local authority sector.

Thank you very much. I'd like to go over to Mike Hedges now to ask some questions. There we are.

Just going back to something Tim said earlier about on-the-shelf projects, my experience of on-the-shelf projects is they were the next set of priorities where there was not sufficient funding, so being able to bring them off the shelf to be able to bid was a good thing, rather than bringing something in that was not a priority. Would you accept that, Chris?

Yes, I think I would. I understand the point, but equally I think that we shouldn't underestimate the challenges of capacity, scale and complexity, and I think many of the smaller authorities found this situation very difficult and very challenging. The 22 authorities are very different in so many ways. I think the evidence suggests that some authorities were able to deal with the circumstances relatively easily while others found them very challenging.

Thank you. Moving on, the UK Government is meeting its commitment to replacing EU funds, it says. Is that true? Are we going to get the same money in local authority areas across Wales as we had under European Union funding?

Shall I come in first, Chair? I think this is a contestable question, really. I think the UK Government takes one view, we know the Welsh Government has taken a different view. In the discussions we've had with our elected members, I think the view was that there was a shortfall. I think the Welsh Government recently published a figure of just over £1 billion. Our elected members, in discussions we've had, supported that view. I suppose the issue is the way in which the legacy funding is taken into account. I think, if the legacy funding is put to one side, and when some of the shortfalls in terms of the agriculture and spending in rural areas are taken into account as well, we would assess that there is a shortfall of over £1 billion. As I say, it is very contestable. Some of these issues are difficult to calculate and people adopt different and challenging views. I note from some of the evidence that's been presented to you by other colleagues this morning, I think they come to a similar view as well.

And, of course, the other element that's difficult to assess is the funding that would have come through had the UK stayed within the European Union and the programmes that would have lasted until 2028, and then with legacy arrangements as well possibly until 2031. So, the assessment of the association and our members is that there is a shortfall. It's one of the issues that have been emphasised in all our discussions with the UK Government: the importance that it does deliver on the commitment that Wales would be no worse off than it would have been before.

09:55

Thank you. Can I move on now to the creation of the taskforce with the UK Government and the four local government associations? Do you think that's working well?

There was, Chair, a taskforce that was set up with the four local government associations and it held three meetings before Christmas. The local government associations were asked if they wanted to bring along any local government representatives with them and the WLGA invited along an officer from each of the regions. So, we took four officers as well as the WLGA and took part in those meetings. The point we stressed there was that we couldn't speak for the WLGA as officers. We felt that there was a need, and our leaders were telling us there should be a political meeting to discuss this. So, we were there to help inform and offer advice, but we did stress that we felt that there should have been a political taskforce. But, as an officer taskforce, I have to say, we had three meetings, and whilst there was a good discussion, a lot of it was retrospective. It was looking back at the EU programmes and they were asking questions about what worked well, what elements we liked. So, we talked about the long-term funding arrangements, the ability to flex between years and all of those sorts of good points from the European funding that we would like to see taken forward. But, when people from the associations and the local government family asked questions about the SPF and asked for more specific detail about how it may operate, the position at that stage was it was still with Ministers, and therefore they couldn't really give us a definitive answer. So, whilst we had three meetings and we had a reasonable discussion at those, I wouldn't say it was the sort of engagement that really helped to shape the SPF as it came out.

Okay, thank you. Finally from me, the funding allocated to each place is calculated using the population UK community renewal fund index and the Welsh index of multiple deprivation. Do you accept that as the best way of going forward? If it was up to you, would you have a different formula?

Can I come in on this, Chair? We're not really in a position to answer this question simply because there hasn't—. By the time the methodology for the allocation was announced, we weren't able to have significant discussion with elected members. Again, the truth is, with any distribution formula, they are contestable; there are inevitably winners and losers, and with any formula those that perhaps feel that they're losing out view it less favourably. So, in this instance, it is difficult to comment. Mike and Peter, we've had numerous discussions in the past about the revenue support grant and the formula used for the RSG. Similarly, here, I think—. What I can say is that I think that our members would have welcomed a longer and more detailed discussion and greater analysis of the pros and cons of different options, and I think by the time this was announced there wasn't really the opportunity for us to have any discussion, but, as I say, I think members would have welcomed a much earlier and more detailed discussion about what was being proposed. 

10:00

Thank you, Chair. Hi, Tim; hi, Chris. Thanks for coming along; it's great to see you. And just reflecting back on some of the earlier questions, as a leader at that time, the capacity issues I think you've captured well, because these things came on abruptly and to work up a scheme is almost impossible in the time frame, so you do have to take those off the shelf, and sometimes those aren't always the most developed schemes, otherwise they wouldn't have been on the shelf. So, I think there was pressure on people and I think you captured that very well and I would support that.

On to my couple of questions: obviously, there's an expectation that shared prosperity plans and other similar streams are going to be administered via local authorities or regional entities and now corporate joint committees, I suppose, in their new form. I just wondered how you feel they are prepared for that. Are they in a position to take the role on and manage these expectations on them?

Yes, Chair, if I take that one. I think there's a lot of work going on now in the local authorities to agree on the governance arrangements that will operate. So, they will need to come together regionally, they'll need to agree on who is going to act as the lead authority and they will need to build on existing plans for the region to work up their regional investment plan. But obviously, the shared prosperity fund goes beyond a lot of the economic development and regeneration content that is in those plans, and it takes in things like youth work, community safety and a range of other things. So, they will have to look at the interventions possible under the SPF and agree what they would like to see taken forward with the SPF funding in broad terms.

Clearly, if these submissions have to be in during July, it's going to be almost impossible to do any detailed work with partners and get a list of bids agreed to submit a comprehensive position now, so what they will need to do is outline what they intend to do against the relevant interventions, and then once the plans are approved and the funding is released, they can then work with partners locally. There may be competitions, or mini competitions, to agree on how some of the funding can be allocated. That's the default position. But they can also look to procure, or they could use some of the funding for in-house services if they make the right case. So, all of that needs to be worked through.

In terms of how this will play out, the place and community end of things is very locally focused. So, we would imagine local authorities identifying projects on their own patch that they want to take forward and then discussing those with the lead authority. Where there are more regional opportunities in relation to some of the skills training work and the business support work, then they'll need to come together and agree that regionally. And it's up to local authorities to determine their governance, but as you mentioned, there's the possibility of looking at the CJCs, which are now up and starting. There's also the city deal and growth deal machinery that is in place. And, ultimately, it'll be the same group of leaders sat around the table for those, and they will be the ones that will need to look at the proposals coming forward and determine which ones they would like to progress.

Once they know which projects they want to take forward, the funding can then be delegated down either to a constituent local authority or to another organisation in the area. They will then project manage and deliver that initiative, but they will report back to the lead authority. The lead authority will then have that overview of all the projects in the region, and they will then have the responsibility for reporting back to the UK Government, both on spend and on progress against output.

So, there's really intensive work going on in each of the regions now. The WLGA has been to the regional meetings and sat in on those, and the local authorities are setting up working groups to look at how they're going to take this forward, how they're going to engage with partners, and how they're going to take forward the governance. So, as I say, it's a really intensive period of work, all aimed at getting the regional plans ready to submit in July and then to implement beyond that.

Thanks, Tim. Have the UK Government put any mechanisms in place in Wales to support local authorities or those bigger regions to manage the complexities of this?

Yes, there is very good support being provided by the UK Government. They have got their regional officers and they are going out to speak to the local authorities to offer advice and support on how this should be taken forward, and also to advise on how they frame their regional investment plans to make sure that they stand a really good chance of getting a quick approval.

10:05

Great, thanks for that. A final one from me, really. Obviously, as we know, Welsh Government involvement with the previous EU schemes and other funding streams has been slightly different. What involvement do you envisage Welsh Government having in taking all of this forward? Is there work to do there, or is that pretty well figured out, how they're going be working with us—or you?

Can I respond, Peter? I think we need further discussion. As I think we've mentioned a few times, from a WLGA perspective, we think we deliver the best outcomes when the UK Government, the Welsh Government, and local authorities work together as closely as possible. We've mentioned during the course of this discussion the need to avoid duplication, complexity, any kind of conflict, so we would expect the approaches of the different tiers of Government to be complementary and to be as joined-up as possible. The 22 authorities supported the Welsh Government's framework for regional investment. Authorities will have their own strategies. And I think it's everybody's collective responsibility to make sure that all of this work aligns as closely as possible so that we get as much value out of the investment that takes place. So, I think the collective view would be that we need further discussion to make sure that we achieve that goal.

Thanks, Peter. A couple of final questions from me. The First Minister suggested that application timescales mean that funding will be less well spent. To what extent do you agree with the First Minister's concerns, and how are local authorities preparing effective and efficient SPF investment plans?

Yes, Chair. I can understand fully the First Minister's comments and I think it reflects what we said earlier, really, in terms of timescales making it difficult to put in your best quality bid. What I would say, though, is that when the plans go in, they will not have to be the chapter and verse final version. They will be broadly indicative of what the plan is for taking things forward in the region and how they intend to allocate the money in broad terms. There will then need to be more detailed negotiation and work with partners to actually flesh all of that out. So, that's the plus side. There will be a bit more time, hopefully, for those discussions, but as I said earlier, the negative side of that is you've still got to achieve your spend in the financial year. So, you can't afford to spend too much time going into detailed lengthy negotiations to try and get it absolutely right, because you just won't spend the money and it will end up going back. So, the time pressure that we discussed earlier is still going to be paramount here, and there is that risk that in rushing to spend, sometimes you do what you can do rather than what you really should be doing.

So, would it be prudent for the UK Government to allow these funds to be rolled over into the following years?

I think if there was more flexibility, that would help enormously, as we see, especially with large capital projects, that ability to spend and to move money between projects as well, so that if some can accelerate whilst others are dealing with issues. Any flexibility on the funding front will help to deliver better quality projects overall and ensure better value for money.

And in terms of your questions on the investment plans, the work that's going on that I mentioned in the authorities at the moment will collate all of that information from the local authority level up to regional level, so that there will be a set of objectives for the region based on a sort of analysis of strengths and weaknesses, and then there will be, under each of the headings—place and community, people and skills, business support—a range of broad proposals based on the interventions that are possible that will set the framework for delivery of the SPF funding. And then as I say, beyond that, there will then need to be further detailed work to flesh that out and put it into concrete projects.

10:10

Would I be right in saying that if there was a way of having that rolling over, you'd be very much in favour, to be able to have better quality projects, rather than potentially rushed projects?

Yes. I'm sure the local authorities would welcome that, definitely.

You've touched slightly on the question of the UK Government providing support for developing the investment plans. Is that going far enough? Is there enough being done to give the support to fleshing these plans out and doing the detailed work? I appreciate that the initial draft isn't quite as detailed, but obviously, we need to get that to the detail eventually. So, is there support happening?

There's 4 per cent of the allocation to the lead authority that can be put into help develop this work, and the lead authority will also receive £40,000. The capacity problems we mentioned earlier are going to be key here, and bringing in additional people to work on this will take time if you're going to recruit, so there will be issues around that. Whether or not it's enough, I think we'll have to see how that goes. Obviously, the fact there is some funding available is welcome. It's not just funding for project spend; the importance of project development has been recognised and that is always critical in terms of making sure good-quality projects come forward. And hopefully, there is that flexibility to have further discussions with the UK Government. If there are pressures, and more funding is needed, then it may be possible to flex some of that spend to allow for that, and there is the provision that the lead authority can allocate some of that funding to other bodies to help them in developing their own projects. On whether it's enough, I'm sure people would always welcome more, but we'll have to see how that plays out in practice.

And within the local authorities and the bodies that are applying for these funds, do you think we've got the pool of talent of people—the people resource in that pool to be able to deliver these plans, or is it something longer term that we need to look at developing those skills here within Wales?

I think we've got a good track record, there's a history of good joint working, good regional working, and all the work that's gone into the plan development over recent years means that we're in a strong position to move forward from here. But one the issues will be the time available to engage properly with all the partners, because there are a lot of partner organisations that will need to be worked with who have also got really talented individuals with lots of skills and knowledge in this area, and we need to make sure that the way we take this forward taps into all of that, so that everyone is able to get the best possible outcomes.

Diolch yn fawr. A final question from me, and it's about the Multiply programme. Five hundred and sixty million pounds of the UK shared prosperity fund is allocated to the programme. What's your understanding of how this will be delivered in Wales?

Shall I come in, Chair? We haven't really had the detailed discussion of how it would work in Wales. I think, on your point, it is a significant amount of money. It is an important area, and the funding needs to be used as effectively as possible. Education in Wales is devolved, we know that a new curriculum is being rolled out, so it's important that the investment aligns fully with what's happening in Wales and is used as effectively as possible. And the point I made earlier: we want to avoid any duplication or conflict with existing schemes. So, it's important that we have the discussion to see how this can be used as effectively as possible. I know the UK Government is running some webinars in the near future to provide some kind of clarity, but I think there is an urgency about that discussion.

Diolch yn fawr iawn i chi'ch dau am ddod i mewn heddiw, o dan amgylchiadau lle rydych chi'n mynd trwy newidiadau ar hyn o bryd. Dwi'n ddiolchgar iawn ichi am roi eich amser a'ch argaeledd i ddod atom ni. Roedd gwybodaeth a thrafodaeth ddiddorol iawn yn y fanna. Dwi jest yn edrych ar Mike a Peter; oes yna unrhyw beth arall rydych chi eisiau ei ofyn? Na. Mi wnawn ni fynd am frêc technegol rŵan am 10 munud tra'n bod ni'n ailsetio ar gyfer yr ail sesiwn y bore yma. Ond diolch eto i chi'ch dau am ddod. Wrth gwrs, mi fydd cofnod ar gael i chi tsiecio bod y ffeithiau yn gywir. Ond diolch yn fawr iawn. Mi wnawn ni fynd am doriad rŵan.

Thank you very much to you both for coming in today, and in circumstances where you're going through changes currently. I'm very grateful to you for giving us your time and your availability to be with us. There was very interesting information and discussion there. I'm just looking at Mike and Peter; is there anything else that you'd like to ask? No. We'll have a technical break now for 10 minutes while we reset for the second session this morning. But thank you very much again to you both for attending. The transcript will be available for you to check for factual accuracy. We'll now enter into a break.

10:15

Gohiriwyd y cyfarfod rhwng 10:15 a 10:25.

The meeting adjourned between 10:15 and 10:25.

10:25
4. Trefniadau ariannu ar ôl yr UE: Sesiwn dystiolaeth 2
4. Post-EU funding arrangements: Evidence session 2

Dyma ni yn yr ail sesiwn y bore yma. Dwi'n falch o weld ein tystion wedi dod atom ni. Diolch yn fawr ichi am roi eich amser y bore yma, a'r holl waith sydd wedi mynd i mewn i'r dystiolaeth rydych chi wedi ei rhoi i ni yn ysgrifenedig hefyd. Diolch yn fawr iawn ichi am y gwaith ac am fod mor drwyadl, fel arfer. Ydy hi'n bosibl ichi gyflwyno'ch hunain ar gyfer y record, os gwelwch yn dda? Os gwnawn ni ddechrau fel sydd ar fy sgrin i. Guto, wyt ti'n fodlon mynd yn gyntaf?

Here we are at the second session this morning. I'm pleased to see the witnesses who have attended. Thank you for giving us your time, and all the work that's gone in to the evidence that you have provided to us in written form. Thank you very much for your work and for being so thorough, as usual. Is it possible for you to introduce yourselves for the record, please? If we could start according to my screen. Guto, are you happy to go first? 

Siŵr. Fi yw Guto Ifan. Dwi'n gydymaith ymchwil yng Nghanolfan Llywodraethiant Cymru, yn rhan o dîm Dadansoddi Cyllid Cymru.

Sure. I'm Guto Ifan. I'm a research associate at the Wales Governance Centre and part of the Wales Fiscal Analysis team.

Diolch yn fawr. Fi yw Ed Gareth Poole. Dwi'n uwch-ddarlithydd mewn gwleidyddiaeth ym Mhrifysgol Caerdydd, ac yn rhan o dîm Dadansoddi Cyllid Cymru.

Thank you very much. I'm Ed Gareth Poole. I'm a senior lecturer in politics at Cardiff University, and part of the Wales Fiscal Analysis team.

Bore da. David Phillips ydw i.

Good morning. I'm David Phillips. 

I am an associate director at the Institute for Fiscal Studies in London, and I lead our work on devolved and local government finance.

Wonderful. Thank you very much to the three of you for coming this morning. We've hopefully got a three-quarter-of-an-hour session with you this morning. We'll crack on, because we've got a fair few questions to ask, as you'd imagine.

I'd like to start by exploring the UK and Welsh Government's assessments of average EU funding for Wales and the EU funding that remains to be spent in Wales. The UK Government committed that the shared prosperity fund would at least match receipts from EU structural funds. Now that the prospectus has been published, is it possible to say whether the UK Government is delivering on that commitment? I don't know if one of you want to indicate to go first on that. Guto.

First of all, I'd say that it's not possible to definitively say either way. I think, firstly, by 2024-25, the annual funding from the shared prosperity fund will match the average annual funding that Wales would have received from the ERDF and ESI, after adjusting for inflation. Of course, some of that is earmarked to Multiply projects and not the core shared prosperity fund. On the farm payment element of the structural funds, if you look at the funding added on top of the block grant, it suggests, by 2024-25, that that will be replaced, at least in cash terms, by 2024-25. I guess the key disagreement, then, and I'm sure we'll get on to it, is about the years before 2024-25. From what I can see, both Governments are making different claims based on quite different assumptions about the allocations and spending. So, there's that, and then there's the issue of publicly available data on how much legacy funding we have. We don't really know what would have happened to EU funding in terms of the building up, if we had a new funding programme period. And, of course, we don't know what happens to the shared prosperity fund after 2024-25, which I think you'd need to properly compare for a complete picture of a comparison with previous EU funding.

I would echo what Guto has said there. If I might talk a bit about the ramp-up for a second. In regard to that, I think it depends partly on how you define receipts, and I think this is where the difference potentially is between the Welsh Government and the UK Government's position. So, if you define receipts as the point at which the Welsh Government knows it has this money that it can commit and allocate to projects, then, because, under the EU scheme, that money was basically allocated between 2014 and 2020, there is a bit of a gap between when the UK SPF funding comes on stream to be allocated and committed to projects. I think that is what the Welsh Government is talking about.

If you look instead at spending, though, when the money is actually spent, well, with the EU funding, there was always a lag between the money being confirmed and you could commit to projects, and then being able to be spent. That means that quite a bit of the EU funding is still being spent now. The way the UK Government funding, the UK SPF, will work is that this is ramping up in terms of how much can actually be spent in the year, as well. So, if you look at how much will be spent in each year, then I think the UK Government's position that it is matching the average annual amount of spending would be a fair assessment of the amount that can be spent in each year. It partly depends on whether you're talking about when money can be committed and allocated, which I think is what the Welsh Government talks about, or when it is actually being spent, which I think is what the UK Government's talking about. I don't know whether Guto or Ed wanted to come in there to say whether they agree with that sort of assessment of the difference in what they're talking about.

10:30

I guess the Welsh Government's assessment of the shortfall in funding up to 2024-25 is in terms of allocations. They'd argue that Wales would've benefited from 2020-21 onwards and that previous EU beneficiaries would've been able to access funding allocations worth up to £340 million a year. I think, based on previous EU funding programmes, there's some data that we have in terms of the difference between when spending was committed, when spending was spent, or costs were actually incurred by projects, and when EU payments were actually made. It did take a few years into each EU funding programme to ramp up EU spending. So, even though the allocations for each year were eventually being spent, I think, in future years, as David says, there's a difference, then, between actual spending taking place in the first years of a new EU funding programme, which makes it quite difficult to compare and properly assess, I think.

Does that answer a little bit of the question that Welsh Government have suggested that the UK Government's approach to replacing EU funding means that there's going to be a shortfall of £772 million in 2024-25? Do you agree with this assessment, or is it because we're not comparing apples with apples? David.

My assessment is that if one is thinking about how much money is available to be committed to projects over that period, then I think it would be a fair assessment to say that there is a funding gap on the amount that can be committed to projects over that period. If, however, it's the amount that can be spent over that period or the amount that is spent over that period—. If you look at the detail of the UK SPF, it talks about money being clawed back, potentially, if it's not being spent within these years. Then, if you look at the money being spent, I don't think that that is a fair assessment of the level of funding under the UK SPF compared to the EU funds. 

You're talking about the ramping up there. Is it reasonable for remaining EU funding to be taken into account when determining the level of the shared prosperity fund, or should they be treated as two separate entities? Obviously, one is declining and one's ramping up. Is it reasonable that one tries to match the other, or would it be better to treat them separately?

I can see the reasoning that the UK Government are using. Projects with agreed funding that were committed before the end of 2020 will still be benefiting from EU payments over these years, and new EU funding programmes would've taken a while themselves to come fully up and running in terms of actual spending, maybe not in terms of commitments. I think that there are risks for certain projects, like if their allocations have already been spent and they can't access the same amount of funding from the shared prosperity fund, whether it's because it doesn't fit into the priorities of the fund. There seems to be a particular concern in England around skills and employment projects not being able to access funding until 2024-25. What I haven't seen really spelled out by the UK Government explicitly, at least publicly in the prospectus, anyway, is how much funding is left from legacy funding, which types of projects are still receiving funding, and whether or not the shared prosperity funding is bridging the potential gaps. I think the UK Government should be more explicit about—. If the rationale is ramping up spending over a period of time, they should be quite explicit, then, in terms of how much EU funding they are expecting over the next two years.

10:35

I think Ed should speak first and then I'll come in.

Just very briefly, because a part of the problem here, of course, is we've got a Welsh Government responsible for the spending and receipting and committing of EU funding, but the reverse being true for the new set of funding. So, you've got the issues that David and Guto talked about, like the time lag, the fact that the periods of the programmes are different and whether we are talking about spend commitments or receipting. We've also got the fact that we've got two different Governments with responsibility for delivering this and therefore with the data. So, if you're trying to analyse this from an external perspective, it gets quite tricky.

Okay. In your written evidence, Ed and Guto, you outlined that there's an estimate of £841 million EU structural funding that could still be spent up until the end of 2023. Does this figure fit with the profile of the shared prosperity fund?

Yes, I'll take that. That's funding that has been committed by two projects from previous EU funding, in the 2014-20 programming period, that hasn't appeared as spending yet. I think the last reported data was for 31 January 2022, and I think that they report every six months or so. Of course, that's funding that has already been committed and decided for projects, and I think some of that spending could reflect costs that have already been incurred by beneficiaries but that haven't been properly receipted, or that they haven't been compensated by EU payments yet. So, we're not entirely sure whether that's a figure that gives a proper, complete picture of how much funding is left.

In terms of fitting with the profile of the EU shared prosperity fund, I think it broadly matches with, I think, what the UK Government must assume in terms of the UK-wide level, if it's about a quarter of EU funding that's left to be spent across the UK. But, again, we're not entirely sure whether that figure gives a proper, complete picture.

If I might come in there quickly as well, I would agree with what Guto has said in the last few answers. You can see the rationale for what the UK Government's doing, given that there is still spending being funded by existing EU programmes. It takes time, actually, to set up new programmes, and if they said, '£1.5 billion to be spent every year from 2022', you wouldn't get money out the door quick enough—at least you wouldn't get money out the door quick enough on projects that meet all the aims and objectives and are well designed in that period. So, I think it makes sense to ramp up the amount being spent by the UK SPF. One could argue that, actually, the amount that could be allocated and committed could have ramped up more quickly, so that projects have more certainty about funding continuing beyond the end of the EU funding and can make longer term plans themselves.

I'd also agree there's been a lack of transparency not just on the part of the UK Government, but also the Welsh Government as well, about the amounts left to spend under the EU programmes, because, as Guto said, it is the UK Government that effectively knows what's been left to spend in England; the Welsh Government, Scottish Government and the Northern Irish Executive are the managing bodies for the funds in their areas. I have managed to speak to the UK Government recently about this, because I want them to be able to say something more definitive about the amount still left to spend. If we buy the ramp-up argument, is the amount of EU funding ramping-down consistent with the ramping-up matching the total? While the figures aren't public, I have had it confirmed to me that there is, as in Wales, across the UK as a whole, more than sufficient EU funding left in the system so that, if you buy that ramping-up/ramping-down argument, the profiles would at least match and exceed, actually, the average annual allocations.

10:40

So, would it be prudent to do something that Mike has said in this committee a number of times and show your working for both sides? Because when you have committees like these that are trying to grapple with this sort of information, it's very difficult when we don't have the transparency from both sides, with large numbers being bandied about and, potentially, causing concern to the public. It doesn't help that there's this a disparity between what's being said in London and what's being said here in the Senedd. There's always that tension, so I think we'd encourage everybody to show their working. The First Minister said something about it on 4 May. Would you want to comment in the light of that, Guto?

Yes. It was useful, the written statement that the Welsh Government published, last week I think it was, setting out the figures behind what they were assuming EU funding allocations would have been for the years and then where the £1 billion figure comes from. It was useful to get that broken down into two tables. I don't think that it properly addressed the issue of EU legacy funding, of how much funding is coming from the EU, or making that distinction, again, that we talked about in previous answers between allocations and actual spending. I guess, from the UK Government side, then, because it's such a crucial element of their ramping-up plans, that should have been explicit in the prospectus and in how they've allocated funding across the three years.

Very briefly, I was told again by UK Government officials that they have the figures for the devolved Governments as well, and they've been shared with them, but they didn't feel able to publish them because they weren't shared with that purpose in mind. But I think that's a case where, if actually all sides want transparency, they can surely agree to publish this data. So, I would concur with you that transparency is important, because, particularly for Wales, this is an important stream of funding. Whilst, clearly, Governments will have different political views on how the project should be managed, how they should be designed, what the allocation should be, it does a disservice to people in Wales if information's being hidden by either side, or not necessarily hidden, but not being transparent about it in order to make political points about it. You can have political differences and be very frank about those, but that should be based on differences about how the policy should be designed, not trying to—

So, that you're both starting on the same—. Both sides are arguing about the point of contention, rather than the facts behind that point of contention.

Yes, you're talking about the same issue, not talking at cross-purposes from each other, effectively.

Yes, I just wanted to add to it. So, I'm getting from this that, in their own contexts, both Governments are probably right, but there's a level of political convenience to maintain their positions. Would it be fair to say there is a bit of political brinkmanship within this, or perhaps you can't answer that? I don't know.

I don't know if Ed wants to talk about that—political scientists. [Laughter.]

This is highly politically charged, of course. This was one of the main concerns for Wales at the time of the EU referendum and the debate since then, so, naturally, this is going to be one in which politics figures very highly. Just on the assumptions behind it, I know Guto's been working very much on that, so if I can hand to him on that.

10:45

I guess a part of the problem, and maybe it goes back to the design of the shared prosperity fund rather than the overall claims, is the fact that the allocations for the shared prosperity fund across the years are quite rigid. I think one of the benefits of the EU funding regime was the fact that you had seven-year funding allocations with an additional three-period in which you could spend that funding. Whereas the shared prosperity fund will be a period now of two and half years and with annual amounts allocated that have to be spent, and if they're not spent by that time, they're going to have to be returned. So, I guess, going back to the same point and the point that David was making, both Governments are making different assumptions about different funds that will operate on different timelines and with different ways of managing that funding.

Sorry, David, you carry on, and then we'll move on to a different section. But, yes, finish off with this.

Very quickly, I'll just reiterate the point. I think if one is thinking about actually how much can be spent, that is the overriding question. I think, actually, the UK Government's position on this is probably the one that is closer to reality about, 'Is the amount of spending going to continue to reflect the average annual spending under the EU schemes?' If one is thinking about the degree to which projects can plan and the Welsh Government and the Welsh local authorities can plan future spending, then there has been this gap. So, I think they're both talking about slightly different things—they both make key points, and it depends on whether you are thinking about budget-planning purposes or the actual money going out of the door.  

Yes, okay. Mike, did you want to come in? Can we bring Mike Hedges in, please? Thank you.

Coming back to what David said just then, that's a big difference when you've made the accruals, and you can show these on our accounts as accruals, as opposed to actually having made the payment. Now, quite often, you do staged payments on projects, and you may well have committed to the project—you may have committed to stage 1 of a project—but the payment, i.e. the money going out of the door, doesn't happen until some time after the arbitrary date that we set for end of years. Which one are we going to be picked up on?

When you say, 'picked up on', sorry, what do you mean by—?

Well, if you've got £100 million to spend, you've committed £100 million, you've got a project of £50 million, which has been completed, £25 million has been paid, and the other £25 million, the work has been done, but the payment has not physically gone out.

Okay, so I think that relates to the point that Guto was mentioning just now, under the receipt of EU funds in respect that some EU funds may actually have been spent, if you like, because, with the project, actually, the work has been done for them, it's just that the bill hasn't been paid yet by the Welsh Government and hasn't been reflected in the accounts. That can be an issue under the EU funds to some extent, although I wouldn't expect it's of the scale to offset the extent to which, if you add up the EU funding and UK SPF, it means that they don't add up to the average amount of spending left.

Looking ahead to the UK SPF, I'm not sure about how, especially on the capital side, it will be treated in regard to accruals versus actual spending. I don't know whether Ed or Guto have details on this. I think that is something to actually ask both the Welsh Government and the UK Government about, although I'm aware UK Government has declined to take part in this inquiry.

Yes. It would be something we can pick up with Welsh Ministers, at least, so—

And I'm sure we can find a friendly MP who'll ask that question.

Yes. Excellent, thank you for that. I just want to move on to explore a little bit about the funding through the UK community renewal fund and the levelling-up fund. The community renewal fund and levelling-up fund both use competitive bidding processes and include an element of prioritisation of local authority areas. How effective have these funds been in terms of their design and ability to deliver value for money? I don't know who wanted to go first. Ed.

10:50

Yes, I'll take it. I think, in terms of both of those funds, there have been some teething problems, shall we say. The community renewal fund, we had delays in introducing it, which led to very short-term time horizons. We also had the issue of the confusing designations of the priority areas, which led to that situation of Caerphilly being excluded from the list of priority areas. So, we had that issue on the community renewal fund. On the levelling-up fund, we have the issue where the focus of investment proposals is on supporting high-priority and high-visibility projects, which might well be important projects in the local area, but they might not necessarily be the most important projects in the local area. You might want to have interventions that have a longer term impact that might involve brownfield sites or what have you, which might not be in the middle of the town centre and very visible. So, on prioritisation of the fund in areas like that, you've got quirks in it that are reflecting more of a political focus, potentially, than the usefulness of the funds, and, as you mentioned, they both are funded on a competitive basis and on the basis of bids being submitted to the UK Government, and of course that gives UK civil servants and Ministers a great deal of control over funding decisions and really quite local projects, on which projects should receive funding, and that really works against the idea about giving local areas more autonomy on how to spend money in their own local areas. I think that goes a little bit against the overall theme, really, of the funds, which is about local control and devolution.

And does that not—? Is that not a fair way of doing it? How else would you do it?

Well, the way the shared prosperity fund is going to work is not on a competitive basis. That is going to be an advantage of these funds. It is still going to—. So, the lead authorities, the lead local authorities, will be granted funding each year, and the local authorities will choose their priorities, but then it will still need UK Government sign-off. So, it isn't total local autonomy over it; there still is a Whitehall stage in the process. But, on the fact that it's not a competitive bid, I think that is an advantage.

Thank you. The shared prosperity fund has adopted a different approach in the early sets of the allocations. Do you think that's because the UK Government has learnt the lessons from the other two and is trying to improve the processes? Or is there another reason? David.

If I might come in, I'm not sure it's necessarily about lesson-learning from the other funds. In particular, the CRF was only in place a year before they were rolling out the UK SPF, and that's not really time to learn much in that short space of time. I think, really, it's about the different objectives of the UK SPF. I think first of all they wanted to make sure that everywhere got at least some UK SPF funding. I think that's why population was a major part of the allocations, particularly in England. I think, secondly, they wanted to make sure that, for example, there was a sufficient quantum of funding in each area. So, certain areas—certain small areas—received top-ups to the allocation, I think of at least £1 million. I think the third thing, and we can talk about this a bit later, is the UK Government really wanted to avoid political difficulties associated with reallocating funding between places, hence its pledge to match each nation's funding and, in the end, in England, each local economic partnership area's funding. So, I think, really, the design of the UK SPF is reflecting two things: wanting to give some funding to everywhere, while still having this focus on more deprived areas, but also not wanting to rock the boat too much, so just kind of taking forward the EU allocations, which, in turn, were based on the last set of EU allocations. So, within England, and for each of the nations, it's basically based on data from the early to mid-2000s. So, I'm not sure there are many good lessons being learned there on how you design funds, apart from that you might want to avoid causing too much political difficulty by creating obvious winners and losers. 

10:55

Thank you very much. I think that's concluding my questions. I'll come on to Mike Hedges. 

Diolch, Cadeirydd. The UK shared prosperity fund uses a three-step process to allocate funding to places, making allocations to each nation to ensure a real-terms match of European Union structural funds. Do you think that's happening? You've talked about that earlier. And what risks and benefits are there of continuing to use historical levels of European Union funding in this way? 

I guess it touches on David's last answer there. In terms of maintaining that cliff edge of funding, it was a design of the EU funds that regions just below the threshold for GDP per capita, and because Wales—. Well, west Wales and the Valleys qualified for that. I think David's work and the IFS's work shows that similar regions in terms of income levels then saw very different levels of funding allocations. And that's a big benefit to Wales; it's the main reason why Wales does better, compared to the other countries and regions of the UK, through the shared prosperity fund. 

In terms of risks, then, the main risk is a political one. After 2024-25, I imagine it becomes a political question again about maintaining this distribution between the nations at the next general election, the UK general election. And there's no certainty in funding; there's nothing that's saying that this will be carried forward beyond 2025. 

I would very much echo that. I can see political reasons why you'd want to continue the allocations—you avoid creating obvious winners and losers. It's been very politically contentious, the design of it; losers always complain more than winners will congratulate you. There are also practical reasons. If you suddenly start ramping up funding in some areas and cutting funding in other areas, that's difficult to do in the short term. But the way you tend to address that is via transitional arrangements, like you do with local government funding, which I think Mike will be very familiar with, how that works there. What I would say, of course, is that, as Guto said, Wales does benefit from entrenching, if you like, these idiosyncrasies in the EU funding scheme. West Wales and the Valleys gets about seven, eight times as much as areas just a little bit richer in England, like Lincolnshire and South Yorkshire.

In the short term, Wales gains. I think, as Guto says, the risk is what happens in the longer term, both in terms of is this funding that can be relied on, is it really a stable system, or should there have been more of a move towards a more stable, longer term system, even if that, in the long run, means Wales probably would see a smaller share of the funding—is it better to know that now, rather than it happen just in the next spending review—and, secondly, I guess, does it more generally undermine people's views about sharing and risk insurance across the UK? Maybe those are slightly abstract risks, but they are risks nonetheless. But, of course, I understand it would have been very attractive to Wales to continue to receive the high levels of funding that it got under the EU funding. 

Just very briefly, and I agree with the points that have just been raised, I think this goes back again to the question that we've been raising throughout this session about the difference in timelines and the way that these funds work. The EU funding would be over seven years, 2021-27, and wouldn't have to be spent down until 2030, with that run-off. This is a much shorter time horizon. We're talking about two and a half years, effectively, after the funds go out of the door this October. And the other issue is that, when you've got the EU funding, on cohesion funding and structural funding, to make any changes to the criteria or the amount of funding, you've got to get through a whole set of veto points through multiple different countries, multiple different institutions, where there's a lot of countries, particularly in the east of Europe, that have a huge stake in this. And so you have this effect of a veto-playing system, where it's very difficult to have changes. In a majoritarian system like Westminster, that is just not the case. We know that we're going to have public finance concerns in the public finances over the coming decade. I think there is a big risk of Wales having to come back to the table every few years and make a demand on funding, particularly when this current funding is there on the basis of the Conservative general election manifesto; it's not there from any broader set of criteria. 

11:00

Of course, if I was living in Ystradgynlais, I would think the whole system is incredibly unfair. Under the old European Union system, Powys is one of the poorer parts of Wales, yet it's treated as east Wales, and, Ystradgynlais, when you cross a bridge smaller than the room I'm in at the moment to go from Ystalyfera, you go from places that get all the European funding in Ystalyfera to places that get nothing in Ystradgynlais, which are, effectively, one community—unless you saw the sign, you wouldn't know you'd moved both counties and places. Is there any opportunity in this to try and rebalance that? 

I think Guto has looked at this, in particular, how the UK SPF changes funding between east Wales and west Wales and the Valleys. The first thing I'd say, before handing over to Guto, is that, clearly, the UK SPF is allocated to a local authority area and is based on the local authority characteristics. So, for example, Powys, it now has its characteristics reflected in that. I think, under deprivation, it doesn't do so well; I think it does better on the bit that's linked to wider economic opportunities under the CRF funds. But I think Guto has looked at how funding has shifted under the UK SPF. 

Yes. It seems, in terms of the west Wales and the Valleys and the east Wales distinction, there is a rebalancing towards east Wales. And obviously, as David says, it's not done on the NUTS 2 region, the big regions, as the EU funding; it's based on local authority characteristics. It's strange, really, that the allocations by nation are being done on a previous EU funding model, and then the allocation inside Wales, as we might come on to in a bit, is taken on a different rationale in terms of splitting that pot then inside of Wales.

Okay. And finally from me, the system is going to use the CRF index, Welsh indices of multiple deprivation, and population. Do you think that's the right way of doing it, or do you think there's a better way? 

So, if I can come in quickly first, maybe, I think it's up to politicians to decide how to allocate the funding, which indicators to use to assess need and how progressive they make the funding with respect to need. But I would highlight—. And I should say, I think, within that context, having a relative population, the CRF index, which is a wider basket of economic outcomes, and deprivation—I think they are reasonable measures to use. 

There is one particular oddity with how funding has been allocated in Wales, though. The part of the funding linked to deprivation takes no account of population. So, for this element, Blaenau Gwent and Merthyr don't just get more per person than, for example, Rhondda Cynon Taf, because they are somewhat more deprived—they actually get more in total, despite having populations just a quarter to a third of the size for the deprivation element of the UK SPF. And indeed, today the UK Government has actually published a breakdown of the allocations of funding. So, Merthyr Tydfil, for example, gets £12.6 million on the deprivation element; Rhondda Cynon Taf gets £10.7 million, despite a population of four times the size. It is less deprived, but only a little bit less deprived. So, there is this weird feature in there.

Now, the UK SPF prospectus indicates that this is a request from the Welsh Government, but my understanding is that this isn't the case. So, how this strange feature crept in, whether it was a misunderstanding or a simple error on the part of UK Government, or a more political decision by the UK Government, or just a miscommunication between the two Governments, isn't really clear to me. But it does mean that Merthyr and Blaenau Gwent get more, and, for example, RCT gets less, than if the deprivation funding actually accounted for population differences as well. So, I think there actually is a fairly odd feature baked into the allocations in Wales.

11:05

I reiterate and agree with what David said. I think it's a strange decision and it doesn't really make sense. The methodology does note that—. I think it says that population differences across local authorities in Wales aren't as large as those across England, so we don't need to use this population per capita adjustment. But, as David has alluded to, Rhondda Cynon Taf is about four times as large as Blaenau Gwent and Merthyr, so there are still quite big differences. I think it's something that should be addressed. [Interruption.]

I had finished, but my interest has been brought in here, because also within local authorities there are huge variations in wealth. Although Cardiff is in east Wales, the people living in Ely do not see themselves being wealthier than the people in my constituency living in Bishopston. So, there are internal variations within local authorities as well, and some of the poorest parts of Wales are in east Wales and some of the richer parts of Wales are in west Wales and the Valleys, albeit in small ward areas.

On that really quickly, looking at the actual spreadsheets they use for the deprivation calculations, they build it up from the ward level—actually, I think, from the lower layer super-output area level. So, I think they are taking account of the small pockets of deprivation within local authority areas. It's not just averaged across the entire local authority, I think they are building it up from the LSOA level.

Can I just say how very pleased I am, and I won't take up any more time?

Thank you, Mike. Peter, I think you dropped off for a little bit there, but I hope you're back now. I think you've got some questions.

Thank you, Chair. The Wi-Fi kicked out and it was all panic stations here because I knew I was coming up shortly, so apologies. I just really wanted to touch on—. We know that Welsh Government will have a reduced role in administering the shared prosperity fund compared to previous EU funding streams, and obviously local authorities are going to have a lot more to do now. Are there any risks or benefits in that approach? Do you feel that local authorities are ready to do this? What are the risks, as you see them?

If I can go first on that, I think we've now got three tiers of government spending in the same area. We've got the Welsh Government with EU funds, which there are still plenty of, as David alluded to, and we've got the new role for the UK Government and for local authorities in this area. The problem is that we haven't seen the level of engagement between particularly the Welsh Government and the UK Government to prevent things like the duplication of spending, which could be a big problem in terms of similar projects being funded during this current period and what have you. We just don't have that level of engagement between the Governments.

The other thing was that, in the past, there were Wales-wide initiatives that were funded through EU funding, and we're now doing it at a local authority level. Okay, there's scope to do regional levels as well, but we might lose that broader scope by having the focus on local authorities. Of course, it's not impossible to have lead authorities working together, but perhaps having more actors involved in the process makes things sometimes more complicated.

In terms of potential for duplication of funding, I'd like to make one specific point on the Multiply element of the shared prosperity fund. It's £101 million, I think, over the three years. That's been allocated on the same national basis as the core shared prosperity fund, which does mean now that the allocation for Multiply is about five times as large per person in Wales compared with the UK average. I don't think there's a clear rationale why adult numeracy spending needs to increase by five times as much per person in Wales compared to the UK. So, I think there's a problem with earmarking that funding in an area that is devolved, and there are existing Welsh Government approaches. So, I think there's a particular risk in terms of duplication there.

11:10

Yes. That's really helpful, Guto, and, actually, you've answered my following question because I was just going to wonder what your perspectives were on duplication, certainly in line with the Multiply programme. So, I think you've captured that really well, so there's nothing more from me, thanks. 

We've come to the end of our questions; I don't know if maybe you've got any closing remarks—brief ones. We're coming up to time, but if there's anything that you wanted to add. 

Just thank you for having us today.

That's okay. No problem at all.

A diolch yn fawr i chi am ddod. Mae wastad yn dda eich cael chi efo ni, ac wastad yn dda i gael y wybodaeth sydd gennych chi a'ch insights chi mewn i beth sy'n digwydd. 

Thank you very much for attending. It's always great to have you with us, and always good to listen to the information that you have and your insights into what's happening. 

Thank you so much. 

5. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn a'r cyfarfod ar 18 Mai 2022.
5. Motion under Standing Order 17.42(ix) to resolve to exclude the public from the remainder of this meeting and the meeting on 18 May 2022

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod a'r cyfarfod ar 18 Mai 2022 yn unol â Rheol Sefydlog 17.42(ix).

Motion:

that the committee resolves to exclude the public from the remainder of the meeting and the meeting on 18 May 2022 in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

Under Standing Order 17.42, I resolve to exclude the public from the remainder of this meeting, and the meeting on 18 May. Are we all content? Okay.

Derbyniwyd y cynnig.

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

Motion agreed.

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