Y Pwyllgor Cyllid

Finance Committee

22/06/2022

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
Rhianon Passmore AS

Y rhai eraill a oedd yn bresennol

Others in Attendance

Gian Marco Currado Cyfarwyddwr yr Amgylchedd a Morol, Llywodraeth Cymru
Director, Environment and Marine, Welsh Government
Lesley Griffiths AS Y Gweinidog Materion Gwledig a Gogledd Cymru, a’r Trefnydd
Minister for Rural Affairs and North Wales, and Trefnydd
Peter Ryland Prif Weithredwr, Swyddfa Cyllid Ewropeaidd Cymru, Llywodraeth Cymru
Chief Executive, Welsh European Funding Office, Welsh Government
Rebecca Evans AS Y Gweinidog Cyllid a Llywodraeth Leol
Minister for Finance and Local Government
Sarah Govier Pennaeth Cysylltiadau Rhynglywodraethol, Llywodraeth Cymru
Head of Intergovernmental Relations, Welsh Government
Vaughan Gething AS Gweinidog yr Economi
Minister for Economy

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Aled Evans Cynghorydd Cyfreithiol
Legal Adviser
Avalon Broadway Dirprwy Glerc
Deputy Clerk
Leanne Hatcher Ail Glerc
Second 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 11:02.

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

The meeting began at 11:02.

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

[Anghlywadwy.]—eitemau diddorol iawn i fynd drwyddyn nhw. Ac mae'r cyfarfod yma yn cael ei ddarlledu yn fyw ar Senedd.tv, a bydd Cofnod y Trafodion yn cael ei gyhoeddi fel arfer. Dŷn ni ddim wedi derbyn unrhyw ymddiheuriadau. Dwi jest yn tsiecio bod yna ddim buddiannau angen eu nodi. Na, dwi ddim yn meddwl. Felly, gwnawn ni symud ymlaen i eitem 2.

[Inaudible.]—we have very interesting items to discuss. And this meeting is being broadcast live on Senedd.tv, and a Record of Proceedings will be published as usual. We haven't received any apologies. I'm just checking that there are no declarations of interest to note. There we go. So, we'll move on to item 2.

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

Eitem 2 ydy papurau i'w nodi. 

Item 2 is papers to note. 

I'm happy to note these papers, unless we have any points that need to be raised. 

Just a little point really for clarification. I know we can write to the Minister, but in regard to the Finance: Interministerial Standing Committee meeting, is that systemic in terms of its framework of you meeting? Will you be reporting back to us as a matter of course, or a little bit more clarification around that? And, then, wider to that, in terms of wider inter-governmental meetings in Westminster, has that been sorted yet? Have we had clarification that there is something in place that is systemic?

Yes, Chair. [Interruption.] Okay, sorry. [Laughter.] So, in relation to the inter-governmental review, and the work that falls from that, we now have the Finance: Interministerial Standing Committee. So, the intention is to meet quarterly, and that will be, for the first time, a meeting where we share the chair. So, I chaired the first meeting here in Cardiff just last week, and our next meeting, I understand, will be in Scotland. So, I think that is a step change really in terms of the parity of relationships within those meetings. But it is our intention to report back to committees. I think that the agreement is that we report back to the Legislation, Justice and Constitution Committee, but I'm sure that those letters can be made public, and in those letters, we describe what was discussed in the meetings. And, then, finally, Chair, as part of the agreement, we will also publish a communiqué, following each of those meetings, again setting out what was discussed. 

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

Great, well, as I said earlier, we've got some esteemed guests with us today, so nice to see you all here. Would you introduce yourselves for the record please?

11:05

Lesley Griffiths, Minister for Rural Affairs and North Wales, and Trefnydd.

I'm Vaughan Gething, I'm the Minister for Economy.

I'm Sarah Govier, the Welsh Treasury.

Good morning, everyone. I'm Gian Marco Currado, I'm the environment and marine director at Welsh Government.

Good morning, everybody. I'm Peter Ryland, I'm the chief executive of the Welsh European Funding Office. So, I'm the head of the managing authority in Wales for the European social fund and the European regional development fund.

Wonderful. Thank you very much. We're here as part of our inquiry into post-EU funding and those arrangements. And we've taken some evidence from witnesses already, and we've had written evidence, and we've had evidence from yourselves as well. So, I'd like to just start with a question, and, with regards to questions, it's whoever is best placed to answer those questions—so, you can decide between you which one is best placed to answer these questions, or if you've got other things to add in, then do indicate. You've suggested that the UK Government is breaking a manifesto commitment by increasing the shared prosperity fund as remaining European Union funding declines. The UK Government says it's matching EU funding with a fund. Who's right?

Well, I don't think it's terribly difficult, actually. The manifesto commitment was to replace and, at a minimum, match the size of former EU funding to nations in the UK. So, that's pretty unambiguous and that isn't what's happening. And I know you've had a range of evidence from other people as well—it isn't just the Welsh Government's view. Farming unions, local authorities, the third sector, higher and further education, are all saying, 'We know that there isn't the same money.' What's essentially happened is the UK Government have tried to net off the funds we're still getting from previous rounds of European funds, and say that counts towards them matching the size. That's never the way that European funds have worked. And I know, Peter, of course, having been a local authority leader, will know that this is how those funds have worked, in the way that the funds have been designed and then implemented. So, it just isn't true.

The other thing that's worth pointing out is that the overall size of what we are getting, not only does it leave us over £1 billion short—and I've issued a statement in June, and the finance Minister issued a statement with more of the workings through, to show how we're not getting what we would have got if we were still part of the European Union; Rebecca's statement was in early May—but with the funds we are getting, £101 million is being top-sliced to go into Multiply. Now, that's an adult numeracy programme. There are two broad challenges about that. One is that, again, it's going straight into an area that's plainly devolved, and the second is that the way the funding works, we've got real concerns about how that money is going to be usefully spent. It doesn't mean that adult numeracy isn't important, but the scale of the funds and the way those funds are working, in rigid, 'You must spend all the money within financial years', is a real problem.

But, like I say, I just don't think it's difficult to work out, and we've provided lots of detail on how we get to the point of saying, it's about £1.1 billion, we've had lots of external challenge on it. And virtually every partner in Wales accepts that money isn't there. And it's not just our view, it's not just the Scottish Government's view. If you were having this conversation with English regions, including George Eustice's constituency in Cornwall, they'd all say they're not getting what they would have got. So, as I say, I don't think it's very complicated.

Very briefly, Chair, if I may, on that point. We were promised every penny and every pound, and this is not a political point, Chair, and it's partially why I asked the question about the inter-governmental review and that systemic framework. How are the representations from Wales being made? And I note that we've got this new function, with this new ability, but how are we doing that?

Well, Ministers who engage with UK Government Ministers on a range of levels make this point. So, whilst I've got a lead role within a lot of this space, and Peter Ryland works in my department, as it were, Rebecca directly takes it up with finance Ministers, and it's a regular topic of conversation and grievance with Lesley and equivalents around agriculture and the wider rural economy as well. And the First Minister is regularly taking this up in meetings with Michael Gove, because the Prime Minister chooses not to meet the First Ministers of Wales or Scotland on a regular basis. So, it isn't as if our concerns aren't there and very clear. It isn't as if the working out isn't clear; it's just the fact that there is a determined approach to not meet the requirement. And the spending review, of course, with the increase in funding that's coming into the shared prosperity fund, it's very, very clear that those funds aren't going to be replaced and the gap in the next couple of years isn't going to be made up in the future.

11:10

If I can just add, Rhianon asked how we make representations. So, Vaughan's just mentioned George Eustice. So, obviously, he's Secretary of State at the Department for Environment, Food and Rural Affairs. As soon as we lost the referendum in June 2016, we set up an inter-ministerial group. I think probably my portfolio was the first area to do that. You've just heard there are other inter-ministerial groups now, but we were probably the first one to do that. And this was on the agenda back in November 2016, and it's continued, and I would say that DEFRA share our concerns. They're impacted just as much as we are. So, we meet regularly, probably every six weeks or so, as the four nations, and it is something that, as Vaughan said, is a real grievance, because we've been highlighting it now for nearly five years and it just hasn't improved—well, over five years. And when the methodology was used by the UK Government, we said straightaway that this is going to mean that we are not going to have the funding that we would have had had we remained in the European Union. And as Vaughan said, that was a manifesto pledge that we would not lose a penny, and clearly that's not correct.

I've referred to the next meeting of the Finance: Interministerial Standing Committee in Edinburgh in September, and we've agreed that one of the substantive items for that meeting will be a discussion on EU funding, or replacement EU funding as it were. So, I think that your conclusions as a committee and your recommendations will be really helpful in shaping some of those discussions. So, it's a very timely inquiry.

And I think with us setting up the inter-parliamentary finance committee forum, there'll be a similar discussion from a committee-to-committee point of view as well, so it all helps to get the points of view. We were talking to Wales Fiscal Analysis and they suggested that it was because we were looking at different assumptions. And I see the smile on Vaughan's face. [Laughter.] You don't believe that that's the case.

I know that you're speaking to UK Government Ministers next week. I think there's a really simple question that you can ask them, which is: will Wales receive less new funding than we otherwise would have done had we remained in the EU? And the honest answer, and the only honest answer that they can give, is that we will receive less funding.

It's good to see you all and thanks ever so much for your time. I won't be making any political points at all, because I'm as much in the dark as everybody else, where we have different perspectives from different sides, and we need to—. And that's the basis of this, isn't it, to understand better where we actually are, so we can hold to account accordingly.

So, a couple of questions from me. How much EU funding remains to be spent in Wales, combining the remaining EU funding with allocations through the shared prosperity fund? How much money will be available to Wales over the course of the funding?

I will ask if Peter can start this, as he's leading the group and he isn't a politician. He'll give you straight answers about how much we think is available and then if there are matters for Ministers to deal with in response, we can do that. So, Peter.

Okay, thank you, Minister. Well, across the programmes that I'm responsible for, there's about £795 million still to spend—about 38 per cent of the programme value. There'll be a bit more on the rural side as well, which puts us in about the same position as my colleagues across Europe. I spent most of yesterday, as it happens, talking to opposite numbers in other managing authorities, and we're in more or less the same position. We are six months ahead of schedule in terms of hitting the expenditure targets that we've agreed with the European Commission. So, we're reasonably comfortable there. That said, we're not where we'd like to be. We're kind of used to being a bit further ahead at this stage in a programme. There are all sorts of reasons why—COVID is one. We have a lot of beneficiaries coming to us saying, 'Can we have a bit more time to deliver things?' that they would have been delivering over the last year or two. And there are some projects that are always going to be weighted towards the back end of the programme. But those delays are an interesting illustration of how it works effectively. The fund is flexible. It's kind of blind to UK financial years; it just works as a block, over—effectively—10 years of the EU funding round, and that flexibility has been hugely important to beneficiaries, because it means that they can plan, confident that they will get the money at some point, regardless of exactly how the project works out.

So, that's where we are; where we'd expect to be, not quite as easy to close it down as we'd hoped. And we're expecting claims still from beneficiaries through until early 2024 yet, so I'm still confident that we'll be able to spend all of that money.

11:15

Thanks for that. That was very clear. A couple of supplementaries, then, around some of this. In the written evidence, it is suggested that ESF and ERDF would have been worth around £1.4 billion between January 2021 and March 2025. How confident are you that Wales would have received this level of funding had the UK remained in the EU?

It is an estimate, so let's not pretend you can put a precise scientific figure on this, because it depends on all sorts of things, like what the overall size of the EU budget would have been if the UK was still contributing to it and that sort of thing. But that said, the core of the basis of that estimate is pretty solid, because the funding arrangements for allocating the structural funds are set out way in advance of each of those multi-annual financial framework blocks. The intentions for what the funding is for, the purposes of funds, are set out. The methodology for allocating the fund across the different NUTS 2 statistical regions are all very clear, and that's all set out before the data is made available, so the data that indicates what the gross national product is in each of those regions. So, everybody knows where this is going, and—. I beg your pardon, there's an alarm going off somewhere. Is that on the call? No, it's only my end. All right.

So, we have a very good idea of what the funding allocation would have been, because of that core framework, which is made clear well in advance, and my colleagues were planning around that back in 2018. They had enough certainty about where this was going before 1 January 2021 to be able to start making those plans very clearly and to work with their beneficiaries, as we have done in the past, so that everybody understands what is coming and is able to put plans in place such that the moment that the ink is dry on the final approvals of the commission, we can approve projects, and in some cases the projects would have started already, because the confidence is such that people can commit to doing that, knowing that they will get the approval in due course.

So, yes; you can argue about what the margin of error ought to have been around that figure that we've derived, but if it went into double figures even either side, it's obviously still a very considerable amount of money. So, yes, I'm confident that it represents a reasonably balanced objective estimate.

I really can't say. There would be no point in trying to put a figure on that, because there are so many unmeasurable variables involved, but as I say, the core of that figure, I think, is very reasonable.

So, to clarify that point, we're talking in the region of £1 billion with the margin either end. That's what we wanted to find out, yes?

So, wherever we cast those assumptions, that would have a different position, wouldn't it? How long do we go on making assumptions on what could have been, now we've left the EU?

The core of the assumption is that we know what the framework is for allocating funding across each member state and for each region within the member state. So, you can make that assumption forever, because we know exactly how it has worked for the 2021-27 framework. We know exactly how that works and we can tell you exactly how Wales would have plugged into that. The assumptions, if you like, are around relatively minor things, as Sarah mentioned, for instance the size of the UK's contribution to the budget—would the European Union have made different judgments about the overall allocation to structural funds if we were still members, and that sort of thing. But they really would have made very marginal differences to allocations for any given region, by the time we get to the end of that.

11:20

Thanks for that. Another supplementary on this point. David Phillips—you've probably read some of the evidence—suggested that the Welsh Government had shared information about remaining EU funds with the UK Government. Can you explain what information was shared and how it was used, and will you commit to publishing that information?

We were asked over a period by a number of different departments, actually, in the UK Government, for information about the profiled expenditure over the remainder of the current programme periods. Some of it was coming from the Department for Business, Energy and Industrial Strategy, because they have a legitimate interest, in fact, as the policy department in what was the member state responsible for structural funds, so just for their purposes of monitoring the overall partnership agreement with the European Union—that was fine.

We also had questions at another point, though, which appeared to be going towards the purpose of working out how much of the existing European funding is in respect of activity that's already been agreed, rather than future activity, or new stuff that we could have been doing by now, and it was pretty clear that what they wanted to do was understand what that figure was, so as to be able to reduce the amount of shared prosperity fund allocations for the first three years. And if you look at the allocations in the shared prosperity fund, the way they ramp up, the correlation is very clear that that is just what they did with it. We, of course, indicated that that wasn't something that Welsh Ministers would regard as acceptable; that would represent a way of, effectively, short-changing Wales. And we were told, 'Well, if you don't give us the information, we'll have to estimate it.' So, we did.

Yes, we can give you that information, but it was, basically, the information about how much remains to be spent. It's changed practically every day since then. So, if you really want it, by all means I'll give it to you, but it wouldn't be terribly informative at this stage. Have I answered the question? There were three strands to that.

Yes. The other—. No, I think you've covered what I asked in there.

I've got another three questions. Witnesses from Wales Fiscal Analysis and the Institute for Fiscal Studies told us that, in practice, spending significant amounts early in the lifecycle of a programme might be difficult. How likely is it that Wales would be spending £343 million in the first year of a new EU funding programme?

This is an interesting question. It is true that, at the beginning of every programme, new beneficiaries need time to mobilise, they need time to recruit, place contracts, secure planning permissions and all those sorts of things. That said, as I mentioned earlier on, it is possible to work with beneficiaries before the programmes are approved, and before the managing authority, WEFO, is officially in a position to grant approval to new projects, such that people can hit the ground already running. In some respects, there have already been sums of money before the programmes actually start. So long as the expenditure falls within the programme period—it would have been from 1 January 2021—it's eligible support, regardless of when the project is approved. So, I think we would have been able to get projects going very quickly. We certainly did last time. We were at the front of the pack in doing that.

This time around, it's a little bit hard to say exactly whether that would have happened, because, even when you look at the managing authorities across Europe who are at the front of the pack, they're still not quite approving new projects, but there's a reason for that. And the reason is called the 'recovery and resilience facility', which is, effectively, an entire extra one-off programme that the European Commission introduced to address the particular impacts of COVID, and then the economic and social impacts of the war in Ukraine. So, all of the people who would normally have been working on the new programmes have actually been working on installing that additional money, which, of course, the UK was not eligible to participate in. So, it's a little bit hard to say quite where we would've been at this point, but on previous performances, I'm confident that we would've been able to hit the ground running.

But, again, the point about this is that this is a 10-year programme, and people know that they have the flexibility to draw down the money when they want, whether it comes immediately in that first year when they first start operating, or whether they don't draw it down until that back end; it varies. Some projects have match funding that they can use upfront, and then not later, as the project become busier towards the back end, and they choose not to draw down their funding early on in the project. So, it's not as simple as the relatively restricted financial years that the UK insists on working in, because, as mentioned earlier on, the structural funds just don't have that kind of what they would regard as artificial cut-off dates.

11:25

Thinking back to the start of the last programme, 2014-20, when we were probably front of the pack, as you were suggesting, how would we have managed in that first year there? Can you recall that? I mean, it's a way back. 

I think we spent about £3 million, and that seems like a small amount, but projects were up and running and spending the money. What we spent isn't a reflection, necessarily, of what's happening out there; at any given point, there is a huge amount of money that beneficiaries have spent but haven't yet claimed.

What I think it's also worth mentioning in terms of some of the differences is that having netted off in a way that we disagree with, the challenge is that there isn't any plan or any commitment at all in future years to invest that money that they're netting off against. So, the loss is permanent. So, it isn't just saying, 'Actually, within these years, you're getting all that you could and would spend in a new programme.' It's not just a seven-year framework; you then get the extra time to spend the money, so you get 10 years to spend the money, and there's no commitment at all to have that money in future years. And that's why we say that the loss of money is permanent. And it comes back to the points that Peredur started with in questions to us about the realities of what we have got and what we would've got if we were still within the EU.

Okay, thanks. A couple more questions. The 2014-20 programme was for seven years—we accept that. The shared prosperity fund will operate over three years. Have you had any indication from the UK Government about funding programmes once that fund ends? Because we know, obviously, that the shared prosperity fund is for a far shorter period.

No, we haven't had any indication as to what might happen after 2024-25. But that's not surprising in the sense that the engagement so far from the UK Government has just been absolutely woeful. There's just been absolutely no information shared with us in terms of their intentions whatsoever.

Okay. Well, that'll be a useful one for us to follow up, won't it, next week. 

Yes. Especially, I think, in the context of what we've literally just been discussing about the importance of those longer-term windows for investment. You can be much more ambitious in the kinds of programmes that you invest in when you do have that longer horizon over which to spend the funding. And, we were really keen to learn lessons in terms of the independent analysis that was undertaken of EU funding. We took very seriously the recommendations that funding on that regional or national basis could have much more impact investing in strategically important things, rather than taking a scattergun approach, sprinkling a little bit of funding here and there across the country in projects that will not have that strategically important impact. So, I think that that, again, is one of the things that is disappointing, really, in terms of how things have resulted.

Yes. Fair point. My last question is probably to Lesley. Your evidence in committee notes similar concerns around replacements for farm funding, which is being offset against remaining EU funding. Can you outline the proposals for farm funding and the funding available for replacement schemes? And perhaps at that point, I should've declared an interest as a farmer. [Laughter.]

Yes, absolutely. So, the way that the UK Government have netted off the ongoing EU funding means that we have £243 million less money available to us, compared with what we would've had, had we remained in the European Union. That's obviously led to some really difficult funding choices, but I think, even with those difficult funding choices, we are able to make significant investment into our rural communities. So, you'll be aware that I maintained the basic payment scheme at £238 million this year. I've committed to do the same next year, so long as I get the funding. You know, contrast that to England, where they significantly cut the BPS last year there, and they're having another significant cut this year. I thought that was really important, and also to get that information out around the BPS early, to give some certainty to farmers. You don't need me to tell you how challenging it is at the moment, particularly the cost-of-living crisis, with food and fertiliser and fuel costs. So, I thought it was really important to get that out.

Early this year, I announced £275 million of funding over three years for rural investment schemes, so there are a few windows open at the moment; there'll be more windows opening over the summer. And that funding, really, is to support our farmers, our foresters, our food producers, our food industries to really make them more competitive and more productive, as we head to the sustainable farming scheme—you know, the transition from the basic payment scheme. So, we've got windows open at the moment, but the uptake apparently is very good. I just go back to what Peter and others have said around the lack of flexibility. So, I had, and our organisations and the people we support had, 10 years previously. It's much more difficult now for them. We don't have that flexibility that the EU funding allowed us.

11:30

We hear often from UK Government that the farming sector, the lump, is still £337 million. Is that because the EU element, the tail-off money, is attached to the money you've talked about?

No, £337 million. That's what constantly gets pulled up from UK Government, saying, 'That's what the farming lump of the EU funding is', and, yes, that's what you're still going to have, but that would be EU tail-off funding alongside the money you've identified.

That's right, yes, absolutely. So, the £40 million, for instance, that we transferred to pillar 2—. And we made those decisions in good faith. We assumed we would have that £40 million. Because of the way they're netting the ongoing EU funding, that would be—. So, that's obviously three years.

Yes. Because they maintain that the £337 million is exactly what was always happening, anyway. So, that money is still there—maybe some EU, maybe Welsh Government—but it's still £337 million.

Talking about other funds and things, we mentioned it earlier with regard to the recovery and resilience fund, and especially the Ukraine element. Has that been calculated in the £1 billion loss that we've had, or is that in addition? 

That's different. So, when we talk about the over £1 billion, that's on the programmes that we're talking about now that we would've had. It doesn't take into account the new fund that was created that Peter referred to earlier.

Okay. Fine. So, with regard to that, then, what else replaces that from the UK? Have we had a consequential for that?

No. That's the broader challenge around the cost of living in its broader sense. It's not just for households but actually for businesses and other affected sectors. So, I don't think you could directly point to a comparable source of UK funding. That is when it gets more and more difficult to compare, but with the assumptions that I made, you could probably have an indication of what would've happened if we'd been part of it. But that isn't what we're really here discussing today, and I think that is a separate issue. If you want to send a note to us, we could try to give you a best understanding of that, but, as I say, it wouldn't be fair for me to say that we would definitely have got money if we were still part of the EU and here's what it would be. I think that would be—. We'd need to do some more work to give you anything like a useful figure.

But it might be interesting for us as a Finance Committee to understand that mechanism, so we'll write to you for that. I'll bring in Mike Hedges from sunny Swansea. 

Diolch, Gadeirydd. The Welsh Government has not had any role in the development of the community renewal and levelling-up funds. If you had been involved, what would you have done differently?

11:35

You're going to have a perspective on how we've used funds in the past and how we're are still using EU run-off funds. You've got a role as the chair of the programme monitoring committee for that. What you will see in the way that the UK Government developed both the community renewal fund, which was called the pilot for the shared prosperity fund, and the levelling-up fund is that there wasn't engagement with us.

The odd thing about this is it straddles two Secretaries of State. Robert Jenrick was the previous Secretary of State, then the department was shifted and recreated and Michael Gove became the Secretary of State who announced some of the funds as they'd been issued. Rebecca referred earlier to a scattergun approach to funding, and the community renewal fund was that, and there's no point saying it wasn't. It was lots and lots of small amounts of money, so £46.7 million across 165 projects, except, of course, nothing went into Flintshire, and if Flintshire local authority were here, they'd have a large sense of grievance about that. But the challenge was that that went back to, if you like, the first round of EU funds that we had where our own committees in this place and independent analysis said, 'You could have got much greater value for that if you'd chosen a smaller number of more strategic projects.' So, it was looking to unlearn those lessons.

On the levelling-up fund, of course, £121 million was given to six local authorities, and I think a third of Welsh authorities didn't even bid. That comes back to the way the fund had been created, because there was actually not a lot of time to get bids ready. This isn't a party political point, because, actually, if you look at local authorities across the piece with different leaderships, they couldn't get bids in. So, it meant that you had a bias in favour of shovel-ready projects, and they're not always the best use of money, but it allows you to get money out of the door. That in itself was a problem.

There was no engagement with us about that. We regularly asked for conversations and were told there would be engagement with us and it just didn't happen. It was not a great way to run inter-governmental relationships and relations, and it caused real grievance. It was a really poor use of our time, as well. We spent a lot of time arguing in public about the fact that the UK Government would say, 'You're going to be involved,' and we'd say, 'Well, we're not, and you're clearly making choices', and then, hey presto, all the choices are made without any engagement with us.

It also just ignored what we'd been designing over a number of years with partners. The regional investment framework involved local authorities and other partners. It was also something that the Organisation for Economic Co-operation and Development endorsed, so it isn't just the two Governments disagreeing, because the OECD said, 'This is a rational approach and a reasonable approach to regional investment with priorities', and then that didn't happen.

It's not just our view, of course; the BEIS committee was critical of the approach and the lack of engagement with us, about the fact that the funding was disparate and, overall, lacking a coherent strategic purpose or focus. The UK Public Accounts Committee repeated a range of those issues, but it was also, I think, more scathing in that it talked about Ministers finalising the principles for awarding funds only after they knew the identities and scores of shortlisted bidders. That sort of retrofitting is exactly what we shouldn't do, and if we were doing that, I think Members of all parties would be saying, 'Are you not looking to advantage your chosen areas and to design a framework to fit on the back of it?' That's not the way to do things.

We have made a bit of progress past that, but it really wasn't a good way to start, and I don't think anyone will be able to stand up and say that is good value for public money in the way that that was spent. I certainly think our own public accounts committee and yourselves as Finance Committee would not be positive about endorsing that sort of approach from the Welsh Government in how we spend public funds.

Mike, before you carry on, just if I may, we had evidence from the WJEC that said that, on an official level, the relationship between officials from local government and the Westminster Government was probably the best that it had been for a long time. Is it a politicians problem, or is it because the relationship is supposedly good between officials?

The WLGA did have a lot more direct engagement with those UK Government officials, but that's because the UK Government department was creating a relationship that didn't exist, because, of course, the department that's been running levelling up now for the UK had been used to dealing with English local authorities, so they didn't have a relationship or a presence in Wales. So, they'd made a series of understandable overtures to want to have conversations with the WLGA, and so the relationship between officials in the Welsh Government and the UK Government is actually cordial. The challenge is that we ask politely, 'What's happening?', 'What's going on?', and we don't get an answer. Even the WLGA, when they've asked about priorities and how that would work, were still left in the unacceptable position of being told to get bids in really quickly and then told, 'You need to spend the money really quickly' in a way that wasn't realistic. So, the relationship between officials, yes, that has been constructive and people have talked with each other, but at the decision-making end, there's been a range of really poor choices, and this is an area that has been plainly devolved for over 20 years.

Another thing about the way that some of the pilot funds work is that there was a specific role for MPs, and there had to be engagement and people had to sign off. That's problematic, because it's an area that's plainly devolved; it's an area where Members of this place, elected to the Welsh Parliament, weren't asked to have any of that engagement, and it puts local authorities, as the meat between the sandwich, in a really, really difficult place. And actually, MPs have their own interests; they've got constituencies to represent. I think that's quite understandable. As a local authority, trying to say, 'How do we make best use of this money and then how do we keep on board MPs from different parties?' I think is really, really difficult, and, again, I don't think that produces the most strategic and purposeful way to spend public money. So, yes, relationships can be good and positive between officials, and they are, but the decision-making end is where we really fall down and we're simply not engaged or involved as we should be, and I think the same goes for Members of the Senedd as well.

11:40

Diolch, Gadeirydd. In your written evidence, you state that while the levelling-up fund is not a replacement of European Union funding, it's operating in similar areas. We also know that two areas that worked really well with European funding were Horizon and agriculture, and they're two areas that are of great benefit to the Welsh economy. What's your assessment of how those are going to go forward?

The levelling-up fund is a different fund. It replaces the towns fund in England. And, again, there is a range of criticism about the way the towns fund was created in England. We used to get a Barnett consequential for that. When the levelling-up fund was announced, it's worth noting that at the time the Chancellor said that there would be a Barnett consequential; that was then changed into a fund where there wasn't a Barnett consequential, it was directly managed by the UK, and they made the ultimate choices, but that's the one where I think MPs had to be engaged in the bids.

Lesley will answer the points about agriculture, but on Horizon, we're still trying to engage in a process to get association as the preferred option, and, to be fair on this, the UK Government want to achieve association status as well. That would make our ability to engage in those projects much, much simpler, easier to facilitate, and higher education and others are really keen to be able to do that. Whether that happens is really about relationships between the UK and the EU, and there's a range of things going into that, not just Northern Ireland. But the challenge around whether associate status will happen is one thing, and if not, we're actively working on what a plan B might look like. On that basis, there are constructive conversations between our officials in the Welsh Government and the UK Government, and, to be fair, I think George Freeman as the Minister in BEIS is doing most of the legwork, and he's trying to be constructive, I think. So, there are times I'll be sharply critical about UK Ministers and the Government, but I think he's trying to do the right thing. So, my engagement as effectively the science Minister of the Welsh Government, and with George Eustice, I think, is one of the positives in the relationship. But, we're not yet sure whether we're going to get association status with Horizon.

Thank you, yes. Both our farming and rural communities will lose out on over £106 million of replacement EU funding over the period of the spending review, and that's on top of the £137 million we lost out on in the last financial year. I obviously continue to press DEFRA in relation to this funding. I know Rebecca does the same when she meets her Treasury counterparts, to try and get them to reconsider the methodology that they've used. We've made it very clear to them why we've got this reduction in our funding, and it's because of the methodology in the way that they've netted off. They've repeatedly refused to engage with us around this, but it doesn't mean we're not continuing to press. At one point we were looking at the resolution position. We haven't pressed that button before, but it's something that we do feel so very strongly about. One of the things I'm constantly being asked as we do the transition from BPS to the sustainable farming scheme is, 'How much will I have?' Well, I really don't know. Beyond 2023 I have no idea what funding we will get for our agricultural sector and our rural communities.

11:45

Thank you for that. We'll know if levelling up works or not, when we see the GVA from different parts of Wales and compare it to the rest of the United Kingdom. So, we'll know if it works. But do you think what is being attempted with these bids aligns with Welsh Government policies and aspirations and do you see them as actually increasing our GVA?

Well, I think it comes back to, not just comments we've made, but the UK select committees and their own Public Accounts Committee—this doesn't look like a great use of public funds, and not great value for money overall. So, I think it would be wrong to say that all the money will be spent poorly and there will be no impact on increasing GVA. The challenge is we think that it could have been better spent, and that's the point, isn't it? It's not just saying, 'I can give you one example of where the money has been well used and has a good outcome.' You look at the overall pot and think how could you have spent that money and why would you have wanted to spend it differently.

It goes back into some of the other questions we've had about the planning cycle, about how much money you spend in an earlier—. How much flexibility do you have? How strategic is the focus? How much time have you got to plan to deliver these bids? And local authorities were put in an impossible situation in needing to get bids in quickly, and it's no surprise that they weren't strategic and they won't end up having the impact that local authorities themselves would have wanted to have had.

I think, not just because we haven't had engagement around how the bids were made, not just because of the scattergun approach of the community renewal fund in particular, but, actually, I wouldn't say that then means that we end up with spending priorities that are always not aligned with where we are. But it's plain that some of the projects that have gone in aren't aligned with Welsh Government priorities. It's what we wanted to avoid in the design and delivery of these funds, so you'll see examples on both side of the aisle. There are those where we can say, 'Actually, this is helpful, and this aligns with our agreed priorities that we'd worked with local authorities and other sectors as well to provide', and others where we say, 'Well, this just isn't aligned, but it's a local authority trying to make sure that they can get some money from a pot that would otherwise disappear.' So, we continue to work with our partners to try to make the best of this situation, but it really could and should be a better fit with our priorities, and it should result in better value for public money.

Could the four Welsh regions be working closer together? Within the regions who've been working close together—the Cardiff city region, the Swansea bay region, the north Wales region, and the mid Wales region—have they been working as regions themselves to try and put forward projects which would benefit their regions?

Well, that's what we want them to do, and that's the reason why we had an investment framework. It's why we encourage each other along to have the regional plans that they provided, the regional economic framework, because that means the framework to then make choices together. The danger is, if you don't have that plan, and it's quite understandable why, and if you think about the Cardiff capital region—10 authorities who sometimes have agreed priorities and alignment, and other times will say, 'Actually, I have a different perspective.' Monmouthshire is different to Cardiff, who's different to Rhondda Cynon Taf. If we look at north Wales again, you will find some areas of commonality and other areas of real difference. So, having a regional framework where you agree that here is where, for this region, we can make the biggest difference—it's really important we're trying to work across that larger area. Our officials continue to work with each of those regions in the design of the round of funding that we're into with the shared prosperity fund, to try to make sure we do get the best fit for Welsh Government priorities and what each region wants to achieve. Now, regardless of this area, we want to have a better relationship in partnership with those regions, but when you’ve got really short time frames to work to, that’s really difficult. And the easy way to spend money is to say, ‘Well, I have things within my local authority that I could spend money on’, rather than the difficult process of agreeing projects, whether it’s six, 10 or even two local authorities, and to have shared priorities.

So, again, with more time and greater engagement in how the process could have been run, I think we could have had a better process, and the process, I think, would have ended up with better value for money. And I can’t give you, if you like, the clarity on exactly how well each of those regions are working internally with each other, because I don’t attend all of the meetings, and they probably wouldn’t want me there, either. But actually, we’re going to see that when they’ve got to provide their investment plans for the shared prosperity fund, to then be able to see what goes in, how well aligned is this with what the region has said it wants to do in their own regional economic framework, and with Welsh Government priorities as well.

11:50

Thank you for that. Many years ago, I chaired Swansea’s Objective 1 committee, and you’re right, there is a tendency to take the easy one off the shelf; there’s also the tendency to give everybody a bit, so that everybody benefits by a little rather than taking the longer range strategy of how does the whole area benefit. What’s the role of the Welsh Government in ensuring that we end up with an area—the areas being the four regions of Wales—plan that will actually increase the GVA? Because that’s the outcome of levelling up, that people end up better off.

Yes, look, when it comes to the use of the shared prosperity fund, we only have an influencing role, we don’t have a decision-making role. And that is a real problem, because it isn’t just a sense of grievance from a Welsh Minister who says, ‘This has been devolved for 20 years. Welsh Ministers should still be making choices around this.’ It actually gets in the way of how the process works. The ultimate decision maker in signing off the investment plans will be a UK Minister. It’ll be Michael Gove who will sign the plans off. We don’t have a decision-making role, and that affects what we can do in the conversation about making sure that we do get a matching alignment of how the funds are going to be used. So, it’s a practical question, not simply a matter of politicians wanting to have more influence in the process. It’s also a practical question for Members of the Senedd as well, because the way the guidance has come out, each of those regions, and it was a positive that we got alignment on the four economic regions as we’d said, rather than a different structure—. But UK Members of Parliament still need to be formally consulted and engaged. They don’t have a decision-making role, but they need to be engaged, whereas, actually, whilst it says that, where appropriate, Members of the Senedd should be engaged, it doesn’t have the same requirement, so Members of the Senedd are treated differently, and I think that’s really unhelpful, including whether you’ve got a constituency Member or a regional Member of the same political stripe as you. It’s really unhelpful to treat Members of the two Parliaments in a different way, and economic development is devolved. So, it’s unhelpful.

I would like to think that, because of the strength of our relationships, we will end up being able to have a constructive influence with the investment plans as they are, but the time frame means that’s more difficult. We want to see the money used well, so the Welsh Government won’t be destructive and unhelpful, but there’s a limit to what we can do, and there’s a limit to what we can do in the use of our time and resources, and there’s a limit to what we can do in practically influencing something in the time frame that we’ve got, to be constructive, to be helpful. But we don’t have a decision-making role within this, and equally, there are other partners excluded as well. I know you’ve had evidence from higher and further education, I know you’ve had evidence from the third sector—they’re all excluded from the way the decision-making works. And again, that’s why I talked about local government being the meat in the sandwich, because they in their regions are going to make choices about their investment plans, and they’ll have people bidding for them saying, ‘We used to get money, we think we’ve got lots to offer, and if we can’t get that, here is the problem for the constituencies, the communities you represent’, but local authorities are still going to have to sign off plans. And at the same time, in terms of colleagues to my physical left, there’s about £4 billion that goes into local authorities from the Welsh Government budget compared to the £400-odd million that’s going through the funds that they’ve now got to determine. So, we want good use of that money, but we’ve got to think about how we use the core funds and how they work with us to try to make sure we get the benefit that I think every Member in this room would want to see, what Mike Hedges has said—to see an increase in the prosperity of communities that we represent or would aspire to represent in future elections. 

11:55

Finally from me, and this is slightly off the levelling-up fund, but the best action to bring levelling up in Britain based in the past was the movement of big Government bodies, such as the Driver and Vehicle Licensing Agency, from the south-east of England into places like Swansea, and the increase in student and university research. Most of that—well, all of it—is outside the levelling-up fund, but it is important for levelling up. 

Well, I don't disagree. We've done some of that in Wales as well. We've moved civil servants to different places, and local authorities have done some of that in the way that they have moved their office space around. There's a different challenge, of course, which again isn't about levelling up but is about the change in the nature of work and how typically office-based employment is shifting and changing. That provides risks as well as opportunities. It means that people who can work from home for a substantial part of the week don't need to think about their proximity to a five-day-a-week commute, whether that's by public transport or their own means. But it does mean there's a different process going on within the world of work, both public sector and private sector, but we still want to see significant investments in the future for innovation, research and development because that is crucial to our future as a country.

Thank you. Before I go into my line of questioning around the shared prosperity fund funding gap, is this not stronger than you are advocating in terms of the fact that, yes, we need to be diplomatic with the UK Government, and, yes, we need strong working relationships as far as we can engender them from Wales to the UK, but surely, in terms of the engagement of MPs and the sidelining of this Senedd, this is a direct challenge to the mandate of this place in terms of economic development. And what mechanism is there—very briefly, before the Chair tells me off—for us to push this forward?

Well, this is all about the politics of the matter. It's not just the mandate from five or six elections to this place, there have been two referenda that have established this place with the network of powers that we have. The United Kingdom Internal Market Act 2020 and a determined UK Government are seeking to take chunks out of that when they wish to. And that's what's happening. And it doesn't matter what party you're in, you can see the action that's being taken and the use of internal market Act powers to fund areas that are plainly devolved, and people need to make a choice about whether you think that's the right thing to do or whether, actually, having two referenda for devolution should mean that there is a level of respect for not just the institution but for our individual role as individual elected Members. Ministers don't shy away from standing up and being directly critical when these things happen, but it will ultimately be resolved by how people make choices in a political process. We've got the infrastructure, which we've talked about, with the inter-governmental relationships, but that requires goodwill on all sides for those to work.  

Can I just add that it's not just economic development, either? In my evidence paper to committee for today's session, I talked about the EMFF, so the European marine and fisheries fund. We're looking now to replace that and the funding we were given. What I didn't put in is that there was also a £100 million seafood fund. Now, right at the beginning, we were told about this £100 million. Fisheries are wholly devolved, and have been for over 20 years, so we should have had our fair share of that funding for us to decide here how we spent it in supporting our fisheries sector here in Wales. That was just completely overlooked. Even though there was nice noise at the beginning, in the end, the UK Government decided they would administer—they would decide where that funding went across the whole of the UK for fisheries. That's another attack on devolution and cutting out both myself and, obviously, the Senedd. 

I'm conscious we're moving off from the topics a little, but are we saying, then, that inter-governmental relationships are at a very, very—they're at an all-time low, or are they—? Because we are where we are and we can moan about the situation, but how do we repair it, because this is what it is? How do we build that?

It's like Rhianon was saying: how do you maintain those relationships? I mentioned, from a DEFRA point of view, I work very closely with DEFRA and with the Scottish Minister and the Northern Ireland Minister. We meet regularly. You air your grievances but, ultimately, you have got to work together, and it was interesting when the question came about at an official level. If you talk to my officials, they would say they have a very good relationship. Of course, that's their job, isn't it? If you speak to an official, you wouldn't know what their political views were; they work with whatever Government they have to work with. So, it's good at an official level. At a ministerial level, I think I have a very good working relationship with George Eustice, with Mairi Gougeon and with Edwin Poots. But, of course, when I see this attack on my country and devolution and my sectors that I have to represent, it can get heated—of course it can—but you do have to maintain, of course, a working relationship, because if you look in my portfolio at food, for instance, it's so integrated across the UK. I have to have those conversations continually every week. So, it's striking a balance, I think. 

12:00

Thank you. You suggest that—you've sort of touched upon this, so you may not wish to delve too deeply—the Welsh Government was not involved in meaningful discussions around the shared prosperity fund at the start of the session and, as has been mentioned previously, until about two weeks before it was launched. What engagement took place prior to the launch? What was achieved, briefly, in the two weeks preceding the publication of the prospectus?

So, if you take a step back to the pilot funds, community renewal and levelling up, we were, literally right at the end of the process, given a 50-word summary and asked, 'What do you think?', and we said, 'This isn't meaningful; we're not going to engage our resources on second guessing what you're trying to do'. When it came to the shared prosperity fund, we'd regularly said, 'We need to have engagement', and the frustrating part of this is that, on free ports, we didn't have any discussion. We had a lot of shouting from the Secretary of State for Wales in particular, saying, 'The Welsh Government is holding all this up. It's not happening, it's all their fault'. And actually, we didn't have any meaningful engagement. We'd written and said, 'Here are the things we want to talk about'—that was me and Rebecca, in particular, engaging on that—and then, right at the end, we did get some engagement and it was meaningful, and we've got to the point where, on free ports, we've got a policy we can live with and we can work with. And it respects the fact that the Government will be co-decision makers in designing the prospectus and making the choices. 

We didn't get there on the shared prosperity fund. In the last two weeks, there was lots of engagement between our officials and UK Government officials from the levelling-up department, and it meant that we got to see in more detail and more certainty how they were proposing to spend the funds, and what they thought would happen. Now, that meant that we did have engagement in that last two weeks between officials, whom I then spoke to and I was clear about the direction that we could and should take. For example, on the way that the proposal to allocate the funds was based, they looked at allocating all the money on the way that the community renewal fund had been allocated. The challenge with that was that the factors meant it would actually move money away from concentrated areas of population living in deprivation. We suggested using the Welsh index of multiple deprivation, recognised by all Welsh partners on an objective basis, and that was our preferred way to allocate the money. 

We did negotiate to get them to move closer to us. In the end, we weren't able to get an outcome that we wanted and we could live with, but we did make some progress in those two weeks. I directly met with Neil O'Brien. He came to Cardiff and I met with him and a team of civil servants. 

So, that was in the last two weeks. They were two weeks of very intensive engagement, and it meant that Ministers, special advisers and officials worked through the weekends to try to get something sensible, and that was driven by the UK Government wanting to make an announcement before it went into purdah before the local authority elections. So, it wasn't that there was a need to do something from a financial year point of view—it was driven by that. And, again, engagement even a few weeks earlier would, I think, have delivered a better result, and engagement several months before would have delivered a better still result, and that's what we were asking for. 

To precis, what you're saying is that a genuine co-constructive approach isn't done in a two-week model. I would hope that that's fair. And very briefly, then—and I'll tie this into your comments around the Wales index of multiple deprivation being used as a centre to any model in terms of the shared prosperity fund—on the pilot of the community renewal fund, what lessons were learnt about the Whitehall tower's scatter-gun approach to funding applications? What was learnt from that, from the model, for the shared prosperity fund, and has that been applied?

12:05

I think there are, perhaps, two things—if you wanted to give some credit to the UK Government—they learnt. The first was that they themselves recognised that the scatter-gun approach was problematic and they wanted to have a plan to invest against that wasn't simply, 'Tell us what you've got, and we'll decide what we like.' So, there was some movement on that. The challenge was that, whilst we made progress on having the same economic regions and recognising how they do that and wanting a plan to invest against, actually, that all happened really quickly with our engagement, and then local authorities still got a really short time frame. But there was a recognition that they needed a more strategic approach.

The other thing that I think it's fair to recognise is there was a level of engagement with us, even over that two weeks, that made a difference to what we ultimately got, when there was nothing from the community renewal fund, and it also meant that we did get a different allocation methodology. So, whilst we're still not happy and aren't prepared to endorse it, it's different to what's happened in Scotland and in England, and they did move away from the funding formula used in the community renewal fund. But it still means that Rhondda Cynon Taf, as a large authority, with lots of people who are not well off in that authority, they would undoubtedly have got more money if we'd used the Welsh index of multiple deprivation, as indeed would Caerphilly, as indeed would Neath Port Talbot. So, you can see that it's suppressed the money that would have gone to those authorities with large numbers of people who are not well off. So, that's the challenge. We've made improvements, but it's not something that we can endorse.

And finally on this point, because I think it's very important in terms of EU structural funding Objective 1 in terms of deprivation, does the shared prosperity fund—and the clue is in its title, I think—actually address those deep-rooted, endemic poverty measures that we were utilising in many places in the poverty-based model of structural funds, or not?

Well, I think it would be an unfair test to say the shared prosperity fund on its own has to do that, because you can look at other interventions. But, frankly, with a budget that's been cut, as we discussed at the start, how on earth can you then expect that fund to do that? I think it can make a contribution, and, not spending that money, I think you could say communities would be worse off if that money were not available. But, actually, the size and scale of what we had previously, what we could do—we could undoubtedly do more if the funding promises had been kept and if we'd been able to use money that rather more directly tracks need in the way that the money is then allocated.

Thank you, and I'll be brief on my final questions. In your written evidence, you suggest you will support local government through the corporate joint committee infrastructures. Can you provide, briefly, further information on your intended involvement via that route, and also your view, Ministers, on the additional support local authorities require and the level of support currently being provided by the UK Government?

If I talk briefly, then Rebecca may want to say something, given that she's the local government Minister. It's the same structure and the same footprint as corporate joint committees. At one point, of course, you reflect that the pilot funds were on a local authority-only basis, and that meant you couldn't really have a join-up between the regions that we had pulled together to work together. So, it means that regional skills partnerships are on the same footprint; there's an opportunity to work together. It means the city and the growth deals are all on the same footprint. So, not having different geographies is a positive. The challenge comes, though, in making those relationships work, and that's a job of work to entrust between officials and elected representatives in local authorities themselves as well as with us.

I actually think that the biggest challenge for us is whether we'll get plans that really do work alongside the regional economic frameworks they've all agreed, on the framework for investment that we spent lots of time agreeing, and whether local authorities will be able to do something that they really want to do with and for their communities and us in the time that they've got. Because, you know, in Yes Minister speak, I think some people would call it an 'optimistic' or a 'brave' timescale. I think in real terms that's probably unachievable and an unfair ask for them to make. And the other problem is, in terms of the previous funding rounds of the pilot funds, even after the bids went in, there was a very long time for the UK department to actually make choices, so it meant that the time for local authorities to actually spend that money and deploy it was shortened, and, as you've heard already from Peter Ryland, there's a rigid structure around financial years and spend. And if that flexibility, or that inflexibility, remains the case, then, again, you could find people wanting to spend money to get it out the door, and not thinking, 'This is the best way to spend the money', because they can't carry the money over into different financial years, which I think is going to be a larger problem as we get through the programme, and I think it's an unfair challenge to set to our colleagues in local government. 

12:10

I would just add that we have exceptionally good relationships with local government, so we are able to have some very open and frank discussions about these matters, which I think is very useful. Just a short while ago, Vaughan wrote to local government, just setting out that Welsh Government would be happy, for example, to look at their draft proposals to explore to what extent they align with Welsh Government priorities, which will, of course, be important, even though we don't have that decision-making role, and also to explore what we can do to broker discussions with others who have an interest in the shared prosperity fund, if they think that it would be useful for us to do that as well. So, we're able to do helpful things in that space, I think. 

Okay. Thank you very much. And just a final couple of questions from me on this, seeing as we've got the finance Minister here as well. So, we'll ask about the legislative consent memorandum after this, if possible. Stakeholders are suggesting that there is a risk that projects will be wound down due to funding uncertainties as they transition from EU funding. What issues have been raised with you, and what is the Welsh Government's role in resolving those?

Well, I think it's inevitable that some of the projects that people recognise have value will be wound down, partly because the money isn't there to carry them on, but it's also partly because of the way that the investment plans need to be created. I know the third sector want to have a role in helping to design the plans, whereas, actually, they don't have a locus, in the way that the guidance is set out. The same for higher and further education. And I think there's not just a real risk; I think it would be surprising if some projects were not wound down. And the Welsh Government's role will be really difficult, because it's understandable that people say, 'This is a really valuable project; you should find a way to see this continue', and there'll be some parts where we'll try to do that. We've seen that in other areas, both within my budget, but also I'm sure Lesley will have examples of where we've kept things going—in fact, in agriculture spending—making choices to keep on spending money, because we recognise there's a value to it.

So, I've recently announced we're putting money into Business Wales from central funding, which, actually, in my department, would otherwise have come from EU funds. And that's because we recognise the value in it. There are other areas where we've had to make our own difficult choices. So, when other people will come to us and say, 'This is a really valuable project, it really helps people to get ready for work and get closer to the labour market', for example, we'll have a really difficult choice of, 'Well, how much money have we got?' And actually, we know we've got less money—and the finance Minister will be able to confirm—£600 million less in real terms than we had when our own budget was allocated following the last spending review in the autumn. So, the value of our budget is going down and we're not going to be able to meet all of those pressures.

So, we will, of course, look at things when they come to us, but it's a really high bar that's going to be set for those things that we don't just want to see carry on, but then that we can help to carry on. And lots of those people will also be going to local authorities and saying, 'We previously got support for this really valuable project that you visited; can you help it to carry on?' And, actually, the money isn't going to be there for them to do all of those things. So, I think it will be a very challenging time for people in local authorities and ourselves and all those people running projects that have had real value. 

So, people in those projects—. It lands on your desk, for example: what's your thought process when you come to making that decision?

Well, actually, I recently had—. All Ministers have engagement with the voluntary sector, directly and indirectly. I have a direct meeting with the voluntary sector a couple of times a year, and this was very much part of their concern. And they were asking, 'Will we be able to get you to fund things?', and I was honest. I said, 'Well, I won't say it's a straight "no" to everything, but, actually, we'll need to understand what's the value, how does it align to Welsh Government priorities, what's the scale of the ask and what does it mean for us, and we'll have to be honest about the state of our budgets at the time.' And that, I think, is quite a difficult process to get through. 

So, I don't think any Minister will say, 'I'm going to say "no" to anything that comes across my desk', but every Minister will look at their budget and say, 'What can I do, and what do I understand about the value of this, and is there a different route to doing it?' So, there are practical questions that we're all going to have to ask. I don't think we can say that there is a scale or a size or an approach beyond that broad framework. And Rebecca regularly assures us she isn't sitting on a large pile of cash to dish out to every department. Now, like I say, our budget is worth £600 million less than it was about six months ago.

12:15

So, a final question on this is—. As you might be well aware, we will have the Secretary of State and the Deputy coming in on 30 June. Rebecca has given us—

Sorry. Yes. He's coming in, and Rebecca gave us a question that she'd want us to ask. The other two—what would you like us to ask, or what would you suggest that this committee asks those two coming in?

So, for me, the question around the methodology and the netting off would be really important. Because I had a meeting with the Secretary of State for Wales—sorry, the Deputy Secretary of State for Wales—and I did think he did understand where I was coming from around the methodology and how much funding we would be losing—agricultural funding we would be losing. So, if you could push the methodology issue, I think that would be really good, because, as I mentioned earlier, both myself and Rebecca, with our counterparts in the UK Government, have really tried to engage on the methodology, in trying to persuade them to change their approach to the methodology. So, that would be my question for you. Thank you.

I think there are two things. One is just a point about devolution. The UK Government disagrees with the Welsh Government on a range of things, and they're entitled to disagree with us, just as we're entitled to disagree with them, whether matters are devolved or reserved. But should it really be the case that a UK Government Minister can decide, 'We disagree with what the devolved Government elected by and for Wales wants to do, so we will make a different choice'? And there's a point there that isn't just about Ministers, it's about Senedd Members as well. If those choices—. For example, Multiply, a requirement to have an adult numeracy programme. That isn't our choice. How are you going to scrutinise how that programme is working? How are you going to be able to scrutinise the use of public money, when you've got different Ministers, who don't always attend? Welsh Ministers attend on a regular basis here. Will you have Ministers from different UK departments coming to talk to you? Will Neil O'Brien or Michael Gove be coming to talk to you about what they're doing and the choices they, ultimately, make in signing off the shared prosperity fund? Because the Secretary of State for Wales isn't going to make those choices.

I think the other thing, without wanting to be unproductive, is a point that I think could help in the way the money is used, and that's the point about flexibility. I think getting people to push for flexibility, even in the three years we've got, would be meaningful. A three-year funding cycle doesn't allow the same flexibility as 10 years to spend the money, and that in itself is a wider problem. Of course, there'll be a general election within that time. But just to be clear about is there any willingness to look again at that, because it would make a practical difference, carrying money over. And whether you're a community group, whether you're interested in investing in the rural economy, whether you're a local authority with an investment plan, the flexibility to move money between years in that programme I think would make a practical difference. And that might be something that it is possible to be more productive over, rather than, 'We just don't agree', and you can probably predict the answers to some of the questions.

They might well read the transcript from this meeting—or they might well be watching; they might well be watching. [Laughter.]

Well, if they don't, I'm sure they'll have people read them on their behalf.

There we are. There we are.

Right. Just moving on to the LCM on the UK Infrastructure Bank Bill, the Senedd is considering the LCM in relation to this. The Welsh Government notes issues demonstrated through the levelling-up fund and the shared prosperity fund, including the allocations not being aligned to devolved policy, political bias, and the risk of poor value for money, may be exacerbated by the bank's operations. What issues do you foresee with the Bill, and how might those be resolved?

Well, at the moment, I wouldn't be in a position to say whether or not I would recommend consent by the Senedd—so, I'd just make that clear—because there are some ongoing discussions with the UK Government. I did meet with the Chief Secretary to the Treasury last week for a bilateral, where we raised a number of issues of importance to Wales, this being one of them. And whilst, in principle, I think that the bank could be a good thing, it's an additional source of capital for private and public borrowing, but we do need equivalence. So, when the UK Government is setting up something that will operate in Wales, in Welsh spaces, then we do need to ensure that we are able to have that say, for example, in the bank's remit and also in terms of the governance of the bank as well. So, the UK Treasury Ministers are able to nominate people to be directors for the bank, but where's the role for devolved Governments in that space? So, there are some things that we would want to see the UK Government move on in terms of amendments to the Bill before we're able to come to a decision. 

And it is worth, I think, since we are discussing things within that context of European funding, noting that the level of funding is going to be considerably less than that which we would have had from the European Investment Bank. The level of funding from the UK infrastructure bank is likely to be in the region of drawing down around £1.5 billion a year in equity capital, and £10 billion of Government guarantees overall. But, for the European Investment Bank, it was lending an average of £5.4 billion in the decade running up to the referendum, and that peaked at £7.8 billion in 2015. So, the level of support that will be available is less, but, broadly speaking, it's something that could make a positive impact. But we do need to have that equivalence in terms of Welsh Government and the governance of the bank. 

12:20

Have you engaged around specific amendments yet, as to what you're actually asking them to consider?

Yes. The kind of amendments we would want to be considered are around who appoints directors to the bank and what role the devolved Governments would have in that and then also the setting of the bank's mandate, or the direction of the bank, and what role we would play in that, bearing in mind the points that you raised about the importance of ensuring that investment is in line with Welsh Government priorities. So, those discussions are ongoing.

And are they being productive or are they being—? What sort of noises are you getting from the other side?

So, I think it's fair to say the Chief Secretary to the Treasury was in listening mode on this issue when we met last week, but discussions are mainly taking place at official level.

Okay. Thank you very much.

Wel, diolch yn fawr iawn i chi i gyd am y bore yma—wel, mae wedi troi'n brynhawn yma erbyn hyn. 

Well, thank you all very much for this morning—it's turned into this afternoon by now.

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

O dan Rheol Sefydlog 17.42, dwi'n cynnig ein bod yn gwahardd y cyhoedd o weddill y cyfarfod. Ydy pawb yn hapus? Ie. Gwych.

Under Standing Order 17.42, I propose that we exclude the public from the remainder of the meeting. Is everyone happy with that? Yes. Great.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 12:22.

Motion agreed.

The public part of the meeting ended at 12:22.