Y Pwyllgor Cyllid

Finance Committee

29/09/2022

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Jayne Bryant AS yn dirprwyo ar ran Rhianon Passmore
substitute for Rhianon Passmore
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

Andrew Jeffreys Cyfarwyddwr, Trysorlys Cymru, Llywodraeth Cymru
Director, Welsh Treasury, Welsh Government
Emma Watkins Dirprwy Gyfarwyddwr Cyllid a Busnes Llywodraeth, Llywodraeth Cymru
Deputy Director, Budget and Government Business, Welsh Government
Gian Marco Currado Cyfarwyddwr yr Amgylchedd a’r Môr, Llywodraeth Cymru
Director, Environment and Marine, Welsh Government
Julie James AS Y Gweinidog Newid Hinsawdd
Minister for Climate Change
Louise Clarke Uwch-reolwr Polisi Cynhyrchion Defnydd, Llywodraeth Cymru
Senior Single-use Product Manager, Welsh Government
Rebecca Evans AS Y Gweinidog Cyllid a Llywodraeth Leol
Minister for Finance and Local Government
Richard Clark Pennaeth Ansawdd Amgylchedd Lleol, Llywodraeth Cymru
Head of Local Environment Quality, Welsh Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Christian Tipples Ymchwilydd
Researcher
Georgina Owen Ail Glerc
Second Clerk
Leanne Hatcher Ail Glerc
Second Clerk
Martin Jennings Ymchwilydd
Researcher
Mike Lewis Dirprwy Glerc
Deputy Clerk
Owain Roberts Clerc
Clerk

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

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

Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.

Dechreuodd rhan gyhoeddus y cyfarfod am 12:01.

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

The public part of the meeting began at 12:01.

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

Prynhawn da. Mae'n dda bod yma, a dŷn ni'n cychwyn ar sesiwn y Pwyllgor Cyllid heddiw. Mae'r cyfarfod yma yn cael ei ddarlledu'n fyw rŵan ar Senedd.tv, a bydd y trafodion ar gael, fel arfer—yn cael eu cyhoeddi wedyn. Dŷn ni wedi derbyn ymddiheuriad gan Rhianon Passmore; mae hi'n methu bod efo ni. Ond rŷn ni'n falch iawn o groesawu Jayne Bryant. Croeso cynnes, Jayne, i'r cyfarfod, a diolch am ddod atom ni y bore yma—y prynhawn yma; mae hi newydd droi i mewn i'r prynhawn. Dwi jest eisiau gofyn a oes yna unrhyw fuddiannau i'w datgan. Dwi ddim yn gweld bod unrhyw fuddiannau, so mae hynny'n iawn.

Good afternoon. It's good to be here, and we are now going to start our public session of the Finance Committee today. This meeting is being broadcast live on Senedd.tv, and the Record of Proceedings will be published as usual. We've received apologies from Rhianon Passmore, who can't join us. But we are very pleased to welcome Jayne Bryant. A warm welcome to you, Jayne, to the meeting, and I'm very grateful to you for joining us this morning—this afternoon now, actually. I just want to ask whether Members have any interests to declare. I don't see that there are any interests to declare, so that's fine.

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

If we move, then, on to item 7, we've just got one paper to note. I just think we'll note that paper, unless there are any objections to that.

8. Cyllideb Ddrafft Llywodraeth Cymru 2023-24—Craffu cyn y gyllideb
8. Welsh Government Draft Budget 2023-24—Pre-budget scrutiny

And then we can move on to item 8. Croeso cynnes to the finance Minister and her officials. Lovely to see you in these quite interesting times that we find ourselves in. I wonder if you'd like to introduce yourself and your officials.

Yes. Rebecca Evans, Minister for Finance and Local Government. I'll ask officials to introduce themselves.

Hi. I'm Andrew Jeffreys. I'm director of the Welsh Treasury.

Prynhawn da.  I'm Emma Watkins. I'm deputy director for budget and Government business in the Welsh Treasury.

Wonderful. Well, croeso cynnes. Lovely to have you with us. This is a pre-budget session that we're starting. Because we've changed the timings a little bit of what's happening with the budget and, obviously, we're hoping to have our budget later on in the autumn and into the winter. We've had a letter off you as well—thank you very much—yesterday. I was just wondering, do you want to make a few opening remarks, maybe referencing some of the things that you talk about in the letter, and then we can go into a discussion around some of the things that are going on at the moment.

Yes. I'll just open, I suppose, by reflecting on what an extraordinary period we're living in, and just the implications of the mini-budget by the Chancellor on Friday are quite significant for us here in Wales. One of the things that, obviously, was really worrying was the lack of any Office for Budget Responsibility forecasts, but we've done some work in Wales to understand what the implications of inflation are on our own budgets and, of course, you'll have heard me say that it means that our budget, over this three-year spending review period, is worth up to £4 billion less than it would otherwise have been worth, as we understood it at the start of the three-year spending review. So, clearly, that's going to make for some really, really difficult choices for us in the period ahead. It was really disappointing that there was no additional funding for public services in the mini-budget, despite the fact that I and colleagues in Northern Ireland and Scotland had written to the UK Government, setting out a whole range of actions that they could take, particularly in the context of the cost-of-living crisis, to support public services, but also businesses and individuals as well. And, of course, the implications of the tax changes, and so on, on Friday will have, again, significant impacts on individuals and families here in Wales, and we'll have to consider all of that as we move forward.

12:05

Yes. I think it caught us all by a little bit of a surprise—some of the things that happened last Friday. I just wanted to look into a little bit more detail around that £4 billion. Is that purely inflationary? Or are there any other aspects that are impacting that element of real-terms, real-world difference?

So, that was arrived at following looking at new work from the Institute for Fiscal Studies, but also some of the independent forecasts from HM Treasury. But I might invite Andrew to say a bit more about what it tells us and what it doesn’t.

Thanks. Normally, the way that we calculate the real-terms value of our budget is using something called the gross domestic product deflator that the OBR publish whenever they do a forecast. But the OBR hasn’t done a forecast since March and, obviously, things have changed a lot since March. Four billion pounds is our estimate based on a variety of sources. The Treasury publishes a compendium of independent forecasts, for example, so we've used that. We've looked at the IFS's assessments and come to a figure of £4 billion. So, that covers the current financial year and the next two financial years. But when the OBR does its forecast in November, we can look at that again and see what that's telling us about the real-terms value of our budget in future years. But, yes, that's purely inflation. That doesn't take account of any anticipated reductions or increases in our budget, in the cash available in future years; that’s just the spending review numbers adjusted in light of inflation.    

And, correct me if I'm wrong, when we were looking at the budget that was set over the three years, is that £4 billion a straight line across the next few years or does it match up with or track the budget as it was laid out?

Inflation's forecast to drop a bit over the next couple of years, so that's factored in. I think it’s roughly worth about £1 billion less this year and £1.5 billion less in each of the next two years.

And is that the inflationary figure of—what was it—about 9.9 per cent at the moment? Or is it taking into account the 13 per cent that they think it's going to get to?

So, it takes a range of people's forecasts of inflation and crunches them all together to try and give a sort of consensus view of that. It's anybody’s guess what's going to happen to inflation. There's a high degree of uncertainty in that estimate. I think that's worth noting. We’ll be able to, obviously, update it again when we see the OBR's figures. And I think it's one of those things we're going to have to keep looking at very closely, because inflation forecasts are very volatile, given all that's going on. So, it's hard to do that very robustly.

I'd like to move on a little bit to your announcement around land transaction tax on the back of that. Can you talk us through—? You, obviously, said in your statement that it was something that you were considering doing later on but had to bring it forward. Can you talk about the impact the changes will have on future tax revenue and how that might affect the budget, and why, I suppose, you brought it forward from the time you were going to do it? Was it because you didn't want the differences to be cross-border differences for too long? And then what's the rationale behind the 6 per cent on the £225,000 to £400,000? So, if you could talk us through your thought process.

12:10

Yes. So, the Chancellor, obviously, made announcements that impacted on stamp duty land tax in England, but unfortunately, despite the fact that we have land transaction tax here in Wales, which is directly impacted by decisions across the border, or at least our budget is, there was no discussion ahead of the announcement, so we watched it on tv when the Chancellor made his statement, alongside everybody else. That's why I understand why it's frustrating for people when we tell them that it's going to take us a few days to work through the options and to decide which of these to announce. And also, obviously, we have to lay regulations and so on. So, the quickest that we could make any changes would by 10 October, and obviously the Welsh Revenue Authority has to make sure its systems are ready, that we have the calculator available for members of the public to use to understand, and all of those kinds of technical changes made. So, it does take a little bit of time.

But we had been considering making changes alongside the draft budget in any case, so we had been doing quite a bit of work over the summer. The thinking behind that was the fact that there has been quite a significant growth in house prices between 2018-19 and 2021-22. The price growth on average is around £38,000, and so we recognised that the existing relief that we had in place didn't really recognise that. So, that was why we were thinking about it in the context of announcing something later this year, but, of course, even before the Chancellor sits down, once he's made this kind of announcement we're getting queries, the WRA is getting queries, people are starting to ask, 'What does it mean for my house purchase? Should I hold off?' and that kind of thing. So, just to avoid having that kind of uncertainty within the housing market here in Wales, I thought, 'Let's make the announcement as quickly as possible so that people have that kind of certainty.'

The housing market is different here in Wales, and, as a result of the changes to the LTT main residential rates and bands, around 61 per cent of transactions in Wales now will be below the threshold for paying land transaction tax in the next financial year. That means 85 per cent of transactions will see a reduction or no change in the tax payable, and also that there will be a maximum tax reduction of £1,575 at £225,000. We also know that a higher proportion of transactions amongst first-time buyers—so, the majority of first-time buyers—will be below the threshold. The average price for a first-time buyer is currently £190,000, so that's significantly below the threshold that we're putting in place as well. We've luckily done a lot of work over the summer, looking at these issues, so we were well placed to announce something, even though it was earlier than we'd expected.

What's the impact going to be on the actual revenue generated? Have you forecast that?

The changes on the part of the UK Government obviously have a direct impact on our finances, which means that we have approximately £30 million a year more than we otherwise would have done, but obviously we are spending a proportion of that in delivering this policy. There will be a residual amount that then we can put towards other pressures, but I'll ask Andrew, perhaps, to give you the figures across the next three years.

Our estimates of the cost of the relief, or the net impact of the relief and the small increase in rates, is a cost of £6 million this year, £11 million next year and £12 million the year after. So, the net impact, if you take into account the consequential, which is, I think, £15 million in the current year and then £30 million in each of the following two, means we've got a net increase in funding of £9 million this year and then £19 million and £18 million in the subsequent years. So, that's taking—

Yes. That's our best estimate on forecasts now. So, yes, the fact that the UK Government made changes to SDLT provided that additional funding that means the equation was a bit different than when we were considering it before that, obviously.

12:15

You talked about the regulations. When are the regulations going to be laid, and when will this committee get a chance to have a look at them?

Let me just check. We're hoping to lay them on Friday next week. 

There we are. So, we might be able to put them into our—. We've got a meeting next week, so we might be able to look at them then.

Just for clarity, the Government will be benefiting—they'll have about £46 million left over from the consequential on stamp duty.

So, £70 million or £75 million coming, and the scheme for land transaction tax is going to cost about £29 million over the three years. Okay. 

Can I move on, then, to a question you've been asked a few times over the last couple of days, once by me and a couple of times by Llyr about the 20p tax rate and that being cut and whether or not you'd consider leaving it where it is? So, what would be the benefits and what would be the drawbacks of leaving that and not passing on that and using the powers that we've got to leave that 20p as 20p?

I made the announcement really quickly in relation to land transaction tax because the interventions announced by the UK Government were coming in with immediate effect, and obviously I didn't want to have that kind of market uncertainty but also to do the right thing by people who were looking to purchase houses at the moment. But, we don't have that level of urgency now in terms of Welsh rates of income tax, bearing in mind that the changes won't come in until next year. And we obviously have a tried and tested way now of dealing with Welsh rates of income tax in the sense of announcing them, debating them in the Senedd, voting on them and so on, and we normally do that alongside the final budget. So, I don't feel that sense of urgency to make an announcement. What we do need to do is wait, unlike the UK Government, for the OBR's forecast so that we can better understand the situation that we're facing and take informed choices. So, there will be plenty of time to have discussions.

I know the Finance Committee—the previous Finance Committee, I think—did an interesting piece of work looking at Welsh rates of income tax and the potential for cross-border moving and that kind of thing. That was really interesting, especially back then, of course, in the context of the additional rates, which we no longer have. And I think there are some interesting points, which I might ask Andrew to elaborate on, in terms of the additional rate, because, of course, until now the Senedd has had power to raise or reduce tax within those three rates, but now we only have two. And I think that we need to think through what the implications are for us there, given the fact that the Senedd has had a choice and a power, essentially, taken away from it, which is really concerning. But perhaps Andrew would want to expand on that a bit.  

Yes. So, we're not sure at the moment exactly how the UK Government is going to implement the removal of the additional rate. As you know, at the moment, there is a standard rate, a higher rate and an additional rate, which kicks in at £150,000, and the Senedd has the power to vary each of those by 10p. So, in theory, there is a way the UK Government could make the change that would allow the Senedd to retain that power, but there's a way that the UK Government could do it that would basically take that power away. If they, basically, abolish the additional rate in legislation, then there's nothing to vary there. So, yes, it'll be interesting to see how the UK Government plans to do that. I don't think they've really thought much about that implication of their policy before they made it, and so it's a new discussion for us to be having with them. And I suppose it's a feature of a partially devolved tax that, potentially, these kinds of issues will arise. When taxes are fully devolved, clearly what happens in England, or in England and Northern Ireland, has implications for us, but this kind of situation, where something the UK Government does has a direct effect on the powers of the Senedd, is unusual in the tax context anyway.

12:20

I don't know if Peter wanted to come in on this bit. You were talking about it earlier.

I just think, on the back of that, that's really helpful, Andrew. If there aren't changes that impede the Government's opportunity to address those, using its 10 per cent flexibility, is that something the Government might look at in the same way—you can't make a decision on up to 19 per cent—on reinstating the 5 per cent? Might that be something the Government looks at? And have we made any assessment of what the likely revenue cut to Wales, as a result of that 5 per cent giveaway in tax, if you like, is going to mean to us? So, if you put it back in place, what would that mean back to the Welsh economy?

So, I'd like to ask Andrew to address the first part of the question, and he'll correct me if I'm wrong on the second, but we had around 9,000 additional rate taxpayers here in Wales. Collectively, they've benefited by £45 million as a result of the decisions last week, which is clearly just an incredible thing to do really, in the sense of imagining the support you could offer with £45 million to people who really needed it. But I'll turn to Andrew on the more detailed point.

Normally, whenever we're looking at income tax, we obviously—because up until now, we've had the three rates to look at—look at the three. Obviously, you can do things on all three rates or you can do things separately on the different rates. So, our normal practice is to consider those things as options when we're doing a budget. As the Minister says, we've got a relatively small base of additional ratepayers in Wales and, so, changes there, they don't have—. So, £45 million is obviously a large number, but it's, obviously, changes to the standard rate in Wales that make the big difference in revenue terms. So, I think it's an open question at the moment at least, whether the change means that the Senedd definitely no longer has the power to do that and that's irrelevant in terms of what we think about it, or whether it is still an option and that's something we'll be exploring with the UK Government.

And then finally from me on this bit, in terms of timings—and, obviously, we have the debate when it's the final budget—would there be any scope to have an idea of your thought process when you're laying the draft budget? And would you be in a position possibly to inform us of some more of your decision making, because obviously it'll have an impact on the income—whether or not that would be something that you might consider doing at the draft budget stage rather than waiting until the final budget stage?

I think we'll need to give that some further consideration as well. Because things are so volatile at the moment, things could be different in March as compared to December. So, I think that I'd probably give some further thought to that.

Because if you decided that it was something that you might consider, you might have more income to put into that budget, so it'd be something to—. Yes, we'd be interested in understanding, and we'll probably revisit it when we see you again in December, I'd imagine, but it's something—

I think we also need to consider what, if any, impact there is on our budget anyway by decisions from the UK Government, because we've been hearing a lot now about cuts to public spending. So, what does that mean for, you know, negative adjustments to our budget? So, I think we'll need to consider all of that in the round—

—and consider also implications for household finances generally. So, council tax is going to be a consideration as well. We've always said that we'd consider the overall tax outlook for people when we're considering Welsh rates of income tax. So, I think there is a lot that we'll have to consider, and some of this information probably is not going to become clear until closer to the time.

12:25

And we've got a lot of very nervous people in our communities, thinking what this winter holds for them, don't we? So, anything that we can do to help them navigate their way through this winter and beyond is something that we need to be doing.

Based on your letter, you made an indication that you're still hoping to be able to have the draft budget by 13 December. Is that realistic, that we're hoping to stick to what we'd hoped the timetable was going to look like, or are we likely to see a change?

I think that the announcement on Monday from Treasury in relation to the information that will be published on the twenty-second [correction: twenty-third] will help us in that sense of sticking to 13 December. I'll probably check with Emma if there's anything to add.

No, I'm happy to elaborate a bit on that, if helpful. So, I think, when we've had previous conversations, we've obviously shared with you the ongoing uncertainty. I think the date of the forecast of the twenty-third will give us enough information—perhaps not enough, but a certain amount, to enable us to publish on 13 December. That's certainly what we're working to now, and that's the conversation we've been having with our colleagues across Welsh Government as they're pulling together their submissions. We don't particularly want to go any later than that, and certainly not into the new year, because we need to give certainty to our partners in local government in particular. If we work on that basis, then we would still, I think, as we set out in the letter, I think we'd publish the final budget on 28 February with a vote in the Senedd on 7 March, with, obviously, the scrutiny in between then.

The one thing we cannot bank on, obviously, is the timing of the spring budget in 2023 from the UK Government. They could produce it before 28 February with substantial changes that then cause substantial changes for our budget. We need to work that through, and we just don't know about that. But at the moment, we're still planning on the basis of 13 December.

And obviously, this committee would work with you, should those things arise and we'd do what we can to help out with making sure that it's scrutinised and done properly. I'll pass over to Mike.

And that's something that we are going to have to deal with, I think, in terms of the budget, and that's the clawback by the UK Government of the national insurance contributions on the employers' side for the next two financial years. So, that will be something that we will, I'm sure, have to deal with in the budget. But, of course, lots of the rest of it is still subject to any changes.

For the record, can you confirm that the announcement on energy costs will cover the Welsh public sector between now and March 2023?

We don't know the answer to that yet. I understand that we're still trying to get some further clarity from the Treasury in terms of to what extent it covers the public sector.

I think it's certainly intended to. There are certain parameters of the scheme that are still a bit unclear, but, yes, we're working on the assumption that it does cover public sector bodies as well as businesses and other non-domestic energy users. But, obviously, it's only people who've entered into contracts since April this year, I think. So, that will exclude some people.

But it might include different local authorities, different schools, et cetera, who will have entered in that time. Inevitably, some will have done so.

Yes, that's a good point, that the impact of the scheme will depend very much on exactly what your contract is, and different schools, different hospitals will have different contracts.

Local government officials are also working with treasurers in individual local authorities to understand the pressures that they're facing, and obviously they'll be factoring in this particular issue into those calculations now.

Okay. My next question is on capital. We know what the inflation headline numbers are. We also know that the value of the pound is going down and is likely, in my opinion, to keep on going down—Peter probably wouldn't agree with that, but I think it's likely to keep on going down—and the effect it will have on the capital programme is that you'll get less for your £1 million each time. Have you got a plan to move the programme or spread the programme out or slip the programme, whichever terminology you like to use, into future years so that the programme remains the same, but it will be done at different times to those initially planned?

12:30

So, each individual department will be looking at this and looking at their programmes at the moment. I was in local government committee this morning, where they were asking about the schools programme, and I know that some work is going on there, recognising the increased cost now of each of the schools. I think that the advice at the moment is that we would be looking at a pressure of around £15 million by the end of this spending period in the final year in order to deliver what we had planned, but I think, inevitably, there are going to be difficult choices about delivering more slowly or delivering less, but that's unfortunately the space we're in now.

I'm very pleased at the number you gave, because £15 million is less than one secondary school—

No, I would have thought it would be higher than that. I haven't got the figures you've got, I haven't got the officials you've got, but I'd have been working on the cost of schools going up by about 10 to 20 per cent, probably averaging 15 per cent over the next year. Inflation in terms of building materials goes up, inflation in terms of construction costs are going up, and I've talked to local authority leaders who've talked about construction costs already this year going up in excess of 20 per cent.

That figure recognises the pressure that they anticipate by that year, but it doesn't recognise the fact that they will be building less for that over that period. We can get a written update from the Minister responsible, if you like.

That would be very helpful, because I have no worries that we slip one primary school from February to April. It would be more of a concern if you were slipping more than that. So, I think a letter on that in terms of the finance rather than the policy would be very helpful, if you're happy, Chair.

The second point is on revenue. I said earlier the value of the pound's reducing, we know inflation is increasing and at what level it will average out in the next 12 months, nobody knows, but we have all these forecasts and most of them hover around the 10 per cent mark, but local authorities and health don't buy all these goods that make up the basket of inflation, do they? The basket of inflation doesn't include lots of things that are in public sector expenditure. So, are you expecting the effect to be more or less than the headline figure? Do you see problems with interest rates? I would guess, and I think most people would agree with me, that interest rates are going to go up; it's by how much. The only way that they're going to stabilise the pound is by pushing interest rates up to quite high. That's going to affect your land transaction tax, because that line that keeps on going up, the OBR kept drawing one before previously and other people are drawing a straight line, that straight line is going to have a bit of a dip. So, have you any thoughts on how you actually think inflation is going to affect the public sector in Wales, which is directly funded by you?

I wish I could give you a really good answer to that question. Your point about uncertainty is really important. Just going back to what I said earlier, when you're looking at public spending, you generally use the GDP deflator rather than the consumer price index to generalise, if that's the right word, the impact of inflation across public spending. Until we see the latest OBR figure, we're working from a range of sources to try and assess that impact across. But, yes, that average impact hides a lot of very specific differences between different sectors, I suppose, public sectors.

Also, crucially, a lot of public sector costs are pay of public sector workers and that's a process. Setting the pay for public sector workers is a process that is driven by very complex dynamics and takes a lot of time to settle. So, you've got pay offers in the NHS, pay deals in the NHS, pay deals with teachers, there are still negotiations going on over local government pay deals. So, it makes a very big difference how high or low those public sector pay settlements are over the next few years. One of the features of the austerity period was very, very low growth in public sector pay, but of course that reflected low inflation in the economy more generally. The worry that we've got is that we're entering a period of high pay growth, high inflation, but with public spending not growing at anything like the same rate. So, yes, there are very different rates of inflation in different sectors, depending on the balance of goods they purchase, depending on how labour intensive they are. One of the key things that we've asked departments to do in this budget round is to look at and give us their best estimates of those impacts: energy costs, labour costs, food is a particularly hot area at the moment, food inflation is very high, the NHS buys a lot of food, so it has an impact. It's a really key area of our planning.

12:35

Not compared to pay. I mean, it's a big number.

It was the last time I saw it, but as I keep on mentioning, I'm quite often out of date on some of these things. It was well under 5 per cent last time I saw it. Pay was running about 70 per cent or 75 per cent.

Yes, pay is the key thing.

And about 15 per cent on goods and equipment and maintenance, et cetera, and 5 per cent on others. But, anyway, we're not here to scrutinise the health budget. The final question is: we have this situation, we'll know what the budget is for next year, how do you intend to ensure that you get the best value for the money you spend?

I think this is something that we do right across Government anyway. Every official managing any kind of programme or so on has to be very familiar with 'Managing Welsh Public Money', which is a really important and instructive document that sets out how important it is to drive value for money. But equally, we're looking at value for money in a different way, so the foundational economy work is really important in that sense. We're doing work with the Centre for Local Economic Strategies on procurement within the public sector to try and drive value for money, of course financially, but also looking at value for money in different ways, in terms of sustainable communities, supporting the efforts on the climate and nature emergencies and so on. So, I think there are different ways to look at this. I think that we have a good record in terms of our approach to spending public money.

Thank you. Good to see you all. As you'll know, the committee has engaged pretty thoroughly over recent months on your spending priorities. You'll know some of the areas that have come to the fore around better workforce planning, investment in youth infrastructure, capital funding, stable green funding; there's a raft of really interesting things. I just wondered how you envisaged these being fed into the planning for the draft budget for this coming year.

I think that the work that this committee does in terms of your budget engagement is really helpful, as is the debate that we have in the Senedd ahead of every summer recess. That's really, really helpful in terms of understanding colleagues' priorities and also their concerns about the budget and so on. So, I think we are in a very different position this year for a couple of reasons. We have our three-year spending review, so we've set out spending plans for a three-year period, which is very different to the most recent years, and also, obviously, we're facing this situation where our budget is worth so much less in the future years as well. The truth is that our budget discussions are going to be different this year, in the sense of not looking to where we can make significant additional allocations to fund priorities, but looking at the things that we absolutely have to preserve and looking at areas where potentially we might even want to slow down or to move funding away from, even, to support priorities. So, we are in that space now of making really difficult decisions, rather than having a list of really excellent ideas of new things that we can do. We are in the space, really, of trying to see how on earth we can stick to our existing plans at the moment.

12:40

Yes, and thank you for that. And I can totally understand that things are going to be up in the air. You've just alluded to the fact that if we are going to see significant—. Well, we've already identified that there could be significant real-term cuts over four years. You may have to consider—or will you have to consider where you're going to prioritise now going forward? You might have to take some difficult decisions around areas that were quite precious before to you. I'm assuming that might be the case—it's quite obvious that it could be. But how will we as a committee see how you've been responding to the priorities as we move forward? 

We always try and be as transparent as we possibly can, and I hope committee will recognise some real improvements that we've made in the budget documentation, for example, and the budget improvement plan and the ways of engaging over recent years, and, obviously, we're keen to continue to move on that journey of improvement as well.

I think that the budget documentation will probably be one of the places where we can best explain how we've responded to what we've heard through committees, through my engagement with the commissioners, through engagement with local government; I've had budget discussions already with the third sector—you know, that kind of thing. So, hopefully people will read the budget documentation and recognise that their concerns have been listened to. Even though we can't always respond financially, we can always understand the concerns that people have. So, as ever, if you see improvements that need to be made to the budget documentation, we're keen to make those improvements.

I think that we're proud of the package of information that we do provide. It's usually very comprehensive and we're always looking for new things to do. You might have seen our children's video, which is one of our new innovations this year. That came about following the debate that we had ahead of the summer. There was a lot of interest in how we engage with children in the budget, so that's something that we're trying to improve on as well. So, we're always keen to hear ideas.

And based on that, we had a very interesting debate with the Youth Parliament. I know you've engaged with the Youth Parliament as well, and seeing that work come to fruition will be excellent as well. We started this year, but, obviously, it's something that we want to continue. Engagement with those young people was very good, and they were quite challenging, so it was always interesting to see where their priorities would be.

I'll go over now to Jayne, if I can.

Diolch, Cadeirydd. Good afternoon, Minister. The Welsh Government's outturn report 2020-21 noted that the balance of the Wales reserve at 1 April 2021 was £505.5 million, which exceeded the limit by £155.5 million. The Welsh Government said the Chief Secretary to the Treasury rejected its request to carry forward funds in excess of the Wales reserve limit, and you outlined your frustration in the covering letter to that report. Perhaps you could outline some of the timelines and correspondence that you received regarding that?

Yes, very happy to do that. You mentioned also that I'd written to committee with some further information on this particular issue. So, as a devolved Government, we operated within the overall departmental expenditure limit budgetary control that is set by HM Treasury, and we should have been allowed a reasonable level of flexibility in respect of the individual revenue and capital controls. The decisions that were made were made to maximise our expenditure, but having regard, of course, for the Treasury's consolidated budgeting guidance, and that says that budgets can be switched from revenue to capital, and it's something that we've used in the past to manage our financial position. So, it was really disappointing that, on this occasion, Treasury didn't allow for that switch to be undertaken, despite the fact we'd had a lot of engagement with Treasury on this particular issue, both myself with the Chief Secretary to the Treasury, going back a long time, in terms of the budgetary flexibilities, which we talk about very frequently, but then also at official level as well, to try and seek assurance on this particular point, so that was really disappointing.

I think, potentially, the decision of Treasury really came about looking at the wider context in this space, because the total underspend in 2020-21 by all UK Government departments was £25 billion, and that represented almost 6 per cent of the total provision made available to departments in that year. But, of course, we have to remember this was an extraordinary year; that was during the COVID pandemic. So, a considerable amount of that actually was underspent in health in England. So the Department for Health and Social Care alone underspent by around 9 per cent, or over 9 per cent, so they returned £18.6 billion to the Treasury, and a Barnett share of that would have amounted to over £1 billion for Wales. So, I think that the UK Government took that decision, looking at the wider context of the positions of the various departments, bearing in mind, of course, they still consider us a department for financial purposes. Of course, the figure that Jayne Bryant quoted represents only 1 per cent of the available resources here, so it was a much improved picture. And I think that Wales does have one of the best records of being amongst the best departments in the UK, and devolved Governments, of course, in terms of utilising the budget to the full. 

12:45

Very briefly. I think one of the saddest things is that the Treasury seem to think that the National Assembly for Wales is another name for the Welsh Office, and I think that is a problem we suffer from. But there was going to be an appeals mechanism. Does that exist? 

Yes. There is a formal dispute process, which is set out through the inter-governmental machinery. I think it was in this committee recently I was talking about some of the things that would warrant, I think, a dispute, but we haven't yet used that. So, I think that we need to use it potentially and carefully, very meaningfully, for the first time that it's used. I don't know if Andrew has got any further reflections on that particular point about disputes.  

Well, just to say, yes, there is a dispute mechanism, and the Northern Irish Government are taking a dispute that they've got with the Treasury through it at the moment. So, that's the first test of the new dispute resolution process. 

Thank you, Chair. Just, finally, from me, it doesn't sound very hopeful, because you've mentioned how you'd watched on tv the announcements on Friday. I'm just wondering if you think the new Chancellor would offer an opportunity for devolved Governments to push for improved communication on fiscal events and other outstanding issues regarding devolved funding, or do you think this is a theme that we will continue to see?

I'm always keen to give people the benefit of the doubt and hope that things will improve. It didn't get off to the best start, in the sense that it took some time to have an initial call with the Chief Secretary to the Treasury, and that was even after the announcements made by the Chancellor. So, that was unfortunate. But I am keen to establish a good working relationship, because I think it's in our interests to try and do that. So, I'm looking forward to the next meeting of the Finance: Interministerial Standing Committee, which is due to take place next month, so there'll be an opportunity to try and formalise those relationships, and that's with the Chief Secretary to the Treasury, rather than the Chancellor.

We did write to the Chancellor ahead of the statement and to the Chief Secretary to the Treasury, and I was able, in Plenary, earlier on this week, to set out some of the areas—so I won't go through them again and just test the Chair's patience—where we would have liked to see action taken. We didn't have a response to that, and also wrote jointly with the finance Ministers in Scotland and Northern Ireland, when we were setting out our concern about the worsening economic situation, setting out our concerns about public sector pay and the cost-of-living crisis, but I don't think that we've had a response to that, and that did set out a request for an urgent meeting, because these are urgent matters.

So, to summarise, I look forward to building an improved relationship. It's worth reflecting as well that there have been very many changes in terms of Treasury Ministers—so, this will be my fifth Chief Secretary to the Treasury that I've worked with since coming into post, and it's always the case, inevitably, when someone comes into a new post that they need to get up to speed on things. But the danger is it sets those discussions and the progress that you've been making back to the start, because you have to go through the whole thing again. So, I think that I would like to see a Chief Secretary who prioritises the part of his role that involves having relations and discussions with devolved Government finance Ministers. I think an active and keen interest on the part of the CST would be very welcome. 

12:50

No, I was just going to say 'absolutely'. And thank you, Minister, and diolch, Cadeirydd.

Thanks. With those inter-parliamentary relationships and inter-government relationships, have you had the finance Ministers group, the quadrilateral—did you say that had happened yet? Or is that happening soon? I can't remember.

So, it was due to be tomorrow, but I think that was in the diary prior to the change in Government, so we're expecting it now in October.

Ah, right, okay. There we are. Fine. And I've only got a couple of things to look at before we finish. Looking beyond, I suppose, what we're in at the moment, we've been discussing for a little while the budget protocol and possibly how do we move things forward with that element. We as a committee are starting to consider what changes possibly we would like to see in it, and I was just wondering if I could have your thoughts on if you've got any recommendations or any considerations you'd like us, in those discussions we are having—or any changes that you think might be appropriate, or anything that you'd like to just leave as it is. The budget protocol doesn't seem to have worked for the last few years, and a lot of that is due to fiscal events happening higgledy-piggledy all over the place, and general elections and all that sort of thing going on. So, could you give us some thoughts about where you're at with the budget protocol and whether or not you'd be willing for us to present a few recommendations, and then to have that dialogue about change?

I might ask Emma to come in on this as well, but I think, to be fair to the protocol, it has shown how flexible it has been. So, it has, I think, been effective in that sense, in terms of allowing us to adapt to what have been real uncertainties. We couldn't have expected the statement on Friday, for example, but our protocol will allow us to be able to respond to that. So, I'm more than happy to hear what the committee's ideas are, really. I think that the flexibility has been important, and it has—. Things haven't been as we would have expected them to be, but it has allowed us to set budgets, it has allowed us to have good scrutiny and so on. But, obviously, I'm always happy to have conversations. 

Yes, and just to agree with the Minister on one point, that, actually, our interpretation is that the protocol does allow us the flexibility that we would need in order to put together what is not an insubstantial task—putting together an £18 billion budget is not a small piece of work. I do recognise, however, this has been an issue for the committee for some time now, and we've had various discussions about it, and I know that every time we invoke exceptional circumstances, that impacts your ability to scrutinise, and the other committees' ability to scrutinise. We really do recognise that.

I won't rehearse our reasons and the challenges we face around the UK Government timing of different fiscal events; they're well known, and you know what they are. I think we're open to continuing the discussion about this, and we can certainly go away and—. You asked about any specific things we might want to change; we can certainly go away and think about a couple that we feel particularly work for us, or those that we would like to change, and continue to have that conversation. The Minister and ourselves are certainly open to having that discussion, and we can do that with the clerk and yourselves in the coming months. But I would say please bear with us in the next few months; we've got a big task to do between now and 13 December. 

12:55

Obviously, we're going to have this budget and everything, but it'll be looking at the budget round of 2024-25, potentially, as a time when we'll have had the time to even consider changing things, if we need to change things. I welcome the dialogue so that at least we can make it fit for purpose. And then, moving on from that, the longer term view of how the budget process and the finance process work—have you got any longer term thoughts? We've had these discussions about legislative processes and these sorts of things. Over the next 10 years or so, how do you see the finance process evolving as we have Senedd reform, as we have different things changing? I know it's a very uncertain time at the moment, but just use your crystal ball for a moment. 

I wish I had a crystal ball. I think that we had some really good discussions when we were taking the Welsh Tax Acts etc. (Power to Modify) Act 2022 through the Senedd about the scrutiny, particularly of tax changes, and so on. I think that part of that agreement was to work with committee and other interested parties to think about that side of things, in particular. But, Andrew's been in this role a while, so let's get his reflections on what's worked in the past and what changes might come in the future.   

The process has evolved quite a lot over the last 10 years, I suppose, and I think how it evolves in the future will, crucially, depend on the extent to which the fiscal powers and responsibilities of the Senedd and the Welsh Government evolve. I think the system—if that's the right word—that we've got now has evolved to suit the circumstances as they are now. I think if they change, which is possible in the future—if, for example, there's more tax devolution; if the Welsh Government is less dependent on the block grant in terms of its overall spending levels; and if we're making more changes to taxes on an annual basis—then maybe we might migrate towards more of a process where you've got a finance Bill each year and a budget Bill, and an appropriations Act-type of thing as well. I think all of those are possible. As the Minister said, there's a commitment there to have those discussions with the Senedd—in particular, the committee—about how things need to evolve going forward. 

On the budget protocol, what we're trying to do, I suppose, is balance almost conflicting imperatives. The Senedd needs time to scrutinise the budget, Government needs time to produce the budget, public sector partners need to know what their budget levels are as early as possible, and these things push you in different directions. I think the protocol that we've got seeks to balance those things in the best way that we can. If you're asking me what I would prefer, I would like a lot more time for the Government to produce its budget and to have more flexibility about when we publish the budget, in the same way the UK Government just arbitrarily decides when it's going to do it to suit itself. I think it would be great for us to be able to do that. But the protocol balances that with the Senedd's requirements for scrutiny in a way that is fiddly but effective, I think.  

Just two things, outside the protocol but within your power, or within the Government's power. Can we have enough time for the budget debate? We have less time to debate the budget here than the average local authority has to debate its. We used to have an hour, we'd sometimes have an hour and a half, and I think we've gone up to two hours. Surely, a budget of £20 billion deserves an afternoon of debate. 

The second point I would like to make is: why can't we split tax and spend? Our budget debate mainly consists of spend. Alun Davies will say something on tax and want to raise it, and somebody from the Conservatives will talk about tax and want to reduce it, but, in general, 95 per cent of all the discussion will be about spend. Can we split them into two, so we can have a debate on tax and a debate on spend? Again, that's what happens in local authorities, and that would actually start to take us a bit further. When we compare our debate on our budget with that by the Westminster Government, we don't seem to spend very long on it.

13:00

And I'll add to the wishlist: could we have more detail of line-by-line spending and taxation? Usually, Mike dusts off his speech and says he'd like to see a Plaid Cymru budget and a Conservative budget as well. Well, it would be great to have some more granular detail of that, to be able to actually scrutinise the levels within those main expenditure groups as well. So, there we are—three bits on the wishlist.

I'll certainly make the Trefnydd aware of the issues that have been raised in committee today in terms of the timing and the format of debates, and so on.

Well, the Trefnydd—. Sorry; through you, Chair, the Trefnydd tells me, when I complain to her, that the amount of time Government give for a debate is set by Government not by her.

And any extra lines of information would be very gratefully received, so that we can really get to grips with some of the challenges that you face, obviously, when you're coming to making tough decisions. Obviously, if we're able to see that level of detail, we're able to help with the scrutiny and understanding where those challenges are. So, anything like that would be a help, because, obviously, the challenge you give us across the floor is, 'Where would you cut?' Well, we don't know, because we can't see the levels of detail. It would be useful to have that level of detail. I know that, in certain other Parliaments, in Ireland and Northern Ireland, they do get some of that detail. So, that would be great. Thank you very much.

Just to recognise, we do publish a lot of information with the budget, and we obviously have the supplementary budget, which provides more information. When each portfolio Minister goes through scrutiny at committee, they then provide additional information as well. But we'll certainly take that away and look at it. If I can add to the wishlist: more hours in the day. [Laughter.] Then, perhaps, we could achieve it at some point. And maybe more people as well. 

Sleeping is overrated. [Laughter.] Thank you so much for this session. I'm so glad you've made this time available for us, because it helps us keep things on track with the budget process, because it is a long time since our priorities debate to when the budget is being laid, so it's always good. And thank you for making some of your officials available for some technical briefings as well that we've had in private—they're extremely useful, just for us to understand a bit more about the challenges that are happening and some of the thinking that goes into budgets. Thank you so much.

Anything we can do to support that kind of thing—sharing briefings with officials, and so on—would be welcome on our side as well.

9. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o eitemau 10 ac 12
9. Motion under Standing Order 17.42(ix) to resolve to exclude the public from items 10 and 12

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o eitemau 10 a 12 y cyfarfod yn unol â Rheol Sefydlog 17.42(ix).

Motion:

that the committee resolves to exclude the public from items 10 and 12 of the meeting in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

According to Standing Order 17.42, the committee now resolves to go into private. Thank you.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 13:04.

Motion agreed.

The public part of the meeting ended at 13:04.

13:30

Ailymgynullodd y pwyllgor yn gyhoeddus am 13:30.

The committee reconvened in public at 13:30.

11. Goblygiadau ariannol Bil Diogelu'r Amgylchedd (Cynhyrchion Plastig Untro) (Cymru)
11. Financial implications of the Environmental Protection (Single-use Plastic Products) (Wales) Bill

Croeso cynnes nôl. Rydyn ni rŵan yn symud ymlaen i eitem 11, a hwn ydy goblygiadau ariannol y Bil Diogelu'r Amgylchedd (Cynhyrchion Plastig Untro) (Cymru).

A warm welcome back to everyone. We are now going to move on to item 11, and this is the financial implications of the Environmental Protection (Single-use Plastic Products) (Wales) Bill.

This scrutiny session is around the single-use plastics Bill. We've got the Minister with us. Welcome, Minister. I wonder if you'd be able to introduce yourself and then maybe your officials would be able to either introduce themselves, or for you to do so. Over to you.

Thank you very much. I'm Julie James. I'm the Minister for Climate Change in the Welsh Government. I have with me Gian Marco Currado. Gian Marco, do you want to introduce yourself?

Good afternoon, everyone. I'm Gian Marco Currado. I'm the environment and rural affairs director at the Welsh Government.

I have with me also Richard Clark. Richard, are you going to introduce yourself?

Yes. My name is Richard Clark, and I'm head of local environment quality in the Welsh Government.

I'm not sure whether we've got a lawyer with us as well. Have we got Louise with us?

I'm Louise Clarke, and I'm the senior single-use product manager, working in the policy team.

In the policy team. Sorry; you're a different Louise. There we are. Wonderful. Thank you very much. We've got about three quarters of an hour, so I'm going to crack on, if I'm able to. The first part is to explore the estimated costs, if we're able to, to consumers and businesses, and how small businesses will be supported to absorb these costs. You'd incur £0.5 million to implement the legislation. How are you applying learning from implementing other Acts in order to ensure that the legislation is effectively communicated?

Thank you very much. We continue to work with all our stakeholders representing impacted sectors, and as part of the communication development process, we've been engaging with policy teams right across the Welsh Government to identify best practice and to seek advice on how best to address our core audience, particularly with small and medium-sized businesses. That includes the learning from the work undertaken to introduce the Public Health (Minimum Price for Alcohol) (Wales) Act 2018, and drawing on our policy experience from the Single Use Carrier Bags Charge (Wales) Regulations 2010. We've also worked really closely with the Welsh Local Government Association and drawn on their expertise of communicating compliance messages to businesses, and we're aware of previous experience in implementing the carrier-bag charge. Effective communication and guidance improved compliance a lot, so we're very keen to learn from that.

We know from the implementation of the carrier-bag charge regulations and the Environmental Protection (Microbeads) (Wales) Regulations 2018 that clear guidance is needed to help impacted businesses understand how they'll be affected and what's needed of them, and we're going to draw on all of our experience from all of that. But it's not just about communications to tell people about the bans; we'll be providing people with information to assist them in making lifestyle changes, because the Bill is mostly about tackling environmentally damaging products, but we need people to work alongside us to tackle littering and implement 'reduce, reuse and recycle'. We'll be working with local authorities to provide guidance on how we expect the bans to be interpreted, and as with the carrier-bag charge, we anticipate enforcement activities will be intelligence led and undertaken with a light touch, focusing on bringing businesses into compliance in the first instance, and not on enforcement.

Thank you very much. The regulatory impact assessment states that there will be a cost to consumers and businesses of about £17.1 million to replace single-use plastic items with non-plastic alternatives. Can you explain to us how that was calculated, or one of your officials, and how confident are you in that estimate?

Yes, certainly. We estimated the cost for items A to J in the list in terms of the foodservice businesses switching from plastic to non-plastic products. That involved using market intelligence collected during discussions with stakeholders to estimate the volume of plastic and non-plastic alternatives on the market when the research was undertaken. And that's back in late 2019-20, which does seem like a very long time ago now. So, average prices for those items were used to quantify how much it would cost for businesses to switch to the alternatives—that was as accurate an estimate as we could get at the time, based on available market data. But we know that the announcement of intended legislation is a strong signalling to businesses, and I'm sure that members of the committee will have noticed that many businesses have already moved away from single-use plastic products. There's a lot of consumer demand in this area as well. So, the estimate excludes cost to manufacturing businesses to switch their production away from the banned items. A quantification of those costs was not possible, due to the availability of information about the number of businesses involved. The impact analysis undertaken expected that, if anything, costs for this transition would reduce as bans for similar items in the EU, as well as those planned in England and Scotland, also took effect.

13:35

I got confused, Minister—I hope you can unconfuse me. You will remember when we used to have multi-use plastic knives and forks, which were washable and could be used several times. They tended to be either brown or sort of a see-through plastic—there were lots of them—not like the white, easy-to-break plastic, the single-use ones that are not much use for doing anything with, but these were fairly solid. Are they included in it?

So, the way that it works is that it depends on what the purpose of the manufacture was. So, if the item is marketed as a throw-away disposable product, then it will be caught. So, even if you're the sort of person who reuses disposable plastic cutlery—which I know you know, Mike, that I do that as a matter of habit—if the purpose of it is that it's disposable, so it's marketed as that, then it will be caught.

So, the ones that aren't marketed as single-use, the old, hard—

If it's marketed as reusable, washable, dishwasher-safe or whatever, then it won't be caught. That's the broad [Inaudible.]

Oh, good, because we might see some of them coming back again, because they were much better than the current plastic ones.

Well, we'd be encouraging the use of biodegradable products like bamboo and wood and cardboard rather than the much harder to recycle, harder plastics, actually.

That would possibly lead me on to how you factored in the cost for businesses to ethically source the non-plastic alternative products.

So, we haven't done an impact assessment on the manufacturing arm of it, but, Peredur, we're very keen—and we've been working with Size of Wales, a third sector organisation, in particular—to make sure that, as part of our environmental—. Can you all still see me? You've all frozen on my screen.

[Inaudible.] You've all frozen on my screen, I'm afraid. Let's hope you can still hear me.

We've been working very hard to make sure that the carbon footprint of Wales isn't exported to other places. We've been working with the charity, Size of Wales, on making sure that our global footprint on deforestation isn't impacted by our procurement, and this will be no exception. So, we're working with our businesses to make sure that, in the guidance that we have, we’ll be directing them towards sustainable sources. So, for example, if you are using bamboo or wooden products, that you are using them from certified forests and so on. And, obviously, we implement all of those procurement methodologies in our public procurement strategy.

The RIA notes that the price elasticity of the products is unknown, how does that impact the potential costs that businesses and consumers might incur?

I'm going to ask one of the officials to go into the process by which we arrived at these figures, but basically what we've done is use our best estimate at the time that we did the impact assessment. But if I pass over to Gian Marco or one of his team on the exact methodology.

Thank you, Minister. Good afternoon. As the Minister said, we basically used an awful lot of the data that we collected during 2019 and 2020 in terms of the research. We do recognise, particularly in the current economic environment, that there is a lot of uncertainty about prices and costs, and that does make an accurate assessment quite challenging, particularly on the impact on businesses, but we are confident that we've used the best data that we've got.

The other thing that I would just add—and I think the Minister alluded to this a minute ago—is that what we're seeing in the market is already a shift from manufacturers towards non-single-use, more sustainable alternatives, so a lot of that change and a lot of those costs are already being incurred, I guess, through the market movement, and the signals that have been sent, including by us in the past, about what we expect in terms of reducing the use of these items. So, we think that that reduces, to a certain extent, the direct impact of the legislation, as well.

13:40

Thank you very much. A couple of last questions from me. Following on from what you were saying there, we know of the inflationary pressure and other pressures such as the energy price rises—what sort of consideration have you given to that? Obviously, you made your assessment in 2019; 2021 is very different, and as we go in, now, to the next few years, how is that inflationary change being looked at in the round, and are you revising your costs based on inflation?

We haven't got a mitigation package in this Bill, but obviously, the Welsh Government continues to support SMEs with £160 million targeted non-domestic rates support, for example, in the recovery from the pandemic. The UK Government, of course, has far more tools at its fingertips, if it wanted to use them, to protect businesses from inflationary pressures. We haven't got a specific support package in the Bill, but we have our Business Wales advice service that offers a wide variety of support to help businesses with more general financial pressures over the coming months.

Our analysis is that the products in this ban are often served as part of a food and drink service, and constitute a really small proportion of the total cost, irrespective of whether plastic or non-plastic products are used, and this is still true even in periods of high inflation. So, the context of the purchase, I suppose, will dictate how noticeable the cost increase is. So, if a small number of products are provided along with a food or drink purchase, the costs to the consumer are completely hidden and the cost increases to the business are marginal, but they're much more notable for consumers buying bulk items from retailers. We've found that as the demand for non-plastic products increases dramatically, the sale price could reduce as manufacturers take advantage of economies of scale, and the increased cost impacts would reduce as well.

Also, just generally, the market conditions are such that consumers are starting to demand non-single-use items. It's a behaviour change, isn't it, and that's what we're looking for here. So, even without this Bill, we think that businesses would be forced into changing their business practices by the rising consumer demand for more reused [correction: reusable], recyclable, sustainable products than are currently available in any kind of single-use plastic.

Finally from me, before I pass over to Jayne. Do you think that it will have a bigger impact on less affluent communities, with regard to takeaways and that sort of food—areas that could potentially be more inclined to be going to those sorts of establishments more than other areas?

We don't, because we're using our experience from the plastic bag charge. What we're looking for here is a social attitude change. Very rapidly, people got used to carrying a bag around with them, and didn't incur the additional charge of the single-use carrier bag, and we were worried at first that some communities would have additional costs associated, but the social change was pretty rapid and we think the same thing will happen here. The example I was giving in the policy committee earlier, and in discussing this with schoolchildren it's often raised: you know the rather flimsy plastic cups that you get given drinks in if you got to a sporting event or a concert or anything of that sort, and if you want to go outside with your beer you get those crushable, horrible cups that are very hard to recycle? Very rapidly, people get used to paying a small amount of money upfront for the first cup that has marketing information on it and logos on it, so it's a marketing opportunity for the small business or for the club, and then you get the drink at a slightly reduced price if you present your cup for reuse. Well, people just get used to carrying those around with them and they get used to carrying—I carry around a bamboo spork, as it's called, which is a fork, spoon, knife combo that you just reuse all the time. And we think that kind of social behaviour change will actually—well, first of all, it will save the planet and the unnecessary use of resources, but actually it will save people money because they don't have to rebuy things all the time.

13:45

Diolch, Cadeirydd. Good afternoon, Minister. The RIA states that there would be £1 million of regulatory implementation costs to introduce the ban and for ongoing management and enforcement costs for local authorities. Can you just confirm whether these costs are included in the total costs summarised in the RIA?

Yes, thank you, Jayne. Enforcement costs are estimated at around £100,000 a year falling to local authorities, which will be incurred every year from year 2, and they are included in the £1 million under the administration costs summary in table A. There is also a one-off £500,000 included in paragraphs 8, 6 and 7—I don't know why it's in that weird order. They fall to the Welsh Government for implementation. That isn't in table 9, but it is in table A. And we're drawing on our previous experience of enforcing environmental legislation, like the carrier-bag charge and, talking to the WLGA, they were very keen on this, that effective communication in advance of the legislation really reduces the need for enforcement activities. So, we anticipate that enforcement activities will be intelligence led and undertaken with an initial focus on educating businesses to bring them into compliance, rather than a heavy-handed, 'We're going to fine you for doing this.' So, there'll be a six-month standstill period in which we'll engage with businesses a great deal, and then there'll be a period where people will say, 'You do realise that you're not supposed to be selling that. Here's the information and the leaflet.' And then re-checking. And we think that, exactly like with the carrier-bag charge, very rapidly we will have high levels of compliance as people come to understand what's expected of them, and so we don't expect a heavy-handed enforcement regime. So, we don't expect very large amounts of enforcement costs on local authorities. 

Brilliant. Thanks for clarifying that, Minister. I really appreciate it. My next question follows up on some of the things that you've touched on already, actually, that some businesses are actually deciding to go forward with these things because of consumer pressures as well. But, there will be some challenges for some businesses. Have you identified, perhaps, some of those companies that will perhaps feel like they're struggling to transition and that they might need help with the extra investment costs involved? I know that you touched on Business Wales and some of the other avenues for help, but perhaps you could expand on that. 

Yes. So, the RIA notes that a market-mapping exercise was undertaken as part of the initial research when we first started this work, to understand the scale and scope of current businesses and industries that might be operating in Wales that are impacted by such a ban. Of the market leaders identified, only one manufacturing facility was identified in Wales and a further 12 manufacturers can produce plastic or non-plastic products within the scope of these proposals. Very specifically, they produced PET-lined card trays or plastic food packaging products and single-use non-plastic products in the form of plates and cups, compostable food trays and containers and so on. They were all invited to participate in the research alongside us, and their insight helped us to inform the impact assessment process. The research does acknowledge that there are challenges in engaging with the companies, and we looked to address those during the public consultation. But, I specifically invited comments from industry group representatives, and the research also noted that the businesses interviewed were often not in a position themselves to share detailed information about costs. So, the estimates were calculated using the modelling off the back of the information that we did have.

So, for example, some investment costs were put forward in relation to carton straws. It was suggested that capital equipment investment to produce alternatives might be tens of millions of pounds in the next five to seven years. However, since the introduction of bans on straws in England, we are aware that paper straws for cartons and drinks pouches have already been widely developed and are now commonplace in all of the large drink brands. So, we think that some of the original estimates were overblown and they've proven to be quite easily overcome. 

Thank you, Minister. And just finally from me, can you just elaborate on the risks associated with the elements of the RIA research you conducted in 2019-20, as we've already mentioned, and, prior to the implementation, will any further research be completed on the products planned to be banned for which the costs/benefits are unknown?

13:50

Yes, so we are continuing to conduct research on a range of products, both the products involved in the initial ban, the oxo-degradable products, on which, as you know, we're going to be bringing in the ban later on in the Senedd's term, with it already on the face of the Bill. And during the consultation, we had 60, I think it was, more products that people brought forward for consideration for banning. So, we'll be conducting research on all of those on an ongoing basis. And the Bill has a reporting mechanism under the Government of Wales Act 2006 in it that requires the Welsh Ministers each year to report on whether or not we're going to include anything else in the ban—so, to hold our feet to the fire to consider it each year—and then, if we are going to include something, what the research base for that will be. And that will have an ongoing financial impact consideration to go with it, alongside that. But we think that the—. The whole purpose of this Bill is to get this behaviour change, both in the manufacturing of these items and in the consumption of them.

And then the other thing to say to the committee is that this isn't the only Bill in this suite of Bills. We're also looking at extended producer responsibility regulations, which will specifically target packaging waste, and we think the combination of the two things will shift the market in a way that will mean that we're very unlikely to need to enforce, as the world, basically, shifts its social position away from these items. 

Thank you, Chair. If it helps, just to add a little bit to what the Minister has been saying, we do recognise that the markets have shifted since 2019-20, and, in particular, I think, the fact that both bans have been introduced elsewhere and, as the Minister said, consumer pressure is actually driving an awful lot of change in the industry. So, one of the things we are doing, just to reassure the committee, is we are looking to commission further market data, in effect, just to support some of that work, in particular in relation to some of the products that are in the Bill, like oxo-degradables, which will be banned later, but also that work that the Minister referred to in relation to any future products that might be subject to the bans, using the secondary powers that we've proposed in the Bill.

Good afternoon, Minister. The impact assessment is based on the analysis of banning nine products, whereas the Bill talks about 11 products. Are you happy that the RIA has adequately reflected your policy in regard to these? And another point—and I think you've probably touched on it as well—are you expecting to add other products to be included under the provisions of this Bill and, if you have, have you given some assessment as to the cost of that?

Yes, thank you very much, Peter. The initial model, as you rightly say, was based on nine products, and we're seeking to obtain further market data and wider evidence gathering through targeted engagement and desk-based research, and we've used all of that to inform our impact assessments. Since we commissioned the study originally, we anticipate that the use of the nine single-use plastic products in the Bill will have decreased, as bans, or the signaling of bans, have taken effect elsewhere in the UK and, indeed, globally. So, we think it's reasonable to assume that the additional costs of the other two products will be balanced by a cost reduction on the initial nine for that reason. Many people in business in Wales, as I've already said, are taking action to reduce reliance on single-use plastics, changing habits and making products and services much more sustainable, and we're obviously very committed as a Government to supporting those efforts. 

In the consultation, as I think I just mentioned in answering Jayne, we had another, I think it was, 60-ish products mentioned to us as suitable for a ban, and so the scale of the public appetite for getting rid of these products is quite extensive. And we've got to prioritise the health of our environment, haven't we? So, the Bill gives us the tools to reduce our dependency on those single-use plastics as quickly as possible. And I'm very pleased that the Bill includes a power to add more items in and to report on our intentions for adding, or not adding, more items in during our reports under the Government of Wales reporting mechanism, so that we keep that under regular review. But, as each item is considered, Peter, there will of course be—. We will of course do an impact assessment of each item; we will have done the research for alternative products; we will be looking to secure as much of the work as possible of manufacturing those products here in Wales, or making sure that they're ethically sourced from elsewhere in the globe. And, of course, Wales is a very proud Fairtrade Nation, so we'll be making sure that any products that are sourced from abroad through the public procurement process or using Welsh Government money are sourced sustainably in that way.

13:55

One of the—. Just off-piste a bit, one of the areas I immediately came to think about was some of our live sporting events and things like that, where, for health and safety grounds, we need to have plastic cups, and trying to find an alternative to those needs to be sought pretty quickly, because there are going to be a lot of those sorts of events moving forward.

So, Peter, that's a very good example, because, actually, there are a large number of products of reusable cups, which have marketing slogans on them, and which are easily carried about with you, collapsible and all sorts of stuff, that satisfy the health and safety requirements, give the companies involved marketing opportunities, and don't contribute to our waste cycle, so very much part of our circular economy. And we're looking to make sure that we can manufacture out of our excellent recyclate products that we have because of our excellent recycling, those kinds of cups for use by all of our concert venues and our sporting clubs to give them the marketing opportunities and to make sure that our reprocessors have a good option for marketing their products. So, it's a real win-win situation, I think.

I hope you don't extend it into agriculture too quickly, because silage wrap is a disposable plastic that is used once, but we couldn't do the farming operation without it. But I'm sure that's considered from a recyclable perspective.

So, on that, Peter, the oxo-degradable aspect of that is included in the Bill, but that's why we're delaying the implementation of that while we consider whether there should be agricultural exemptions and whether the products involved in them—silage wraps in particular, but other agricultural uses—are ones that need to have that kind of single-use aspect to them, and, indeed, exactly how biodegradable they actually are.

Yes. Thanks for that. Sorry, Chair, for going off-piste. Only one last question, Minister. I just wondered how is the work undertaken on the life-cycle-analysis-informed costs associated with the treatment options and specialist waste locations.

I'm going to ask Gian Marco to describe that, Peter, because that's a—how do I put it—a term of art that I'd much rather the official who's got it at its fingertips undertakes, so I don't know, Gian Marco, if it's you or Louise, but—[Inaudible.]

I can certainly start, Minister, and then, if Louise wants to add, please do. But, in effect, I think this piece of legislation sits within our broader ambitions for the circular economy, so what we want to do is we actually want people to keep products in use for longer, so we want to try and avoid, in a way, moving towards disposal. So, that's the philosophy that underlines it, and that's the philosophy that underlines some of the life-cycle analysis. We have estimated in the RIA I think it's a cost of around £0.3 million in relation to waste treatment of products, but, as I said, I think, for us, that isn't the objective we're trying to achieve; we want to keep some of these products in use for longer, and therefore we try and keep the costs of disposal down. But perhaps—. I don't know if Louise wants to add to that.

Gian Marco, I think you have covered those points really well, so, unless there's any further point from the committee on that, I think that's covered it well.

Okay. Before I ask Mike to ask some questions, just circling back maybe along those lines, and something that struck me now on something you said earlier, Minister, with plastics, the harder plastic ones that can be reused and are badged up as machine washable and that sort of thing, what mitigations have been put in place that might—? If you had unscrupulous companies saying that they were machine washable but they weren't, what sort of mitigations are there to make sure that people aren't getting round this Bill by just badging things up incorrectly? 

Yes, a very good point. So, we've considered this, of course, and we will be covering off in guidance to our trading standards colleagues what is considered to be a workaround that should be firmly stamped on and what we think is a genuine and reusable product. So, I covered it a little bit in my answer to Mike. We are very keen to make sure that any products that emerge on the market are very much part of our circular economy, that they are made from things that are easily recyclable, although they're multi-use, that they are not made from things that have multiple different plastics in them that are very difficult to recycle, difficult to separate out. We're particularly keen on using things that we can make out of our own recyclate collections so that we have a genuine circular economy in Wales, so our reprocessors can turn our current plastic recyclate into the kinds of reusable cups that I was just talking about and which quite a few of our venues are already starting to sell.

14:00

In relation to that, obviously, if you've got trading standards having to check these things out, in the costs in the RIA, has that enforcement element been covered? I know it mentions that it has. Is that the element of enforcement—

Yes, that's right; it is covered. We've covered the initial one-off cost to local authorities for the set-up costs and the admin costs, and then the ongoing enforcement. We don't think there'll be a lot of ongoing enforcement; there'll be more education and engagement work at the beginning of the cycle, and then we think it will be a very rare thing indeed to be actually prosecuting a business for a deliberate attempt to breach the Act.

Thank you. The plastic bag made a huge difference. I spend a lot of my time on the weekends visiting sports grounds, and they used to be covered in plastic bags. Now, when I see a plastic bag, I notice it, because it's a very rare event. You could change behaviour very easily. You talk about a £100,000 benefit to the fishing industry. Is that sea fishing or is it anglers?

I don't know the answer to that, Mike. Let me just see if one of my officials does. I think it's fishing in general. I don't know if we split it out into fly fishing or ocean fishing, do we? Gian Marco or Louise, do you know the answer?

I don't know off the top of my head. I think it's fishing in general, simply by not having these products around. I suspect that it's mostly from sea fishing, to be honest, because of the marine plastic impact.

Mike, I think you were aware that in Swansea we had one of our amnesties for fishing nets and so on. I think you went down to visit it, didn't you? We're very keen to make sure that that kind of plastic, which we know is a real problem for marine life, is removed from our economy in its entirety, hopefully. So, yes, that—. But I don't think we're particularly differentiating between different types of fishers.

You and I represent the River Tawe—we're halfway across each at the bottom of it—and there are problems of plastics ending up in the River Tawe, which cannot be good for fish, and certainly isn't good for the environment. So, I'm not supposed to ask you this question, probably, but the non-financial benefits, do you try and financially quantify them?

Yes, absolutely. So, there is a financial benefit to protecting the environment, isn't there, because what we get from the environment are a lot of ecosystem services that are damaged by pollutants in our rivers and so on. So, there certainly is a cost to that, but we haven't tried to quantify it in the very specifics of the RIA, because this is just about the very specific costs we think will be incurred both in enforcing the Bill and in businesses adjusting. But there is absolutely a wider, real-world impact of this, because the cleaner we can make our environment, the more money we all save in the future and the more ecosystem services we get for free, basically. But we haven't attempted to make a quantification of that; it's just implicit.

I know, but I can only ask financial questions, so I had to find my way around that. The other thing is that you've got a cost of £17.1 million as the additional cost for business and customers to replace single-use plastic items with non-plastic alternatives. Does that take into account the huge increase we've seen in oil prices, which are the basis of plastics?

No, it was an estimate made at the time that we did the research, so that was back in 2019-20, so those items are even more expensive to make, actually, so I would have thought there would be a real business benefit in swapping to things like bamboo and wooden products, away from very expensive oil-based products. That impact will be less, actually, as a result of the increased price for some of the oil-based manufacturing. The costs that are in the RIA are based on the research we did when we began to introduce the Bill back in 2019-20.

14:05

Will you be updating that because oil prices have gone up rapidly? Oil prices in Britain have gone up even more rapidly because oil is traded in dollars and the pound isn't doing very well against the dollar at the moment. Are you going to update that, because I think the number may well be substantially less and oil prices are likely to keep on going up?

I'm not sure we are intending to update it, Mike. I'll just check with my officials. None of them are nodding happily at you, so I don't think we are. All it does is it makes the cost-benefit analysis for the Bill better, doesn't it, because the benefits arising from the Bill begin to really seriously outweigh the costs of the swap. I think it just improves the position.

I speak as somebody who enthusiastically supports the Bill, but I have to again stick to financial questions as Peredur looks at me, so I was just saying what things could be done to make it look better when somebody in the Chamber gets up and says, 'Is it worth having to pay all this additional money for doing away with a few plastic knives and forks?' We'll find that all that money is substantially less than the money that exists at the moment.

Mike, I'm told by the officials that we are asking contractors to do the modelling for us to update the model in the light of the current price increases. So, thank you for that, Louise.

Thank you very much. Finally from me, the benefits from revenues total £8.6 million from the manufacturing sector switching to non-plastic, but that's for the whole of the UK. Do you know how much of that would be for Wales?

We recognise the main interest of the Senedd is obviously the impact of the proposed legislation in Wales, and we always seek, where the data permits us to, to identify the costs and benefits as they apply in Wales specifically. But, it is correct for an RIA to recognise that the proposed Welsh legislation will impose additional costs or generate additional revenue and wider benefits elsewhere in the UK. We don't have data available as to the number of impacted manufacturers in Wales alone. So, for the other costs, scaling to Wales on a population basis, we've used the population basis to do the scale, but it isn't viable for the manufacturing, and it will have an impact on manufacturers across the UK, because most of the products are intra-UK. So, that's the basis on which the figure was done.

You say most of the products are intra-UK—this is my final question—do we import any?

I honestly don't know the answer to that, Mike. I don't know whether Louise knows it.

Yes, Minister, we did find in the report that quite a lot of the products were imported. It wasn't very easy to find the number of manufacturers in Wales. I think the Minister alluded earlier to the work that we did to try and contact businesses ahead of undertaking the impact assessment. We contacted many businesses but only a handful really came forward to say that they would like to take part in the impact assessment work. So, that's the basis that we've undertaken the work on.

Thank you, Mike. Minister, just to clarify, the £8.6 million-worth of benefits is the proportion that you've gleaned for the Welsh equivalent to a UK figure, basically.

Yes, we've used [correction: we've not used] a population basis to try and extrapolate the figures from the UK-wide data.

Okay. So, from the research, obviously, that figure will—we'll get that ongoing benefit. Do we know when the crossover will be from when the costs will be paid off? Do we know roughly when this Bill will break even?

I think in the current climate it would be really difficult to make that calculation, to be honest, because when we started this Bill we were still in an era of zero inflation and steady interest rates. So, I think the calculation has got a lot more complex, as has everything else in the fiscal area as a result of the current situation for the pound. I'm not sure whether we're going to be able to do that. I'm going to defer to Louise who has a much better knowledge of it than me, but I would have thought that was quite a difficult thing to do.

14:10

Did you have an idea, obviously before everything went a bit hectic, at that point, when you first came up with it? 

Yes, there was quite a swift payback period, really, in the first place, but I have absolutely no idea what the effect of the current inflationary pressures are on that, as I said. I don't know whether Gian Marco or Louise do, but I'm very hesitant to—

No, Minister, I don't have an answer. You're absolutely right; I think the current environment is really quite difficult to model, in that sense.

I just wanted to go back to a point you made earlier that what we've not really been able to give a monetary value for is the environmental benefits of all this, and I think that's really quite important to remember and take a step back. The costs we've assessed for this kind of intervention are not huge, I would say, but there is this unknown, which is likely to be quite large, of what the environmental benefits are from what we're trying to do, and I think that's quite an important thing to always bear in mind when looking at the cost-benefit balance for this type of legislation.

A final question from me, and I think from all my colleagues as well. We just need to understand the impact that inflation may have on the total Bill cost over the 10-year appraisal period. Obviously, inflation is currently running at 10 per cent, probably going to go to 13 per cent, possibly going to come down after that. We've seen some modelling from Treasury and from other places. With your modelling, can you explain how that inflation is included in your costs over a 10-year period, and what impact the inflation pressures that we're having now will have on that window, on that 10-year window?

I'll certainly try, Chair, and then Louise can correct me if I garble it. I'll give it a shot. Basically, the way that we do RIA costs are estimated in a real base-year price. So, that means the effects of general price inflation are removed from the estimates, which is in line with the standard approach for a value-for-money assessment set out in the Treasury Green Book guidance on appraisal and evaluations. So, the cost and benefits presented are a real base-year price cost and benefit.

From an affordability perspective, they're both subject—. Single-use plastic items and the non-plastic alternatives are both subject to inflation. So, assuming that the same-ish inflation rate applies, then a high level of inflation will increase the price differential between plastic items and non-plastic alternatives. As we were just explaining, Gian Marco and I, it's a very difficult thing to estimate, isn't it? But, in general, most prices are going up with the same inflationary pressures—the differential change particularly.

You take one from the other and you still remain with the same figures.

The differential remains—. Well, it's a best guess, isn't it? But the differential remains similar.

Yes. And obviously that then—. What you'd hope is that that is translated into the costs for businesses and consumers as well—that would be the logic.

Exactly, but as Mike just pointed out, actually, we have a higher inflationary pressure on oil, and oil-based products, so we might actually be having a slight decrease in the differential. We don't have the empirical evidence to show that; that's just a best guess.

Thank you so much for your time this afternoon. I don't know if you've got anything else that you wanted to let the committee know about, but we've certainly found it very interesting listening to your evidence this afternoon. Thank you to you and your officials. I don't think anybody else in the room has any further questions, so I think we will then, under 17.42, go into private. Thank you very much.

Daeth rhan gyhoeddus y cyfarfod i ben am 14:14.

The public part of the meeting ended at 14:14.