Cynulliad Cenedlaethol Cymru

The first paper to note that we've got is a letter we've received from the Minister for Finance and Local Government about the budget timetable. I did write back to the Minister last week, so I was just wondering when we'd be likely to receive a response to that, or whether you're able to give us an update. 

Shall we look to do that within the next day or two, because I know the Minister for Rural Affairs and North Wales, and Trefnydd needs to write to the Business Committee? 

Fine. Lovely. It was just a quick letter as to when we'd hear. So, that's fabulous. Thank you very much. And then the second paper to note is a letter from the Legislation, Justice and Constitution Committee, and I propose that we just note that paper, that everybody's seen it. Thank you very much. 

Thank you for coming, Minister. Would you like to introduce your—? I know we've seen you before, but just for the record, your team there, please. 

Yes, I'll ask them to introduce themselves.

I'm Sharon Bounds. I'm the deputy director for financial controls. 

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

Diolch yn fawr. Great, okey-doke. I've got a few questions to start off with. So, we're just looking to start off with the economic situation and how it's impacting on affordability of the current budget, and how the Welsh Government is planning to respond to these pressures. Since you published the budget, inflation is far higher and more persistent than anticipated. What assessment have you been making on how the revenue and capital allocations for this financial year can meet your objectives and those of delivery partners? 

Thank you for the question. There's nothing in the supplementary budget that relates specifically to the impact on inflation, because we are still very much early on in this financial year and it will take time, I think, for us to assess what the wider macro-economic trends are going to be and what their impacts will be on us here in Wales. But we've already made the assessment that our budget will be worth £600 million less over this three-year spending period than we understood it to be at the time it was settled. We've been making a strong case to UK Treasury that budgets should be given a general uplift to account for that to help us in meeting our plans. 

We are monitoring the in-year position very carefully. Every portfolio provides a monthly report to me and I meet with my officials to discuss them, and we are starting to see some early potential pressures already being identified in those reports. We'll work with our colleagues across Government to understand those risks and those pressures in greater detail, but at the moment we're not intending to make any changes at this point to our plans. I have to say, though, that if there is any additional funding forthcoming from the UK Government, it's probably going to be unlikely to meet all of the pressures that we are seeing. So, we will have to think about how we deliver our plans. I know that our partners in local government are feeling the same pressure, as will others elsewhere.

Have you given any thought to what sort of process you'll go through in deciding what to prioritise and what not to prioritise?

We have a robust series of meetings, budget bilaterals, with every colleague. Those are opportunities to talk about those particular pressures and how colleagues will manage those pressures within their main expenditure groups, on the assumption that there won't be further funding coming from local government. I know that areas such as housing, for example, will be feeling particular pressure, so the housing Minister has undertaken to support the housing sector by adapting to the current market pressures, seeking to ensure that the appropriate level of capital grant is there to ensure scheme viability. In the last financial year, £11 million in additional grants and £25 million of interest-free loans were provided to social landlords to help mitigate those costs. Also, in my responsibilities for procurement, we've also issued a policy notice supporting the public sector in Wales in terms of the increased prices and how to deal with inflation, both in terms of entering into new contracts, but also managing existing ones. So, we're trying to provide as much information and advice as we can to partners.

That goes a little way, then, to try and mitigate some of the pressures on the cost-of-living crisis. So, are there any additional things that you think you can do within the budget by reallocating from one department to another, or is it too early to make those sorts of calls yet?

I think it's too early in the financial year to make those particular calls. In the first instance, I think that Ministers would be looking within their own MEGs to explore whether they need to reallocate within the MEG to meet particular priorities and particular programme for government commitments. That will be something that individual Ministers will be looking at, but I'll be exploring it with them in our regular meetings.

What's the timetable for pay negotiations and pay awards across the public sector?

They vary. There are different timescales for each of those, and different Ministers obviously have a responsibility to different cohorts of the public sector. They really do range. We have education, for example, which is slightly different to the others in the sense it goes across two financial years. Local government is obviously negotiated on an England-and-Wales basis, so that's not something that we're actively involved in. Then health has its own pay review body that reports. So, there are a number of different bodies that advise on this.

So, is there any guidance that you're giving your colleagues on limits as to what you can and can't do, or is it up to them to present a case to you?

Whatever we decide has to be affordable within existing budgets, because, as you see in the supplementary budget, there's not a huge amount in the reserve. Obviously, when you do allocate from the reserve to pay, potentially you are building in pressures for forthcoming years as well. So, that will have to be a consideration. We did have a meeting of one of the inter-ministerial groups yesterday, which I attended, and I raised the issue of pay directly with the Chief Secretary to the Treasury. I was making the point that we are seeing very strong pay growth in the private sector—the most recent figures from the Office for National Statistics are 8 per cent, whereas it's 1.5 per cent for the public sector—so, clearly, we're seeing a disparity and a growing gap. It's the biggest gap, actually, that there's ever been between those two groups of people. What we don't want to see is pressure in terms of the workforce retaining workers within the NHS, within social care, within homelessness services and so on. So, that, again, is one of the challenges that is going to be there if you see a real divide between the private and public sector and what jobs can attract.

Mike, did you want to come in?

When it comes to capital, I'm told that construction costs are going to go up by just over 20 per cent. I'm sure that's a figure you recognise. What it means, effectively, is that if a council was going to build 10 houses, now it's going to build eight. So, it doesn't affect the budget, but it affects the outcome.

Yes, I would completely agree with that. I went to visit our first net-zero school in Rhoose just a week or two ago, and I took the Ministers from Northern Ireland and Scotland with me. It was incredibly impressive, but the project manager was very keen to impress upon us that if this school had been built today, it would have cost twice as much. That's the kind of pressure that there is in the system.

I do know that we've got feedback from the sustainable communities for learning delivery partners, again identifying those particular pressures Mike Hedges is talking about in terms of materials. Local authorities and further education institutions will be responsible for the procurement and the delivery of the projects, and, obviously, they are the parties who have the contractual relationships with the construction partners and their supply chains. So, ultimately, those decisions around the cost and material availability will be the responsibility of local authorities and the further education institutions as the contracting parties. But the point is correct, that you either build the same amount over a longer period, or you build fewer within the intended period. That's the reality at the moment, I think.

Peter.

Just one connected to that, I know that the twenty-first century schools programme is a big thing for Welsh Government and for local government. Do you see that threatened? Are you starting to hear concerns from local authorities who won't be able to meet their 50 per cent or whatever, which is going to stop these projects moving forward?

I've had broad concerns from local government about capital overall. So, certainly, I think that school building and refurbishment and improvement will be part of that, alongside their other capital concerns. It is one of the first things that leaders at the moment want to raise with me in our discussions. 

Yes, absolutely.

Thank you. If we move on to some of the budget adjustments related to the implementation of the new accounting standards for leases—international financial reporting standard 16—most of the changes in the supplementary budget relate to adjustments arising from the implementation of the new accounting standard for leases, the budget implication of which you say is being met by HM Treasury. How have you obtained assurances over the figures for the Welsh Government and its funded bodies?

Yes, you're right that most of the changes within the supplementary budget do relate to this, and I think that that reflects that this supplementary budget does take us back to what we used to envisage supplementary budgets to be before the pandemic. They tend to be quite technical exercises, and, if you want a technical exercise, this is definitely one of them. I might invite Sharon to say a bit about the exercise itself and what it means for us, and then I might come in with some further information.  

Yes, okay. So, this is obviously a new standard—IFRS 16. It's a new lease accounting standard. It sets out the principles for recognising, measuring, presentation and the disclosure of leases. The new standard has actually been adopted by the private sector, so Companies Act companies have been using it for, I think, the last four years. But it's only been adopted by Government now since 1 April 2022. It's actually been delayed for a few years because it is quite complex and, obviously, with COVID, there were higher priorities to deal with within the public sector. So, it's coming from 1 April 2022 and, essentially, it requires the majority of leases, other than those for low-value items or those that are less than one year, to be treated more comparably like capital assets. So, at the moment we find, with some leases, you'll get into a leasing arrangement and what will go through the budget is just the annual lease payment, and that will be part of your revenue expenditure. Under IFRS 16, most leases now will have a capital element to them. So, the value of the lease will now show on the balance sheet. As far as Government expenditure is concerned, that means that there needs to be a capital budget hit when that happens, similar to what we do with purchased capital assets. And then, annually, there will be a depreciation element of that, and there will also be a small interest charge, just kind of reflecting the fact that leasing, to all intents and purposes, is a form of borrowing—that's the arrangement that you've entered into. 

In terms of how we gained assurance, when the spending review settlements came through end of last year, the Treasury hadn't taken account of IFRS 16 at all in the settlement. So, just before Christmas, the Treasury issued a commission out to all UK departments and devolved Governments asking for the information that was required in order to reclassify the budgets to reflect IFRS 16. So, within Welsh Government, we consulted all of our departments, our arm's-length bodies, directly funded bodies as well—it was quite a comprehensive exercise that was undertaken—asking for information on, as I say, existing leases, what was in the plans and what would the effects of IFRS 16 be on those plans. We had a technical working group working alongside that—so, finance professionals, who understood what the standard was, liaising with technical expertise within the Treasury as well. So, all of that was checked, and it was quite an iterative process, but quite a lot of checking throughout that process. We obviously looked at the areas where there was the greatest risk, so, essentially—and you'll see that in the adjustments in the supplementary budget—it's in the health service, it's in the climate change portfolio because of transport, essentially, the rolling stock leasing of trains, and then the property portfolio within economy.

Before the information went to the Treasury, the finance director of the Welsh Government signed off on that as well. So, there was a lot of assurance and checks and balances that went in throughout that process. When it went in to the Treasury, they also undertook some analytical review, which raised a few queries, and we were able to resolve those. And, essentially, then it got to the stage where the Treasury were comfortable with what we had provided and agreed the changes that would then be shown and reflected in the main estimates, and what we are now showing in this supplementary budget. They have said that, as this is the first year and it's still a relatively new concept that we're all still getting used to, it will be revisited in the supplementary estimates from a UK Government perspective, so we could very well see some changes, but it will give us a chance to review what has actually happened, are those numbers correct, and have an opportunity to revise that.

So, other than the technicalities of it, what are the main challenges when setting the budget and allocating, and would people out there realise that there was a problem, or is it just a paper exercise?

I think the important point is there's no change at all to our spending power. So, despite all of the technical exercise that has been undertaken, there's no material change to what we have available to us to spend.

Okay. Thank you very much. We'll go over to Mike, then, please.

As a quick comment, I think it's a really good idea moving that forward, people will be using leasing as a means of spending capital money without it counting as capital. And that was a means of gaming the system, and I'm very pleased that they've found their way around it.

Moving on to Ukraine, I've got one question in three parts. How much money have you had from the UK Government to support Homes for Ukraine? You've allocated £20 million in your supplementary budget to support the response to the crisis in Ukraine. Will that be enough, and do you know how it's being spent? And the third one is that, as of today, we know that a substantial sum of money is being taken off the Welsh Government to support weapons for Ukraine. How is that going to affect this supplementary budget?

Thank you. So, lots to get into on that one. The first thing to say is, in respect of the fact that local authorities will be receiving funding from the UK Government at a rate of £10,500 per individual who arrives on or before 31 March of next year, and also there's the £350 payment to those households who are hosting them, for the maximum of 12 months, up to 31 March of next year—there's no further commitment beyond that date—those payments will be channelled through the Welsh Government and passed over to us in the supplementary estimates. So, you won't see anything in our supplementary budget to that effect, but we do have an agreement with the UK Government that that will take place. You'll see it reflected in our second supplementary budget, which we would publish in February of next year. Local government will then claim from the Welsh Government for the Ukrainian people who are being supported through the scheme within their local authority area, and our officials are currently working with officers in local government to ensure that we have appropriate data so that the funding gets to those authorities properly.

Also, there is funding available within the education sector from the UK Government. That's to support young people entering the education system. But this has only been for one year of the three years for which people have the ability to stay here in the UK. So, this is something that we're pressing the UK Government on particularly, to confirm funding for years 2 and 3. Our concern is that they won't do that because I think that their view is that people arriving from Ukraine to the UK will become integrated into the welfare system, into the education system and that, potentially, they won't need support from years 2 or 3, but we're continuing to challenge that because there is a risk that local authorities will incur unfunded costs from next year.

We are putting together a package for people arriving from Ukraine that goes very much above and beyond that which is available across the border, and we're funding that from our own resources. So, this comes from the £20 million that Mike Hedges referred to and which is in the supplementary budget. That includes our welcome centres, it includes the free transport for people arriving from Ukraine, and it also includes the welcome hubs we have in places where we know people are likely to arrive in Wales. So, none of that is receiving funding, but we want to do it because we think it's the right thing to do, and also because if we support people quite intensively when they arrive, we hope that their placements with host families or with their own family members will be successful ones. We know that if we don't put that kind of effort in at the start, there's a real risk of breakdown and of people potentially entering the homelessness system, which is absolutely not what we want to see. So, as Mike Hedges says, £20 million has been allocated at the moment. Is it enough? Well, there is potential, I think, that further funding will be required later on and, if that is the case, you'll see it in the second supplementary budget. It does depend very much on how many people arrive, how long they stay in the welcome centres, and so on, but we're monitoring that really closely and working very closely with local government.

And the third issue was in relation to the funding that the UK Government has announced for supporting weapons for Ukraine. So, you'll have seen the news today that the UK Government has announced £1 billion of military support for Ukraine. The background to this is that I had a call from the Chief Secretary to the Treasury a week ago saying that the UK Government was looking to all Whitehall departments to return 1.5 per cent of their capital budgets to fund this particular intervention. And the choice at that time was to either provide an upfront contribution from Wales, which would be around the same order of funding, or to wait until later on in the year and have that reduced as a negative consequential. So, given the extraordinary situation in Ukraine, we accepted that at this time and took the decision to provide the funding at this point in the financial year, because it does give us that financial certainty and we're not waiting for the end of the year to find out exactly how much is coming off. So, that's why we took this decision. We want to support Ukraine, clearly, but we obviously don't want this to be a precedent as to how the UK Government seeks to fund matters that are clearly in the reserved space and which, I think it's fair to say, the UK Government could have found £1 billion for from other resources, if it had wished to do so.

So, was there any consultation or was it just a diktat?

The consultation, such as it was, was the call with the CST where he set out what the options are, and then we had a couple of days to consider those options before responding to the Treasury.

So, there was a 'now' or 'later', but not other means of doing it or of being able to give counter-proposals or anything like that.

That was the choice essentially: provide the funding upfront and know how much it is and then plan for that, or take the negative Barnett consequential later in the year. We did make a pragmatic suggestion, however, to have an additional £30 million capital borrowing available to us in this financial year. So, we're waiting for a response from the Treasury on that. You'll have seen the Prime Minister's press statement, which says that the funding from the UK Government departments has been met from underspends. But we're not envisaging those underspends because we've taken action within our capital budget to avoid that by overprogramming by £100 million. So, it was our intention fully to spend all of the funding available to us, and we planned on that basis, so we are asking the UK Government to take a pragmatic approach in terms of our borrowing for this year.

Okay, diolch.

I thought with capital you can drift it into the following year, so you can slip schemes; some will naturally slip and some will—. You can artificially slip, and most people running these schemes do that, so I think that, with good management, people ought to be able to get around that.

The next one I've got is on the city and growth deals. Now, I'm speaking as somebody who's been an enthusiastic supporter of these for very many years. How is that £20 million going to be affected by inflation, especially as some of it, I'm sure, is going to be used for capital expenditure? How is inflation going to affect its ability to do what the four areas—the two growth deals and the two city deals—actually want to do, which has unanimous support across the local authorities in the areas?

I think that that, essentially, would be a question for the regions themselves in terms of their own response to the pressures they're facing, but the pressures that the city deals will be facing will be exactly those that we've talked about that the Welsh Government is facing, that local authorities are facing, in terms of their schools programme and so on, so they will be looking at their programmes and making choices within that as well, both in terms of what they decide to support but then the period over which they do it. But perhaps that's something to explore in detail with the regions.

The final question from me is about free school meals, and I'm speaking again as somebody who has enthusiastically supported it for very many years, when I was a lone voice on it at the beginning, but others have joined in. It's not simple—I think that's the point I'm trying to make. I've got schools in my constituency—and I'll name one, Blaenymaes—who could expand to doing 100 per cent of all primary pupils tomorrow because they've got it up to 80 per cent and they've got the capacity to do it. I've got other schools that have a much lower take-up of school meals, who have got smaller kitchens. So, I understand that some people are saying that some authorities can do it and some can't. My understanding, if Swansea is like everywhere else, is that some schools can do it and some can't, and there's money in the capital programme—. Has your colleague the Minister for education actually come to you saying, 'I've talked to the local authorities and these schools are the ones who need expanded kitchens, these schools need expanded dining halls, these schools we can work with if lunch spreads over a longer period of time so we can actually add a second or third sitting', and how much each of those is going to be costed at? As far as I understand it—and you can tell me if I'm wrong—it's going to be on a school-by-school basis, not an authority-by-authority basis, because some schools have got small halls and lots of pupils; other schools have got big halls, big kitchens, and fewer pupils than they were built for.

The education Minister is, or through his officials, certainly, liaising with all local authorities to look at things on that school-by-school basis to understand what the needs are in terms of being able to have that physical capacity to deliver on the commitment. We have provided £25 million in the first instance to support adaptations to schools to ensure that the facilities are there to provide those meals. I haven't had a request for further funding, and I'm sure that they're seeking to explore how they work through that £25 million in the first instance, and that's part of the overall £225 million, actually, which we're committed to over the period of the co-operation agreement to deliver the commitment. We're very aware of that particular issue in terms of the capacity of schools physically to deliver this, which is why we're trying to take a pragmatic view as well, in terms of allowing schools to look at other ways to provide food in the first instance while we start to make sure that that physical investment is made. But it's very much high on the agenda and something that officials are working closely with local government on.

With your local government hat on, are some local councils struggling more than others, or is that just the nature of it, as Mike was saying, that it's more school by school across the country?

I think it is school by school, but some authorities will have more of those schools that will be finding it more difficult than others. So, it's probably both, really. School by school is going to be challenging for some, but then some authorities will have more challenge altogether.

Thank you. And continue after that, Peter.

Right, okay. Just on school meals; a bit of a theme yesterday. Have you decided on what unit cost you're going to fund school meals? Because I know there's a range of those; there are upper levels and higher levels. What consideration will that thinking have to the inflationary cost of food moving forward? So, might you have to bring a supplementary forward or factor in a supplementary to cover additional food costs as that perhaps rolls out? Because I would have thought the Government is probably wanting to move away from the old regime of buying food on mainly price, and then a little bit on quality, and trying to balance that so there's more quality and less on price. So, I just wondered if there was any indication of where we're looking to put the unit cost of food.

From a procurement perspective, there's definitely a move to exploring how we can do better in terms of sourcing more locally and supporting the local economy in terms of the purchasing of food for schools. But on the actual unit cost, I'll ask the education Minister to write to the committee, because that's something that he would be dealing with, more so than myself.

Thanks for that. I know it's something the cross-party working group were quite anxious to understand as well, because it's a fundamental part of the roll-out and the procurement, for local authorities to work their procurement out and things.

Yes, I think you're right in that element of local procurement. You, having spoken to farmers, and meat farmers in particular, are keen to support that.

Absolutely.

Mike, I was just checking that you'd finished.

Yes, I've finished, thank you.

There we are, lovely, thank you. Peter.

Thanks, Chair. Minister, I'm just going to move to the NHS and to look at some of the moneys we put in place to aid recovery. I'm conscious that some of these questions ought to be asked with yourself alongside the Minister, because there are clearly very many health management issues within it. So, in the response to the committee report on the draft budget for 2022-23, it suggested workforce capacity and planning remains a key focus for NHS Wales, and a report by Audit Wales, published in May, suggested that the

'workforce is tired, stretched thinly and under pressure',

and identified this as one of the serious barriers to restricting planned care services. I just wondered how is your investment in the NHS recovery addressing these workforce issues.

Thank you for that question and if I don't give the level of detail that the committee's after, I'll ask the health Minister to provide that, because she's very much in the lead in terms of workforce pressures. I do know that the Audit Wales report you referred to was actually very positive in terms of the approaches that we used during the pandemic, and said that we have to build on those in future years, but I also recognise everything that's been said about the very stretched workforce—understandably, after the last couple of years that they've had.

The workforce plan that the Minister is leading on is multifaceted. It's about having record investment in training and recruitment, and trying to retain people within the NHS as well, but also reflecting that we have to be using technology in a much smarter way as well. So, there's a strand of the work, I know, that relates to digital and technology within the NHS. But perhaps I'll ask the health Minister to write to you more widely on this issue.

Thank you for that. Audit Wales also found that NHS bodies struggled to spend all the additional money that you passed on for 2021-22 for planned care services. How are you addressing that with the additional funding for 2022-23? Because we can't just keep pushing money if they can't use it.

Yes, we did provide an additional £250 million for planned care within the last financial year, and that was intended to start addressing the backlogs and so on. What we didn't know at that time was that omicron was going to come along and throw a spanner in the works quite significantly, again taking us a step back, I think, in terms of our path through the pandemic. So, it was very much omicron that prevented the spend of all of that funding.

We do have significant funding available to the NHS now in respect of planned care. Clearing the backlog is clearly a major priority for the health Minister and something that I know she monitors very closely through the work that she and her officials do with the health boards.

The money's an underspend. I'm assuming—I should know this—they've retained that money; you haven't had to claw it back and then moderate the 2022-23 budget as a result. Because, obviously, if they hadn't spent what money they'd got, you're not going to give them more in your next settlement to not spend.

The second supplementary budget that we published shows the movement of money across Government. So, in areas where there might be an underspend, we would look to redeploy that elsewhere.

Ah, right. Okay. So, it would have been clawed back. Would it have been clawed back, or not, then—anything they didn't spend?

All redeployed within the health mechanism.

Oh, I see. It's not given to them. You held it and just didn't allocate it to them and moved it between departments, then.

It's all moved within—. The money's allocated to the health service, to the health main expenditure group, and then—

Yes, to the MEG, it's not passed on to them.

—they allocate it out to the NHS, and then it's up to the health Minister to decide what she does with that. It doesn't necessarily come back in that way.

So, it wouldn't necessarily have gone to the health boards, it would have been held back, and then as and when it's needed, it's allocated in the budget, but then the money—. They wouldn't have funding that would be, then, clawed back from their—. Would they have been keeping a reserve, or not? It's probably more of a technical—.

The health budget reflects the actual expenditure of all of the health boards. So, whatever they have spent is what you will see as the outturn within the overall MEG. So, they don't hold on to it. The underspend is the underspend of the Welsh Government.

I see.

So, that, then, all comes back. It's part of the overall outturn position, and then carry forward is part of the overall flexibilities.

It's not like local authorities where you've given it to them and then want it back. You didn't give it to them in the first place.

Absolutely, yes. Because health boards are part of central Government, that's the reflection in the budget. Local authorities, obviously local government, so it is a different budgetary—

That's helpful. They draw it down whey they need it, and if they don't need it, you keep it.

Absolutely.

Absolutely. Thanks for that. If I move on, the NHS waiting lists for April showed that over 700,000 patient pathways were waiting to start treatment. I wondered what impact will the funding allocated for 2022-23 have on reducing waiting times, and do you anticipate providing further in-year funding? I'm conscious that the health Minister might have a perspective on that one as well.

I'm sure she does. We'll ask the health Minister to write to you on that particular point, but I think that she will probably point to the planned care recovery plan that was published in April, and that sets out the actions that will be taken within this space. But from a financial perspective, we've provided a recurrent £170 million additional support to help with the delivery of that particular plan. So, what you would hope to see would be the reduction in the overall number of open pathways, people getting to have their first appointment more quickly and so on—things that we would be expecting, through the health Minister, to be witnessing as a result of that additional investment.

How do you reassure yourself that you're getting value for money from the health service when you pass money on? What are you looking to measure?

So, health boards have detailed transformational plans related to the addressing of the backlogs, and that's part of their integrated medium-term plans that they present to the health Minister. Those IMTPs are scrutinised by officials, and then the health Minister, as I understand it, is in a position to agree those IMTPs or not, depending on whether or not they're expected to achieve the outcomes. And then there is ongoing work, through health officials, to ensure that those deliverables are being met.

Yes. So, you take a lot of your reassurance from what the health Minister tells you, really. I can understand that. Yes. Thanks for that.

Just a last one from me, Chair. The Welsh Government press release on the NHS waiting time statistics for April said that it was working with all stakeholders through national programmes to support improvement in NHS waiting times. Can you expand on that a little?

I will do my best. So, as I understand it, that related to the six goals for urgent and emergency care programme. The majority of the £25 million that we have provided towards that has been allocated to health boards to build capacity in terms of the urgent care pathway same-day emergency services to enable older people and frail people and those with specific complaints to be assessed, diagnosed and treated and then returned home to sleep in their own beds that night, and also the remote flow hubs, which are intended to book patients into the right service the first time via a telephone assessment, rather than going around different places, being moved on to the next professional and so on. So, there are some specific things that the funding is intended to achieve. As part of that, it's already seen the roll-out of the 111 Wales service, significant improvements to the 111 Wales online platform. We've got the new 111 mental health pathway. So, there have been some new things that have been delivered quite quickly as a result of the additional funding.

Yes, lovely. Thank you. Thanks, Chair.

Rhianon.

Thank you very much. I'm going to move to a line of questioning around the impact of funding for Wales within the civil service. But more widely to that, before I do go into that line of questioning, you've sort of briefly touched, Minister, upon the inflationary rises. I'm not sure if we mentioned the energy price cap and how that's going to also impact on that. And in particular, what I'm interested in, Chair, if I can get to the point, is that statement that you made about the pressures between public sector salary and private sector salary, that gap in how we retain our workforce. So, I don't know if you've got anything that you can add to that in terms of what we're talking about today as to how we're going to cope and absorb that, because, obviously, the Scottish Government is having similar issues and has made a statement around that. So, I'm not sure if there's a comment that you've got around that, in terms of how we approach that particular issue, before I go into my line of questioning. 

People sometimes say, 'What keeps you up at night?' and it is public sector pay, because it is so significant. Half of our Welsh Government budget is related to pay within the public sector and a 1 per cent movement equates to around an increase of £100 million, so we're talking significant sums of money. It's a concern that the Chief Secretary to the Treasury said over the weekend in some articles that were published in the newspapers that he doesn't see any scope for additional funding to be provided to meet pay pressures. So, he's been very clear—as he has been, I have to say, when I've spoken to him about it twice in the last month—that departments and devolved Governments are going to have to live within their means. He has said to UK departments that he would be expecting them to be thinking at the most in the region of 3 per cent, and anything else has to be absorbed within their own budgets as well. So, he's made that very clear, but we were stressing the point that additional funding is required to show the kind of level of respect to the public sector workforce, which has worked so hard in recent years. So, we're continuing to press UK Treasury on that; they do seem very fixed that there's not going to be movement, but we still try.

Okay. I'm sure that that's something we can return to, Chair, at a different time.

Sorry, if I may, on that point. There's flexibility there on—. Not flexibility, there's rigidity there in saying, 'There's no money coming here', but quite happy to take money from here to there. So, I just wanted to make that point, and, obviously, a point that you made earlier is that it was either the money for Ukraine—which is something that I support, that's fine, it's just the principle of that dialogue and being able to—. Well, it's one rule for one and another rule for another. So, it's just making that point, really.

Thank you. In May, the Prime Minister announced the plans to cut 91,000 civil service jobs. How will this decision affect the Barnett consequentials in particular, referring back to public sector employment in Wales?

So, UK Government, as you say, has said that it will cut 91,000 jobs. We didn't grow our civil service here in Wales to the same extent as they have done in England or Scotland, and they did so as a response to Brexit and then the pandemic. So, we don't have that greatly enlarged workforce, as compared to a few years ago. But, actually, 80 per cent of civil servants in Wales are employed by UK Government departments—so, the Driver and Vehicle Licensing Agency, of course, the Department for Work and Pensions, HM Revenue and Customs—so what we would not want to see is for the UK Government to be looking to cut large numbers of jobs in Wales. You know, these aren't Welsh Government jobs, but, nonetheless, we wouldn't want to see jobs in Wales being lost as a result of choices that the UK Government has made. So, it is a worry for us. We don't have clarity yet on what that might mean for our own budget. Clearly, we wouldn't expect to be penalised because of choices UK Government makes, but history has taught us to be wary of that. I'll check with Emma if there's been any recent dialogue on this.

No, and I understand from the Permanent Secretary that, although he's in a regular conversation with his counterparts on it, we haven't heard anything further about the impacts on us or the broader efficiency review being undertaken by the UK Government. So, there remains a level of uncertainty there.

And just to follow through with that, then, in terms of the level and ratio of jobs in this area, or these areas, across Wales, from the UK Government, have they indicated when this will occur in terms of the report that you talked of, or the review that you talked of?

Not to the best of my knowledge, no.

Okay. That's of concern, I think, to us as a committee.

I think Mike just wanted to come in.

Two very quick questions. At what stage does 'no detriment' come in? And the second point is, in the 1960s, the levelling-up policy was about moving Government civil servants out of London to here, and we've got the DVLA in Swansea, you've got the Royal Mint in Llantrisant, which were all moved from London, which brought relatively well-paid jobs to relatively poorer areas. The point I'm making is: is there any intention to move further civil servant jobs out of central London, where recruitment is difficult, salaries are massively competitive, to Wales, where civil service pay is relatively high compared to local pay and where buildings are cheaper and where commuting is easier and where turnover of staff is much lower?

I haven't had any direct discussions with the UK Government on that. I know I've read about proposals in respect of Ministry of Justice jobs potentially being moved out of London, but that's just what I would have read in newspapers.

I obviously wouldn't want to speak on behalf of the UK Government, but they have, in the last couple of years, expanded the number of civil servants out in the regions and nations of Wales through—. There are now a number of Department for International Trade civil servants located here in Wales. There's the hub in the centre of Cardiff. There's also a series of posts associated with the levelling-up agenda that are here in Wales as well, and there's been quite a big recruitment drive with that. And obviously, the UK Government have had plans to move Treasury jobs out to Darlington, for example. So, that is something that they're undertaking, but, clearly, that's their decision.

Okay. And the 'no detriment'?

In what sense, Mike, sorry?

Well, under the Treasury rules, under devolution and the devolution settlement, for decisions made at Westminster that have an effect on Wales over which we have no control and there is no equivalence, then there's a 'no detriment' in there. It came from the Scottish devolution settlement, where 'no detriment' came in first.

We'd have to consider that in terms of where our—. So, it should be no detriment, but then to what extent do we have devolved responsibilities in this area, because we're talking about non-devolved roles. So, I think that we'd have to explore that further.

Perhaps you could explore it and write to us.

Of course, yes. And just to finish that point, really, of the 91,000 jobs that the UK Government is looking to cut, a proportionate share of that for Wales would be 6,000 jobs. That's an awful lot of jobs.

Is that a proportion of the total civil servants employed in Wales or Wales's population—

That would be our Barnett share, wouldn't it?

—percentage, because we're over civil servanted now, compared to England?

Yes, that's a good point. So, that would be approximately the Barnett share, really, isn't it?

Because we've actually got more than the Barnett share of civil service jobs.

Yes. So, it is likely that we will be—. I mean, we don't know yet what will happen, but it's obviously a cause for concern.

Sorry, Chair.

No, that's fine. Thank you, Mike. Rhianon.

It's just really in terms of following through in this theme. In May, you mentioned the Scottish Government's—or I mentioned the Scottish Government's—reset in terms of their thinking in terms of public sector jobs in Scotland and returning to the number of public sector workers to pre-pandemic levels. So, it's really Mike's question, really, which you've almost answered, in regard to our plans in synergy around that. Are we looking to reduce the cost of Government in Wales? And obviously, equally, the context that we're now in, which is, after COVID, we were not expecting further external events, and they keep on coming at us, don't they? So, are we looking to reduce the cost of Government—and I take on board Mike's point—given those pressures on public finances?

So, we have the annual civil servant employment survey, and that shows that, in Scotland, since 2016, they increased their civil servant headcount by 45 per cent, and, during the same period, ours only grew by 5 per cent, and it grew significantly in England. So, we are in a very different position. What the Permanent Secretary is doing at the moment is an exercise called Welsh Government 2025, and that's really about ensuring that we have people with the right skills, working in the right parts of the Government. So, looking across our programme for government, our priorities, are we putting the human resource into the right areas in the right way and so on? So, that's a piece of work that I'm sure he'd be happy to share some information about.

I think that would be very useful, thank you. And then, finally, the Welsh Government and the Senedd are seeking an unprecedented amount of legislative consent memorandums on UK Bills that need to be scrutinised to short deadlines. Are you confident that we have sufficient legal capacity for this flow of LCMs and the current legislative programme, which is extremely heavy?

I would say 'yes', but it's very challenging. We are constantly exploring the legislative programme. I think the First Minister's got his legislative programme update in the next couple of weeks, as we move towards the end of term, setting out our programme for the next year. But it is an area, I think, of real challenge in terms of being able to service all of the LCMs that are coming through, but then also our own ambitions in terms of legislation as well, so—

So, in that regard, in terms of, in particular, around legal expertise, one of my concerns for quite a long time now, especially around the Brexit issues and the movement, the virement, of personnel into different areas, is that we don't have that level of capacity within the building. So, what you're saying is that it is just challenging and you're still looking at that.

It's challenging, because we always want to do more, and so there's always more that we would want to do in the legislative space, but we do have a really ambitious programme in terms of our legislative programme, but, as I say, it is one of the challenging areas.

Okay. Diolch.

Diolch yn fawr. On that point, a challenging legislative programme needs the capacity of people to do it. Is there a challenge, then, on recruitment and the knock-on effect of making sure that enough people are trained in our universities to be able to come through and—you know, the knock-on effect down the line, so the investment in higher education and education to get to that point as quickly as we can? I don't know if there's anything in the budgeting process that you can help with, with the education Minister, in developing that competence and that level of training, and potentially not necessarily just degree-level training, but the apprenticeships and that element.

I think it might be something that Mick Antoniw would be in a very good position to give a view on, given his relationship with the legal sector. It's probably partly about trying to make sure that working within Government law is an attractive field of law for people to come into and so on. So, I think there are probably a range of challenges, but I think it would certainly be a fascinating area for any lawyer to be working in.

Thank you very much. Unless there are any other questions—

Very briefly, last year, you brought three supplementary budgets. Is it your intention to return to the norm of producing a first and second supplementary budget, or may we expect a third in between?

We all hope that there won't be any more surprises coming down the line, so the plan is to now be returning to the more traditional two supplementary budgets. As you see with this one, the main thing that we've talked about today has been the classification of leases, because the other items are just general transfers between MEGs. So, this is a much more traditional supplementary budget, and long may it last, Chair.

Obviously, we'll look forward to having your responses to the letter and the suggestions that we made, and with the letter going from the Trefnydd to the Business Committee. We're just keen to work with you to have as in-depth scrutiny as possible. We're always keen to have you here to talk to you and to understand your thought processes around budgeting and obviously how we make these sessions as productive as possible. As always, it's been fascinating. So, thank you so much for coming along. 

Welcome, Hannah, and the team. Could you introduce yourselves?

It's nice to see you again, in a different committee today. I'm very pleased to be here. I've got, to my right, Jo Salway, who's the director for fair work and social partnership—hopefully I've got that the right way round—on my left I've got Neil Surman, who's deputy director for social partnership, and next to Neil is Sue Hurrell, who is head of fair work procurement. I got it right this time.

Fantastic. Thank you very much. Welcome to the Finance Committee. We're looking at the Social Partnership and Public Procurement (Wales) Bill. We're concentrating more on the regulatory impact assessment and the finance element. I'd like to kick off. The RIA notes that the public sector would incur a cost of £20.8 million over the five-year appraisal period as a result of the Bill. Can you clarify whether you will be providing additional funding to support public bodies to meet these additional costs, or would you expect these costs to be absorbed from existing budgets? 

The Bill itself sets out a framework to set examples of good practice in social partnership working, fair work and socially responsible procurement outcomes that we are aiming to encourage through compliance as opposed to subsidies. We expect that many of the social partners and bodies who'll be covered by this will already be doing many of the actions associated with the Bill. So, at this point, we don't believe any additional financial support will be needed, and we expect the majority of them will be able to meet the cost. However, if public bodies, specific bodies, do have concerns, then we would encourage them to speak in the first instance to their Welsh Government-sponsored body. But we'll continue to work as we develop the statutory guidance in partnership, as we have done to this point, and be able to pick up any concerns along the way to make sure that we can address them and see what support and guidance can be in place. I think the annual reporting process that the legislation sets out will be a really helpful vehicle for sharing good practice and opportunities for public bodies to work together, so not just to address, perhaps, some of those cost concerns, but actually to improve outcomes as well. I don't know whether anybody else wants to come in. No.

Based on that, some of the evidence that the other committee has heard is to do with the auditory burden and the potential impact on Audit Wales. Obviously, as a directly funded body, we look at that budget and how costs might be incurred in that burden. Have you given any thought particularly to the smaller bodies that might have an extra element of auditing that might have a knock-on effect on the fees that they pay to Audit Wales? Obviously, then it has a knock-on effect on the block grant and that element.

Neil, are you happy to—?

Audit Wales, obviously, were one of the stakeholders who responded to our consultation last year. That was not a concern that I think the auditor general raised specifically. They did make a call for us to, as far as possible, align the various reporting arrangements proposed in this Bill with other existing reporting and accountability frameworks, which is very much our intention anyway.

The other element of potential cost—this may be a later question you'll have an interest in—is the future generations commissioner as well, and we've had questions about whether this Bill would impact on the functions of the commissioner, and therefore the cost to the commissioner's office. We don't believe it will, because it doesn't alter the functions of the commissioner at all. So far as Audit Wales is concerned, of course we're more than happy to continue conversations with them, but their consultation response didn't suggest that they saw any significant increase in resource required arising from this provision.

It was just the element of—. Because, obviously, we look at those budgets as well, and we're talking to them on fee structures and that sort of thing, so it will have some sort of bearing there. So, it's just to understand it further. 

I think, to add to that, the work that you're doing will be generally helpful and of assistance to us as we develop the guidance around the legislation to make sure, if there are any of those concerns, that we can take them into account, and perhaps address them ahead of that, and make sure that's built into the guidance and support that we provide.

If I just might say one thing about the procurement duties, they are designed with a kind of ramping up of activity depending on how big an organisation is, and how much larger procurement they do. So, if there's a small body that, in the course of a year, didn't do any larger procurement, they wouldn't be obliged in that year to produce an annual report. As Neil just said, we've made commitments to ensure that. All the bodies that have to comply with the well-being Act have to report, and we've made it clear that we want that reporting to be completely streamlined as regards procurement. There wouldn't be any additional work for bodies that are already doing that. So, those two things hopefully should keep the cost to a minimum for smaller bodies that aren't doing so much major procurement.

Okay. Fine. And with regard to the guidance that goes—. Forgive me; I'm fairly new to this as well. But with regard to guidance, would guidance then be flexed, and would it be in your purview then to be able to change guidance as that goes on?

Yes. 

So, that doesn't go to any committee or anything, or a vote or anything like that. That's guidance from Government on how—

And also, there'll be an ongoing evaluation process as the legislation is implemented, which will allow us to learn and to improve.

And to fine tune that. Thank you. You mentioned that the private sector would bear the £6.5 million of additional costs for the construction management. Do you feel that such costs would exclude Welsh small and medium-sized businesses from participating in public procurement, and how could this be mitigated?

I think the key point here—and I think Sue might have alluded to it in a previous answer—is around making sure we build in proportionality to make sure the clauses and the guidance can be applied proportionately through supply chains where outcomes are sustainable. In the contract management clause, those categories include things around prompt payment, compliance on employment rights, sustainability, training for workers, and we wouldn't expect bidders to be surprised by that, because they're the sort of things that are in line with existing expectations. I think one thing that we will do too is, alongside the statutory guidance we've touched on, make sure that support is available specifically for SMEs who might wish to subcontract for major construction projects. We can do that via those kinds of networks and organisations that are already in place, such as Business Wales, and do things like events to meet the buyer, to make sure they are fully inclusive and have reached out. 

If you don't mind me adding, one of the problems that businesses face is that, when there is poor contract management, there's a lot of uncertainty, and when you're bidding for a piece of work and you're not confident that that public body or organisation is really going to enforce those, then there's a lot of extra cost built in through managing the risk associated with that. I think there's some evidence to show that, where there's more certainty through a procurement process that things are actually going to be picked up on and managed properly, that can give confidence and will allow all businesses more confidence to participate. So, that's an offsetting potential benefit. 

Obviously, managing something requires the data to be collected so that you can actually make those proper decisions as to how you treat the guidance, and how you do that. So, is there an element there, then, of making sure for local procurement—? We talked in a different committee about the address or the locality of the businesses, and that element, and bringing that data forward to be able to be analysed, and then potentially to be able to have targets set in guidance to try and move that forward.

Yes, you're right. In a previous committee we did talk about the challenges as things exist at the moment, because we've not legislated on procurement in Wales previously, and all of the reviews have said that we do need to do this to actually get consistency and to improve outcomes. And I think the challenge we've got is that we don't have that much data at the moment, and so what this legislation and the process of putting it in place will allow us to do is to get the information that we do need in order to build those better outcomes and do the things that you're referring to.

Okay. Thank you very much. I'd like to just move on to—. Sorry, Rhianon. I'm sorry, yes. 

Thank you. Very briefly, in regard to the comments that you made at the beginning, Minister, you've talked about the potential of this being a driver for public bodies to actually work together and come together, discussing costs, and you mentioned other outcomes, and we've mentioned social procurement and local procurement, but what other outputs and outcomes would that engender in your mind? Obviously, we're talking to finance here today, but in that regard, what other outcomes would you expect?

So, the outcomes are all linked to well-being, the well-being goals. So, there will be a big focus on environmental protection and enhancement across the—

So, a holistic priority to outcomes.

Yes, exactly, and local economic benefits, as we just discussed. And also a better handle on fair work through supply chains and employment, et cetera. Those are some of the things that we will be able to address through this.

Okay. Thank you.

Thanks. You mentioned that any costs incurred in the private sector arising from the increased expectation of delivering socially responsible public procurement outcomes are difficult to estimate. Have you attempted to model the possible scenarios you provide in the RIA, such as wider use of sustainably sourced materials and staff receiving more training and better terms and conditions of employment, to determine potential costs? And how significant do you think these costs could be for the private sector?

So, I think the first thing to be clear on is that the Bill covers a huge range of different types of public bodies buying across a wide range of markets and spread across all of the well-being goals. So, I think even in those areas that you mentioned in your question, it's very broad, so it goes back to not having that information, that data, to measure the baselines at present. I'm going to ask Sue to come in with a bit more detail, if that's okay. Sue. 

Yes. I think one of the problems is that there is very little detail available to us at the moment. In a sense, you can take one particular procurement and you can model cost-benefits around a particular important thing in that contract. It might be about decarbonisation, for example. And you can do that modelling. What's very difficult to do is to work out where people are on the spectrum of practices in those—just on that matter of reducing carbon, for example, across the board. So, modelling is possible in individual cases and it might be possible to take one category and look at it across the board once we start to have some data, but we just don't have that information available to us at the moment. And it's not just in Wales. The Scottish Government have had a duty on sustainable procurement for a number of years, and when you look at the Scottish Government's summary report of procurement outcomes, there's very little that actually reports on the outcomes in the figures and the numbers. A lot of it is still very input focused: the number or proportion of bodies that are including particular questions, or covering community benefits. So, I think we've got an opportunity to address that through the collection of really good data, but we aren't there at the moment.

And then building into it a constant review and continual improvement-type of development of the guidance and that sort of thing, alongside the Bill.

Yes.

With regard to some of those aspects as well, I think in section 24(1) of the Bill, it talks about a local area, or the area. We're talking about local procurement, but what views are there on things like our global footprint and carbon and that element?

We're starting to have some more detailed discussions in this area at the moment. I believe that the way the legislation is drafted, we have to link things to local areas. That's what we can do in Wales. But, within that, and it's already the case in the well-being Act as well, that in so doing, we can make sure that we have a positive impact on our activities, on global issues. There's an awful lot we can do to look at some of these things. So, we're just beginning to explore some of those options.

It is particularly tricky in procurement, if you start thinking about how you can, for example, address fair work practices across the world, or environmental matters, because global supply chains are huge and complex, and someone in a public body in Wales is not able to do that degree of due diligence and auditing across everything. So, it's a matter of identifying what it is that's a particular risk in that particular contract, and then looking at what's out there in terms of standards or organisations across the world that might be focusing and auditing in these areas, and focus on those. So, there are great schemes, for example, in IT, and maybe around sustainable timber, and things that we can look at and see how we can build them in as good practice through the statutory guidance.

And the trick, I suppose, is to find that happy medium of making sure that we're giving due regard to some of those global issues that affect us all, as well as that locality issue as well. In the RIA, it notes that the financial benefits for businesses and organisations in supply chains could be significant if a socially responsible public procurement duty is implemented. What consideration did you give to undertaking a cost-benefit analysis to provide robust evidence to inform the RIA?

This goes back to what we've just been touching on around data. Without having those cost baselines, it's nearly impossible to carry out a cost-benefit analysis, especially when you're talking about—. We were just talking in terms of global issues, global responsibility, if the aims are to reduce exploitation and environmental degradation overseas, things that are going to be experienced in the future, reducing health and income inequalities. So, we recognise the series of challenges in terms of how we make these calculations apply right across all of the well-being categories in the Bill. We will hopefully be able to use that enhanced data collection to work out a cost-benefit analysis in particular cases, or with a particular focus on expenditure. People are nodding—.

Would there be any other legislatures that have—? Obviously, you've talked about Scotland. Anywhere else that we can draw on any information similar to this? I know you said with Scotland, it was different. Are there any other parts of the world where they've done this sort of thing? 

Well, we asked the team of people in Welsh Government who do this kind of research to look into that, and they did a fairly extensive literature review, and we're really struggling to find really concrete examples of where a particular initiative has delivered particular benefits. So, it's not like there's a wealth of material out there to go with. There may be some things that we can look at in more detail as we start to develop statutory guidance, but, yes, there's not masses, actually.

I think it's largely—. If you take a public body, you've got a small number of people involved in procurement and commercial activity. The average public body buys across a very, very wide range of different markets and areas, compared, for example, with a particular business quite often. In industry, you have to keep track of that value chain, if you like, through those products and services that you're in control of, whereas in the public sector, you've got small numbers of people doing a much wider range of different things, and that is very challenging. So, there's a lot to improve, a lot to work on.

Yes. It's not necessarily that it's not there; it's just not easily proven.

No, that's right. 

Peter.

Thank you, Chair, and it is good morning. Good morning to you all. Just carrying on with the theme of the RIA, it mentions that the public procurement duty could potentially increase bid prices and lead to additional costs through the real living wage across supply chains. How would you monitor the economic impact of these outcomes on contracting authorities and businesses?

I think the first thing to say is that we cannot mandate the payment of the real living wage in all procurement, and public bodies will need to base it on their own advice and make sure that there's a link with not just the real living wage, but employment practices and how that links to better service delivery as well. But we, obviously, would expect that this legislation will hopefully increase real living wage accreditation as one aspect of better employment practices. We all know from our experiences too that, when people are paid the real living wage, that does bring economic benefits not just to them, but the communities in which they live and spend their money as well. So, we'll need to consider in which ways we might measure any changes and report them as part of the annual review process.

If we use the recent live example of the social care fair work forum and how that's brought social partners across the sector together to be able to implement the programme for government commitment to a real living wage for social care workers to address those challenges across the sector as a whole—. So, from that, it's been estimated to cost over £43 million, but, like we said, we know there are other benefits to this because of people's well-being, they're going to be happier at work, they're going to hopefully going to want to remain in work, but then again it's actually about that income that is then put back in the economy as well. We would need to look at that holistically to be able to draw down what the broader benefits would be of improved employment practices.

Yes, I agree with that. Thank you for that. Just a supplementary to that. In your view, what impact would the public procurement duty have on Welsh Government's local procurement initiatives?

I might bring officials in in a minute. I'm not picking on Sue. Sue looks like I'm picking on her a lot over there. That's why she's sat so far away from me. There is work ongoing at the moment as part of the foundational economy programme to support local procurement. I think it might be helpful if I just perhaps share another example with the committee. That programme is supporting the NHS shared services partnerships—I have to get all these titles and things correct. That's about including socially responsible considerations in contract-award criteria. I think they've reported £38 million of extra expenditure that's been retained in Wales through that initiative. If the committee would like more information on some of these examples, I'm sure that we'd be happy to share them, following up from this. I do think you've got the facts and figures in black and white, so to speak, on there, but to give it a bit more context and colour, I think, is really helpful in terms of what benefits we can bring from doing that. Crucially, learning from all of what's happening already and what will happen in the future will feed into the development of the statutory guidance alongside this legislation as well.

Okay. I've got a couple more questions. The RIA notes the long-term objectives are for improvements to be made in contracts across all sectors, but the cost estimates have been calculated on construction contracts with values over £2 million. Does this mean that the Bill could lead to additional costs that haven't been included in the RIA, and how significant could these be?

Just to touch on why the focus of the Bill, in the first instance, is on construction, it's because we know, and you will know from your own experiences, Peter, that a large proportion of Welsh public funding goes on construction projects, and we know there are really complex supply chains, and we know, and Members will know from other codes of practice and things, that historically there could be, you know, unfair employment practices. I was trying to find the most diplomatic way to say that in committee. So, that's just to say why the focus is on that. Obviously, removing uncertainty around contract management in the way we're doing in the Bill in terms of the transparency and those clauses is actually good for business, because uncertainty increases risk, and managing risk is costly. I don't know whether anybody else wants to just pick up on that. Everybody's looking at Sue again.

Just going back to the broader issue of contract management, which has been picked up on in no end of Government reports as a weakness in the public sector, and not just in Wales; it's true across the board. My feeling is that one of the reasons for that is the legislation primarily focuses on the process from advert to award. That's where the attention is in the public body, on making sure you do the process right so you're not then challenged on that. There isn't so much pressure on organisations to ensure that what goes into the tin actually comes out at the end. There is pressure, obviously, because we have to account for the money that comes in and how it's spent, but I think having some duties that focus attention particularly on construction and some statutory guidance that puts expectations in place for what people need to do will require more effort and time spent, but the benefits could be quite considerable in cost savings. As we all know, if we don't keep track of any contract that we let—. Say we're doing a building project in our own home, if you just go away and leave them to it, you're not necessarily going to get the outcome that you want if you're not actually there and making sure it happens. So, I think, yes, there will be increased costs in some areas, but they could be offset by really improved outcomes and performance on some of those contracts. But the extent of that is unknown, because some public bodies will be doing great contract management, and others not so good, and we really don't have a handle on the amount of time and effort spent on managing contracts across the board. 

Peter, before you move on, I think Mike would like to come in. 

There's an awful lot of contractors who've mastered that wonderful skill of tender low and claim high, and the Welsh Government has been on the receiving end of some of these people who've managed to make very substantial claims. I was actually involved in Swansea council when they created a bridge across a river, and they put a claim in because they found water. [Laughter.]

Some of these things were discredited because they were used in PFI to get results that were blatantly untrue. Have you given any consideration to the increased income tax that may be paid if people are paid the real living wage—if people in Wales are being paid, and, therefore, we get 10 per cent out of the 20 per cent income tax? So, if we end up with 100 people being paid £5,000 more, it's worth £50,000 to us, isn't it. 

Those sorts of models are complex, aren't they? When you start to change one thing in these systems, they're very complex; you can't fix one variable unfortunately. That's why it's so difficult to work out cost-benefit stuff in procurement. You change one thing and you can have a knock-on effect. You can reduce the health budget by people being healthier. And some of the budgets, of course, we don't control, do we—the welfare budget, for example, may be causing benefits to budgets that are handled not within Wales. So, it is hugely complex. 

I'll rephrase it, then. Is there an expectation, if more work is done by companies in Wales and they pay the real living wage, more tax will be paid to the Welsh Government?

That would follow. 

As long as, again, the locality, I suppose, of—. If those workers are based out of a head office in London, then, depending then—. It's down to the Welsh Revenue Authority then to make sure that that data is correct so that we do collect our fair share of tax, I'd imagine. 

Yes, so just to pick up on the locality point, perhaps, for Members that weren't in the other committee with us as well—

Yes, of course. 

—at the moment, if it's based on postcode, a business or an organisation could use the postcode of their head office or elsewhere, so it may not translate to be accurate data about what's in Wales. That's why we need to improve that data collection. 

Well, as Peter will know, and others living close to the border, you can have English postcodes in Wales and Welsh postcodes in England. So, using postcodes is not a very successful means of doing it. If you actually want to do it, you're better using local authority council tax data, because the local authority collects council tax from people living in their area. 

Good point. We digress slightly but, as somebody that knows, I get quite a bit of correspondence from constituents asking why they've got an English postcode.

Back to Peter. 

Just a final point from me. You have assumed 75 per cent of the construction costs associated with procurement duties would fall to the public sector and 25 per cent to the private sector. I just wondered if you could explain your rationale for the split, and how confident are you that the costing model you have used to calculate contract management costs are robust?

So, I know there were long and intensive discussions between officials and colleagues who are involved in major construction management at the moment. And, if you look, the duties in this Bill largely fall on the public sector, and the responsibility for showing socially responsible outcomes through supply chains lies with the public sector. So, on that basis, we expect the majority of additional resource to be allocated in the public sector. I don't want to look at Sue again, but just to give a little bit of background in terms of how those costs were actually calculated as well—. 

Well, there isn't an awful lot of science, to be honest, behind this, for the reasons that we've been discussing at length already today about not having that clarity on exactly how things are done across the public sector. So, this was largely a result of talking to colleagues who work, as the Minister says, in this area and, I guess, an acknowledgement that, within a construction business, they have to do good contract management, they have to have people in post to do contract management—that's how their entire business will work. But, at the moment, I guess those people's main focus will be on time, cost, quality, health and safety, for which there is already legislation. But the sorts of things that we're asking in addition here, around social outcomes and economic and environmental outcomes, will not necessarily be on their checklist for when they're doing their procurement. So, we're asking them to do more, but, in a sense, you've probably already got some of those people in post, so it's adding to their skills and what they're being asked to do. But, in the public sector, I think there's a sense in which we do need to significantly increase the amount of resources spent doing some of that work. It can't all be done by just throwing it over the wall and expecting the business to come up with all of the answers; there will need to be further effort put in within the public sector. So, it was just really from talking to people who are active and who have a sense of where the gaps are. It might not be right, but it's the best we can do at this point. 

Yes, I know. That's fair. Thank you, Chair.

Thank you. Rhianon.

Thank you, Chair. You've mentioned, Minister, and others, the hard benefits that you anticipate coming from this Bill, as well as some softer, more hard to measure ones in terms of well-being. How do these benefits from the Bill, in your opinion, justify the £5.2 million in annual contract management costs?

So, the construction management duty, and the associated due diligence that comes alongside it, will aim to ensure that projects are not only delivered on time, on budget, but they're done safely, and that those socially responsible procurement clauses are being embedded throughout the whole supply chain, so that the delivery is monitored as well. So, actually, that additional cost will not just bring about benefits in terms of the outcomes like that, but actually hope to prevent poor and unethical practice, including things like modern slavery happening to people in supply chains in Wales. So, actually, what we're seeing is that there is that cost, but the outcomes coming from it will outweigh it in terms of benefits.

Okay. Thank you. So, really, it's an underscoring of Government priorities through this Bill. So, you mentioned it's not possible, though, at the start of this session, to assess the extent to which a contract with an authority already resources contract management—or outsources contract management—but there are indications from the consultation also that enlarged support would be required. So, can you elaborate on what you feel this support would be and the related cost to that? That's directly coming from the consultation.

Yes. So, officials—and not just these officials who are with me here today—are planning a range of materials to support and help contracting authorities, whether they work in procurement or contract management. They are set out in the Bill's regulatory impact assessment. They include a range of things, from hands-on statutory guidance, guidance on the construction management duty, to awareness sessions, webinars. If the committee would be happy, I think we should be able to write to you with a breakdown of what we'd anticipate that guidance, that support, to look like. And, of course, as has been the case to get the Bill to this position, we've worked very closely with social partners and stakeholders, so we'll be involving them as part of that process as well, to make sure that we have the right support for the right people as well.

Okay. Thank you. Can you explain, finally, why the Bill would not have any financial implications—you touched upon this in the future generations commissioner segment at the beginning—given that it intends to amend the Well-being of Future Generations Act? Can you flesh that out—how, if it's amending that, there wouldn't be any cost implication, because that budget is already stretched?

So, I think Neil did touch on it at the beginning of this session, by saying that the Bill doesn't place any additional obligations on the future generations commissioner or the office of the future generations commissioner, and it doesn't change the general duty and powers of the commissioner. I think it's important—and I raised this in the Equality and Social Justice Committee too—to make the committee aware that, alongside this legislation, the Welsh Government is actually carrying out a review of the public bodies that are subject to the well-being duty as part of the—. I think that was on the recommendation of one of the Senedd committees. Because, obviously, since that legislation was enacted, there are public bodies now that are in existence that weren't there—to make sure the right bodies are being captured. That will, obviously, have an implication for the bodies that will then be captured in this legislation as well. So, we're working quite closely with my colleague the Minister for Social Justice, with the commissioner's office, on any financial implications that may come from that broadening of the bodies covered by it. There will shortly be a consultation on the review, where we'll be inviting views on the bodies suggested to be covered by it. And when we're talking about engaging with social partners and stakeholders when we're creating the guidance, obviously we will also be working very closely with the future generations commissioner and the office too.

So, in regard to that amendment to the future generations Act, which is obviously there, that's an ongoing, iterative process.

So, there are different things, aren't there? So, there is the amendment in terms of the 'A Prosperous Wales' well-being goals—so, changing from 'decent work' to 'fair work'. But that doesn't place any additional obligations or duty on the commissioner, so—[Inaudible.] But then, there's the separate thing, aside from this Bill, which will then have a connection around the review of the bodies covered, but that's an ongoing piece of work and there will be a consultation on that and we'll be working very closely to address any financial implications on that.

I think, in that regard, it would be useful for us to chase that as a committee in terms of how that impacts.

Yes, because if there are more reports coming in to the commissioner, there's a knock-on effect—there's more work for the commissioner to at least read them. So, will that then be looked at from a budgeting point of view for the commission, to make sure that adequate resources are put in there? And, obviously, it's the same with public bodies. If there's extra work, then it's a dialogue between those bodies and the funders—the Government and others—to make sure that there's adequate resourcing there to make sure that this thing works.

Yes, like I say, we're working very closely and it's being led by my colleague the Minister for Social Justice, making sure that we are dovetailing that work to make sure that any concerns or any implications from that review are addressed. I think it's in the committee's interest in this area, so I'm sure—I'm giving my officials more work—we could take away an action to make sure that the committee is notified when that consultation is active.

That would be very useful, thank you. Mike.

I'll start off by saying that I'm very keen on the social and economic impact of it and the fact that it would help medium-sized companies to grow into larger companies—something that we're very poor at in Wales—but I'm not allowed to talk about those. That's for another committee and another place. But what I am allowed to talk about—the only thing I'm allowed to talk about—is the financial benefits. When do you think you'd be able to quantify the financial benefits?

The broader financial benefits or the ones that you think are difficult to quantify?

A general ballpark figure of, 'Eventually, in year 5, we would expect—'. I mean, will you really need the results from year 1 to be able to predict year 5?

Well, built into the legislation, we will have constant, ongoing evaluation of the implementation as well.

So, we will be undertaking both a formative and a summative evaluation of the impact of the legislation, which would look obviously at what additional and better data we've been able to generate through these changes, what that has been able to tell us about the efficiency and the effectiveness of the system that we've put in place, how well procurement is or isn't working and how much may it improve as a result of these changes. So, that data, that report, will be available. At the moment, we're planning on a mid-term report as well as the final five-year evaluation report. That's not absolutely final. We're looking at the practicalities of that and whether, in fact, that is doable, but that's very much our hope—that we'll be able to do both a mid-term report that, of course, we'd be sharing with the committee in the Senedd, but also a final five-year evaluation, which I very much hope will give us the information that you're seeking. If it doesn't, our evaluation is wrong.

But with regard to that, even if we wind forward 10 years, Minister, would you want to be able to say, 'Yes, we did that', and what would it look like?

I think one of the challenges with what we're seeking to do through this legislation is that we're talking about systemic cultural change, which is difficult, in a traditional sense, to quantify. So, I think a lot of it will be from those qualitative conversations we have with stakeholders and the case studies that we're able to, hopefully, build to then reinforce how successful the legislation has been and the outcomes around it. So, if you look at the things that are difficult to quantify—if I think now, you know, about something like the workforce partnership council, that's produced guidance to support people in work about their hours worked, about the implication of digital. So, actually, we would then have to look at actually speaking with those stakeholders to get evidence from them about the impact that has had in practice.

We're also creating platforms and systems to make it easier for social partners to work together, and it's very, very hard to predict what social partners will use those for and how they'll drive it forward. So, we've got the views on what we're trying to do around this, which is about improving the decision making. Getting the fair work in the goal brings an added impetus for everyone to work together around that with the future generations Act, but what will actually be done around that, and the actions that public bodies will determine are the right ones to take, it wouldn't actually be right for us to try and predict that, because there's an assumption in the social partnership model that you're bringing people together to work out the solutions to some of those local problems and issues.

So, if I may—. Through the Chair, I completely understand that as a sort of broad vision, but there would obviously be some key performance indicators that would be measurable—you know, how many bodies have come together, what were the outcomes of that. I mean, I think, in terms of seeking reassurance for this committee that there are measurable data handles around this, I think, would be useful.

Yes, definitely. It will be a combination, so, yes.

Okay, thank you.

Just a quick comment, before I ask my next question. In West Glamorgan, in the past, when we had BP, British Steel and Ford, they actually set the standard rates for skilled industrial workers, and therefore other companies that wanted to recruit had to push their wages up accordingly in order to be able to recruit in that sector. Three of those have gone now and the fourth one is not recruiting in anywhere near the numbers, so skilled industrial worker rates have reduced relatively. So, I think there are some of those known unknowns. You know that it will happen; you just don't know how much it's going to happen by. But that brings more money into the Welsh economy, and I think sometimes—and I'm drifting and I know I should be getting told off, so I'm not looking at the Chair.

He is looking at you. [Laughter.]

You carry on, Mike. There we are.

Sometimes, the economic benefits occur across a much broader area than the area you're taking legislation in.

Yes. That goes back to what we were talking about in terms of the impact of things like the employment practices and the real living wage, the impact that then has on the local community or across the sector, as you say, as a whole, where it kind of—. I hesitate to use the term 'levelling up', but it brings up standards across as a whole.

I keep on going on about the 1960s and I was a child then, and you probably weren't born, so it's dangerous in that respect. But, in the 1960s, a lot of these things happened that did achieve. They didn't use the term 'levelling up'; they talked about greater economic benefits for more disadvantaged communities. I think a lot of it worked very well. 

But, moving on, the additional costs to all parties in the shorter term—there will be additional costs to everybody in the shorter term. There always is, with change. Although it's probably less than you'd think, because people like change and there have been scientific experiments done on the benefits of doing change; we've got a couple of minutes, so I'll just briefly say it. The telephone system in America in the 1970s or 1960s, they kept on trying different things, and every one of them worked better than the original, because the new thing was new and everybody put a lot more effort into it. I think that, sometimes, with some of these changes, people put a lot more effort in because it's new. But you talk about costs to all parties in the shorter term, and in the medium term the potential for the introduction of the duty to cost less than the status quo. Have you got the curves? I mean the cost curves, where they sort of cross over each other.

So, I think, as I say, there are probably at least three areas where improved guidance, alongside the transparency and enforcement mechanisms of the legislation, could reduce costs for public procurement staff in the longer term. So, if you've got that streamlined statutory guidance that we've referred to previously that will help support public bodies to—. It's that principle of proportionality again, and reduced bidding costs, to make those markets more attractive to the innovative bidders and increase competition in a way that takes things up, rather than takes things down, as you referred to before, Mike. Those socially responsible procurement provisions are intended to realise longer-term cost benefits to public bodies through reduced inequality—environmental protections we talked about previously—and to stimulate and have a positive impact on local economies. And we also know that improved contract management has the potential to significantly reduce costs by removing that uncertainty that is an additional cost for business or for public bodies, and to maintain a clear focus on outcomes. I don't know whether there's anything you want to add.

No, nothing to add to that.

Of course, with procurement, sometimes you have joint partnership working in procurement, which saves an awful lot of going through the process of getting people entering tenders and some people not entering tenders, and, more importantly, it means that you're working together, not against each other, and that's one of the problems we've had with procurement generally, that it's seen as a battle between the people putting out the item for procuring and the procurer and the people bidding, and everybody is trying to do the other one down, almost. The people who put the thing out for procurement are trying to get the lowest; those who want to win the contract, as I said earlier, tender low and then add on claims. I've seen really wonderful claims, like somebody who was asked to build a pavement, and they built the pavement and said, 'What about a kerb? Kerbs weren't in the contract; if you want kerbs, you have to pay for them.' But these people are really skilled at it, and, if you start working together in a socially responsible way, you can save money, not necessarily on the headline tender, but on the outturn cost.

There are some examples of good practice already and that's the sort of thing we want to spread through legislating. I've got actually one example here that I'm sure will be of particular interest to Rhianon Passmore, actually. [Laughter.] She looks suspicious now. So, last year, the Welsh Government announced the grant for school instruments, and, actually, the Welsh Local Government Association and Welsh Government teams on that worked collaboratively, in partnership, to identify opportunities for Welsh social enterprises, and, to cut a long story short, they were able to bring that together in a way that created new job opportunities, helping us put these back into the workforce, and those instruments were obviously wholly manufactured in the UK. So, without that collaborative working, that proactive intervention, that money would have been spent on far-east imports. So, there are some good examples of best practice already, but, obviously, reviews have consistently told us that, if we want to improve on that and build on that, then legislation is one of the ways to do it.

Just on that point—sorry, Mike—I've been speaking to, particularly, farming unions and farmers, which are, effectively, SMEs—they're very small businesses—and we were talking earlier to the finance Minister about free school meals and the procurement process within that, and we want to source locally for local food and that sort of element. Has any thought gone into how we support these smaller businesses through the process of procurement? Because, between milking and being out tending to the animals and everything, they're also going to have to do, potentially, procurement processes and all the rest of it, so is there any thought of support for those small and medium-sized businesses to be able to get some of these contracts and keep that pound local as well?

Sue, do you want to take that one?

Yes. As we start to focus attention on developing statutory guidance now, we're starting to have these more in-depth conversations with colleagues in other areas, and there's a team of people who are really focused on how we can develop our foundational economy, particularly in the food sector, and we're beginning that dialogue about how we can use this legislation to really make sure that we address some of those issues, particularly in food. Now, as part of that discussion, we'll be able to explore not only how we support the public sector in doing the right thing, but how we can also, through that programme, that foundational economy programme, how we can actually develop support for business as well.

So, there will be two sides to it, really. One is that we ensure there's proportionality. I keep banging on about proportionality when I'm speaking to these committees, because it's absolutely key to this. If you're a small business and you're working in milk production, you don't want to be answering a whole pile of questions about stuff that is extraneous to you, particularly, you want to be focusing on the things that really matter, and that's what we need to make sure happens through this process. It is difficult in the public sector, because a procurement person who is working across lots of different sectors will have their standard list of questions, and they tend to go out with everything, so actually getting them to think about applying things in a risk-appropriate way is something that we really need to focus attention on—so, making sure the process is tailored, so those individuals are answering the questions they really need to answer, and then making sure that our business support function within the Welsh Government and Business Wales, and the IT systems that people use, provide that sort of tailored support and information for those that are new to tendering. So, we need to do both.

Yes. And maybe—. I've been talking to some in the voluntary sector as well and some are concerned it might become a race to the bottom just on cost, whereas quality and cost go hand in hand, and, potentially, especially in mental health, procurement of services and that sort of element would need to make sure that that quality element is taken into account more so than cutting costs constantly, so that you actually get services that, in the longer term, save money, because people are getting better over time and not doing the sort up and down, in and out of services and that sort of thing. So, have you given any thoughts to how those processes might be done? Because, effectively, it'll save money in the longer term, rather than in, 'Well, it's going to go for the cheapest possible right at the start.' 

Chair, if I may, I think Neil just wanted to come in—

Of course.

—around the role of the social partnership council and the procurement sub-group around some of this.

Thank you, Minister. I just wanted to make the point, really, that although the committee, naturally enough, is focused today on the procurement provisions and the potential costs of those, there is a key part of this new framework that we're seeking to create in the form of the statutory social partnership council and beneath it the only statutory sub-group for which the Bill makes provision, and that is a sub-group dealing specifically with procurement, because we recognise the vital importance of procurement to what we're seeking to achieve here. But more importantly, I think, Chair, earlier on you referred to a self-improving system, and that's exactly what we're trying to build. We're trying to build a mechanism, in the form of the SPC and the procurement sub-group, which will help Ministers, through the advice they provide, assess how effective these changes have been, where further change might be needed, where our efforts might be better targeted in future, how we might improve upon data and target setting and so on. So, it'll be a crucial part of the system, and the performance of that public procurement sub-group and the social partnership council is going to, I think, be a very significant contributor to the kind of ambitions that the committee has expressed for public procurement this morning.

I will bring Rhianon in in just a second, but, based on that as well, what role have the public services boards got in feeding into that? Because those are bodies that have been set up that potentially have a way of delivering some of this stuff. What feed-in mechanisms are there to these discussions? Are there any, or are they going to be completely separate? 

There will be. Clearly, we haven't set them up yet, because we haven't got the structure in place; the legislation is not yet in place. But certainly the intention is that we create a system overall where information will flow and where the advice Ministers get—. The PSBs will continue to have their statutory role; they will continue to do what they do. But it will be very important that we learn not just from them, but from other partnerships.

At the Equality and Social Justice Committee, Members also heard about a parallel piece of work we're doing reviewing social partnership structures and ways of working across Welsh Government as a whole at the moment, and that's generating a lot of data for us about what we're currently doing within Welsh Government, the types and numbers of partnerships that we're involved in. We're looking to assess now how effective they are and whether perhaps any change might be needed in looking to the future when this legislation, hopefully, becomes law. So, there's this very complex landscape that we're dealing with, but our ambition, certainly, is to try and make sure that all the pieces work together as effectively as we can manage. It will never, I think, be a perfect system, but I am confident we can improve upon what we've got.

Yes, and I think, on what Neil was saying in terms of the social partnership council, obviously there's certain provision for representatives on it, but making sure, like Neil says, there's the mechanism for other organisations to be able to be a part and feed into that process. And part of the work we're doing in reviewing across Government is making sure that we're recognising capacity and making sure that there's not duplication, but that we have the best connected system that we can have to allow that. Because those organisations around that social partnership council table will want to have their own mechanisms too, in terms of how they represent their stakeholders or members as well.

I'll bring Rhianon in, shall I? I haven't forgotten about you, Mike; I know that you've got another question. And maybe the question about quality as well. So, if I bring Rhianon in first.

In terms of the last comments, I think this could be a very important jigsaw puzzle piece in that connectivity in that complex landscape. I want to go back to the procurement point that was made in terms of the theme, really, for today—you mentioned the proportionality theme—because that really will be, as you say, the proof of the pudding and that would be the aim. How do we then, on the ground, go back to that small local milk producer and make sure that he or she doesn't have 50 pages to fill in in order to be able to do that? How are you going to enforce that that happens? Because that will be key. 

We can't enforce, in a sense—

Well, you're creating it, so—

Public bodies are responsible for their own procurement, so if they want to issue—

You're creating the framework.

—lengthy questionnaires, they still can. I don't know if it's helpful—I did refer to this at the equalities committee as well—but a number of years ago, I was involved in developing something that was called SQuID, the supplier qualification information database, and that came out of a review that was done before that on breaking down barriers for SMEs. That was a piece of work that was done a number of years ago. Lots of the recommendations in that report were about simplifying the pre-qualification stage, that initial hurdle when these lengthy questionnaires go out to businesses. So, we thought, 'Let's just focus on trying to do something about that', because it was problematic in Wales, clearly. Each organisation had their own questionnaire, with similar but not exactly the same questions; it was a headache for everybody.

So, we went around Wales, in the days when we actually used to travel about and meet people in meetings, and we took each category—say, financial, appraisals, quality, health and safety or environment—and we asked each public body, 'Bring along your list of questions that you ask in these categories'. We put them all on the screen and we asked, 'Why are you asking this question, and what are you doing with the answer?' And if the response was, 'Because we always have', 'Don't know', 'Nothing', then we said, 'Well, let's cross it off and let's have a look at the ones that we really need to ask'. So, we ended up with a smaller list of questions. We also devised a little risk management tool that allowed you to type in, 'Does your procurement involve construction?' If it was 'yes', then you'd be suggested a set of questions—a little decision tree. If it was 'no', well, you skip all the ones around construction.

There is interest at the moment. I'm not in commercial procurement at the moment, but I know that my colleagues who are working in this area are looking at these types of risk decision tree-type tools that we can use. And if we can get to use some of those and it makes life easier for people, they'll do it. They'll do it if it makes life easier for them and if they feel as though they've been involved in creating it. Back then, people used this SQuID because they were instrumental in developing it and they felt that they owned it and that was a really good system. But, it was a lot of work dealing with just one aspect of the procurement process, and we would want to look at that, say, for developing contract terms or for other aspects of procurement as well—what policy prioritisation tool. There's some work going on at the moment, actually, with colleagues in procurement, looking at how we can develop a policy prioritisation tool, which would be really helpful, I think. There's loads going on in this area; it's quite exciting, as you can see.

Okay. Thank you.

Just briefly, before I come to Mike for a final question, on that race to the bottom on cost, is there work in place to try and better understand and get better quality services as well? 

Minister, is it okay for me to take that one? This has been a perennial issue, hasn't it, in procurement in the public sector. I think, at the moment, one thing that's quite interesting is that the UK Government's procurement reform has changed some terminology from something, at the moment, through the EU legislation, that was called 'most economically advantageous tender'. It's now changing to 'most advantageous tender'. So, there's a recognition across the board that we mustn't always focus primarily on the lowest price. So, I think, in terms of the framework, there is a change in the narrative in that respect. But really, it comes down to that constant tension in public bodies between the outcomes that you want to achieve and making savings, because of the cost pressures that organisations are under.

Really, without there being a legislative framework that requires people to think about these broader outcomes, when money is tight and times are tough, they're not likely to be as high up on the agenda as how we could get this more cheaply. So, hopefully, this piece of legislation will really help to address that, alongside what's going on on the UK procurement reform as well, I think, which is going along similar lines. So, I think everything is pointing in the right direction, but we just need to really make sure that what we develop can be applied.

One of the problems in public bodies is that people involved in procurement can be spread all across the organisation and may not necessarily be qualified people sitting in a central team—they may be in different areas. It's the same with contract managers; it's difficult to say how well or badly it's been done, because it may be spread right across the organisation. So, we need to develop things that not just the qualified professional who understands all the jargon can use, but everybody can make use of. It's quite a challenge ahead, actually.

Thank you. Sorry for railroading the questions, Mike. Over to you for the last question.

The last question is in two parts. I'm supposed to ask you about inflation, but I assume that you've got no better idea what inflation will be running at and what effect it's going to have than I have. So, I don't think you'll be able to give a meaningful answer. If you can, don't let me stop you, if you can predict inflation and its effect. The question I've got, which I think is answerable, is about setting a quality threshold and contract size. The smaller you make the contract size, the more likely it is that local companies are able to bid. We have councils that will put the whole of their school meat contract out and it'll be won by one of the two or three big companies. We have Welsh Government who put road schemes out at huge value. Instead of splitting the scheme up into manageable junction to junction, they do the whole or a large chunk of the A55—they knock out every Welsh contractor from being able to bid for it. They subcontract, but they can't become the primary contractors. Do you believe that we need to reduce contract sizes in order to let local companies have an opportunity to bid? And do you think that people should pass a quality threshold first?

Do you want to pick up that last point, Sue? Then I'll come back in, if that's okay.

On the quality side or the breaking up contracts bit?

The breaking up contracts bit.

It's a difficult one, that, because it really comes down to each individual procurement and where it's best to place that. There are times when it is better to let a large contract and then, through this sort of legislation, you can think about how those benefits flow down through supply chains and the next tier are still developing the economy, et cetera, through those subcontract opportunities. There are times when it would be better to split things up and let separate contracts. The factors that you'd have to take into account on those things include how much resource you've got internally to actually manage a multiplicity of contracts. So, it's never that easy. Splitting contracts into lots is something that is tried and tested in Wales, and certainly it was being thought about in Wales in my experience. I moved into procurement in Wales about 15 years ago from the UK, and at that point, Wales was definitely ahead of the rest of the UK in some of its thinking around SME-friendly procurement. So, there's a lot of good practice out there. It's really a case of helping that good practice to be mainstreamed. But it's never easy.

No, but some of these big contracts—I'll throw the Heads of the Valleys road in there to you—have certainly gone substantially over the tender.

It probably wouldn't be for me to comment on particular cases in committee—

It was a statement of fact. There are three other people in this room who would tell you that what I've just said is true.

Just on the point, Mike, I am, alas, unable to predict what inflation will be; I think I'd be in a very different role if I could do that. But just in all seriousness, we are aware that the cost presented in the Bill would be subject to inflation and we would expect it to rise in future years. But, like you say, there are a lot of unknowns in terms of whether budgets will rise in line with that, and around staff costs and so on, but it is something that we are alive to, and at this point, we don't think it would impact on being able to deliver the legislation, essentially.

Thank you.

Okay. Thank you very much. It's been a very, very interesting session. Thank you for making the time to come and talk to us today. I'm sure, between this committee and other committees, we'll see you again. But thank you so much for your time this morning. Diolch yn fawr iawn. We'll now go into private.

Welcome back. It's good to be back, and the viewing public is back as well. I'd like to welcome our witnesses. I'd just like you to state your names for the record, please.

Simon Hart, Secretary of State for Wales.

David Davies, Parliamentary Under-Secretary of State for Wales.

Fantastic. It's good to see you. Thank you for giving your time this afternoon to come and give evidence to our inquiry on the post-EU funding arrangements. We're looking into those, and we've taken evidence from a number of stakeholders and Welsh Ministers. You may know we wrote to the Secretary of State for Levelling Up, Housing and Communities, and to the Under-Secretary for levelling up. Obviously, they weren't able to come to give evidence, but stated that you would be best placed to answer some questions in this area. So, we'll go straight into questions. Just to say that there will be a transcript available for you to double-check the accuracy afterwards.

I want to start by looking at exploring the arguments for and against the UK Government's approach to allocating post-EU funding. The Welsh Government has suggested that the UK Government is breaking a manifesto commitment by increasing the shared prosperity fund as remaining EU funding declines. You say that the UK Government is matching EU funding with the fund. Who's right and why, and can you share some of your workings out?

Of course. Shall I kick off, and then David can chip in?

Certainly. Yes, please.

I should say at the beginning, because you mentioned the Department for Levelling Up, Housing and Communities, that if there's anything that we aren't able to give you a precise answer on today, I'm very happy to follow that up with something in writing. We've got pages of material here, but you can be sure that one of your questions will not have an answer on a piece of paper. So, if that happens, we'll happily provide it.

We'd appreciate that. Thank you.

Just on the substance of the question, there has been, over a while, some disagreement, as you're all aware, about funding levels. We maintain that our manifesto commitment is met; others have a different view. If I can just refer the committee to two things in order to reinforce what I think is a reasonable position. The first is evidence that may have been taken by this committee, but it might have been another Senedd committee, I'm not sure. The Wales Governance Centre were the witness—Guto Ifan—and David Phillips from the Institute for Fiscal Studies. We felt that both of their pieces of evidence, reinforced, to some extent, by Peter Ryland of the Welsh European Funding Office last week, indicated, firstly, that it is quite an imprecise science. And I say that because I think some of Welsh Government's figures have been quite vague about exactly what degree of shortfall they were referring to. The numbers haven't always been consistent. I think that it also relied on what a hypothetical funding level might have been in the event of the UK remaining part of the EU. So, there were one or two things that made an absolute precise measurement, I think, quite difficult. I was looking at Guto Ifan's piece:

'I can see the reasoning that the UK Government are using....new EU funding programmes would've taken a while themselves to come fully up and running in terms of actual spending.'

And David Phillips:

'I think it makes sense to ramp up the amount being spent by the UK SPF.'

But those are matters of record that you can refer to. The other thing I wanted to highlight, and then I'll hand over to David—

Sorry, Chair, but I don't quite follow. Could you just slow that down a little bit in terms of what the comment is that you just made?

Which particular bit?

What you've just stated. You just read from the previous—

It's the evidence provided by the Wales Governance Centre and the Institute for Fiscal Studies. I'm not sure if it was evidence to this committee— 

It was.

It was to this committee. I think what that did was confirm that there is some legitimate difference of opinion as to what the actual quantum may be. It's actually pointing at Welsh Government, to some extent, I think, a polite but accusing finger, saying that, actually, the numbers upon which they are relying are based on hypotheticals and an unknown future funding formula in order to make that point. I think we can sit here and make that point all the time, but that might be interpreted as just political positioning. I think coming from the Wales Governance Centre and the Institute for Fiscal Studies that adds an interesting dimension to the vagaries of this particular dispute.

Can I come back to the second part of the point and then hand over to David? I think in the overall funding arrangements, what we've tried to do is look at every funding source from 2017 and forward projections to 2024-25, divided into UK Government block grant, EU funding tail-off, UK shared prosperity fund, agricultural payments and UKG local growth funds, looking at those individually and the overall quantum, and the trend over that spending period, and that unquestionably shows significantly more funds pouring into Wales than would have been the case in other circumstances. So, even if there is a legitimate dispute about individual elements of that, collectively, the amounts we're talking about are, we would argue, significantly in excess of any manifesto commitment that was made. But David has more detail on it.

Just on that point, Secretary of State, you say you've looked at that, has that been published anywhere?

Good question. I think it has been published in part in lots of places. This particular document, which I'm very happy to share, by the way, is an internal document on which we rely as an aide-mémoire. I'm very happy to share that. There's nothing on it that is remotely sensitive as far as we're concerned, so we'll do that. 

That would be useful. Thank you.

I think Rhianon wants to come in and then we'll come to David Davies.

Thank you. Before we move off this particular point, because you're quite right in stating that this is the fundamental disagreement in terms of what we are debating today, I don't think there's any ambiguity as to what the Welsh Government has stated, which is that we would have been £1.4 billion better off from January 2021 to March 2025, that we've received £585 million through the UK shared prosperity fund, £47 million from the pilot for community renewal fund, and that meant that we would receive £632 million—that's a shortfall of £772 million. Now, we're not comparing apples and oranges here, are we? We're talking about your manifesto commitment, which was that Wales would not be worse off because of Brexit. We're not talking about COVID, we're not talking about cost of living, we're not talking about Ukraine and the other consequentials to Wales, we're talking specifically about this matter. What's your response to that?

My response, Mr Griffiths, is that the manifesto commitment was that we would match the money that was going into Wales pre Brexit, and the actual amounts were worked out at £337 million a year for agriculture and £343 million a year for what are referred to as the structural funds, the ERDF and the ESF funds, on average. Those figures, I think, were accepted—£343 million and £337 million. Now, we have matched those figures. We've actually exceeded them, but we've certainly matched them.

The dispute is over the fact that, over the next couple of financial years, there is still money flowing into Wales through what is referred to as the tail, the amounts that haven't yet been fully handed over. So, what the UK Government has done is to take that tail and then add to it to get to those two figures—£343 million and £337 million. As far as I'm aware, there's no dispute over the fact that we are now hitting those figures. I don't even think that there is a dispute over the fact that Wales is therefore in total no worse off. I think the dispute is that the Welsh Government—and you may correct me if I'm wrong—would like to have received those two figures, £343 million and £337 million, plus the tail as well. That was not something that was ever promised in the manifesto. I've seen a letter from your Minister Lesley Griffiths that makes clear that, while she disagrees with the Government approach and was surprised by it, she appeared to accept that the Government have actually done what they said they were going to do.

Well, that's news to us. In regard to the rural development programme payment of £234 million in terms of those receipts going back to you, I think this is the fundamental point of dispute—

May I just ask: do you accept that £337 million is the figure that we should all be aiming for here?

I actually don't, so it's a matter of looking—

Well, what do you think Wales was getting on average each year between 2014 and 2020?

My point to you would be that if you total up the amounts that I've talked to you about, it comes to over £1.4 billion.

With the greatest of respect—

So, that's what we're having this conversation about.

With the greatest of respect, we need to know, if you're not working off the £337 million or £343 million, we would be interested to know what figures you are working off and how they're calculated, because we've—

I'm sure that we can get that to you. Chair, thank you for that.

Well, the NFU seem to accept the £337 million figure for agriculture.

I think you'll find that—[Inaudible.]

I think they do, I've spoken to them about it.

If I can bring Mike in, and then we'll move on.

Just two quick points, really. I mean, I think the first one is that we can't get the Welsh Government to show us their workings out either, and that's one of the things that we as a committee are trying to get. If we see their workings out and your workings out, then we could have some understanding of which one is right or how wrong each one is. So, if you can give us your workings out, and if that's what's on that sheet of paper—my eyesight is nowhere near good enough to see at this distance—

We're very happy to do that.

Then we can wave that at the Welsh Government and ask them whether they think that's wrong.

The second point, which I think is, perhaps, more important: let's say we accept for the moment that the tailing off European money should be counted, does that mean that in two years' time the total amount will go up to what it was, the £337 million and the £343 million?

Absolutely, yes. It's all there in our figures.

Thank you. I think that's another bit—

It's nice to give a 'yes' or 'no' answer, and the answer is 'yes'.

It's all in here.

Can I tell you, Secretary of State—? My eyesight is good enough to see you, but to read a bit of paper at that distance—I'm struggling reading a bit of paper at this distance.

We will get it to you as soon as we can.

In large print.

We've talked about the shared prosperity fund ramping up and ramping down, the elements there. The Welsh Minister for Finance and Local Government last week asked us to ask you, so I'm going to do that, if Wales will receive less new funding through the shared prosperity fund compared to if the UK had remained in the EU. 

Well, we think the answer to that question is 'no'. We think that the amounts will be similar if not greater, by the way, over a period of time. We're only projecting forward at the moment to 2024-25, and our UK SPF alone, that goes from £48 million to £327 million [correction: £343 million] in that period of time, notwithstanding the point that my colleague has just made about the EU tail-off funding anyway. So, even if you took a crude calculation of those two things together, it would still exceed the amount of money that we were originally discussing as a manifesto minimum. So, I would like to be able to, and I would look him in the eye, and anybody in the Senedd, and say that we think these numbers are reversible.

In any case, Mr Griffiths, the Minister—and perhaps if she's before you again you'll ask this—has no idea how much money the UK would have received had we remained in the European Union, because the European Union are still trying to work that out. So, it's almost absolutely impossible to answer that question, unless she's got some magical way of divining what the European Union is going to be doling out to countries for the next programme.

That's essentially what Peter Ryland said in the evidence that I was quoting earlier on, when he said that he accepted the figure was an estimate—that's the £1.4 billion ERDF funding—and it was impossible to come up with a solid figure due to a number of unknown variables.

The point with the estimate is the margin of the estimate, isn't it, so that's where, obviously, there's a grey area there because we wouldn't know what necessarily would come, but it's the accuracy of how accurate that estimate could be.

I'm hoping the numbers that we can provide you in terms of what UK SPF and other funding sources are are more rigid, I was going to say, than that, because these are actual numbers rather than the figure that we were talking about—the EU number, of course, was very hypothetical, subject to significant hypothetical criteria. So, I would like to think this is reliable.

Sorry, Chair, with respect, I think, on the comment that you made about the margin of error around the £1.4 billion in the last witness evidence session we had, they were pretty clear and accurate that the margin of error around that was obviously a margin of error, but it was the £1.4 billion—

Did they say what their margin of error was, though, in percentage terms?

I think it was—. Was it about 10 per cent?

I can't remember off the top of my head.

But we've got that on the record and that was clear, so we'll furnish that information to you if you don't have it.

That would be helpful. Thank you.

So, that was clear.

This is the crux of what we're trying to do in this review and trying to find where we agree and where we don't agree, and then try and work out what—. So, it's useful, as Mike would say, to show your workings so that we can delve into this and get one version of the truth, hopefully, by the end of it. And I know that other committees are looking to take this forward after this investigation into others.

Mr Griffiths, I appreciate we're here for 90 minutes or whatever, but to me, this is actually very, very simple, and the truth of it is this—and as far as I'm aware, the figures are agreed—that £337 million is what was going into agriculture, £343 million is what was going into the structural funds. The Government has guaranteed those figures going forward, but have said that they will take account of the tail that is coming in from the EU over the next two to three financial years, and the Welsh Senedd Government have said they want the £343 million and £337 million plus the tail. That is the crux of this whole session in 90 seconds, and we're all agreed that we don't think it is right to be paying the tail, the £343 million and £337 million, and the Welsh Senedd say it is.

Just to be clear for the record, as the tail-off diminishes and works out, the shared prosperity fund will escalate to match it.

Absolutely. Absolutely.

That's very simple. So, there's a clear sliding down and a ramping up.

Yes, that's correct, Mr Fox.

Bear in mind—. I'd like to leap in there. The tail-off, unusually, actually goes up before it goes down. So, the tail off is at £410 million, for example, in 2023-24. It's not a gradually declining line. We're going from £375 million in 2020-21, to £326 million, to £375 million, to £410 million before it drops to £37 million in the same financial year, 2024-25, as UK SPF is at £327 million [correction: £343 million]. So, it's not a—whatever the word would be for a steady line.

Can I just say, I represent the Welsh Government on the WEFO and those are very much estimates and guesstimates? Certainly, outside agriculture, they may go up or down or move around. Most of it should be spent by the end of this financial year. That it hasn't is due to a whole range of things—COVID being probably the most important of them.

So, moving on slightly, Wales has received funding through the next round of EU structural funds, and the allocated funding would have been for seven years. Obviously, the shared prosperity fund will operate for three. What are the longer term plans for structural funds?

You're making the point, if I'm reading this right, between the seven-year spending period versus the three-year spending that replaces it, yes?

Correct.

I think my initial reaction to that is that that is the regime under which we operate in the UK. That's what the normal spending review periods are. There was obviously an exceptional one in the early stages of the pandemic. So, for us, there's nothing particularly unusual about going to a three-year—

I'm not worried about that, it's what your plans are after the three years, so the longer term. Where are your plans taking you?

Well, at the moment we're projecting forward to 2024-25. Can I give you a hard-and-fast guarantee of what it will look like after that? I don't think anybody could sit here and say that. And I think that's been one of the flaws in the—[Interruption.] Say again. 

We may not be here. [Laughter.]

I think that's probably one of the—[Interruption.]

It's good to have you here today, but, as you say, we might—

I think it arguably could have been one of the flaws of the seven-year spending cycle. Actually, that was unnecessarily restrictive. And David makes a good point, actually, because, as we know, we work in a volatile industry, and it is quite possible that there are huge economic changes facing us, depending on how the war in Ukraine goes, depending on how post-pandemic recovery goes, depending on food security, energy security—all of these issues that combine to have an impact on all the things that we’re able to deliver here. And the fact that I think we’re able to review it on a three-year anniversary as opposed to a seven-year anniversary probably gives a little bit of flexibility not only to UKG, but actually hopefully to Welsh Government too. So, being able to say with absolute certainty what will be the case in years 4, 5, 6 and 7, I don’t think anybody could honestly come and sit here and give you a set of figures upon which there would be no dispute and no opportunity to subject them either to an upwards review or a downwards review. I just don’t think that’s possible.

Peter.

All things being well, it’s highly likely that the shared prosperity fund or something very similar would continue on and on and on to replace what would have been an on-and-on situation within Europe, I suppose.

That much is absolutely true, and I think we can be reasonably upbeat about that. We were talking about margins of error earlier on; there will clearly be margins of error, the 10 per cent here, the 10 per cent there, in terms of our estimations throughout that. Yes, UK SPF is here to stay. That is the replacement funding, and because we are supporters of it, and have spent a lot of time trying to get to a situation that is fair and equitable, we have confidence that actually we will do better out of this arrangement, because it’s a UK fund administered by the UK, and therefore more directly accountable to UK stakeholders and voters than any of its previous incarnations. We think that puts Wales in a very good place, and add that to our levelling-up agenda and suddenly you’re in a position where the bottom line of this piece of paper I keep referring to really makes for very encouraging reading.

In Neil O’Brien’s letter, he says that farm funding is being considered separately to the shared prosperity fund. Can you outline the UK Government’s commitment around the level of farm funding that will be provided to Wales?

Absolutely. It was always one of the separate schemes, and the various pots are quite complicated, but we generally look at two of the structural fund schemes. I always get the letters mixed up—it was the ESF and the ERDF, I think, that were the two that we count as structural funds. That’s where we get the £343 million figure from, and we’ve matched in full that going forward.

The agricultural funding, again, it’s a bit complicated. As explained to me, there is one large pot that was put aside for CAP funding and pillar 2. The Welsh Senedd Government moved about 15 per cent out of 1 towards pillar 2, but the overall amount worked out at about—. It varied from year to year depending on exchange rates, but we took 2019 as a baseline year and calculated that at £337 million. So, it may have been different in different years, but that was seen as quite generous, actually, using the most generous exchange rates. I discussed that recently with the NFU informally and they agreed that the £337 million was a good figure. They wanted assurances that they were going to carry on getting £337 million a year. We’ve given that assurance, that’s absolutely going to happen. Obviously, taking account of the tail, most of this is where we may have a continued dispute, but the amount of money going into agriculture going forward will still be £337 million, and that’s, I hope, a brief summary of how it’s calculated.

So, with what we’ve been explaining there with adding the fund with the tail, and the tail tapering off, will there be a tapering off of funding or do you envisage—?

I think, as the Secretary of State said, the tail-off in agriculture is rather more consistent, and it goes down each year. So, each year the amount of money going from the UK Government to match that will increase. We’ve got figures here that we can let you have, and the figure that we use all the time is £337 million.

So, regardless of how that money is made up—

That £337 million—I think I’m saying the same thing—that’s consistent—