Y Pwyllgor Cyllid
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Mike Hedges AS|
|Peredur Owen Griffiths AS||Cadeirydd y Pwyllgor|
|Peter Fox AS|
|Rhianon Passmore AS|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Adrian Crompton||Archwilydd Cyffredinol Cymru|
|Auditor General for Wales|
|Ann-Marie Harkin||Cyfarwyddwr Gweithredol Gwasanaethau Archwilio, Archwilio Cymru|
|Executive Director of Audit Services, Audit Wales|
|James Owen||Dirprwy Gyfarwyddwr, Is-adran Diwygio Rheoli Tir, Llywodraeth Cymru|
|Deputy Director, Land Management Reform Division, Welsh Government|
|Kevin Thomas||Cyfarwyddwr Gweithredol Gwasanaethau Corfforaethol, Archwilio Cymru|
|Executive Director of Corporate Services, Audit Wales|
|Lesley Griffiths AS||Y Gweinidog Materion Gwledig a Gogledd Cymru, a’r Trefnydd|
|Minister for Rural Affairs and North Wales, and Trefnydd|
|Lindsay Foyster||Cadeirydd Archwilio Cymru|
|Chair of Audit Wales|
|Simon Bilsborough||Uned Ddiwygio Rheoli Tir, Llywodraeth Cymru|
|Land Management Reform Unit, Welsh Government|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Georgina Owen||Ail Glerc|
|Leanne Hatcher||Ail Glerc|
|Mike Lewis||Dirprwy Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.
Dechreuodd y cyfarfod am 09:35.
The committee met in the Senedd and by video-conference.
The meeting began at 09:35.
Bore da, a chroeso i gyfarfod y Pwyllgor Cyllid y bore yma. Rydyn ni'n mynd i fod yn symud ymlaen i edrych ar y Bil Amaeth (Cymru), ond, cyn hynny, rydyn ni am gymryd y papurau i'w nodi. I gychwyn, oes gan unrhyw un unrhyw fuddiannau i'w datgan? Peter.
Good morning and welcome to this meeting of the Finance Committee this morning. We're going to be moving on now to look at the Agriculture (Wales) Bill, but before that we're going to take the papers to note. But, first of all, does anybody have any interests to declare? Peter.
Thank you, Chair. I declare an interest under item 3 as I am a farmer and a tenant farmer, so I declare an interest in that regard.
Thank you. Great, okey-doke.
Can we move, then, on to item 2? Item 2 is papers to note. Has anybody got any points to raise on any of these? The only one I had, if nobody else has, is that I will probably be writing back on paper to note 3, just in response to the timescales around the procedure with regard to the Environmental Protection (Single-use Plastic Products) (Wales) Bill. So, I'll be writing back on that.
Timescales and the fact that it's a curtailed process, so it's making sure that scrutiny happens properly. So, we'll be writing back to the Minister and probably Business Committee and the Legislation, Justice and Constitution Committee as well on that. So, there we are.
So, we can move on to item 3. Bore da, croeso. It's good to see you. Thank you for making yourself available, Minister. Could you introduce yourself and your officials, please?
Thank you very much. Bore da, everyone. I'm Lesley Griffiths. I'm the Minister for Rural Affairs and North Wales, and Trefnydd. On my right is James Owen, deputy director for land management reform, and on my left is Simon Bilsborough, head of evidence and analysis for land management reform.
Wonderful. Thank you very much for coming in this morning. We're looking at the financial implications of the Agriculture (Wales) Bill, so, if it's okay with you, we'll crack on with some questions. Initially, I wanted to explore the assumed annual budget for the sustainable land management scheme and the impact of macroeconomic conditions on future funding for the scheme. What consideration have you given to the committee's ability to scrutinise the financial implications of the Bill considering that the design of the future sustainable land management scheme, which represents the most significant cost in the Bill, has not been finalised?
This is a regulatory impact assessment that covers all the provisions in the Agriculture (Wales) Bill, not the sustainable farming scheme, on which, as you say, we're currently in co-design. So, what this RIA does is set out indicative costs of a future scheme that meets the requirements of sustainable land management and the targets that have been committed to by the Welsh Government. With regard to the future SLM scheme, the RIA estimates the costs in a variety of areas—there are about six areas where that is, and those are the administrative cost to the Welsh Government, the compliance costs, the estimated costs of annual payments to farmers, the estimated costs of Farming Connect and the farm liaison service, estimated costs to Natural Resources Wales, and the estimated cost to the agricultural sector for those that want to enter the proposed scheme. So, that's a comprehensive account of the likely costs.
With regard to the estimated cost of annual payments to farmers, you'll appreciate we're not yet in a position to set out the anticipated annual expenditure on payments. I think you'll appreciate the uncertainty around our budgets, and it's going to be very difficult to answer, I'm sure, some of your questions around that, going forward. One of the reasons I published the details of the outline sustainable farming scheme in July was so that we could engage with the sector over the summer, and, obviously, as I say, we are still—. We've actually extended the co-design period, too, so I do appreciate that there's quite a lot of uncertainty at the moment around that. And, obviously, our budget is an unknown.
Right, okay. So, from this committee's point of view, obviously there are a lot of moving parts there. It's making scrutiny difficult for us because we don't know what we're scrutinising. So, what sort of mechanisms have you got in place to be able to inform this committee of what that will transpire as, as you go through the process?
Yes. Obviously, as we go through the process—. We've had to assume. So, what we've done is we haven't just plucked a figure out of thin air. The assumption we've gone on is an annual budget of £278 million, because that's what we've got now for the basic payment scheme and Glastir. So, setting aside the rural development programme, the working assumption that we've had, or that we've used, is £278 million. We have no certainty beyond the lifetime of the current UK Government term about our budget. So, there is a lot of assumption, and I absolutely appreciate it is very difficult to be able to do that. Obviously, as we go through the process, we will keep you informed. I think the thing to remember—and, absolutely, I'm committed to it—is that we will not be taking any money away from farmers. That's the bottom line for me. So, as I say, we will keep you informed as we go through the process.
And you're fairly confident that this £278 million is as accurate as it can be at the moment, and that you can deliver within that figure.
As I say, that's the budget we have now, so that's why we've used that figure. Not wanting to get into too many politics, we were told we wouldn't lose any money if we came out of the European Union, so we have to assume that that's case and that will continue.
If I may, Minister, just to add that we've assumed it for all of the options that we've outlined in the regulatory impact assessment as part of the cost-benefit analysis. We've assumed that baseline so that we're ensuring that we're comparing like for like with the options. So, you'll see the three options in there. One option would be to withdraw support, one is to maintain the status quo, one is to move to an SLM scheme. So, I think, for the purposes of that comparative analysis, it was important that we used a like-for-like assessment as well. That's why we used the £278 million figure, but, as the Minister said, the budgets beyond the duration of this UK Parliament remain uncertain.
I think the Economy, Trade and Rural Affairs Committee heard that the funding for the common agriculture policy was approximately £370 million. If the rural development plan pillar 2 budget for the Welsh Government matched that funding, why £278 million and not £370 million?
So, as I said, the £278 million is the current fund for the basic payment scheme and Glastir. On top of that, you have the rural development programme. Sorry, I should have said we've taken that out, so that's why we're using the £278 million.
Okay. The regulatory impact assessment mentions the assumed budget is dependent on future funding settlements from HM Treasury and the Welsh Government process. What engagement have you had with HM Treasury concerning these funding settlements, and what contingencies have you put in place if you receive less?
The short answer is 'none'. We've had great difficulty engaging with HM Treasury. You probably will have heard me say before that we have a regular inter-ministerial group where I meet with the Department for Environment, Food and Rural Affairs, and Scottish and Northern Ireland counterparts. We actually had one on Monday, which was the first one we'd had since the Royal Welsh Show in the summer because, obviously, the difficulties within the UK Government. For the last six years—and I'm not exaggerating—we have asked for a HM Treasury official to come to every one of our meetings, and we meet regularly normally, probably every six weeks or so. On no occasion has a Minister come, apart from once when we had a finance Minister dial into the meeting, and this was before people dialled into meetings—way, way before the COVID pandemic. So, it's been really, really difficult for me to engage with HM Treasury. I've written to Ministers, and it's just been really tough. Obviously, the Minister for Finance and Local Government deals with HM Treasury on behalf of the Welsh Government, and I know she has raised concerns about the agricultural budget many times, but, from my point of view, it's been impossible.
So, what are your contingencies? Have you got any?
I haven't got any, really, because, as I say, we were promised that we wouldn't lose a penny. I will continue to push for that. Obviously, that funding is ring-fenced until the end of the UK Government parliamentary term, so we have that certainty, but that's the only certainty. And this is why we need to build a lot of evidence, for me to make the argument to continue to support farmers around the Cabinet table. Because, when we were in the European Union, that funding arrived unscrutinised really—went out unscrutinised—but that's not going to be the case. And that's why, when you look at the options that are set out in the EM, there are three options, and that's why my preferred option is 3, because I've always maintained that there will not be a time when we do not need to support our farmers.
So, as you then develop, as this process goes on, I am assuming that you will be bringing back updated EMs and updated RIAs as it goes along.
We've committed to publishing an economic analysis, alongside the final consultation on the scheme. So, that will be an analysis of the impact, essentially, on the sector of implementing an SLM scheme, as we've proposed, and consulting on that, essentially, at the same time as we consult on the final scheme. So, that will give us a robust base for the Minister, ultimately, to make a decision at some stage in 2024 about a future scheme.
So, that will be next year—we're going out to consultation on the final scheme next year.
Do you know roughly when in the year that will be?
Towards the end it will be—towards the end of the year. We have a co-design process at the moment, and, obviously, we have the Bill going through scrutiny at the moment, so I think it has to be after the assent to the Bill, really, that we'd be in a position to demonstrate how we'd use the powers.
Okay. Thank you.
Practically, I think it's the only thing we can do—to make these assumptions and just carry on with that figure of £278 million.
Thank you very much. Peter. No, Rhianon, sorry. Rhianon.
Thank you very much, Chair. It's a very concerning scenario that you're looking at, and it seems to be quite unprecedented. You've mentioned the inter-governmental meeting this week, in terms of negotiation—wrong word; in terms of your communication—with central Government around that. Was there any light shone on this particular black hole?
So, interestingly, finance is always on the agenda for IMG, but it wasn't this week, but you'll appreciate it was done—. In fairness to Thérèse Coffey, who's the new DEFRA Secretary of State—who, of course, had been in DEFRA previously, so we had worked with her—she wanted to meet as quickly as possible, which I think was a really good sign, because we hadn't met with the previous one, who'd been in post for, what, six or seven weeks, so there'd been no engagement at all. So, it was good that we had that meeting early. So, we didn't really focus on finance, but we'll be meeting again, hopefully before Christmas, when that will be on the agenda.
Okay. Thank you. You've touched upon the first question I've got. The assumption of costs relating to future schemes other than what we know of now will be within current budget. So, could you briefly—? You may think you've already done this, but what do you believe the risks are in having that assumption?
So, just the uncertainty about the budget makes this process very difficult. As I say, for me, we're not going to divert any funding away, and I think that's the message I would want to give out. But the biggest risk to future funding of our agricultural sector in Wales is the UK Government's budget to the Welsh Government, and therefore, obviously, what we have here in the Welsh Government budget. So, officials will continue to monitor the impact of possible—
So, could you outline a little bit more for me in terms of what you mean? Because that is quite a statement to make in terms of a risk register, in terms of that passporting across. Why is that a risk? How would you explain that in layman's terms? Because, obviously, the wider question is inflation, isn't it, which I'll come to in a minute.
Yes. We've also got the inflation costs, and we know that they're significantly higher in the agricultural sector than they are for the majority of people. So, obviously, that's something that officials will continue to monitor.
Perhaps just to say, the assumption we made around £278 million is obviously based on the current budget and the current spend, but, as the Minister's said, we have no certainty beyond that. What we've therefore tried to do in the RIA, in bringing it forward before the Senedd, is demonstrate the evidence that sits behind it in our thinking on a scheme. And now ,of course, any scheme will need to be able to flex it up or flex it down, depending on situations, events—we could talk about things that have happened recently, I guess, in terms of the pandemic and the support that we might want to provide to farmers through different initiatives in that context as well. So, what we've been trying to do is to ensure that, in designing a scheme, there is an ability to either commit to the budget, as we've assumed here, to commit more, if there is more available—and we've got the evidence that it delivers against ministerial commitments, particularly around the climate and nature emergencies—or, indeed, to flex it to meet any constraints that are placed upon Welsh Ministers as a result of HM Treasury funding decisions. So, I think it is a risk beyond the duration of this UK Parliament, but what we've tried to do is design a scheme that will meet the principles of the Bill and that can have that flexibility to meet changes in events, changes in priorities or changes in funding settlements.
So, in terms of the estimated annual costs of £321 million from 2024 for the preferred option 3, I think the Minister mentioned, we're all aware of the current economic climate in terms of where we should be—and I don't think that's a political statement to make—how do you feel that that economic climate impacts on your ability to be confident that you can meet these costs across the period of appraisal?
Hugely. As I say, there's just so much uncertainty, but you have to have a working assumption that—. As I say, I cannot imagine a time when we would not support our farmers. I mean, we all want to eat, so we have to support our—. I don't like the word 'subsidy'. I just cannot imagine a time, and I can't imagine that the UK Government would feel any differently, whatever the political persuasions at the other end of the M4. So, I think, for me, it's about building up that evidence base that I mentioned, so that I can make that argument for that funding. It's about making sure that—and this is the scheme now more than the Bill, I suppose—the scheme delivers value for public money in a way that other Ministers have to do for their portfolios, like health—
That's what I was going to say; this is a competition, basically.
Yes, it's a competition—of course it is, and I haven't had to be in that competition. While we were in Europe, I didn't have to be in that competition, and my predecessors didn't have to be in that competition. But, of course, it's public money and you have to show—. We've been criticised for taking such a long time, but we've got to get it right, and it's about making sure that we have that evidence base. Looking at the preferred options, the three preferred options, if you look at option 1, it would just be disastrous, in my opinion, if we withdrew support; if you look at option 2, we need to 'legislate to maintain the status quo', well, no, we need to change—we need to, we've got the climate emergency and the nature emergency and our farmers are absolutely at the fore of dealing with that; and then, option 3, 'support consistent with sustainable land management', and that's why that's my preferred option, and that's why we're building up this evidence base.
Okay, thank you. I'm going to move on.
Sorry. Go on.
Perhaps I could also add, just in terms of the modelling that we do that underpins the evidence that the Minister referred to, we're required to adhere to Government standards about the transparency of the methodology and the transparency of the assumptions that underpin the modelling. So, all the assumptions about future prices will be in the public domain, alongside the results.
Okay, thank you. You've cited a range of costs not quantified in the RIA in the Bill relating to the use of powers. To what extent can we as a committee be satisfied that this is receiving due assessment in terms of the costs associated?
Yes, okay. The RIA, wherever possible, has quantified the expected costs associated with the Bill, but for some of the powers being taken in the agriculture Bill, it hasn't been possible to quantify costs, because we don't know—. For instance, we've got the crisis element of it; we don't know when a crisis will occur, what that crisis will be or what scale it will be, so, obviously, we can't plan expected costs in relation to that. So, when the explanatory memorandum talks about intervention in agricultural markets, for instance, you can only use the best available evidence at that time as to what the crisis is. So, if you think that, maybe, it could be drought, for instance, or it could be extreme weather conditions, so you can only really use what's going on at that time, so that's why that hasn't been quantified.
In other cases, I think—. Marketing standards and the carcass classification: obviously there, there are no foreseeable financial costs, because we don't currently have any plans to use those proposed powers.
Rhianon, if I may. On that, the unknown unknowns if you like, we've been through crises in the past; we've been through foot and mouth, we've been through bovine spongiform encephalopathy, we've been through lots of different—. What learnings have you taken from the way we responded back then when we had, possibly, a fairly static level of income coming in? What learnings have you taken when you've modelled this? And what sort of assumptions might you make with the unknown costs, if you like, and build that into your thinking?
I suppose the recent one would be the COVID-19 pandemic where we obviously had to intervene and support. Previously to that, I remember—
Potential support for both the dairy sector and sheep sector during the last three years as a result of both the pandemic and exit from the EU. And whilst the scheme didn't come into fruition, there was a lot of planning by officials behind the scenes, if you like, about—
Yes, no deal, and what it might mean in terms of the economic viability of sheep farmers in Wales. So, what I would say there is that it's such a range of different things that we're trying to potentially assess there—the difference between a significant animal health disease outbreak, like foot and mouth, as opposed to almost direct economic support because of a lack of a trade deal for farmers, makes it very difficult, I think, to give a good assessment to the committee of what those costs could be.
But you've responded to those, so you've, hopefully, learnt how to respond to those things, so is there some thinking going into how you might respond to an outbreak of something or an economic—? I'm assuming that there's some thinking gone in in the background that you then possibly take an average of that and think, 'Well, actually, it might cost this.' And would that then be factored into any of your thinking when it comes to other things that could happen?
I think that probably the other thing to say is that it would be a pressure on the budget. It isn't budgeted for at the moment, whatever the intervention, so we'd have to take that at that time. Certainly, we could give the committee some information about previous costs that have been incurred as a result of using those types of intervention powers, if that would be helpful. I think it would have to be on the basis of quite a wide range, though, because you can imagine all the different circumstances that could occur.
Of course, yes. I'm just trying to work out your thought process and your modelling and to get some confidence behind the numbers, if you like, of the way that you've come up with your estimates and that side of things. So, anything like that would be of use just to give us a little bit of confidence around the figures that have gone into these explanatory memorandums and regulatory impact assessments.
We'll send you a note then.
Lovely, thank you.
Chair, I'm glad that you mentioned that particular theme with regard to the modelling of unexpected 'unexpecteds'. So, that would be really useful. We know that these things happen regularly in the sector. I'd presume that there would obviously be that discussion with DEFRA, in terms of external support, because we wouldn't be left on our own, I would presume, with a UK-wide crisis, in that regard. So, I think it's a really important point, Chair, that we get some information around that, because we know that something will happen. We're currently dealing with avian flu, to a certain extent, as well, so I think that that would be useful.
If I move on to question 8, Chair—
Yes, please, and question 9, please.
Yes. The RIA mentions that the economic impact on the sector will be assessed as part of the design of any future scheme. How will the assessment be undertaken and, again, back to scrutiny, what recourse will the Senedd have in terms of that scrutiny of the impact of any future scheme? And, obviously, you've mentioned the preference, and laid out why, in the sector.
So, I anticipate that that work will estimate the economic impact of the proposed FSF—the SFS, sorry, I said the wrong letters—on the Welsh farming sector, at both a regional and a sectoral level and obviously, for different types of farms and for different sizes of farms. So, that's work. Obviously, we can't model every individual farm, but we can do it on a regional basis, we can do it on dairy and we can do it on sheep, so that's what we're doing. We need to understand the effects of the proposed scheme on farm business revenue—I think that's really important—costs and farm business income, so that we can have that illustrative range of Welsh farm types and sizes. We need to understand the effect of the scheme on key regional parts of Wales, and also, beyond the farm gates as well, we need to know what's going on there as well.
So, what we'll do—and James mentioned this before—when we publish the consultation next year, we'll then have that final economic analysis published alongside that. And there'll be a range of other evidence as well to support our proposals.
And in terms of scrutiny, in terms of how we will then be able to do that, what recourse do we have?
Well, I guess you'll have me here again [Laughter.]
Obviously, we have our normal procedures. Yes, okay. Thanks.
Just to add to what the Minister said, we have an excellent range of statistical sources concerning the performance and the viability of farms in Wales, so the work will be utilising data from the annual June agricultural survey, and also, the annual farm business survey. So, we have those data sources to support the analysis that's going to be carried out.
Okay, thank you. And if I might just ask, in terms of monitoring the costs associated with that, after implementation, how will you do that?
There's a comprehensive monitoring and reporting requirement. So, again, James mentioned some of those, but there'll be an annual financial reporting of schemes operating under the power to provide support.
Okay. So, there's no shortage of—
There's no shortage of that. An impact report will have to be completed periodically as well. There will be reporting requirements for progress that will be made against the sustainable land management objectives. So, there will be a huge range. There'll be indicators and targets to measure progress as well against SLM.
It might be useful for that list to come to us rather than go through all that.
Okay. Shall I move on to question 9 then?
Thank you. So, you stated that the provisions in the Bill would impact on agricultural tenancies by increasing the total number, unfortunately, of disputes that would arise. Is there a reason why that cost has not been quantified, and who would bear those costs?
So, the cost has been quantified in the explanatory memorandum. I don't have the figures off the top of my head. I don't know if anybody else does, but we can certainly provide those if—
That would be great, thank you.
Yes. If I can just jump in, the costs are included under the administrative provisions of the Bill because it was assumed to be the administrative costs of disputes, and the costs are estimated at between £86,000 and £167,000. It's really difficult to estimate on whom those costs will fall, whether it will be the landlord or the tenant, or a mixture of both because it will vary in individual cases.
And in what way would—. How would that happen, as in, how would the decision be made as to who bears that cost?
Well, it would depend on the tenancy agreement, because, obviously, every one is unique, so it would absolutely depend on the type of—. But I should say that we hope to avoid disputes. I mean, we're going to do our very best to make sure that that's what this provision is for—it is to avoid it.
Yes. But it is anticipated.
But, as I say, it is quantified in the EM.
Okay, thank you.
That's fine. So, thank you, Rhianon, unless you've got another—.
No, that's fine.
No. We'll go on to Peter then, please.
Thank you. If I can just move on to forestry, the RIA notes that the private sector costs relating to forestry are rising as a result of adding conditions to new licenses have also not been quantified. How have you assessed the impact of these potential costs on the private sector, and what conclusions were reached?
We have a forestry provision stakeholder group, and the likely costs and benefits were identified working with that group. There were representatives of both forestry and conservation sectors on that group, and there were a number of unquantified costs that I think are already part of forestry and the way that that's worked; there's a UK forestry standard, and that's what all felling licences must comply with. Obviously, the actual cost of each application again will vary. So, some will be very simple, some will be very complex. You guessed the simple ones won't cost as much as the complex ones. So, we would expect Natural Resources Wales, who are obviously responsible for the felling licences, to use the power proportionately, and we have tried to estimate the costs, but, I think, to do all of them is just too complex.
Yes, I accept that; it's pretty challenging. Moving on, then, to other benefits, there is a range of benefits included in the RIA relating to areas such as the future support of forestry, again, and these haven't been quantified. What work did you undertake to attempt to quantify the benefits arising from the Bill, and what were the challenges you faced?
So, the Bill itself doesn't define a delivery mechanism for future support. As you know, the SFS is currently being designed still, so therefore a quantitative assessment of the benefits is not really possible at this stage. But, again, the evidence that's been presented in the options, so particularly, obviously, in options 1 and 2, led, I think—it's my view—to outcomes that wouldn't be consistent with what we're wanting to do and what we're trying to do, and certainly doesn't meet our statutory obligations under the Well-being of Future Generations (Wales) Act 2015. So, that's why option 3, which would require Welsh Ministers to consider the way future agricultural support schemes are contributing to achieving sustainable land management principles and objectives—. I referred to the status quo option, which just would not deliver; we have to do something differently. That was option 2. And option 1—you know, if we withdrew support completely, I think that would be completely catastrophic.
Yes. Thanks for that. I can understand that as well. So, I'm assuming, once the SLM scheme is finalised, you will be attempting to quantify what the benefits are and we can—that can be fed back into us.
Yes. So, as I say, when we publish the consultation for the final sustainable farming scheme, alongside that we will publish the—
That will be that assessment that James spoke about, yes.
Maybe just to give an example of how we see that working. So, in the proposed scheme that the Minister mentions she published before the Royal Welsh, there are a range of actions that we want to support farmers to undertake, which we believe will help them reduce their costs. So, nutrient management is a good example of that—so, supporting farmers to undertake good nutrient management on their soils to understand what's in them. There's a good source of evidence to say that can help with more targeted application, then, of nutrients, and therefore, particularly given the current pressures in that space, could help farmers reduce costs. So, those are the types of things we will try and quantify when we move to a position where we've got a final proposed scheme.
Yes, and understanding how using too much of one input can alter the natural balance of the ground and things. I see that, yes. Thanks for that.
The preferred option—I note the administrative cost, excluding inspections and in-situ visits, is around £24.6 million. Can you explain how you calculated the cost and how does it compare to administrative costs for, say, the CAP?
So, we've based that on the historic Rural Payments Wales costs for the delivery of CAP in the previous period, 2014-2020. So, that's where that figure has come from, and primarily it covers the BPS and the RDP schemes as well. So, again, whilst SFS is obviously in co-design stage, it is difficult to give—. Specific administrative costs there obviously need to be developed as well. But that's why we've based it on the historic figure, if you like.
Yes. Thank you for that.
Thank you, Peter. Mike, welcome. You're just in time. There you are. Excellent.
I eventually got here. The A4232 was at a standstill.
I joined it at 08:15 and I'm here now.
Well, you're most welcome. There we are.
I arrived at just the right time as well. Thank you, Peredur.
In your preferred option, a new IT system will be developed for £35.5 million. Can you split that between hardware and software, and can you explain why you can't use existing systems? And will the new system actually allow people with older systems to access it? Because that's one of the problems health has got. They keep building things with new systems, but the older systems can't access it so it creates chaos.
Yes. So, the preferred option is that we will enhance and build on the current system, and that's certainly what we are going to try and do. We will only develop new IT functions if we absolutely have to. I think it's fair to say, because we want to do something different with sustainable land management objectives, and also the current system is 20 years old, which in tech terms I understand is quite old, so it could be that we will need a completely new system, but certainly that's not the intention. And I think—. We've got to be realistic about this. That was—. I have challenged that figure, because it did seem very high, but I think that's a realistic assessment.
Are you going to use a distributed system or a central system?
So, we haven't concluded the options assessment on that as yet.
Well, what is your thinking now between the two?
So, essentially, we have Rural Payments Wales Online at the moment, which administers and supports farm payments under the EU programmes. What we want to do is take that platform, so there'll be an interface, if you like, out there with farmers for them to access the system directly, access their data and submit returns directly, and then obviously a system back in the Welsh Government that would monitor and manage the payments there. So, I think the point the Minister made is absolutely right, it's about trying to build on what we've already got, not throwing the baby out with the bath water here. But we're currently—. The current system was designed to do something very different to what we will need a new system to do. So, I think, in the RIA, what we've tried to do is articulate what we think some of those IT costs would be, but, of course, as we move through the options assessment and the business case for those, we'll have to consider those very carefully.
Mike, if I may just pop in there. With regard to the new application system, are you anticipating more applications coming through, and is that factored into the cost?
So, our assumption is that those—. There will be more applications, we hope, to come through, because we want to incentivise farmers to come into the scheme. And in the proposed eligibility criteria we've lowered, for example, the hectarage that you'd have to have as a farm business to enter a future scheme. So, that would encourage, perhaps, more farmers to come through. I don't think from a system perspective it would necessarily add more cost; it may do, of course, into the administration then of payments and monitoring and evaluation.
And what's the anticipated increase in volume through the system, or how many more people would you like, as a factor?
So, currently, there are just under 16,000 farmers who receive a payment under the basic payment scheme, and around 1,800 farmers who receive a payment through one of our Glastir agri-environment schemes as well. So, I think, essentially, it would be an aggregate of those numbers.
Right, okay. Thank you. Sorry, Mike.
NRW—and I think that I have some sympathy for NRW; a huge amount of criticism, but some sympathy—
No, I agree.
—in that people keep saying, 'NRW can do this', but their budget doesn't always increase, or doesn't ever increase, to meet the cost of the additional work. So, sometimes, other work doesn't get done, some of it things that I think are the most important things it should be doing. How are you going to ensure that NRW are able to fulfil what you're asking them to do without not doing the environmental things that many of us think are the most important things they do?
I absolutely agree with you. So, officials are, obviously, currently working with NRW to determine if there will be additional costs. Obviously, as we go through the co-design of the scheme and bring the Bill forward, I'll continue to work with the Minister for Climate Change, who has responsibility for NRW, to see what costs will need to be met. We want to support them, obviously, to implement the legislation, so we'll fully consider that as we go forward.
And finally from me, the RIA states that the cost for farmers filling in an application form for the preferred option is 50 per cent higher than option 2. Now, will that be a one-off fill-in-a-form option, because quite often—we all do it, don't we—we fill forms in and then it remembers a large amount of it. I filled forms in for going on holiday recently and, after I'd put my name in, it just filled lots of the spaces that needed to be filled in. Is that 50 per cent a one-off expenditure or cost in time, or will things have to be entered every year, or will they just have to be altered every year?
No, I absolutely agree, and one of the things we've been keen to do is—and Peter will know this—. Farmers already have a lot of data, and you don't want them to have to repeat it and repeat it and repeat it. So, I think part of the co-design of the sustainable farming scheme is using data that they already have, rather than making them fill in another form. So, for me, as James just mentioned, we want to incentivise farmers to do this. We want as many farmers as possible to be part of this scheme, so, you need to make it as simple as possible. None of us like filling in forms, none of us like bureaucracy, so let's try and make it as simple as possible. And that's what we're doing; we're trying to design the scheme to make sure that farmers want to be part of it and that they haven't got to do a huge amount of work.
But, following on from that, the thing is, of course, that, when it fills fields for you when you start it off, it gives you a great feeling of actually making progress, rather than having to enter data every time. And even if it only asks you to confirm that some of those things are correct, it does speed up data entry massively.
And maybe, just again to provide some additional assurance, as the Minister said, we already hold a good set of data around farm businesses, and Simon mentioned some of that. Ideally with the scheme, what we'd like to do is play that back to the farmer in the first instance for them to verify. So, rather than them having to input, we say, 'This is what we think it is. Do you agree with that?', using the online system as a vehicle to do that.
I think the importance, again, about why we've estimated for this purpose the 50 per cent more expensive, is because it's a fundamental change of what we're asking farmers to do. We're proposing a sustainability review in the scheme, which will look at carbon assessments and look at habitat reviews as opposed to the basic information we ask them to provide now. Our assumption, I think, is that that would, over time, reduce because farmers would get used to doing it, and, of course, we would then hold the information to be able to play it back to them.
I think Peter wanted to come in.
I wanted to just confirm. I have to say, back in the early days, when we had the integrated administration and control system forms and all of those things, we had to go and get maps and we had to map out every tree trunk and all of these different things on the farm, that was really stressful. I have to say that, over the last few years, it's been amazingly simple: you can fill out your application form within a few minutes, because it's pre-populated, unless, obviously, you've got to change things, and I think that is absolutely fundamental to quality take-up, making it simple. And if there's a way that there can be some synergies between the new platforms and the existing platforms, people will be far more confident, because, often, it's the paperwork that puts people off—
—entering schemes and they do themselves an injustice.
One of the things that we've done is we've refocused Farming Connect. So, again, we know that farmers will want different support—so, they might want more technical support or advisory support—so, we've refocused that instead.
That was a question I had as well, on, if you're changing systems—and with an ageing population of farmers as well—what tech support and what training and how much is that—? Is that costed into that new element?
Well, that's the refocus of Farming Connect.
So, that's—. And what's the figure on that?
For Farming Connect, we assume a 50 per cent increase. For the farm liaison service, we assume a 30 per cent increase.
Right, okay. Thank you very much. We're coming towards the end of the questions. I've got a—. Just doing a quick calculation, between the £370 million that you're currently getting, and I think you said and the RIA assumes there's £278 million, is the £100 million the RDP?
And is that going to continue as well or is there going to be a black hole?
Well, yes, it's just very uncertain, isn't it? 'I don't know', is the short answer. We have to assume that we won't lose a penny, because that's what we were told, but, clearly, at the moment—. The reason we, as I explained, use the £278 million and we took out the RDP was to cover what's currently the basic payment scheme and Glastir. And James referred to the number of farmers who currently receive those payments.
And can you remind me what the reason was for taking the RDP out?
So, what we've tried to do in the cost-benefit analysis is look at the support that is provided directly to farmers. So, the £100 million, for shorthand purposes, that is looking often beyond the farm gate. So, for example, that would pay for the Farming Connect service—so, that would be advisory support that would go through Farming Connect, which supports farmers to do various things, continuous professional development and so on and so forth, but wouldn't be a direct payment to farmers—other projects in that that we currently have supported, obviously, through the pillar 2 fund; there would be LEADER. I'm trying to think of the range of other projects, now, but there are number of other projects that would be in the supply chain, for example, in food processing and things like that.
So, you're talking about increasing Farming Connect by 50 per cent—is that within the £278 million or is that in the RDP stuff?
The cost would be outside of the £278 million, yes.
But there's a commitment to increase that funding anyway.
Well, our estimate of cost for what we would need to deliver the scheme has increased as a result of, again, the change, is what I think we would say.
So, I think what we've tried to do is estimate that there will be a cost of introducing a scheme along the lines of SLM, which would increase the cost of existing services that are provided, and we would look to obviously provide that from the budget, but I think the Minister's point about this is it's not taking the £278 million that goes directly to farmers out of their pockets; it's about looking at the wider support that's available beyond direct payment.
All right. Okay, thank you. You talked about the, effectively, best part of 18,000 farmers that currently get the scheme. How many farmers will fall outside? How many farmers have we got in Wales and how many won't be able to benefit, or is there anybody below a threshold that wouldn't be able to apply for a future scheme?
Okay. So, we're designing the scheme so that every farmer will be eligible to be part of the scheme. Of course, there are farmers now who don't receive basic payment scheme. I have only come across one farmer who's told me they don't want to be part of the scheme at the current time, but as we are obviously co-designing the scheme at the moment, it's a bit early to rule yourself out, I would say.
I think I'm right—Simon might correct me—but I think I'm right saying that in the last 'Agriculture in Wales' evidence pack we did, which I think was 2019, I think it identified something like 24,000 farm businesses in Wales. But I think, often, farms are very small holdings or have very small amounts of land, or are people who keep a small amount of animals, so they wouldn't be eligible for the current scheme. We are working through, as I said, the eligibility criteria for future schemes.
Okay. And to get those, effectively, 7,000 farm businesses in, what sort of marketing or promotional costs are there in persuading people to get involved?
We try and do everything we can to connect with farmers from a Government perspective. So, we obviously use the agricultural shows as a key vehicle for that. We work closely with the farming unions and other stakeholders who obviously have their members and they inform them of what's happening there. And we use all the usual media channels to try and connect with farmers. The farm liaison service is a really good example of that; they go to the agricultural markets, for example, and will talk to farmers directly about the types of things that are coming from Government. So, quite a comprehensive engagement strategy around the new scheme.
We have the Gwlad newsletter that goes to every farmer. So, there are lots of ways that we engage.
The historical system was really quite unfair, if you go back, and it was all based on what subsidies you claimed many, many years ago, and that's what sort of got converted to your entitlements and things. At least this now gives a clean sheet for anybody to now enter on a level playing field, which was really unfair, the old system. I hated the way it was built years ago; it was just unfair.
Picking up on that: in terms of that you mentioned 24,000, including smallholdings, is there an anticipated take-up around this, either to the higher end or obviously the very worrying thing, which I doubt—although you never know in terms of the usability of any new system—of a very low take-up? I mean, you co-designed the scheme, so what's your anticipation of take-up?
So, we haven't got a target, I think it's fair to say. However, we certainly wouldn't want to see less, and what we want to do is incentivise, and you're quite right: we are still in the stage of co-design. So, last week, it was the NFU Cymru conference, and I did a prerecord, and one of the questions was that some farmers are saying they don't want to be part of it because it's too bureaucratic, et cetera. We're not at that stage where you could rule yourself out, or rule yourself in, because we're still co-designing, so it's a plea here, really, to continue to engage with farmers.
At the moment, a lot—well, the majority—of farmers probably fulfil the outcomes that we're looking for through the sustainable land management principles, but are not being rewarded for it, so we want to incentivise people, because obviously, if they're not part of the scheme, then we don't know what they're doing for the environment, but equally they won't be getting rewarded either. So, 'I would like to see more' is the short answer, but we haven't set a target.
So, what if it is more, and what if it is maximum in terms of the ability of our constricted purse around this and, obviously, the uncertainty, which we've already gone into in depth? I'm asking you to look in the crystal ball.
Maybe two or three things around that: one is, of course, the eligibility. I think we will have to set eligibility criteria for a scheme to make it administratively practical, but also to give farmers an ability to do all the things that we want them to do in a whole-farm scheme. So, I think that will, by necessity, prevent maybe some very small farm businesses from entering. However, we do propose to have a collaborative layer of the scheme where farmers can come together, and so they could—
I suppose my question, really, is affordability of the scheme. If there is mass take-up, and that's what we want, and those are the aims and objectives, how efficient, then, is the ability of the proposed scheme under the current constrictions to be able to fulfil that promise?
As part of the modelling work, we'll be looking at—. It's difficult to know from an individual farmer perspective whether they'll join the scheme or not, but we will look at—it's not the best phrase, perhaps—economic optimisation, so when would be, economically, the most optimal point for a farmer to join the scheme, and then we can model that across the farms that we know are currently receiving support—
Because what you don't want is that it's unaffordable and such a take-up that there's no delivery. That's what I'm getting at.
Indeed, yes. And so, I think, through the modelling work is my summary. We're looking at the point about where you would incentivise a farmer to join the scheme and where it would be the most economically viable thing for a farm to do. That doesn't mean they'll necessarily join it, of course, but what we're trying to do is demonstrate that it would be a very economically profitable thing for a farmer to do, and that's what the modelling is aiming to drive us towards.
To be very, very simple, if you've got £278,000, is that then divided by 18—
—or 20? Sorry, million.
I might only have—[Laughter.]
You might only have—. No, let's not go there.
No, we won't go there.
But, £278 million, is that assuming a percentage take-up, or is that, effectively, the money that's there and divided by the number of people that apply?
Just to be clear, though, that what we're trying to do with the new scheme is to reward farmers for the actions that they undertake, so that will be different for different-sized farms, so the different types of activity they undertake—
It's just not a straight cut, is it?
So, yes, it wouldn't be an average payment to those farmers, but it is the latter in terms of the budget.
And, obviously, we're—. We're getting into policy now, but there are three areas for payments within the sustainable farming scheme. So, again, that will all have to be worked out. So, we've got universal, optional and collaborative, and we'd have to work out the budget in those policy areas.
More on a high level then is that the money is there, it's just how it's allocated, rather than it's assuming that not everybody's going to take it up, so if there was full take-up, you'd need more. That's the—.
More money, yes.
Well, yes, but—
You probably wouldn't get it—
As I say, we are just working on that £278 million, or however many numbers of farmers—
However many apply and are eligible to apply to that.
Just to add to what James said about the modelling, we will get a good sense of that from the modelling, because the modelling will look at the actions that are relevant to different categories of farm. We'll get a sense of what the take-up is in those different categories of farm, and the modelling then will also aggregate up the total costs. So, we'll get an estimated total annual cost to the farmers from the different levels of take-up in different farming types, and we can play around with the modelling according to the different packages of actions that come out of the co-design process.
Does that allow you, then, to—? I assume it allows you then to target certain levels of funding at different parts of the industry, if it needs—where we were talking earlier. Would that be right, or is that—? I know we're venturing into policy now, but it's more—. Because you're saying there that you'd be able to tweak the model. Does that mean that you'd tweak the—? Say, I don't know, if hill farmers needed more support because there was a terribly bad winter, would you then modify the payment?
Not through this type of approach. What we could do, though, is we could make changes to the policy in the scheme. So, if we found, for example, that there were a good proportion of hill farmers that weren't coming in the scheme, we would look at why would that be the case under this model. Do we need to amend some of the actions that we're asking them to undertake to incentivise them to come into the scheme? So, that's the kind of information for us.
Just some final questions on money, so, let's play the other side of the coin, that if take-up wasn't so good, it didn't need £278 million, what happens to surpluses? Are they ring-fenced to your department, or would it enter pillar 2 equivalent, or would it go back?
That would be a decision for the Minister to make. It would stay—
You wouldn't increase the payments, particularly, to use spare moneys up.
Well, that would be a decision to take, wouldn't it?
I think we probably are in a bit of crystal-ball territory there, I'm afraid. But I think it would have to be—
It's the same scenario as the other side of the coin.
Yes, it is.
And I think, whilst there's budget uncertainty beyond the life of the Parliament, we have committed to a stability payment over a transition period as well, which is important for us to factor into our budget calculations. So, whilst we'll be introducing the new scheme—we propose to introduce the new scheme in 2025—at the same time we'll be, if you like, winding down and phasing out the existing payment scheme. So, from a budget perspective, we'll have to manage that from 2025 onwards as well.
Thank you very much for your time this morning.
Diolch yn fawr iawn ichi am ddod.
Thank you very much for coming.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o eitemau 5 a 7 a'r cyfarfodydd ar 16 Tachwedd 2022 a 1 Rhagfyr 2022 yn unol â Rheol Sefydlog 17.42(ix).
that the committee resolves to exclude the public from items 5 and 7 and the meetings on 16 November 2022 and 1 December 2022 in accordance with Standing Order 17.42(ix).
Cynigiwyd y cynnig.
Yn unol â Rheol Sefydlog 17.42, rydyn ni'n penderfynu i wahardd y cyhoedd o eitemau 5 a 7 o'r cyfarfod ac o gyfarfodydd 16 Tachwedd a hefyd 1 Rhagfyr. Felly, eitemau 5 a 7 heddiw ac wedyn ar 16 Tachwedd a 1 Rhagfyr. Ydy pawb yn gytûn? Ie. Dim problem. Diolch yn fawr.
In accordance with Standing Order 17.42, I propose that the committee resolves to exclude the public from items 5 and 7 and the meetings on 16 November and 1 December. So, items 5 and 7 today and then 16 November and 1 December. Are Members content? Yes. No problem. Thank you very much.
Thank you very much. Diolch yn fawr.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 10:31.
The public part of the meeting ended at 10:31.
Ailymgynullodd y pwyllgor yn gyhoeddus am 10:45.
The committee reconvened in public at 10:45.
Croeso nôl i'r sesiwn efo Audit Wales.
Welcome back to the session with Audit Wales.
This is the scrutiny session on the estimate and the interim report.
Croeso cynnes i chi. Mae'n neis eich gweld chi.
A warm welcome to you. It's nice to see you.
Can you please introduce yourselves and your roles? Adrian.
Certainly. I'm Adrian Crompton. I'm the Auditor General for Wales.
I'm Lindsay Foyster and I'm the chair of the Wales Audit Office board.
I'm Kevin Thomas. I'm executive director of corporate services and a board member.
Ann-Marie Harkin. I'm the executive director of audit services.
Diolch yn fawr. It's nice to see you all. Thank you very much for coming this morning. We've got some questions to go into, but I just wondered if you wanted to just give us a quick outline before we crack on.
Sure, I'm very happy to, Peredur. And I think it might be helpful this year especially because I recall saying to the committee previously that explaining the big picture around our estimate this year and next might be especially tricky because of the various changes that have been happening to our baseline. So, things like the travel and subsistence review, the supplementary budget, the repayments of the T&S moneys and so forth. So, we've tried in the estimate to present the numbers in a way that let you see the wood from the trees, but I can quite understand, if you've come to it cold, you might need a little clarification from us today.
The big picture message for us is that we're asking to increase our baseline cash call on the Welsh consolidated fund next year by just under 3 per cent, or 3.8 per cent in resource terms, if you take account of the technical accounting adjustment associated with international financial reporting standards 16. By far, the biggest driver of that 3 per cent increase is pay and the other inflationary pressures that we face. So, there's nothing in the estimate that is looking to extend what we do to bring in new staff to do new things at all; it's a pretty no-frills proposal.
As well as living within what is going to be an extremely challenging year for us, there are two other big challenges that we face that we might touch on in the course of the morning—those are the things that are keeping me awake at night. One is the introduction of the new international auditing standard—ISA 315. It sounds a little dry, but fundamentally, it alters the whole premise of how we go about our audit of accounts work and that has a direct impact on our resourcing. And the other is a pretty unique pressure for us in terms of the degree of the direct competition that we face for talent in the organisation with the big private sector auditing and accounting firms. We're starting to see the effect of that play out in reality.
So, in summary, as I say, it's a no-frills estimate. It is going to be challenging for us to live within and it looks, essentially, to do what we feel is the absolute minimum to protect the basic functioning of the organisation whilst recognising the incredibly challenging financial environment in which we're all operating.
Thank you, Adrian, and thanks for setting the scene, if you like. In your supporting information, you compare with the original estimate in exhibit 1, your first supplementary estimate in the appendix and refer to your second supplementary estimate in the narrative. Why haven't you just compared to one?
This illustrates exactly the point I was just trying to make. It's a slightly confusing picture. The core comparisons made in the estimate are between our estimate for next year and the position after the first supplementary from last year. So, that was the one that addressed the travel and subsistence review and the consequential payback of funding. So, there should not be anywhere in the estimate any direct comparison either with the original estimate that we put forward last year or with the second supplementary. Had we done that, ironically, we could be sitting here presenting ourselves in a rosier picture, because on paper, it would look like we were asking for a lower increase. But that wouldn't have been a legitimate or meaningful comparison to make, so we feel that comparison with the position after the first supplementary is—
So, the baseline figure that we're looking at and the percentage increase, the 3 and 3.8, is after your travel and subsistence scheme, after that supplementary budget, and that went through.
And as you'll have seen, we've put the payback of the moneys in respect of the supplementary below the line, because those will exist this year and next, but don't form part of the baseline picture going forward.
Okay, thank you. You say that the cash increase is just under 3 per cent. Can you set out in cash terms your baseline 2022-23 WCF revenue and capital costs, and your baseline request for 2023-24, and what the cash change that makes up that 3 per cent is?
Sure. Kevin, can you take that?
Maybe it's over to Kevin.
Sure. So, our baseline for 2022-23 for both cash and resource is the £8.608 million that's set out in exhibit 3 of the second part of the estimate, along with the changes that make up the new baseline for 2023-24 of the £8.936 million. So, that represents an overall increase in resource of 3.8 per cent. The difference, then, in terms of the cash is that that includes a non-cash adjustment of £80,000, which relates to the IFRS 16-related depreciation amount, and when you exclude that, that brings the cash increase down to just under 3 per cent, as Adrian had outlined.
Okay, thank you. Because we're going off the baseline after the T&S scheme, that's assuming that those pay increases that were part of that settlement are baked into that baseline figure, aren't they?
The pay increases that are a part of that settlement would be effective from 2024-25 onwards.
So, not from that? Right, okay. Thank you. Fine, okay. Last year, you outlined your intention to switch a proportion of the funding related to performance work, from fees to fund it through the Welsh consolidated fund. The estimate notes that you're clarifying points with the Welsh Government but have not included that switch. Can you explain why and whether the audited bodies are supportive of the proposals, and how this impacts your work?
Of course. So, as the committee knows, we've been talking about this for over a year now, but Chair, you wrote to me at the end of September indicating that you would only want to consider it today if we'd had confirmation of support from the Welsh Government, and in particular, confirmation of their willingness to make the compensating adjustments to funding for local government and health bodies so that we held the overall impact on the public purse entirely neutral. To that end, I wrote to the Permanent Secretary at the start of October, asking for that confirmation before our appearance today. I received a reply at the end of the month, but unfortunately, that requested further conversations with us and signalled that officials might feel they needed to refer the matter to Ministers before coming to a final decision. So, given the deadlines around today's meeting, regrettably, we felt that we had to take it off the table so as not to waste your time.
It is disappointing, because, in terms of what the switch is intended to achieve—namely, an ability for us, much more readily, to look at issues on a cross-cutting basis, on a system-wide basis, and to get into some of those tricky areas where you have the interface between different public bodies—there's been pretty unanimous support for that from colleagues within the Welsh Government and also many other stakeholders in the course of the development of our five-year strategy. So, it does feel a shame not to be able to push ahead with it, because the practical reality is that we just won't be able to do as much of that sort of work, which I would have liked, which stakeholders would have liked, because we've got to get around this mechanical change—
Is that likely to come forward within this budget round, and are we going to see a supplementary based on that, or is it going to take a while to get this resolved and to get the answers that you need to be able to move it forward, and it might not happen until the next estimate that we get next year?
That depends on the Welsh Government, rather than me. It doesn't strike me as a particularly complex matter. We're talking about £1 million or so. It's a lot of money in our terms; for the funding for local government and health, it is lost in the rounding, and amounts to a few tens of thousands for individual bodies in reduction of an audit fee. So, of course, I want to pursue it further, and we'll try to address any questions that the Welsh Government has, but what I don't want it to turn into is another version of the very extended debate that we had around the reform of the public audit legislation, which ate up—[Inaudible.]—to no avail. So, I'm afraid I'm not sure of the answer to your question, whether it's something that we could resolve next week through a conversation, or whether it's going to be much longer—
If it happens fairly quickly, what are your proposals with regard to this committee, then, and estimates? Would it be—
I'm happy to take a steer from the committee, because to resubmit the estimate would be complex and it would eat into the committee's time. We can proceed on the basis of this estimate for next year, if that's the most appropriate way forward. If you're supportive of the change and what it can deliver, however, and would be willing to consider an alternative set of proposals, then we would work as rapidly as we can to—
I'm sure we'll have a discussion around that and let you know what we think. Any extra information that you can give us that helps us to be informed of what's going on, then that would be useful.
Sure. I mean, the—. Sorry, Peter.
So, in the scenario that something happened there and there was a switch, that would lessen the percentage increase that you'd want in the estimate—
No, it would increase it.
No, it would—. So—
Sorry, I'm being stupid; I'm sorry.
Adrian will correct me if I'm wrong. It would increase what you're asking for from this committee, but decrease the burden coming from the fees.
Demand going from fees. Yes, of course—sorry.
I was being stupid—sorry.
And what's the quantum there? About £1 million, did you say?
Just over £1 million, yes.
Okay. Thank you very much—
Can you just clarify again, in terms of the just over £1 million, the difference that this is going to make in terms of the documents that we've got in front of us? I'm sorry, I didn't catch the last portion of what you said. I'm just struggling to understand, I think other Members are as well.
The estimate you've got before you assumes not making the switch. So, we were discussing if the matter were resolved between us and the Welsh Government in the next few weeks, whether there would be scope to resubmit the estimate. The practical reality, as the Chair just said, would be that the increase in our call on the WCF next year would increase, but we'd make a compensatory reduction in the fees that we took from audited bodies. So, our position would remain—
So, local authorities and health boards wouldn't be charged as much, because it would be coming out of the consolidated fund.
Okay. I have another question, but I'll pick it up under mine.
Okay, no problem. I think you touched on this earlier when Kevin was talking about things below the line with regard to the payback of some of the unallocated funds that we made available. How are dilapidation costs accounted for?
Dilapidation costs are accounted for in line with standard accounting practice. That's what we've included within the estimate paper. That's our—.
Okay, that's fine, because it outlines that items in your baseline costs and adjustments were non-cash items, so it's just making sure that we've got that correct in there. Right, okay. Lovely. Thank you very much.
So, I'd like to look at the revenue costs and increase requested by you. The most significant increase in the WCF funding in the estimate is the £272,000 for staff costs. Can you outline how much of this funding relates to an increased costs of audit, the pay award and whether any is related to additional work—I think you touched on that earlier—that you intend to do in 2023-24?
I'll take that. The increase makes provision for a pay award for 2023-24 and it covers the ongoing cost of the pay award for 2022-23. It also takes into account the reduction in employers' national insurance contribution that's been announced by the UK Government. But, as you said, as Adrian said earlier, there's no provision made in that increase for additional audit work or for more staff. Separately, however, there is £800,000 that's been allowed for additional staff costs associated with the implementation of ISA 315, which, as Adrian said, is one of our biggest challenges to be faced, but this is to be fully funded by fees.
Okay, thank you very much. What level is the pay award due to be set at and what support is available for staff on lower grades and why should the committee support the increase given that the Minister for Finance and Local Government has commented that the pay bill will need to be managed within existing resources?
Okay, I'll take the first part of that and then bring Adrian in at the end. We've allowed a 4 per cent increase, but for budget purposes. However, as I'm sure you appreciate, the exact level will be decided through negotiation, but that's what's been allowed in the estimate. In terms of the support that we've made available for lower grades, we've taken that issue very seriously and, over recent years, we've structured pay awards to target a greater benefit to staff at the lower end of the pay scales. We've retained that approach for 2022-23. However, initially, the unions asked that we gave a flat rate settlement and that we aim to deliver a quick settlement, understandably in the sense that that would mean that staff would have money in their pockets as quickly as possible. However, whilst the trade unions then did change their position later, by that point we decided it would be best to finalise a straightforward across-the-board settlement so that we could reach that conclusion as quickly as possible. I'd add that we have also recognised that the removal of the travel allowances, as we've brought to you before, would impact our trainees and apprentices to a greater extent than our more highly paid staff. So, we ensured that these, for our lowest paid staff, were fully protected by introducing a new benchmarked salary range for trainees and apprentices. So, it's an issue that we've given a lot of thought to and approached to think about how best to support and protect the salary level, recognising the real challenges that people are facing at this time.
To pick up the point about the Minister's letter, Cadeirydd, we're very conscious of that. As I said at the start, we are attempting to cover as much of the inflationary pressures we face from within our existing resource. We've set a savings target for ourselves of £0.5 million next year, which comes on top of the savings that always arise with churn of posts in any organisation, and on top of the already significant savings we're making from the estate reform and the travel and subsistence reform. So, that is going to be difficult for us to deliver, but we recognise the wider situation.
We feel it is unrealistic not to give some sort of pay award to our staff next year. You'll have seen the letter from our trade unions, who are understandably disappointed with the settlement we were able to give this year. I don't think they'll be delighted with the figure we're able to settle on next year. But, coupled with the pressure that I mentioned from competition with the firms, we feel we've got to go some way to give staff greater remuneration next year, but we're doing our best to eat up as much of that additional cost from within our existing resource. Lindsay mentioned the figure of 4 per cent, which is our working assumption for pay next year. The increase in the WCF is less than that, which is illustrative of what I'm saying.
Thank you for that. You referenced the letter. Obviously, this committee is not taking a position on that. But we're just interested in understanding if you could outline how you're incorporating the concerns of the unions into that, and maybe explore that a little bit further.
Of course. Well, Kev leads for us in our conversations with the unions, so it might be best if he answers.
We have very regular meetings with our trade unions partners on pay at the moment. We're having fortnightly meetings to discuss that. Of course, we recognise the concerns that they've set out in the letter, we recognise the huge pressures on staff with cost-of-living issues, but we have had to be open with the trade unions in saying that we don't think we'll be able to meet or even come close to the uplift that they're looking for of 10 per cent across the board on salaries. We do benchmark with other organisations as part of our work, so that very much influences our thinking when we make decisions around pay.
One of the other things that we're exploring in partnership with the trade unions is whether there are other mechanisms for pay that might be helpful, going forward—so, for example, whether using the annual survey of hours and earnings index might be helpful to us in looking at pay negotiations for the future, but that's still a work in progress.
Okay. Thank you very much for that.
If we move on slightly, then, in the estimate, you suggest that you're increasingly supporting Senedd committees, as well as the Public Accounts and Public Administration Committee, with the costs of work increasing in line with fee rates for 2023-24. What work are you undertaking for Senedd Committees, and are they aware of the cost implications?
The costs associated with supporting the PAPAC, other Senedd committees, individual Members and other aspects of Senedd business are all built into our WCF funding. They obviously fluctuate and are demand-led, to a large degree. Most of our support is channelled into the PAPAC. Mike and Rhianon will know that we attend all of the formal meetings, but an awful lot of work goes on behind the scenes in supporting Chairs, Members and staff around the committee's work. It draws particularly heavily on senior staff time and, so far as I'm aware, is valued.
As part of its own decision-making process, the PAPAC, when considering reports from us, will routinely consider whether reports lend themselves to scrutiny by other committees, or sit neatly within other committees' existing plans. And so, a couple of notable recent examples where our work has been taken up by other committees would be the Equality and Social Justice Committee inquiry into the Warm Homes programme, and also, later this month, we're starting to work with the Climate Change, Environment, and Infrastructure Committee, building on our reports on net zero. So, a couple of recent examples. Coincidentally, Peter will know, also, we support individual Members from time to time—so, supporting Peter, to a degree, with his work with the private Member's Bill. And we also look to try to engage with as many committee consultations as we can, whenever we feel we've got something to add.
We don't discuss the cost implications of things like that with individual Members or committees, as I say, because it is baked into our WCF funding, and I, for one, feel as though it's a really important part of what we do. Your national audit office ought to be supporting you as a Parliament in the round, not just through the PAPAC.
And how do you make sure that there is value for money when it comes to spending that public pound effectively?
In support of the committees, or—?
Yes, in support of the committees.
Well, it's through this process, bluntly. It's your role to scrutinise and decide how best to resource our work. As I said, the feedback that we have received from Senedd Members—we did a large exercise just before the last election—was very positive. Anecdotally, the feedback that we get from individual Members and committees is extremely positive as well. Those two examples that I've mentioned have been very widely welcomed.
More generally, how do we judge the value for money of our performance work especially? Well, the first place we'd go to is the feedback from those who are on the receiving end, those who receive our reports. We did a big exercise with our stakeholders just in spring of this year to assess their views on our work. I'll just quote a few figures: 95 per cent felt that the auditor general, or Audit Wales, was an independent and authoritative communicator on governance and stewardship; 96 per cent felt they'd gained useful insight that they otherwise wouldn't have done; 91 per cent felt that our work helped drive improvement for public services. So, I think those are pretty stellar feedback scores. I'm not complacent about it, though, at all. So, we're in the process internally at the moment of adopting some international standards of best practice in relation to our performance work, set by the international body that represents audit agencies around the world. That's being rolled out to staff this month. The sort of thing it will do is drive us to think more about the intended impact of our work at an earlier stage. It will push us to work more effectively and closely with audited bodies along the way, and it will have a particular focus on the quality of reporting and the recommendations we make, and following those up to make sure they gain the impact we hope for. So, all those things we take into account in trying to ensure that we deliver value for money.
Okay. Thank you very much. Mike.
Diolch, Cadeirydd. Your 2022-23 estimate includes additional funding for increased national insurance costs. Will you be adjusting your 2022-23 estimate and the estimate you're presenting today to reflect the reduction in those costs from November?
Thanks, Mike. Yes, we don't plan to submit a further supplementary estimate in 2022-23. That would be a third supplementary estimate to return the savings from the reduction in NI rates from this month. It's around about £50,000, but, for 2023-24, the timing of the announcement meant that we were actually able to reflect the latest NI rates in this estimate. That's also reflected in reduced fee rates in the draft fee scheme as compared to the ones that we consulted on. So, we consulted on a 5.5 per cent increase, but that's now been reduced to 4.8 per cent.
Thank you. We had quite a long discussion last time on cyber security; I'm afraid, Chair, we might have a long discussion today. [Laughter.]
We don't have an awful lot of time.
You estimate an extra £60,000 to support the measures in 2023-24. In general terms, what are those measures going to be doing to make you cyber secure? And have you considered phone-back as a means of dealing with people who are contacting you from outside, which means you will always know who is accessing and you can have allowable phone numbers that you can use from IT systems?
Well, Mike, if I take the first part of your question, in terms of what we're looking to strengthen in 2023-24, until now we've focused very much in cyber security in terms of what we can do to stop an attack, make it as difficult as possible for people to get into our systems. That's been a really successful strategy until now, but, of course, with cyber we don't talk about whether, we talk about when, and, of course, defences can never be infallible. So what we're looking to do is to put in arrangements so that we're able to respond quickly in the event of an actual attack. So, that additional £60,000 investment is to put in place a cyber incident response contract so that in the event that we do have a suspected or actual attack we're able to call on specialist support immediately to help us firstly find out how the attack happened, look to plug that gap as soon as possible, and also then to advise us on how to repair any damage to systems and information that have occurred as part of that. Of course, we won't necessarily get an attack—a successful attack—each year, so the sorts of contracts we're looking at are ones where you can actually repurpose the fee if there isn't an attack on cyber security investments, strengthening to systems, et cetera, so that, in any one year, the fee is always put to good use.
In terms of that second point you raise, Mike, I'm not actually familiar with that call-back system, but I can certainly speak to our IT colleagues to find out a bit more.
Please do. It was something that people used some time ago; I don't know whether it's still in existence, because you can be accessed by anywhere in the world, but you also want your own people to be able to use it, to only allow access from designated contact places. But if you take that back to your IT people.
The other one is: are you concerned about a denial-of-service attack?
We're always concerned about a DoS attack. That's something that—again, the measures that we've got in place I think give us good protection. I think I may have mentioned to the committee previously that we secured cyber essentials plus accreditation during the course of the year. Of course, that accreditation is helpful but quite narrow in scope. There are a number of other things that we do to secure ourselves against that and other similar types of attack.
Okay. Your estimate also requests a £50,000 increase relating to financial training programmes. Is this an increase in cost of the existing training or additional training programmes, or different training altogether?
Do you want to handle that?
No, Mike, it's the professional training scheme that we have. So, as you know, we've got about 50 trainees in the organisation that are training for a professional accountancy qualification, and we have to go out to tender next year for a new supplier for that training. We negotiated quite significant discounts last time. We can't be sure that we'll get the same level of discounts this time, so we've erred on the side of caution, and hope—. We will be trying to secure discounts, obviously, but I think we felt that we should probably be expecting an increase in the costs.
But, if it isn't £50,000, you return that money somehow, either to—.
Absolutely. Absolutely, yes.
Okay, fine. And finally from me, you've got a £43,000 increase for 'other supplies and services', which is not, as far as I can see, explained in the estimate. Can you, in general terms, explain what that covers?
Sure. I'll take that one, Mike. It reflects inflationary increases across a number of non-pay budgets—things like legal and professional fees, insurances, and also, of course, the 28 per cent increase in our own external audit fees that we reported to the committee a month or so ago. These costs are ongoing, but we continue to set a really challenging savings target of about £500,000 across our non-pay budgets. So, we have to keep all of our costs under review on an ongoing basis to make sure that we make savings wherever we possibly can.
Okay, thank you.
Thank you, Mike. Rhianon.
Thank you very much, Chair. That was actually quite interesting. Just a couple of quick questions before I go on to my questions in my brief. So, I'm really just seeking further clarity—and I've kept this question, Chair—in regard to the increase, because you've said it's 3 per cent, but then it's also 3.8 per cent. So, could you just give us a little bit of information as to what's what, and why there's been an exclusion from your baseline of the reduction to travel allowances and the national fraud initiative? I'm not quite clear.
So, if you look at exhibit 1 in the estimate supporting document, that shows you the change between our baseline position in 2022-23 and our baseline position next year. The difference between the 3 per cent uplift and the 3.8 per cent is the £80,000 accounting adjustment for international financial reporting standard 16.
Okay. In terms of your baseline, you've excluded two items. I don't understand why.
That's so that we can show you a meaningful change in baseline to baseline. So, the committee approved a significant supplementary for us last year—this year—for the travel and subsistence review, and we're paying back a portion of that in the coming year. So, we put those elements below the line because they're one-off things that are occurring this year and next year, so that you can get that more meaningful comparison year on year.
Okay, and, as you've talked about comparison, we spend a lot of our time talking about these issues around transparency, don't we, and in terms of simplicity and accessibility. If we go through to paragraph 2.2, pack page 130 to 131, there's a lot of issues in terms of being able to contrast or to compare the different documents in terms of supplementary estimates and the different information that's come forward to us. Was there a different way you could have presented this information to us? I'm thinking in particular around total net cash requirements for 2023, compared to your original estimate 2022-23 and the first supplementary budget for 2022-23, the dilapidations of £0.5 million in part 1 of your estimate actually being called movements in working capital, as an example—I don't think that's always the case, is it? Isn't it that working capital is normally accruals at the end of the year? I'm just questioning how you've set this information out for us as a committee to do our work in terms of scrutinising you.
Well, the accounting terminology that we use is absolutely standard. As Kev said earlier, the way in which we handle and present things like dilapidations costs is absolutely standard; it would be common to any organisation.
That's not my question. So, my question, and I'll say it again, is: was there a better way that you could have set this out for this committee today, in terms of the information that we've been provided with, in order to be able to do that important function?
I honestly don't think so, for the reasons that I tried to set out at the beginning. It is complicated because of the—
Yes, I accept that.
—changes that are occurring to our baseline. So, what we've tried to explain in the estimate, and today, is the changes that are the most meaningful for you to consider.
Okay. And just in regards to the example that I've given you, in terms of the dilapidations being set out as movement in working capital, is that the most accessible way of doing that?
Movements in working capital include dilapidations; it's not exclusively dilapidations. I think we've probably said it at previous committees: that's a commercially sensitive item that's currently under negotiation—
So that would be your reasoning for doing that.
So, we haven't provided a further breakdown for that reason. But, to be clear, it is not exclusively that, but that forms a part of it.
So, you feel that it's optimum. Yes. Okay. I'll move on to my questions. So—
Yes, go on.
Just to be clear on that, in terms of resource accounting, you would want to, and be required to, show how resource tallies or is reconciled to your net cash requirement, and movement in working capital enables you to do that. Because, obviously, something like dilapidations doesn't necessarily cost you money, as you make it a provision every year. And increasing your debtors or creditors doesn't actually cost you money. But what it does is it affects that balance between the amount of resource we need and the cash we need, and that's why it's been set out the way it has. But we can certainly look at a new way of doing it next time.
I, for one, found it a little bit—
We can certainly look at that.
—non-transparent. So, your estimate—
Sorry, Rhianon, before you move on on that part, you've previously included movements in working capital adjustments that relate to accruals and other non-IFRS 16 and non-cash items in your estimates. Where are these items in your 2023-24 estimate, and can you confirm that these will no longer appear in future estimates? Does that make sense?
Just bear with me—I'll just find the exhibit, because I think it's in part 1 of the estimates. So, it's exhibit 2, part 1 of the estimate. So, yes, we've allowed for that £550,000, that movement in working capital that you've referred to. Again, I won't say any more about what element is the dilapidations provision—
No, no, that's perfectly understandable now you've set it out in that way.
It's very difficult to estimate the movement in working capital in any one year, but there's likely to be, as Ann-Marie said, a requirement for movements going forward, in line with what you'd see at other bodies and in line with accounting conventions.
Okay. Thank you. Rhianon.
Thanks. Your estimate proposes capital investment of £310,000; £200,000 relates to the change programme that we've gone into depth around, which includes the future workplaces project. How much of that investment relates to this project? And given that you say that you're going to conclude the relocation of your Cardiff office before 2023, can you confirm to the committee that all the capital requirements for the new office will be met—and it's obviously a substantial amount of money—from the funds previously agreed through this second supplementary estimate, bearing in mind every other organisation has to be able to live within its means? And I completely understand why you've come to the committee to ask around this, but if you could just provide assurance.
Yes, certainly, I can provide assurance. I can confirm that all of the funding that we've had through that supplementary estimate will be used to complete the Cardiff office move by March of next year. Moving into 2023-24, of that investment in the change programme of £200,000, about £30,000 relates to the ongoing future workplaces programme. Of course, we've got offices in other parts of Wales—in the north in Abergele, in the west in Penllergaer—and that £30,000 will be contributing to improvements at those two offices.
Okay. Thank you. And finally, the estimate indicates that you anticipate doubling the capital investment for the change programme to £400,000 in 2024-25, and the next two subsequent years. Why is that cost, then, increasing?
Again, that's just an indicative increase at the moment. It reflects our digital strategic ambitions, which we've set out in our five-year strategy, both in terms of how we run our organisation and in terms of how we deliver our audit work. It's too early for us, really, to have firm plans at this stage. And, of course, if we don't require that, then we'd adjust the estimate accordingly in the year in which we submit it.
Okay. Thank you. And I've got one more: in your estimate, you note dilapidations costs of over £0.5 million include working capital movement, as we've discussed, of the value. Can you confirm whether that movement relates to the dilapidations, and do you think the estimates would be more transparent, as I've already stated, if you'd made that clear in the narrative?
I think as we've said, really, probably we've been as clear as we can in view of the commercial sensitivity of that amount, so I think it's probably as clear and accurate as we can be.
Are we right in saying that that's the maximum it would be—that £550,000 would be the maximum for dilapidations?
That's the movement in working capital. Within that is dilapidations.
Within. Ah, right.
So, if—. Sorry. So, then, if we scale that back, if it were £100,000—and I'm sure it wouldn't be—then what would happen to that movement of working capital? Where would that then go?
Well, it's purely an accounting estimate.
Okay. Right. And in September you presented information that suggested your lease cost would be £261,000, but your estimate shows it is £280,000. Is there any explanation around that difference?
Sure. Yes. The figure in the estimate covers all three of our buildings, the north, west and south Wales buildings. I think it's also worth saying that lease costs are complicated by things like rent-free periods, which are very common in leases upfront; it's part of the deal that you strike with the landlord. And of course, we would have to account for that properly over the course of the lease. But the primary reason for the difference is the fact that it's three offices we're talking about.
Thank you. And in your estimate, again you note the implications, potentially, of the proposed extension of the Well-being of Future Generations (Wales) Act 2015 to agencies. What resource implications do you feel that this could have for Audit Wales, and is there any accountancy for that in your medium-term plan?