Cynulliad Cenedlaethol Cymru

Welcome this morning. Welcome to our witnesses online and witnesses in the room. Would you be able to introduce yourselves and where you're coming from, or who you're representing? If we start in the room and then we'll go over to Dave and Alwyn. So, if we start with Darren.

Bore da. Good morning. I'm Darren Hughes. I'm the director of the Welsh NHS Confederation.

Diolch, Darren. Sally.

Bore da. Good morning. I'm Sally May. I'm director of finance for Cwm Taf Morgannwg University Health Board, and I'm the chair of the all-Wales directors of finance group.

Bore da. Good morning. I'm Dave Street. I'm director of social services and housing at Caerphilly County Borough Council. I'll be here in my capacity as a member of the Association of Directors of Social Services Cymru.

I'm Alwyn Jones. I'm chief officer of social care in Wrexham and currently the president of ADSS.

Welcome to everybody. We'll crack on. As I said, we've got quite a bit of ground to cover. Obviously, the NHS budget, and the social services budget, is a huge chunk of the Government budget and is under the spotlight at the moment as well. I'd like to start. The Welsh Government says it's reprioritised its funding based on three priorities. What are your views on these? Is it clear from the budget documentation how these have been reflected in the allocations and how will the funding address these priorities? We could maybe start in the room. Sally or Darren, you choose.

I'm happy to open. Thanks very much for the opportunity to talk to you today. I think in the way that the Welsh Government budget is described around protecting front-line services and protecting future ambitions, you can't argue with any of that. We know that front-line services in health and social care have been under extreme pressure for a considerable period of time thorough COVID and pre COVID. The area that we're most interested in is protecting the future ambitions, particularly around training and retention of the workforce—so, looking after the future—and continuing to provide help for those most impacted. We've got the health challenges and social care challenges, but also the cost-of-living challenges, which are having a knock-on effect on people's health, so another very important area. And supporting the economy, because we know if the economy is doing well, people's health is improved, and particularly mental health. So, all very sensible things, but, like most budgetary issues, the devil's in the detail. 

Does anybody want to add to that—Sally, maybe? 

The ambitions are really helpful and clear. I think it's about, as Darren said, how these then get operationalised. At the moment, I think what we're facing is pressures in the NHS that are higher than we've ever seen before. I've been in the NHS for 32 years. This now feels very, very difficult in terms of both the demands facing us, but also inflationary pressures and, clearly, those workforce challenges that have grown up over a number of years, compounded by some of the issues that have occurred for people during COVID. People are burnt out and are struggling in some ways with the workload that's now facing them. There's been no respite. And I think that means that we really do need to focus, as Darren says, on that future—how do we build resilience in our current workforce, retain people, but then also make sure that we're training the workforce for the future as well.

Alwyn.

I've not got a lot to add to that. I think the reality is that the current budget does support us in terms of protecting front-line public services. I think maybe where there's a challenge in the budget is in terms of our ambitions for the future. Clearly, we have lots of ambitions in terms of strengthening the workforce available to support social care, and I think there is probably some way to go in terms of being able to support that through this current budget. But certainly in terms of protecting front-line public services, I think the budget achieves that. In terms of our ability to continue to fund those, and clearly in terms of being ambitious around being able to recruit, train, and strengthen that workforce, I think we've probably got still some way to go. 

So, do you think you're having to curtail your ambition because of what's happened?

I think that would be fair. I think in terms of where we want to go in terms of parity of esteem for workers in social care, and strengthening that workforce, I think that's going to be difficult within the current budget—probably not possible. 

Anything to add, Dave?

Nothing specifically. I think Alwyn's covered that off. Obviously, in terms of the issue around providing help to those most affected, there's a lot of publicity around people waiting for domiciliary care, and the impact on the NHS. I don't think we would want to lose that. I know we are in unprecedented times in the context of people waiting for mental health support, and indeed the impact that COVID has had on children's services. 

Thank you. Coming back to you, Darren, last week the Minister for Health and Social Services said to the Health and Social Care Committee—and Russ was there—that the NHS has to focus far more clearly on a smaller number of points, and she hoped you would agree streamlining is the right direction to go in. Do you agree with that approach? Is it sensible and is it clear what needs to be prioritised?

I think when everything is a priority, nothing is a priority. We're here today to talk about some of the limitations on resource, and the biggest limiting factor for the NHS is workforce, in terms of being tired, in terms of absolute numbers, in terms of training. 

The six priorities the Minister's listed—I'll just make a few brief points about each, if that's okay. In terms of delayed transfers of care, that's a huge issue for the NHS, with around 12 to 15 per cent of NHS beds with people in them. It's not the best place for those people to be, for their well-being, but also it's really difficult then for the NHS to function effectively with the huge increase in demand of people coming through the front door. The 111 calls and 999 calls, and the number of people visiting GPs, is something we need to focus on, and the limiting factor there is workforce. Access to general practice, yes, is something we all agree with, and people getting the care as close to home and as soon as possible. There've been workforce challenges around dentistry. Again, big challenges there, and people's oral health declining. Declaring an interest as I'm married to an optician, but opticians are doing a lot more than they've done previously in terms of emergency eye care—the Welsh eye care initiative. If you look at the complete list there—supporting urgent and emergency care, planned care, recovery, mental health—it's still a very extensive list, and the things that sit under those headings are still very broad. I think it's fair to say we're facing challenges on all of those fronts, and if there was one factor common to all of them, it's that sustainability of the workforce. 

So, do you think that the relative priorities—? Are they getting it right? Or is it—?

I think the priorities are right, and they are the things we should focus on; it's our ability to deal with them is the challenging bit. 

Russ.

Thank you, Chair, and thanks, Darren, for your answer. I suppose if you're clear on what the Welsh Government say their priorities are, as you've outlined, are you clear what is not a priority, or what is a lesser priority for the Welsh Government?

From an NHS point of view, I think everything we do sits under those priorities, and the focus is our ability. In planned care, we've seen the size of the waiting list going up not just in Wales, but in all parts of the UK—waiting lists growing, and people's condition deteriorates the longer they're on the waiting list and, often, their mental health does. So, these are priorities. But our ability to provide urgent and emergency care has to be protected. We've seen news stories about the challenges there. 

I suppose, almost, if everything that is a priority for you is in the Government's priorities, what's the point of having priorities? 

We do need to focus, and there are things you have to with a finite amount of resource. The NHS, through the difficult times, has focused on the areas where people are in the most clinical need. The urgency when you—. You really feel for the people who've been on waiting lists for considerable periods of time, but it's the life threatening and more serious—

I suppose what I was trying to get out is do you have a sense, if the Government has got priorities, that something else has got to give. Do you feel that you've got from the Government an understanding of what has to give in order to make the other areas priorities? 

I think it is that focus—focusing the finite resources that you've got on things that—. I'm sure if you asked patients, you'd get a similar answer. We're hearing stories from family members about difficulty in accessing dentistry. It's very urgent for those people, and there is that focus on clinical need. But also—and colleagues onscreen have touched on that longer—we need to invest in the future workforce to enable us to deliver in the future whilst delivering today. And I think probably the biggest frustration in terms of a financial point of view is clarity around what we can afford in terms of training the workforce for the future, because we know what the problems are now and how to address them from a workforce point of view, but you can't do that overnight. 

Mike. 

I just want to raise primary care. Now, I'm fairly confident, when we have the budget coming out and it goes to health boards, the percentage increase into the health boards will not be equalled by the percentage increase for primary care. It never has done since primary care and secondary care were merged, which I think was a complete and utter disaster for primary care. But if we don't get primary care right and people don't see the GP at the right time, then they end up at A&E. What are you intending to do—and I think this is probably aimed at somebody working in health—to try and get people seen on time by GPs in order that they don't use A&E as the alternative and, secondly, that they don't end up getting worse so they have to use A&E? 

If it's okay, I'll say a few things about the general picture, and go to Sally for some specifics from Cwm Taf Morgannwg. I think it's slightly over-simplistic to say it's just about GPs. We've heard about—. I'm talking about community care, as I would describe primary care, because I think we fall into the trap of saying primary care equals GPs, where pharmacy is playing a huge and increasing role, and the amount spent in pharmacy for the minor ailments service so that people don't need to see GPs. In many parts of Wales, recruitment of GPs is a huge issue. My generation of friends and people I know who are GPs, their ambition was to buy into a GP practice. They worked hard, saved hard, bought into a GP practice as a great career ambition. Now, in many parts of Wales—Cwm Taf Morgannwg being a particular example—we're unable to recruit GPs into those areas where GPs are now directly employed. The pressure on community services is huge. I can't give you a figure, but I can come back to the committee after about the proportion of health board budgets spent in community and spent on secondary care. But, I think the challenge on this one, like many others, is that workforce and sustainability. There are vacancies in my local GP practice, and similarly for colleagues around the table in your areas as well. 

From the Cwm Taf view, or from your view?

That and a broader view. So, clearly, there are challenges in terms of recruitment of GPs, but we need to think about the broader primary care team and workforce diversification. So, many practices in the cluster development space are using pharmacists in a different way. We're starting to see paramedics used in a different way, and a team approach around the patient, which I think is more responsive. Over time, we also need to think about how people are supported by digital and the different interaction. We're seeing the NHS app developing. I think that will be really helpful for people to be able to hold and see their own records, and it empowers them.

But, from the Cwm Taf Morgannwg perspective, primary care is a focus for us. We've just reorganised ourselves into care groups. Primary and community care is one of our care groups. We deliberately created that to give it that focus. And we are thinking about our resource framework about how we show that we're moving resource from acute out into primary and community care. The challenges with that are that, obviously, the demands at the front door almost drag resource into the wrong place, and we need to have a planned approach to trying to move that. That's what we're trying to create as we move forward, but the challenges at the moment are that we're opening additional capacity just to get through the winter because of the challenges of delayed transfers of care, high demand and high acuity.

So, is it clear from the budget, and is it transparent from the budget that you've seen from the Minister and, effectively, from the Government, that there is a floor in the budget that says you can see a direct line to that, or is there some opaqueness in where that money is to be spent?

In terms of primary care, absolutely, because each of the contracts has got a separate—. We understand how that comes in and the resources allocated. Some of the budgets, like dental, are ring-fenced and, so, that's clear what the funding is and how it will be spent, and we have to set that out at the start of the year. Community care is probably less clear as a direct funding stream, but we are clear in terms of how we set out our expenditure, our budgets, so that we can try and track that movement over time.

And then, maybe bringing in colleagues in social care, what about that link between the two, because one doesn't work without the other, and then it becomes that link between who funds what, especially getting people out of hospital into a social care setting? Alwyn or Dave, have you got an idea of that transparency from that point of view? Would you understand where the money has been allocated and how you're dovetailing that to make it work? Which one of you would be best placed to talk about that?

I think there is a knowledge of where the money has been allocated and where it's been spent. I think that some of the other challenges that colleagues from the NHS Confed have referenced there are almost mirrored in social care as well. On your comment around how the money is spent when people are discharged, I don't think that's a major factor at the moment. I think the real hindrance in terms of our ability to get people out of hospital is our sheer inability to recruit staff, both as local authorities and, indeed, in the independent sector.

Okay. Great. I know Rhianon wanted to come in, but I'm conscious of time, so I'm going to move on, and we'll do that in a bit.

That's fine. I'll dovetail.

What's your assessment of the Welsh Government's draft budget for 2023-24, which allocates funding increases for health and social care as well as local government? To what extent, in your fields, will that protect front-line services?

We understand the difficult situation that Welsh and UK Governments are in in terms of budget allocation. I think the challenge for us is inflationary costs in things like energy. The energy bill for the NHS has absolutely skyrocketed, the same as everywhere else—as a proportion of the budget, that's increased. But also it's the demand increase. So, efficiencies are being made—the Welsh Government and colleagues across the NHS are working hard on efficiency savings—but the graph of demand is going up much more quickly. Just related to Dave's point, really, I think that health and social care are intrinsically linked, and they're totally and utterly interdependent on one another—the workforce challenges. There's the role that social care play in keeping people well, which is often unseen, and I have regular conversations with colleagues in social care about the unseen, unmet needs in communities across Wales. And we're seeing 12,000 to 14,000 people in hospital who should be discharged, but the need in the community is probably two to three times that. So, we've seen the headlines and the pictures of ambulances, but it's the unmet need in the community is where the real challenges are. Demand is going like that. The financial challenge is still huge, and we're going to be working extremely hard to maintain services at their current level. And importantly, when times are tough, like they are now, we still need to keep that investment in training the workforce for the future. With Dave and Alwyn, we speak regularly about the challenges in workforce in community care, and pay for staff in the community is a huge issue, where, currently, pay levels don't compete with the retail and hospitality sectors, and these people are hugely skilled and make a huge difference to people's well-being.

Moving on to social care then, on the back of what you were just saying, ADSS, in your written evidence, you say 'very difficult choices' will have to be made about continued service provision, and the allocations are

'not going to put social care on a path of stability and sustainability.'

Can you expand on what actually the implication would be and what the impact will be on our communities, especially vulnerable communities and the people who are vulnerable within those communities? Alwyn maybe.

Yes. If I start, I think what we're alluding to there is that there are very difficult challenges for us around—. Budgets are under pressure. I think this current budget supports us to—. We probably remain in a position where budgets are under pressure, and probably what it means is, in practice, that we'll have to consider where we are in relation to some statutory element of our delivery and whether we need to consider curtailing some services that we provide as a matter of course now—so, whether there are elements of our statutory delivery that we actually will have to consider, moving forward, if the pressures remain at the same level as they are now.

Okay. Thanks. Okay, I'll move on to Rhianon now, if I can.

Thank you. And before I move into my line of questions, it's a broad question, and if you could be really, really brief: how much of this challenge, in terms of what this draft budget can do, with the amounts that we're talking about in terms of finance, meets the real challenges of what we're facing on every single leg of the health and social care octopus? Every one of those legs is under massive and intense pressure, and you as managers want to put a brave face on this, but, actually, isn't it now time to say, 'This is actually getting to a level—', that this amount of money within the budget, which is the maximum, really, that we can do, is going to suffice?

It is incredibly challenging. And I speak to colleagues in other parts of the NHS Confederation in England, in Northern Ireland, that it is incredibly difficult to deliver. You need to invest in the future to change—and other colleagues of yours have talked about the investment in primary care—. So, capital is a huge—. You need capital to change things in terms of not just in buildings but equipment and everything else. If capital is needed to transform, there are huge capital challenges. Sadly, we're hearing about industrial action today, across the ambulance service today, but we've heard, in other bits of the NHS, and the feedback from front-line staff is, that they are feeling under huge pressure. The pressure in the service is making it difficult for them to do their jobs to the standards that they would like to, and, within the current financial envelope, it's going to be hugely challenging. I don't know if Sally wants to come in with any examples of the challenges.

I don't know if there's anything that you would like to add that's brief, but I mean—.

I suppose, briefly, as Cwm Taf Morgannwg is operating with a £26.5 million core deficit this year, and we're receiving additional funding for exceptional costs, which include the energy costs, plus some COVID response costs, that becomes consolidated in one position going into next year, which means that our challenge, in terms of our underlying deficit, is getting worse. There are some huge variables within that, particularly energy, and we still don't understand exactly what the energy billing relief scheme will do, going into next year, but that presents an enormous challenge just to stand still, and I think it would be wrong of me not to flag that as being—. I think this is the most difficult, as I've said, financial situation I've ever experienced in my career, and I've been in finance in the NHS since 1990.

Okay. Thank you.

So, are we are at crisis point?

I think we are certainly facing an incredibly difficult challenge; I'm not sure whether it's quite gone to crisis yet. But, in terms of the industrial action, the way in which our staff feel about what they're being asked to do, and the psychological consequences of having worked through the pandemic, I think that, alongside the inflationary pressures, and the pressures on people as individuals because of the cost-of-living rises, I think gives us a very, very difficult landscape in which we need to maintain public services. And we're really conscious about that balance between quality and safety, performance and finance, and trying to manage that effectively.

Do you mind if I just come in very, very briefly? I think it is important not to lose sight of the huge amount of work that is going on and the enormous amount that staff are achieving. And Mike asked earlier about the balance between primary care and secondary care: in secondary care, we're 400,000-plus consultations a month, 375,000-plus consultations in primary care. So, there's a huge amount to go on, and we're really keen to give staff that hope and recognise the brilliant work going on. But, in terms of the increase in demand, 111 calls—[Inaudible.]—double the usual 999 calls, and it isn't a case of people using it inappropriately either—it's a case of when people are calling 999, they really need it. Demand is going up very quickly, and, when finances are flat or, because of inflation, actually, in real terms, going down, there is huge pressure.

Okay, thank you. And in terms of the overspends that you've just mentioned, Sally, for 2022-23, how financially sustainable are the organisations, Darren, in terms of who you represent? And what are, briefly, the main risks?

In terms of the sustainability, they are huge, the pressures. COVID costs—. If you say 'COVID costs', people think COVID’s gone away, but infection prevention control, the capacity—the number of people on a particular ward is reduced to ensure they're safe. So, many of the increase daily costs associated with COVID are still with us.

Unfortunately, staff well-being and staff morale are huge challenges for colleagues across the NHS. I've said publicly before that I think things are on a knife edge, and I think there is a recognition from colleagues across Welsh Government and UK Government, Scottish Government, Northern Ireland, and local government, that we're in a hugely difficult position and there is a need now to transform and change and work together. There is a finite resource, and we've got to do the very best that we can within it.

Okay. Thank you for that response. In terms of those pressures, and in terms of every single aspect on that clock face where those pressures are accumulating—I can't see anywhere where it's not accumulating, despite the best efforts of Welsh Government here—how much of a need—? Without the investment, mass investment, for transformational change that is needed, are we going to be able to transform the way the public and the NHS and social care interact? And who starts that conversation? Who should lead that?

I'm happy to go first. It feels like I'm going first the whole time.

I'll ask those who are bereft on the screen shortly.

I think there are difficult—. I'm not a politician, but there are difficult conversations going on between different bits of Government, between local government and Welsh Government, and between Welsh Government and UK Government. Thankfully, there is a recognition at all levels that we are on a knife edge. I wouldn't describe it as anything—. And the time for working together is now. Huge steps are going on. I'm talking to health board chief execs across Wales, directors of social services, that we're looking what we can with the resource we've got. But workforce is the biggest challenge and we need to continue investing in workforce and supporting and retaining the workforce we've got, which is challenging at a time of high inflation and high pressures.

My next question—I don’t know if anybody wants to add anything to that—would be really how you quantify the scale of the challenges, but I actually think that's been answered. I don't know whether, Dave, you wanted to add anything in terms of the scale of challenges that we face, because, whatever conversations we have with the public in terms of how we use our services, we can't change it when somebody needs care and needs to be given those services. If they're bed bound, we can't change that conversation. So, I don't know if you want to add anything to that. Dave, do you want to—?

Yes. Yes, by all means. I think, to a degree, we're going to have to find a way of changing that conversation. I think the word 'unprecedented' has been used several times this morning, and I'll use it again. I've never seen anything like what we're going through at the moment, and I think one of the fundamentals for me is there's no short-term indication that the financial position of the public sector is going to improve. There have to be different conversations with the public, because we're simply not going to be able to sustain the level of support and the way that we configure services going forward. People are going to have to get used to the fact that services will need to look different and, to an extent, there will be less of them as well. So, I think we've got some very tricky conversations ahead of us.

Okay, thank you. And also, in terms of care providers continuing that journey of getting into more and more financial difficulties, with local authorities having to intervene, with their own financial pressures, what are the financial consequences to that? And you also have mentioned concerns with the Welsh Government's pledge to eliminate profit from the care of looked-after children. Bearing the amount and quantity and scale of finance that takes from local authorities in terms of the budget, and in terms of doing things differently in the future, having destabilised that market—and it is a market—could you also expand on that in terms of the social services directorate as well?

Perhaps Alwyn would like to come in on the children's services part, but, certainly, from a broader provider part, services are becoming increasingly fragile. We're seeing provider failure more regularly. Domiciliary care—we're getting packages of care handed back. This year is going to be very challenging. I'll give you an example—in my own authority, we're probably going to be able to up their fees by around 10 per cent. Yet, we know, in reality, the cost of living and fuel pressures are far in excess of that. So, I think we will see more pressure on providers over the next 12 months than we've seen even this year. 

Alwyn, I don't know if you want to come in on the children's services element. 

I will do. In terms of the children's services element, I think we're all really supportive of the eliminate agenda, so, in terms of supporting towards a more mixed economy and eliminating profit. I think the challenge in arriving there is that we have some really good and valuable providers who are making decisions to not do providing in Wales, and, as a result, that's reducing our options. And in turn, in the short term, that's increasing costs. 

We do recognise a lot of capital has been placed in to support us in terms of developing our own provision, working with the third sector. But one of the unintended consequences is that short-term effect of less provision, and, therefore, increased costs for us in terms of that children's market. And when we need to place a young person, we really have to, and, therefore, sometimes, we're in a very difficult position with the market. 

Just on that basis, and on what Dave was saying—I know a little bit about Caerphilly, obviously, where Dave's based—from the budget that you've got, part of the problem or the issue that we're tackling is that it's qualitative and quantitative. So, you've got a quantity of care packages that can be rolled out fairly straightforwardly, and, if you've got the people, then you can deliver them because they're fairly straightforward. But then you've got the complex need element as well, day care—I'm sure Dave will know what I'm on about with day care centres and things like that—where you've got complex needs that need intense investment, or a higher proportion of the budget. How is that decision being made across Wales in different local authorities, to try and grapple with that problem?

I think 'grappling' is a great word; I think that's exactly what we're doing. In terms of the assessment and need, clearly the resources have to go to those in the greatest need. And we're trying to do that to the best of our ability, but it does mean there is a cohort of people whose needs, perhaps, are less, that are having to wait longer for services, or perhaps seeing services in a different form. 

If you look at domiciliary care, for example, in my own authority—we've talked about hospital pressures—only 20 per cent of the people who require a domiciliary care package are in hospital at the moment; 80 per cent of them are actually living in their own homes needing support. Yet perhaps a disproportionate amount of our spend and services are going to try to get people out of hospital. And that worries me, because if we're not able to put those preventative services in place then those people are going re-emerge in another part of the system. That might be in the social care part of the system, or, indeed, in primary or secondary care. But it's a balancing act that we are actually living with every single day. 

Thank you. Are you done, or—?

Can I just ask Alwyn, in regard to the looked-after children point, and, I think, the last point that's been made in terms of, potentially, down the road, another huge issue in terms of that feeding back into secondary care? But, in regard to looked-after children, you mentioned investment in terms of provision for looked-after children. What scale is that across Wales in terms of local authorities being able to make their own provision, bearing in mind we also understand that the variety of complex needs is very, very diverse?

Okay. In terms of the scales of that, I think you'll find that most local authorities across Wales are positively using the capital funding provided by Welsh Government in relation to this area to develop our own provision for what, in a sense, would be children's homes, but they're not in the old-fashioned sense of large children's homes, but smaller, group-living accommodation for children. That doesn't happen overnight, so my point being that that will be gradual over a period of years. So, us scaling up our provision is probably not as quick as we're having the challenge from the markets, I guess, is what my answer is. I think, in three or four years' time, we will have more robust provision across the different sectors, that being the local authority provision, third sector, so that we have more diversity. I think this is actually a challenge while we're actually making that change. And also, remember, local authorities are having to develop that skill as well—something we maybe haven't done so much in the last couple of years.

Okay. Thank you, Chair.

Russell.

Thank you, Chair. We talked a lot about workforce already, and some of the issues around recruitment and retention of staff. But looking at the draft budget specifically ahead of us, what measures are included in the draft budget to specifically address staffing issues? I wonder if you want to expand, perhaps, on some of the earlier points that you've raised in this regard.

We were pleased to see that Health Education and Improvement Wales is planning to recruit more nurses. There have been some positive steps in terms of increasing the number of GPs that we train in Wales, but as well as that training and recruitment of new people, the support and development of people within the service is a challenge. In a previous role, I worked for the General Medical Council, and looking at what proportion of doctors, in particular, we've recruited from overseas; we've been increasingly reliant, over the last 20 years, on international medical graduates. For reasons that we probably haven't got time to go into today, the UK has become less of a priority for overseas graduates. The numbers we've trained in the UK have gone up as well. But on my earlier points around that long-term plan to enable the development of the workforce we need and increasing people's skills in digital is going to be absolutely huge. It's that sort of pipeline issue. So, at the moment, people are probably going out of the end of the pipe further than they're going in, and there are a few leaks in the middle as well, and I think that whole-workforce approach is why we need that sort of certainty and costed longer term plan from the UK and Wales.

Is there anything in the draft budget, Darren, that you think needs to change, or that later, the committee needs to challenge the Minister on?

The main thing is the longer term financial certainty, because it takes five years plus to train a nurse; the same for a pharmacist. But also, jobs across the NHS; you can't just walk in and make a maximum contribution from day 1. Healthcare support workers, and similarly for the social care workforce—we're making steps in the right direction, but we shouldn't underestimate the scale of the challenge, and that longer term financial certainty, which we understand is difficult, is critical. Knowing what's coming next year is helpful, even if they're difficult choices that you've got to make, but anything that can be done to have longer term financial certainty, particularly on training and development of the workforce, is key.

I don't know if anybody else wants to come in, but before they do, Darren, just to you: the Minister, in her evidence to the Health and Social Care Committee, actually, talked about focusing on ways to deploy the existing and future workforce more effectively, what's your take on that?

We've got to get the maximum. We haven't talked a huge amount about it today, but the principles of value-based healthcare: what can we do with a finite resource? What's going to make the biggest difference to patients and service users? And there are all sort of innovative ways of doing that—using digital across the system for initial interactions where that's appropriate, to free up colleagues to do the higher value, more important pieces. But anything we can do to make the whole of the system work more effectively and focus on the areas where we can make the biggest difference.

I think the other challenge related to the budget is the financial well-being and health inequalities across communities in Wales. From a budget point of view, we've provided briefings to you and your colleagues on the importance of spending the Welsh pound effectively, the foundation economy, that £1 spent in the NHS—we've done some research—is £4 in value to the local community, because employees work locally, live locally, spend locally. The importance of good-quality procurement, where we're procuring and procuring locally. But also developing the workforce locally. I think that's something that we definitely need to do, because there's a load of evidence to show that, if you recruit and train people from the local community, they're more likely to stay. And that's why we're seeing people moving around. So, outside of the health portion of the budget in terms of education, training, local development, I think, really focusing on the difference that every public pound spent can make to the health and well-being of communities is key.

So, is there a long-term workforce plan?

Health Education and Improvement Wales are developing one. Health boards have their own longer term plans, but what we need to put that into action is longer term financial certainty, particularly that focus on training and development.

And have you had sight of it?

We haven't, and it's something that we've called for for a long time, not just from Welsh Government, but from UK Government, because lots of the workforce move between Wales, England, Scotland and Northern Ireland, so, it's a whole-UK issue, but each Government has got a responsibility and a role to play in it.

So, everybody's working on a plan, but they're not sharing it with the people who are—

I think they are sharing, but it's that financial certainty to commission the training and to say where we need to get to. And, as we've seen, demand has shot up much more than anybody anticipated in the last 12 months.

Thanks.

When do you think we'll have sight of a workforce plan?

I think that's a question for Government colleagues rather than myself, but it's urgent from our point of view in the longer term. We have a workforce plan, but it's a costed one. The health boards have put in training requirements and plans, but they can only ask for what's affordable at the moment.

Yes, the question is, I suppose, then: when you've asked the Government when you can expect, from them, to see a workforce plan, what do they say to you?

We haven't had a date. We keep reiterating the urgency. My colleagues in England are saying very similar things—that we need that long-term funding plan for the workforce across the whole of the NHS.

Yes, that's fine. And just to talk about spend on agency staff, a significant issue that we've talked about—we haven't mentioned that so far here, but I'm bringing in all of the witnesses on this question really, but what practical things can be done to reduce the spend on agency staff?

It is very much related to having the right numbers of people in the workforce to meet the demand that we've got. Unfortunately, we have seen—we've mentioned the industrial action, which is a sign that staff are not happy with the terms and conditions and the environment that they're working in, but we need a sustainable workforce. We need to be in a position where we're not relying on people doing overtime, double shifts, spending time away from their family, and also that they're able to make the contribution that they need to to people's well-being when they're at work to feel valued.

Yes, I suppose, because we're limited for time, I'll assume that we're all agreeing—the Minister will agree; we'll probably all agree—we'll all agree that we need to reduce the spend on agency staff. Tell us specifically, as briefly as you can, to all witnesses, what practical steps do you think need to be taken in order to achieve a reduced spend on agency staff—as pinpointed as you can?

There are two major streams in terms of agency spend: medical and nursing within health. In terms of medical, one of the drivers of agency spend is vacancies, so, being able to recruit in, but then also, that means that we need to retain our workforce. We know how long it takes to train a consultant. So, how do we retain our own workforce and how do we incentivise them to do additional sessions? At the moment, we are losing medical workforce significantly because of a UK-wide issue around the pension tax annual allowance issue. So, people get to a stage in their career where, actually, it is costing them to come to work and do additional sessions. So, we're losing capacity there and seeing people retire early—we're seeing people go in their fifties when they've got significantly more to offer for the rest of their careers, potentially.

So, just to be clear on that, what do you think needs to happen? What barrier needs to be removed?

I think there needs to be urgent action in terms of that pension issue, which is a UK-wide issue, because it is having a significant impact on our workforce.

And then in social services?

If I come in and then maybe Dave can cover it. I think we've got real challenges in terms of agency social workers. I think, actually, many of the points said already apply; we need to make sure that the offer to work is the right one so that we can retain the current workers. We also have to expand the pool of people we're able to recruit in—so, not only students coming through undergraduate courses, but people who choose to take a social work career up at a later stage n their careers. So, we need to make more avenues for people to enter the profession, so that we have sufficient workforce and the right terms and conditions for them.

Dave?

Just to add to that, within the budget settlement, there was £70 million in terms of the real living wage payment, particularly to the lower paid carers—very welcomed. I'm sure that that will help with retention, but I'm not sure it'll have a huge impact on recruitment. I think, certainly, the ADSS Cymru view is that an hourly rate of around £14 an hour is going to be needed, really, to make this sector attractive and allow us to compete with retail and hospitality.

I think when you were in front of us last time, Dave, I think you said something around £12.55 an hour, so obviously, it shows the impact on inflation on that.

Absolutely.

So, back to you, Russell. Sorry.

Can you both quantify the level of agency spend in your organisations, or in your sectors?

Certainly within my local authority, we have teams that are—. We certainly have our front-door team in children that is primarily staffed by agency workers, because of the challenge within those areas, and the spend is significant.

Dave?

Probably to a lesser degree. I think we've been fairly fortunate in being able to retain and recruit, but we are seeing an increasing need to turn to agencies where we've got short-term pressures.

Thank you, both. And then—sorry.

I think Rhianon wants to—

Just very briefly, and in parallel to the conversation that we've had around the marketplace in that we have to have the available residential care for complex needs, looked-after children and others, and, of course, if that market's not there, you have to still do the job of work. So, how much of an issue is it that, increasingly, without wanting to spend more money on agency staff across the board—across the board—there is no choice, because the care needs are still there? I don't know what you think of that as a comment. Dave, do you want to say something?

Absolutely. I mean, there are roles that we have to cover; there are key roles. We don't do that casually. We are very aware of the cost of agency staff and the other challenges that they bring, because you don't always retain agency staff for as long as you like. An example is of agency staff jumping between authorities for increased salaries and hourly rates, so it's an extremely challenging area. But you're right: they are absolutely core roles that we have to cover, almost regardless of the cost.

Thank you.

Thank you. And a question to you, Alwyn, about the increase in the real living wage up to £10.90. Just to understand, will the additional cost be met from the funding within the provisional local government settlement, and if not, how are you able to determine what the gap is, I suppose?

Yes. Certainly locally within our council, the settlement will support us to actually achieve a real living wage, and that's probably because social care has been prioritised, so we're getting that support from the council. So, we will be able to meet the real living wage across the board.

As Dave alluded, though, whilst the real living wage is valuable, it doesn't allow us to be competitive in the marketplace. So, the reality being that the real living wage is really useful to continue what we're doing now, but it doesn't necessarily give a trigger in terms of change, and actually us being able to better reward that workforce to the levels that we think it needs to be better rewarded.

Thank you, Alwyn. I can see in your evidence, as well, that you've talked about an urgent focus on parity of esteem with health in relation to pay, terms and conditions and career progression, and then you go on to say that this requires additional investment now and over the next three years. So, what action do you think that Welsh Government needs to take, particularly in this draft budget that we're looking at, to achieve what you want?

I think in order to achieve what we want, we'd probably need to work as a sector—that's across health, social care—to talk about actually where long-term resources are best placed in order to ensure that we have the right workforce and in the right place. So, a lot of the conversation this morning has been about acute and community; it's about making sure that we have the right balance across both areas. I think, probably, this is a very mature conversation across the sector in terms of where money is best invested to ensure that we have the right quality of care in the right place. That's my view, and I think, therefore, we need a very mature conversation about where we best invest in the longer term.

Thank you, Russell. Mike.

I've only got, really, two questions, I hope. To the Welsh NHS Confederation, the Institute for Fiscal Studies told us it would be worth while doing more analysis of what can be done to improve the efficiency of the NHS, particularly learning from others. The things we know are that using LED lights saves you money, and we also know that there are hospitals who do it and hospitals who don't. We know the temperatures in hospital are quite often very high. Some have moved them down, some haven't. We know that, at one time, and it is still true, twice as many children have their tonsils removed in Ynys Môn as in Wrexham, despite both being in the same health board. I think that probably had more to do with individual surgeons than anything else. We also know that we've got a situation where, when things are done well in one health board, good practice in Wales does not travel. How can we ensure that good practice travels? Nuffield Health produced a report some years ago, and, again, it is probably out of date, but it showed that the number of patients seen by consultants had actually reduced quite substantially in Wales, and more in Wales than any other part of Britain.

Quite a few points there to cover, and I'll come to Sally in a second in relation to the infrastructure, hospital buildings costs. On the sharing of good practice, I think we at the Welsh NHS Confederation and with colleagues across the country do our best to share good practice, demonstrate what's going on. You've got NICE guidelines—the National Institute for Health and Care Excellence—ensuring that the most cost-effective and best value is got from the resource you have. But, sometimes, best practice isn't followed due to availability of specialities. I think, if you look at specialist vacancies in parts of Wales—orthopaedics, ophthalmology—there is a large number of vacancies, with a large proportion of the workforce in those particular specialities, so you have to deliver services differently.

In terms of the green agenda-type points you raised in relation to LED lighting, insulation, I've spoken to colleagues across the NHS about the cost of heating water, water delivery, oxygen. I've been quite staggered by the costs related to some of these things in terms of changing from your standard one. I live in the Bridgend area. All of the hospitals there are older than I am, and that's quite old now, but, genuinely, to upgrade to those modern and what we'd all expect as normal in buildings such as this, there are huge capital costs associated with them. But I'll hand over to Sally to give you some specifics in relation to that.

I'll pick up the first point about variation. So, we have the sharing of information across the NHS in Wales and, indeed, outside. So, in terms of that clinical variation and differences in terms of the number of people seen in a theatre session, for example, with the getting-it right-the-first-time team, which is working with the NHS, some of that is about cultural change, about working with clinicians and getting everyone to see how you can do things differently. So, those things take time, but those structures are there.

We have the great work the financial delivery unit have done around benchmarking, which we can all access via the vault. Those feed into our plans. So, when we look at our savings opportunities for the year, that variation, that benchmark will inform where we target. We also are working very closely on value-based healthcare and trying to stitch some of those things together so that, for example, we're looking at a scheme for next year, funded via value-based healthcare, which is working with housing associations to see if we can intervene early with people who are tenants where we're starting to see—. The housing associations know them best and know that they're starting to show distress. So, can we start to intervene early and deliver better value by secondary prevention, effectively?

In terms of the estates element, we are facing quite a difficult scenario, because inflationary pressures within that environment and the capital environment have been even more marked than in other areas. So, we are seeing huge increases in cost when we go to the market to test the market for schemes, but also, on occasion, we're not seeing people respond. So, firms do not want to take on the work, because I presume they're just trying to batten down the hatches, so to speak, and keep working. So, we have got schemes around, as you say, LED lighting, energy efficiency, but they are incidental to the real challenge of older hospital premises and updating them. The thing that we have to remember is it's not always about the scheme that's about a new area or something different; it's about some of our core infrastructure. Is the electrical infrastructure up to standard? Can we even put in electrical car charging points based on the current scenario? Those are expensive schemes. We've spent, at the Royal Glamorgan Hospital over the last couple of years, around £2 million just to upgrade the electrical infrastructure. That's just about standing still, really, and those costs are rising all the time. So, it's very much in our focus, but we are limited by the amount of capital available. We know that that's a real challenge for Welsh Government and for health boards as we move into the next few years, so we do need to be really targeted in terms of how we do that.

Just a really brief point, in terms of ballpark figures, our members are telling us that their capital requirements are around about £1 billion a year for the NHS. To give an example, on things like meeting the latest fire safety standards, the older buildings have a huge cost in installing things like fire doors and fire compartmentalisation. These are huge capital costs to stand still. They're not going to improve, necessarily, patient outcomes or patient services, but they are statutory requirements that are scarily massive.

Okay. I haven't got time to follow it up, but the fact is you're not very good at getting capital receipts into health.

A question for ADSS, because I know we're running quite short of time, do the draft budget allocations provide enough focus on prevention? Everybody talks about prevention. Is there enough being done in areas like housing, like dealing with obesity, and actually dealing with people early in terms of social care so they don't end up in hospital? Also—you'll tell me I'm wrong and it's just unusual in Morriston—a number of elderly widows end up going in for operations on their knees or hips, who are in pain—I'm not saying they're not in pain—but have the ability to look after themselves and do not need any support at all, but, once they've had that operation and they've spent their three weeks in hospital, they become de-skilled and they either need to end up in a nursing home, a care home or end up with a substantial amount of support from social services.

I'll start us off on that, if that's okay. I think your point is very well made. One of the concerns that I've got is there's a level of risk aversion when elderly people, particularly, go into hospital and need discharging. I think that risk aversion applies across those people in hospitals who do those assessments around discharge and, indeed, our own social workers, for the reasons that we've talked about over the last hour, really. There has to be an acceptance that, moving forward, people will only be able to have what they need as opposed to what they want. We do need to scale back that level of provision and that level of ambition. I think it's probably come from a time where the cost pressures weren't as acute as certainly they are now. Moving forward, that's a significant challenge to us.

In terms of prevention, I think my big fear in prevention is, of course, a lot of those preventative services, as you've quite rightly said, don't sit in social care; they sit in part of the broader local authority. They've probably been impacted financially even to a greater degree than social care. I think, as local authorities struggle to balance their budgets, we are going to see more of those preventative services fall by the wayside, with potential medium and long-term impacts from that.

Anything to add, Alwyn?

No. I think Dave's captured it, really. Thank you.

That's me.

Right. Thank you very much. Russell, did you want to come in, just very briefly?

Yes, very quickly, I won't ask you all, but I'll just ask, perhaps, Darren, then. In terms of change in the Welsh NHS, for years we've heard about transformation and the need for transformation, and my concern is we don't really see the impact of that. There's been a bit of criticism of the integrated care fund and the 'A Healthier Wales' transformation fund. We see lots of small-scale schemes that are projects, but we don't really see the evidence of them really addressing some of the real pressures that we've got. So, your view on that. Who is responsible for change and what needs to happen to bring about the real transformation that we need? It's such a big question and, I'm sorry, because we're short of time, a tweet-size answer, if possible.

I'm glad we're short of time, because we could be here for quite a while. 

I know. It's a big question, but I'm asking for the pinpoints.

I think it is easy to forget, and in preparing for today, some of the huge things in transformation that have happened, particularly around IT. It sounds like a simple thing to all of us who are based in office environments, but all staff have access to Office 365 across the NHS. And on the cost of that, citing back to Sally's point earlier in terms of upgrading the electricity supply into a hospital site, there are millions of pounds of things that are unseen; it's a sub-station box, it's running the cables. And a bit like the back-office bits of improving the IT infrastructure for the NHS, they are hugely expensive, they are delivering great improvements, but I think it's the responsibility of everyone. If there was a final point I could make, in terms of the prevention agenda and the transforming, every bit of the public service has an impact on keeping people well. I think we've worked more closely than ever with colleagues in social care and local government, and we're doing all we can. The service is in need of transformation, but it's a struggle to cope with increasing demand at the same time as delivering transformation within a—

So, in terms of transformation, what would be your message? What would be your ask of Government? What should Government be doing that they're not doing now?

There are some issues around capital; capital is needed to transform things. It's longer term financial clarity about what's coming down the tracks. And I know it's difficult for Welsh Government, I know it's difficult for UK Government, but if there was a funded workforce plan and clarity—. We had a time when there was no comprehensive spending review because of Brexit, no comprehensive spending review because of COVID. Now there is more certainty, the news is bad, but we need that clarity, costing and acknowledgement from Government about what needs to happen across social care, across local government, the whole of the public service. We need to work together in these difficult times more than ever before. 

Just finally from me, and I know we've gone over by a couple of minutes. In your evidence, the ADSS said,

'Sector transformation requires strong, collective, compassionate leadership, a resilient and respected workforce and these need to be backed up by a long-term and sustainable funding settlement for the health and social care system'.

Is that leadership seen through this budget? It's probably a one-word answer. Alwyn.

I think this budget aims—. There are messages in this budget that the Government are committed to that. I think, actually, it requires more than one budget in terms of us achieving that sort of goal, because that's a very ambitious goal. It's the one that we share. I would say that we need consistent messages along now and into the future. So, I think this is a start, because some of the messages and the priority areas are there, however, that ambition is something that we need to have consistently as a narrative over the course of the next few years. I think colleagues in the room have alluded to it; I think we all need a consistent narrative actually around what quality services look like across acute services, community services and support we have for people in their own homes. 

Would you agree with the statement and that assessment? Are we seeing leadership through this budget?

I think so, and it's about everything. It's about the education that people are getting, it's having the right jobs—it's a whole-Government approach. We've called for a whole-Government approach to reducing health inequalities. There are deep-seated issues here in Wales, in the communities that I live in and I was born and brought up in, that have been difficult pre devolution, post devolution, irrespective of what party we've had in power in Westminster or Cardiff. These are deep-seated issues and we need that long-term clarity and a plan, going forward.

Thank you very much.

Thank you so much for your evidence. It's been a great session and I think we could have gone one for quite a number of hours discussing this. There will a transcript available for you to check for accuracy. Thank you very much. We'll go into private now for a few minutes.

Jon, start with you?

Yes. Good morning, Chair. My name's Jon Rae. I'm director of resources at the WLGA.

Bore da. I'm Lis Burnett. I'm leader of the Vale of Glamorgan Council and speaking on behalf of the WLGA as well.

Lovely. Anthony.

Bore da. It's Anthony Hunt. I'm leader of Torfaen County Borough Council and also the WLGA finance spokesperson.

As I said in the previous session, if we could keep our questions brief, so that we can hear from our witnesses, then that would be wonderful. I'd like to start to understand the level of financial pressure local authorities are experiencing now and face in future years. The Welsh Government says it's tried to prioritise public services within this budget. Your consultation response from November says that pressures in the system were starting to look catastrophic. To what extent does this budget adequately protect public services? If we start with Jon in the room, and then if anybody wants to answer.

Yes. Thank you very much, Chair. I'll let my political masters come in, really, on some of the political responses, but, generally, there was a positive response from the WLGA to the settlement. At the time we put the evidence in, obviously we didn't really know what was in the UK budget or what was going to be in the Welsh Government budget, so, by the time we got to the Welsh Government budget announcement on 13 December, I think our response through the press, from the WLGA leadership, showed that we were quite pleased with the outcome and the way that it also prioritised local public services.

Okay. Maybe to Anthony, who has the lead on finance.

Thank you. The provisional settlement was certainly welcomed and shows, I think, that the Welsh Government are trying their best to prioritise public services. The pressures on us are huge, so it doesn't mean it's going to be easy setting budgets. We estimated around £784 million of pressures by the end of the next financial year. That's a huge amount of pressure. In my own council, for example, our energy bill's going up by £4 million, our social care contracting bill by £4 million, our pay bill by just over £7 million. So, there are huge pressures in the system, but I think the settlement that we've got enables us to have a fighting chance of at least trying to address those pressures so that they don't become catastrophic for the future of the services that we provide.

Great. Thank you. Do either of the other two want to come in? Lis.

Diolch. My afternoon is going to be spent, actually, taking our budget proposals to cabinet. I think, as Anthony said, when we were discussing it—. We were working on shifting sands before the settlement announcement; we didn't know what was coming down from UK Government down to Welsh Government and, as a consequence, we couldn't even second-guess figures. In the Vale, we were looking at a £38 million deficit, and with what was predicted to come through initially, we then were looking at about a £28 million deficit after Welsh Government contributions and what we modelled as council tax. The difference that the actual Welsh Government settlement made is that, now, we're looking at how we manage a £10 million deficit, and so the steps that we're taking are still incredibly difficult, but an awful lot more manageable than the initial £38 or £28 million, depending which way you look at it, that we were dealing with pre Christmas. It remains a difficult situation for local government.

Llinos.

Diolch yn fawr. Last year, the Welsh Government indicated an uplift of £177 million for 2023-24. In this draft budget, it's passing a consequential and increasing that to around £400 million in 2023-24. Your evidence sets out £784 million of pressures at the end of 2023-24. How will local authorities bridge that funding gap? I don't know who will start. Llinos.

Lis or Anthony. Anthony.

Yes, I very much agree with the point that Llinos made about reserves. They're unequally spread across Wales. You can also only use them once. It's also very difficult to predict what is an appropriate use of reserves. At the moment, for example, energy costs—no-one seems to know exactly what will happen for energy costs. If there's a spike going on at the moment then it's legitimate to try and use reserves to bridge the difference between when we hope those costs will start falling again. But no-one knows that for sure, so it's a difficult decision for councils to know when they can sustainably use their reserves. Because as Llinos said, once they're gone, they're gone, and they shouldn't be used irresponsibly, otherwise it just stores up problems for the future. We'll all be looking at efficiency programmes, although after a decade of austerity, there's very little juice to squeeze from that particular lemon. I'm trying not to use the 'blood from a stone' analogy. We're looking at things like property rationalisation—how we can use our estate better, how we can adapt to the difference in working patterns post pandemic. But, inevitably, there will be reductions in service levels, there will be headcount reductions, and we'll look to do whatever we can to avoid those through collaboration and through other things, but there's no single silver bullet that can help bridge that gap, but at least because of the settlement being better, we at least have a fighting chance of meeting the gap without measures that will decimate the local services that people rely on.

Thank you. Lis.

Thank you. I just wanted to mention, very much along the same lines as Llinos and Anthony, but I think it's worth saying that the collaborative approach that we have developed in Wales across local government and with the WLGA means that, as leaders, and also whether it be our section 151 officers, et cetera, have been constantly talking. There's been shared learning, there have been, 'Have you tried out such and such an area, what did you find, how did that work for you?' And so, the discussions have been frequent and ongoing across Wales, and it's very reassuring for me when I'm talking to people in my council that I can say, 'Well, actually, feedback from other local authority leaders would suggest that', and it's a much more effective way, rather than just trying to plan in a vacuum.

On that point, Lis, obviously you talk to your colleagues, leaders in other councils. Are you seeing similar themes coming through about where services have been cut already and have been cut further? Are there common areas that you're looking at, so that it's somehow by, not random, but by design that services are cut in a similar way in similar councils? So, for example, if there has been a cut in social services that next door is doing the same as well, so that you don't get that postcode lottery-type of situation, if you're on a boundary of a local authority.

I think there's part of that, but I think where it comes down to is more around agreement on strategic aims, and something, for example, that—. Protecting our most vulnerable. Now, everybody actually would agree that that is a key priority. We might then discuss what different people are doing in order to achieve that. We'll come on later to the social care crisis. That is a point of discussion about what initiatives have been found to work, what initiatives maybe need a bit more tweaking, what is the strategic direction in various councils. So, rather than say, 'We're all going to do the same thing', because our areas are actually diverse and they have different needs. But there is a really constructive dialogue ongoing between local government in Wales.

Sorry, I'll bring Llinos and Anthony in in a second. Is that being driven by the WLGA or is that being assisted by the Minister taking a lead in helping you to navigate through this budget, because, obviously, she's got the position of being the local government Minister as well as the finance Minister? Is she taking an active part in helping you to navigate some of these questions? 

I'm sure Anthony will probably come in an awful lot more on this, but, actually, it's both. We're assisted by WLGA, but Ministers have been really productive. It's something that was developed over the pandemic. It was happening to a certain extent before, but since the pandemic, the actual conversations are much more frequent, much more regular, much more in depth, and there is a strong relationship between local government, whether that be officers and leaders, that we are able to go forward and have these conversations.

I'll bring Jon in, and then maybe if one of the other two want to comment briefly. 

It was just to say that, over the course of the autumn, I think there were very regular meetings, not just with the finance Minister, but a number of Ministers, around the cost-of-living crisis. These were fortnightly meetings. It wasn't just about pressures for local government, it was about the impact on households as well, so they were really useful meetings. Plus, you would have had the ongoing cycle of WLGA meetings, the executive board meeting regularly—that's all our leaders. We've had special meetings as well. So, for example, the day after the autumn statement, all leaders, chief execs, finance directors, finance cabinet members as well, met up in Pontypridd to discuss the financial challenges. And that's how we're spreading, I suppose, good practice and common approaches. There are a lot of new officers and leaders out there as well, so I think they find that kind of support invaluable.

Diolch. Anthony, just on that point, how, as the finance lead, are you looking to help your colleagues in that strategic planning into 2024-25? Is it possible with the settlement that you've got now, and is it something that is happening? 

Thank you, Chair. There are three aspects to it. First, it's keeping that dialogue going with Ministers. I think Rebecca, and Julie before her, deserve great credit for the way they've engaged with us. I speak with English leaders quite often over the border, and they don't have that kind of relationship. It doesn't mean the problems go away, but it means we're at least approaching them, in Wales, from an approach of talking to each other, even when those conversations are difficult. So, I think that's an important first aspect.

The work of the WLGA nationally to help councils plan, I think, is an important one too. Jon mentioned the finance summit that we had; I think we need to continue to do that, to bring people together, virtually or in a room, to talk through the different challenges we've got and to try and share common solutions, ideas that we've got, approaches that we can have that we can share and we can help reduce the problem. And also the regional work we do. In Gwent, certainly, and across south-east Wales, I'm speaking to lots of our neighbours on how we can do things differently. If we have a shortage of staff in one area, for example engineering, we've talked to some of our neighbours, who may be able to help us, and that reciprocal help arrangement is something that can bring good value, can help us to make those plans for the long term.

But what I would say is that this settlement at least gives us a chance to focus on the long term and not have all our bandwidth taken up with firefighting, and that's important, because—. You know, it's very important, I think, that we do plan for the long term, that we don't make cuts that have long-term implications. And we've seen this elsewhere in the UK, where lots of the services that are the fabric of early intervention and prevention in our communities have been stripped away, and then, lo and behold, in 10 years' time—. Let's say you cut all youth services, and then, in 10 years' time, you wonder why you've got a youth offending problem. You cut away some of the preventative social care services, and then, in 10 years' time, you wonder why the NHS is overwhelmed by people who haven't had that help further up the stream and end up falling into the river. Sorry, I've really ruined the Desmond Tutu quote there, but you know what I mean. We need to make sure that we take long-term decisions along the lines of the Well-being of Future Generations (Wales) Act 2015 that make sure that we can do things long term. That's only possible if we have the settlements that are needed to be able to put us into that space and not continually having to firefight.

We heard from the NHS earlier; it's having that stability to be able to do it in—. And we've just had so much churn and instability over the last few years, let alone the last 12 months. So, it's hoping to steer us into possibly a little bit of calmer water, so that we could actually do some of the stuff that you're saying. I'll bring Mike in.

First of all, can I thank you for what you're all doing to provide local services in very difficult times? I, and I'm sure most colleagues, really do appreciate it. I want to talk about capital expenditure. How has the provisional settlement affected your capital plans? I know capital costs are going up. What's your estimate of them? Are you seeing delays? There are easy delays, where you just pay for a school over two years rather than paying for it over one year, so all that happens is it opens two months later, but that has a knock-on effect, doesn't it, on further capital expenditure. And how are you getting on with capital receipts? That used to be—. I mentioned that to the NHS, and they looked at me blank. But that used to be very much a source of money for paying for important things, like selling off unused land—land that hasn't been used for a long time, especially in areas where house prices are high.

Who wants to go first? Anthony.

I'm happy to, if you want me to. The return to the historic levels of capital funding is welcome. Obviously, that's just one source of funding that we use for our capital projects. As Mike hinted in the question, the challenge that we have with the capital approach is the huge increase in costs for many of the capital projects that we need to do to improve our public services. Our school building costs have gone up massively, for example. In Torfaen, we don't have a lot of land to sell, unfortunately, that's in our ownership. I think a wider piece of work across the public sector needs to be driven forward on that, because I think other public sector organisations do have more land that can be used. Every penny of receipts that we've got from our capital receipts have gone back into our twenty-first century schools programme, because we think that's the right priority, but there is huge pressure on capital projects because of the inflation of construction costs in particular. 

Jon, you indicated that you wanted to come in.

Yes, thank you, just to put some figures on what Councillor Medi was saying there. I think, before the financial crisis, going back before 2008, capital receipts were probably raising in excess of maybe £100 million a year. It took a while for that to recover, I think. The most recent high would have been around about 2013-14 or 2014-15, when it got back to about £80 million. But I think for the latest year for which we have data available, StatsWales shows that capital receipts are raising something like £30 million. So, it's certainly not as lucrative a source of funding as it used to be, Mike. 

And Lis, if you want to come in briefly.

Diolch. I think it's quite interesting. Everyone always talks about capital receipts, but I think the problem over the years is that so much has been sold off that it's very difficult in terms of investment and growth going forward. As Llinos said, the market is low at the moment, and, from that perspective, what we have to look at is: is it better to mothball expensive buildings at the moment, rather than sell them off, so that we can consider what we do with them in the future? And that's something that we're looking at.

In terms of capital projects, we can't ignore the local economic benefit from capital programmes, and particularly, community benefits programmes that come alongside—local procurement, that sort of thing. So, that is really, really important, going forward. But if we borrow to undertake capital projects, we have to be mindful that there are revenue costs to capital borrowing, which then can cause problems.

And I suppose the only other thing that I would add is that there is evidence that, in the current situation, a number of building contractors across Wales have gone into administration, and we've just had a situation where a contractor has failed. It's a fairly small-scale development—it's 54 council properties that were being delivered. What we've had to do, because we know that, if we re-tendered for that programme, because it's probably about two thirds built at the moment, the cost would go up again. So, we've actually taken on all of the subcontractors and we are delivering that programme ourselves to keep it within an affordable range. But, if you add on decarbonisation, which is essential, if you add on sustainable drainage initiatives, and then you add on inflation, one of our new schools has doubled in price to get it off the drawing board. So, these are things that we are actually having to manage at the moment. Diolch.

Well, just following on from what you were talking about—borrowing—I'll tell you what I know, but everything is say is 13 years out of date, so tell me if it's still correct. You used to borrow from the Public Works Loan Board, and you used to borrow over 30 years. And for housing, you used to borrow over 60 years. What I'm asking is: are you going to increase the level of the borrowing planned this year and next year? And, isn't hindsight of wonderful thing—wouldn't it have been better if all of us had borrowed a lot more two years ago, before interest rates went up? What's the current Public Works Loan Board rate? And, is borrowing this year better than borrowing next year? Are you fearful that the Public Works Loan Board rate is going to go higher?

Anthony.

I think it's around 5 per cent at the moment—the Public Works Loan Board rate—although there is a lot of volatility, up and down, as you say. With a crystal ball and a time machine, I think we'd all buy a few lottery tickets to help fund our council services as well as putting some more borrowing. Now, obviously, all borrowing has to be appropriate for a purpose that's sustainable and prudent as well. Borrowing alone, I don't think, is the solution because, of course, it has to be paid off, but it's one of the mechanisms that councils have been able to use to fund work, and will continue to be so. The volatility doesn't help at the moment, because, of course, rates could go up as well as down, as the adverts always have to say, so it's a difficult calculation to make.

Thankfully, unlike England, you haven't been borrowing to buy shopping centres and leaving yourselves in very serious financial positions. Congratulations on that.

Llinos would like to come in.

Can I just finish this?

Of course.

The prudent way that you've borrowed has been very, very good. The question is: have you scaled back your borrowing for this year with interest rates having gone up to 5 per cent?

Llinos.

Just quickly, can I just say 'thank you' for that comment, because I've sat with Audit Wales where they’ve been saying, 'Are you commercial enough?’ and trying to get them to understand that Ynys Môn is struggling to keep a corner shop open, let alone a shopping mall? So can I say ‘thank you’ because, obviously, our ability to manage public money and trying to do that in a safe way and not knowing what austerity was going to look like, let alone knowing that a world pandemic was on the way and then this? So, thank you for those comments.

I would say that the borrowing, at the moment, we were all in our plans—. The election also happened, didn't it, for us. So, we've been in that stagnant period of time where we were bringing our plans to an end and restarting our council plans, our strategic view, and all those strategic plans. But, now, as we're all tidying those up, I think the conversation is going to be around what we are able to achieve, and, then, the cost of borrowing on top of that. For us, here in Ynys Môn, we'd already made those decisions around schools and so on, but we have had to add money into our twenty-first century schools and so on. And we're actually looking, creatively, at extra care here in Ynys Môn, and being maybe the first that the housing revenue account is going to fund. So, looking at a way of using those sorts of funds that we have in a more creative way as well. 

But, definitely, the borrowing one is going to be a discussion on the table, and it's the risk appetite, but, also, the recognition that we never know what's coming our way around revenue and service pressures. So, that's the challenge that we have to balance, and it's always around our treasury management plan as well. Diolch. 

And, I think, finally from me—. You've also got council tax, fees and charges. I'm not going to ask you to tell us your council budget now—first, you wouldn't, and, secondly, it would be wrong for you to do so. But, are you giving serious consideration to the increases in fees and charges, and are you giving serious consideration to what level of council tax is affordable and needed? And the affordable and needed might not be equal. 

Lis, to start with. 

Diolch. I think therein lies the nub of the query. It is those balances that we are constantly trying to achieve. As I said, I've got a fees and charges report going to cabinet this afternoon. And, I think, what you have to work out are the underlying principles that you're going to adhere to, and, for us, non-statutory provisions, where they aren't aligned to the corporate plan, where they're not a priority for the council's corporate plan, we need to move them to cost neutral. So, we will be looking at full cost recovery—not all in one step—but we will be looking towards those. 

Where they are provisions such as, say, adult community learning that helps people to get back on track in terms of employment or something, then we would be subsidising those. And the whole thing is about having the underlying principles and working. It might be: what do we do with certain car parking in light of decarbonisation? And, in terms of moving to a carbon-zero position, are there things that we should be doing? But, as I said, covering our costs, because we can't afford to subsidise areas. You've either got a choice that you stop doing it, or you have to find a way of it being cost neutral. And that is a big one, and it's also a very difficult conversation to have with residents. But, the question is: what else would you cut if you had to fund this?

Llinos. 

Just from what you've said there, these are questions where I'm asking you do something—I was happier on your side than I am on this. The question is: why don't the WLGA make representation to have planning charges set by local authorities? It's something I've argued for in the past, and been told that local authorities aren't that interested in it. So, if you were to push for that, it would be very helpful. And my question to Lis is: adult education—why are you providing it, not Cardiff and Vale College? I think, sometimes, local authorities in general need to look at whether somebody else who is being funded differently could provide some of these services. I don't know if you have anything to add to that; I was just throwing that out as an idea.

Actually, I will answer it. Cardiff and Vale College do deliver some, and we deliver some, because sometimes, provision is better delivered within communities where people live, particularly in disadvantaged communities where people feel safe and confident in their own community, to get them to access that sort of support. They won't travel. They don't feel confident enough. So, we work very closely with Cardiff and Vale College on provision of services, and each one of us works to our strengths, really.

But there's no reason why Cardiff and Vale can't do outreach in any village or town, or anywhere else. It's your budget—I'm just trying to be helpful—but if somebody else can do the work and they're getting funded for it, are you making the right decision to fund it yourself? It's your decision, not mine. I'm just asking you to think about it.

Well, the types of ones that, currently, we're looking at, in terms of cost neutral, are—. As I said, for the get-back-on-track stuff, we get support from Welsh Government, so that's reduced. But, in terms of the other ones, it might be learn painting, make a felt rabbit, or learn woodwork-type stuff, which, in effect, are more of a pastime provision, that's very good for social isolation and those sorts of things, but actually, they're the types of things that we really can't afford to completely fund, so we have to look at fees on areas like that. Those sorts of things, it would be unlikely, within their strategic plan, that Cardiff and Vale College would deliver.

Thank you. I'll bring Peter in now. Welcome, Peter.

Good morning, all. Good to see you. Good to be amongst friends. Sorry that I wasn't here at the start of your session.

I'm sure that Mike might have touched on it, but I just want to touch briefly, Chair, on reserves, because I know that Andrew Morgan suggested that authorities are going to be drawing down on reserves. I think all would agree that the period we're in now and the next couple of years are likely to be an exceptional period, with, hopefully, a return to some stability afterwards. Now, we know that the use of reserves shouldn't be used for recurring expenses; it should be used for non-recurring expenses, really, or for transformational change. However, I think if there is a benefit that came out of COVID, and there aren't many, it's that it allowed authorities to accrue more reserves over the last couple of years. So, I think, looking through all of the councils'—or those who have produced them—draft statements of accounts for 2022, I see a significant increase in earmarked and usable reserves—somewhere approaching a 30-odd per cent increase, a nearly £600 million increase.

So, I think the useable reserves, which we know include general reserves, school balances, some capital, and earmarked reserves, is somewhere near £2.75 billion. I know that some authorities are better heeled than others, but don't you think that, through a time of such significant pressure on the cost-of-living crisis and on individuals, some of those reserves, where can be afforded—and some can do it more than others—should be mobilised to actually remove the need for council tax increases on some? I won't name specific authorities, but you'll know that there are authorities with circa £200 million-worth of usable reserves. Now, I know as well as you do that earmarked reserves are for that purpose—earmarked projects. But, sometimes, if they have not been drawn on or there's no pressure to draw on them, or there is an opportunity to hold back those investments, that money can be mobilised because it has the same status as a general reserve. I just wondered what—. At this time, such a challenging time, it would be totally appropriate to use more of those reserves. What are your views on that? 

I'll bring Anthony in on that one.

Yes, I'm happy to come in first. Hello, Peter. Nice to see you again. Yes, it is an appropriate time to use reserves in an appropriate way. I talked earlier about energy costs, for example, and what of those energy costs could be considered a spike where we can try to bridge the gap with some reserve funding, and what other reserves can we use. We've got very limited reserves to use, and we do have to be very careful that we don't store up problems by using them for issues that are going to become recurring. One of the great challenges facing us is the unpredictability of what's going to happen over the next few years, for example with energy costs, and what of that will be a sustained increase and what of it will be a spike in costs. So, we will continue to use reserves for specific reasons and to try to bridge some of the gap, but we can't be overly reliant on reserves, otherwise we'll store up problems for the future. 

Lis, anything to add? I know you had your hand up, but whether or not you've got anything further to add that's—. I'm just looking at the time, that's all.

Diolch, and thank you, Peter. Yes, I echo Anthony, so I won't repeat that. It's something that we have been called on to do every year for as long as I can remember, whenever we've been—'Oh, use the reserves.' And I wonder, if we had used the reserves all those years, where we would be now. There is a general lack of understanding about the different categories of reserves—which you would understand, obviously—in terms of, as you mentioned, general funds versus unrestricted, restricted, earmarked et cetera. And every year, to try and go through those categories of reserves in terms of what's available—.

Our reserves normally are around the Chartered Institute of Public Finance and Accountancy-advised 5 per cent of our budget. We are planning to use—I'm just looking at my notes for this afternoon—about 3.2 per cent this year, but that, as Anthony said, is going to be to smooth out spikes in energy costs, it's going to be in terms of invest-to-save. So, an example might be to develop children's social care facilities, which will not only improve the outcomes for children but will save us the costs of children going out of county. So, those are the types of things that we do. 

In terms of chucking it into the mix to bolster up council tax, that is not a productive use, because, next year, when our costs have gone even higher, the ask is even bigger and the reserve is gone. So, it's an easy political fix, but, actually, if we're going to try and be prudent and sensible politicians, helping our local authorities through this challenge, just chucking in n number of million from reserves is not going to be helpful.

I'm conscious we've only got about 15 minutes left. It's fascinating, but we've got to cover social care and we've got to cover education. So, if we could move on.

Yes, we'll move on. It's a shame that, perhaps, the local government family can't mobilise some of the reserves it has got to create a floor that enables all authorities to protect citizens from the highest of council taxes. Anyway, I'll move on.

So, local authorities have access to other sources of funding, and the WLGA provided evidence to the committee inquiry into post-EU funding. The shared prosperity fund allocations were agreed in December. How are those plans being impacted by the pressures local authority budgets are coming under now?

Lis.

Diolch. I think that the biggest impact we've got is that we don't have any laid out terms and conditions, so, if we were going to try and spend at the moment, it would be at risk, and that would be an impossible position for any local authority. You can talk about, as we go forward, trying to take on short-term staff—the timescales are very restricted on this. But the biggest thing is that we have plans, we know the way that we want to go forward, but, for some strange reason, we can't get the final sign-off, and so, to move ahead in funding, the first year of which is supposed to be spent by about March of this year, is pretty well impossible.

Okay. Thanks, Lis, for that. Just to explore a little bit more the pressures highlighted by yourselves, including social care and staff pay, in your evidence, you talk about the impact of the pandemic on existing challenges within social care, and I totally can see those. Pressures in the NHS are also being widely reported and, last week, Andrew Morgan said that local authorities are bending over backwards to support the health service. So, how are the challenges in social care manifesting themselves and does this budget do anything to alleviate some of those issues you're facing?

Shall we go to Llinos first?

Anthony or Lis—anything to add? No. 

Thank you, Llinos, and it's not always a money issue, is it, either with social care? It's actually finding the human resource to deliver the unmet hours every week, and I recognise the challenge and I feel for you all.

You talk about workforce pressures within social care, both in terms of local authority services and commissioned services: how are providers coping with the current economic climate and what kind of issues are being experienced? I just reflected on that briefly, about staffing.

Lis, do you want to come in briefly, or has Llinos covered most of the points?

Diolch. Yes, she did. It is incredibly difficult trying to take on staff. We've managed to get a 'fast track to care' system where we can take people on and get them Disclosure and Barring Service checked within two weeks, but it's actually finding the people to go through that system now. I think the future is going to be either us working in partnership with private providers—because, normally, they're quite small, local organisations; they aren't hugely resilient—or else we actually have to start looking at social care coming back in-house, but how on earth we manage that at the moment financially, I really don't know.

What I would ask is that we need to start looking at a whole-system approach here between health and social care, because it is so interrelated. I'm currently sharing 24-hour care of an elderly mother; it's impossible. So, we need a whole-system approach to look at where the pinch-points are and where the pressures are, and how we move forward collectively as health boards and local authorities to find a solution to this, and we need some open and constructive conversations between us and with Welsh Government as well.

A final point from me, and I'll keep it short. It's about the wider workforce and the National Joint Council pay offer for 2022-23. I just wondered what impact that agreement is having on local authorities, and what assumptions have you made in terms of the 2023 pay claim.

Anthony, I don't know if you're able to give an overview of the impact on all local authorities.

Yes, sure. I think the impact—it depends by authority, depending on your staffing structure. I think it's between 6.5 per cent and around 7.5 per cent of this year's pay claim. Assumptions for next year will be typically between about 4 per cent and 6 per cent, I think. But, of course, there's a degree of volatility; we don't know where inflation's going to be, and we don't know where the negotiation position's going to be, but that's one of the uncertainties that we have to try and take account of in the budgets that we set, so that we don't set two low a presumption that then impacts on our budget in-year, and of course we don't set too high a presumption that would make for real, difficult cuts in other areas of the budget, because, of course, pay is a large proportion of our expenditure. I think every percentage of the pay settlement in Torfaen, for example, costs us well over £1 million, so we have to be cognisant of that balancing act, really, and to get the right kind of predictions.

Okay. Jon, did you want to come in briefly on this?

Very quickly, yes. The pay agreement for this year was agreed earlier than it was in the previous year, which was welcome, but it was still agreed in July this year, which is obviously a number of months after the start of the financial year. So, as Councillor Hunt pointed out, I think our assumptions, at the time budgets were set this time last year, were probably about 4 per cent, and then the pressure ended up being about 6.5, 7.5 per cent. So, it was significantly above assumptions, and it was the first indication we had, I suppose, that a lot of our assumptions that were built into budgets this year just weren't adequate, and it's led to the data that I've put in the evidence paper here, showing that there is a potential overspend for this financial year of about £260 million, of which about £100 million is accounted for by pay. So, that's just to put some numbers around that.

Thank you. I'm going to move on to Rhianon. The clock is beating us, but there are some very important questions that we need to ask, so I beg your indulgence for a few minutes. I know, Lis, if you have to shoot off to a cabinet meeting, I understand.

Thank you, and I also want to echo my colleagues' comments in regard to appreciation for the really difficult work that you're undertaking on the public's behalf. I'm going to talk specifically around pressures in terms of education and school budgets. So, in terms of the Minister's statement around consequentials associated with education spend in England that are passed on, obviously, through the settlement and the education budget, is it the intention of local authorities to—[Inaudible.]—to education and schools? I was going to ask you whether it's enough to fund the pressures, but you've already highlighted this in some depth. I don't know who'd like to take that. Jon, do you want to start?

Certainly, if that's okay. In the Minister's letter that she traditionally sends out to leaders on the publication of the settlement, she highlighted the consequential for education, and, actually, there was some discussion with Councillor Hunt and other leaders—Councillor Hunt's our finance spokesperson. We made it clear in our response that we would prioritise education. It's a little bit difficult, but I've no doubt that the consequential and some will find its way into education budgets, and, obviously, we'll have to wait for the publication of those budgets—

Sorry to interrupt you, so, the answer is— 

Yes.

—'yes' or 'no', are you going to be passing that on in full?

Yes, but bear in mind that the pressure in education itself, according to the information in the evidence papers, was around about £170 million, so it still falls short.

Okay. Thank you. Any other further comments, very briefly, or is that—? Llinos.

Okay. Thank you. In terms of inflationary pressures, which have more than tripled from £49 million to £161 million, what does this mean in terms of schools and education services?

Lis, did you want to come in on one of those points?

Diolch. I just wanted to raise the issue, as Llinos did mention home-to-school transport, particularly home-to-school transport for children with additional learning needs. Quite often, they need specialised care, and the huge cost pressures in that area are phenomenal. Not only the cost pressures, but also finding contractors that will take on that work, because the changeovers tend to be longer, drivers tend to be tied up for longer. Given the chance, they're going to take more profitable routes. We've got one special school with 400 pupils. To try and get all the pupils there is a massive challenge.

And in regard then to—. I mean, it's already happened, but, in regard to potential or actuality of any market failure around that, what mitigations can local authorities do to carry out their statutory responsibilities? How difficult is that, if anyone can speak to that? Anthony, I don't know whether you can give me your opinion on that.

It becomes increasingly difficult not just to discharge our statutory responsibilities, but to do the things that we want to do. We want to prioritise services like social care and schools in all we do. That led to a period of years where, every time I walked into a different department of the council, like public protection or planning or somewhere, they used to wince because they thought I'd be trying to take more money out of them in order to protect the likes of schools and social care. I think the pandemic has shown that lots of those supposedly back-office functions are actually vital for our communities. It does become more difficult as each year goes by. Around 70 per cent of our spending is on social care or schools, so protecting those has a huge impact on everything else that we do, including a lot of valued services. A lot of services that aren't statutory are hugely valued by the public and have a huge role in early intervention and prevention. So, councils increasingly are left with a Hobson's choice or least worst choices, shall we say, and it becomes a very difficult balancing act to make.

Thank you. I'm going to move on to my final question, Chair, if I may, in terms of band B of what used to be twenty-first century schools. It's got another name now, I believe: the sustainable communities for learning. In terms of the number that have already been completed and the success generally of the programme in its previous band, it's almost a third, perhaps a bit more than a third that have been completed that are business planned, but what really is the viability in this current toxic climate for public services across the UK in terms of completion? If we look at availability of contractors, if we look at energy, if we look at workforce, if we look at capacity across both the public and private sectors, and in terms of inflation, can somebody give me a comment on that, please?

Anthony.

I'm happy to. It makes it an increasing challenge, not just because of inflation in the construction sector. As you say, availability of contractors is a real issue. Of course, we have ambition to build net-zero schools as well, which adds to the short-term costs, even if there are long-term cost and environmental benefits to doing so. It all makes for an incredibly challenging situation to continue to build the schools that we want for our learners going forwards. We've spent a huge amount of money, around £100 million, and it's transformed lots of the schools in our borough, but there's a lot more work to do. That is becoming increasingly difficult, not majorly because of the input of funding, but because we're getting so much less for each £1 that we spend because of the inflation in the sector.

Thank you. I'm not sure if Lis wanted to comment briefly.

Lis, did you want to come in on that? You can have the final word.

Actually, Anthony said it all.

Thank you.

Lovely. Thank you.

We'll start with Rebecca—just introduce yourself and your officials. Or I'll call them—if we start with yourself. 

Diolch. Rebecca Evans, Minister for Finance and Local Government.

And then Andrew.

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

Emma.

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

Lovely. Croeso cynnes. Obviously, we've had a bit of a curtailed budget scrutiny session, and we've had a few very, very interesting scrutiny sessions with stakeholders. We've got a raft of questions for you, as you'd expect, so we'll move on. Obviously, this is being broadcast on Senedd.tv and a transcript will be available at the end.

I'd like to start with some evidence we had from the Office for Budget Responsibility on the use of income tax powers. Witnesses from Wales Fiscal Analysis and the Institute for Fiscal Studies suggested an addition to the OBR's devolved tax forecasts publication. This would be to include more details on block grant adjustment calculations and the net impact of these adjustments on Wales. Do you think this would be a useful addition to aid public understanding and scrutiny? If so, would it be more cost-effective to incorporate this request into the OBR's agreement, or is it something that could be undertaken by Welsh Government?

Thank you, Chair. I'll ask Andrew to come in on this question as well. You can find the detail of the block grant adjustments for the years covered by the draft budget in chapter 3 of the narrative, and that covers both the adjustments in relation to the years themselves and also the reconciliation amounts relating to previous years. I am, of course, open always to finding more ways in which to be transparent and open with the information that we provide, but I'll perhaps hand over to Andrew at this point.

Thanks. The block grant adjustments are actually calculated jointly by the Welsh Government and the Treasury. We use the OBR's forecasts of the relevant tax bases in the rest of the UK to calculate those block grant adjustments, but they're pretty mechanical, they don't involve the kinds of judgments that the OBR is making in its forecast. It takes the OBR's forecast, applies the agreed methodology to calculate the block grant adjustments, and then the number pops out. So it doesn't require that kind of independent judgment that OBR exercise in relation to the forecast. I suppose that's why it's done by Government officials rather than by the OBR, although the OBR could do it and it wouldn't be a big job for them to do it, so maybe we could look at that. I think the point about putting better—. We could certainly provide more and better information about the block grant adjustment, and it would be useful, perhaps, as part of the committee's report, to hear a bit more about exactly what kind of information you might find useful. We can either put that in the OBR's report or in the budget document or both, perhaps, just to—

I think a comment came that a lot of it was in the appendices in the OBR report, but moving it into the body of the report might aid some of the stakeholders in understanding what was going on, especially Wales Fiscal Analysis. They were saying they were trying to then manually—. As you say, it's a mechanical thing to do, but they were manually doing it. It was just from a transparency point of view, so we'll possibly report back on that in our report. 

If I can move on, then, can you outline the reasons for not increasing higher and additional rates of income tax in this budget?

This is something that we thought about long and hard in terms of how we would use Welsh rates of income tax for the draft budget. I know the First Minister was taking some questions on this in First Minister's questions just this week. If you do raise the higher rate and additional rate by one penny then you will raise around £36 million, and in the context of the challenges of our budget that is a very small amount. There were lots of different things that we had to consider at the time. We don't yet know the behavioural impact that raising the higher and additional rates of Welsh rates of income tax might lead to. I know that the previous Finance Committee had taken a great deal of interest in this, and undertaken a piece of research into it. I think there's been research done elsewhere. What that research tells us is that the findings are inconclusive, just because we don't have that evidence base at the moment. It just felt in the cost-of-living crisis that, with all of the challenges that we have, this wasn't the time to experiment. I think that, when we are talking about some of the very highest earners, they do have options that other people don't have, in the sense that many of those people on additional rates might have additional properties elsewhere, and they can change their arrangements so that their permanent or main home is not in Wales, and then they don't end up paying any of their tax here. So those are the kinds of behavioural changes that people might make. But this wouldn't be the time to start testing some of that, I think. 

Scotland has the ability to change bands, as well as what we've got here. Would that give you more flexibility to be able to consider tweaking the amounts that you raise in each band? Would that be something that might be of benefit to Wales and your ability to get the best out of the taxpayers that we've got? Understanding your point about protecting the most vulnerable and the people on the lowest income, having a graduated system, similar to what Scotland has got—and they've got some data coming in off the back of that now—would that give you a better model to be able to do something more progressive here?

It would certainly give us more options, and there could be benefits to that. But we also have to look at that alongside the potential risks that there might be as well. Given the nature of our tax base here in Wales, and the fact that we do have more earners generally towards the lower end of the spectrum, there might be some significant downsides to that. And also, Welsh rates of income tax are still fairly new, so they're still bedding in at the moment. I think that any changes that we would make would have to be part of a planned approach that is strategic across our taxes and that looks at all of this within the context of our tax plan—

Obviously, you'd have to balance that and take the public with you. You'd have to have a clear understanding of what you're trying to achieve by doing it as well, I'd imagine. 

Absolutely, so that the public could understand the potential benefits and risks. I might as well ask Andrew to come in on this point around the potential risks because of the nature of the tax base. 

I suppose—. Sorry, I've got a bit of a frog in my throat. The key thing, I suppose, the key difference between us and Scotland, is that they're exposed to the full income tax base in Scotland; we're only exposed to that chunk that is devolved, so that means our budget is a bit less volatile, a bit less dependent on the way that those revenues change. That could be seen as a negative thing, but it certainly makes—. If we were to be exposed to that much greater tax base risk, we would need better tools to manage the risk, for example, in terms of borrowing and scope to smooth unpredictable changes in the tax base. I think it is a complex picture that would need to be thought through. Yes, you'd get more policy flexibility, but you'd take more risk at the same time, and that balance needs to be thought about.  

I think Mike and Rhianon wanted to come in.  

The big problem is dividend income. Most rich people don't pay income tax. That's why they rarely complain about it. They get their income by dividend or they get it paid into a third-party organisation somewhere, and therefore they avoid income tax. That's why you always hear rich people complain about two things: rates and council tax. They can't avoid them, therefore they don't like them. 

Rhianon, did you want to come in? 

In a similar vein in terms of discussing the merits—and I hear what you're saying in terms of risk and the unknown consequences in terms of potentially raising even the top 1 per cent in terms of the £36 million that you've modelled—obviously, that £36 million could go towards something very, very beneficial. But was part of the thinking around that the lack of flexibility and lack of agility around what we've just mentioned, or was there also some element of risk that, actually, that level in terms of income tax payment would just avoid it altogether and we could actually be worse off in terms of not collecting anything from that bracket? 

There is a danger. If tax rates are higher for people who are on that additional rate who do have another property in England, then they could make changes whereby they make their home in England their permanent home, and then we would lose out, obviously, on the tax that they paid when their home was in Wales. Those things I think are all part of the picture, really, and we just need to find ways to better understand what people's motivations and responses might be to various different choices that we might make. 

Thank you. Just following on from what Mike was talking about in his point around council tax being an extremely regressive tax, have you considered what policies would reduce the burden of using these regressive taxes and use more progressive ones such as income tax? In that balance, it's balancing out what you can do with council tax as opposed to income tax, and whether or not one is less regressive than the other. Council tax, as Mike says, is harder to avoid because the building is there, but then again it hits everybody equally and therefore it's the more vulnerable and the people on lower incomes who are hit disproportionately. 

Income tax is a more progressive tax than council tax, and we are concerned that council tax is a regressive tax, and that's why we've got the piece of work that we're undertaking at the moment looking at reforming council tax for the future, to make it fairer for everybody. And of course, this is a piece of work that we're undertaking in partnership, through our co-operation agreement with Plaid Cymru. We've had a phase 1 consultation, which looks at some of the big questions that we will need to explore—so, just setting out that it's not our intention that this exercise should be revenue raising, for example. That's really important, because some members of the public, their initial reaction was one of concern: 'Oh no, this is Welsh Government seeking to take more money'. It's not; the whole exercise is intended to be revenue neutral, it's about sharing that burden more fairly across the picture, in terms of those who are more able to pay. That's been a really important first-phase consultation. It's the intention to launch phase 2 later in 2023, and then we'll be consulting on a bit more of the detail of what we're proposing, having listened to over 1,000 consultation responses in our first phase, which was an incredible level of response.

There will be some really tricky questions for us to explore. Transitional relief, I think, will be one of those. Because, inevitably, when you undertake one of these exercises, there are winners and there are losers, so how do we, potentially, look to smooth things for some of those who will see an increase in their council tax. And again, we'll have to explore very carefully what the impact will be on local government finance through the revenue support grant and councils' ability to raise council tax locally. Again, are transitional arrangements needed in that space? So, it's a very detailed piece of work that we're undertaking. And all of this, of course, relates to the work that the Valuation Office Agency will be doing in terms of the revaluation of all of our properties here in Wales. When we have that detailed work, we will get a much greater and better sense of what the impact will be—on a geographic basis, on an income distribution basis, and looking at various different protected characteristics, and so on. So, it's a huge piece of work. I think that, when people say that revaluation and just potentially adding more bands, at the top or bottom, is a small undertaking, it's not a small undertaking at all, and it will take us this Senedd term, really, to make that kind of adjustment. But it's a big, exciting piece of work.

As part of that work, and in some casework I've been dealing with—and I'm sure it's in all our inboxes, and yours as well, Minister—it's people who are concerned about the cost of living and council tax arrears, and the fact that with council tax arrears, if you miss one payment, you're liable for the lot, and then, potentially, you have debt collectors at the door and some unsavoury practices going on in that field. Is that something that you can look at during the review of council tax and the collection of that, and then give guidance to local authorities as to how best to deal with council tax arrears in a compassionate way? And it might well help with the tax take from that for councils, if it's built into the system—that it's collected in a better way, or understanding what those issues are.

Definitely. The first thing to say, really, is that council tax collection rates are very high, which is a good thing. And also to say that, as part of our work, we're undertaking a review of our council tax premiums, exemptions and discounts. And that will be important in terms of ensuring that all of our support is targeted where it's most needed, and that people who need support aren't missing out. Because our council tax reduction scheme is tremendously successful, I think, in terms of supporting those households that most need it.

The point made about arrears is really important. As you say, if you miss one month, then you become liable for the whole year, and that obviously makes a difficult situation even worse for people. So that's something that we are committed to addressing. It would require legislative change, so I'm exploring how we might go about legislating for that in our future Bills that relate to council tax reform. I had some good discussions about it some time ago now with Citizens Advice. I know they've been very active in campaigning in this space, and we understand the points they make. But as you say, Chair, there are things that local government can also do right now, in terms of taking that person-centred approach to people who are falling behind on their council tax, or finding difficulties in paying bills. We do have a framework agreement, or a process agreement, with local authorities, which sets out ways in which they can identify individuals who are struggling and, rather than taking a punitive approach to them, explore what more they can be doing to help that household. Part of that might be looking, in the first instance, to see if they can access council tax reduction scheme support. We know that, in many cases, households are already missing out on that. If they're missing out on that, are they missing out on other sources of support? So, councils will have welfare advice officers, or they might signpost to Citizens Advice, who can help work with that household to maximise their income, which is really important as well. So, while we don't have the legislation in place at the moment to deal with that arrears issue, which you've rightly raised, we are trying to get that compassionate person-centred approach embedded.

As part of that, I'd encourage you, if you have time, to speak to the enforcement board that has been set up and is trying to regulate bailiffs and that punitive method of collection, which happens, and some of the practices that happen there. I think you'd find it very interesting to have that conversation with them, to see what you could do, using your local authority hat, to see how you can help local authorities, in that field, to make sure that the people who are really struggling aren't being made even worse. But that's a little bit of a segue there, as that certainly adds to the whole cost-of-living crisis.

Just finally from me, before I move on to Mike, on this section, going back to the work you were doing around looking at the income tax bands, would it be something that you might consider, getting the similar devolved powers, similar to Scotland, here in Wales, so that you actually could make those decisions, balance the risks, and do that ourselves here rather than having to follow what Westminster does?

I think that we wouldn't want to consider the future of taxes on that kind of piecemeal basis; we'd have to consider it in the round in terms of our overall approach to tax, through our tax policy framework and our overall strategy for devolved taxes. And also, I think, before we ask for those powers, we would have to do all the ground work in terms of understanding what the impacts would be, what level of risk we're comfortable taking on in this particular space, and do those risks make the benefits worth while? So, we haven't really gone into that kind of depth because, as I say, Welsh rates of income tax are just being embedded at the moment. It's possible for the future, but it depends on the appetite for risk, I think.

It might be worth starting now, because we know how long it takes for vacant land tax to be done. So, give it 10 years, then we might have to do it. But anyway, that being that, I'll go over to Mike.

Thank you. The fiscal framework does appear, to me at least, extremely unfair. There are annual limits on drawdown from the Wales reserve, there's a cap on borrowing. Peter had neither of those when he was leader of Monmouthshire County Council. So, you're under more constraints than the 22 major authorities in Wales. Are you making any progress on changing both those? Certainly, there's no rhyme or reason to have a limit on your drawdown from the money that has already been allocated to you.

I couldn't agree more, and I know that the Institute for Fiscal Studies has agreed with the points that you're making there, in terms of highlighting the case for having those enhanced powers, just to use the money that we are already have in the reserve, let alone having a reserve that is of a size that's appropriate now for the size of our budget. Because, as the First Minister was saying in the Chamber again just this week, the size of our Wales reserve, and the limits that we have on drawdown, haven't changed at all since that reserve was set up. And, at the very least, they should move in line with inflation, let alone the additional responsibilities, and so on, that the Senedd takes on.

I mean, without trying to tell you what do with the Government, wouldn't it be useful to bring a debate into the Senedd, in Government time, asking for all those things and see if we get unanimity amongst the Members here, so you would actually be able to tell the Westminster Government, 'This is what the Senedd collectively thinks, not just what the Government thinks'.

Yes. I would be very happy to do that. I can see Peter sitting next to you, so perhaps some kind of less formal political discussions to tee up that debate would be useful.

I would support more borrowing powers.

Okay. And the next question is on financial transaction capital. We haven't seen them as yet—or I haven't seen them as yet. If they exist, apologies. Do you know which areas roughly they're going to be allocated to when the final budget is published?

So, I might, again, ask Emma or Andrew to come in on this point, but, at the moment, we're still working through those issues relating to the reclassification of the Development Bank of Wales and trying to understand what exactly that means for the FT requirements of the bank, going forward, and that then will determine the level of funding that we have available. We do still intend to make allocations at the final budget in terms of FTs, but we've got an exercise ongoing at the moment looking across different departments for proposals. So, I probably wouldn't want to pre-empt the outcome of that.

But you've always got housing associations that you can give it to, if nothing else.

Yes, housing is one of our big areas for the use of FTs.

Yes. As with last year, actually, we didn't allocate FTs for the draft budget; we're doing it for the final budget. And, as the Minister has just said, we've got a number of proposals that officials are working through at the moment. Housing is, obviously, a key area, and committee members will know about the restrictions placed on this type of capital in terms of who we can give it to, but we've certainly got some very active discussions because it's a really important tool in our armoury. So, you can expect to see those in the final budget.

Do you know what the quantum is of that?

Not off the top of my head, but I can certainly come back to you.

It's about £100 million, isn't it?

Yes, it's about £100 million in each year available to allocate.

Pending the results of the reclassification.

Yes. I mean, I think our current assumption—. We were hoping the budgetary consequences of the reclassification would have been fully worked through by the time that we set FT budgets for future years, but we're still in discussion with Treasury about that, so I think we'll be operating on the old basis still.

Is that £100 million new money, or does it include money that has been paid back from previous financial transaction payments? It's meant to be a loan, isn't it?

Yes. So, it's probably best to think of it as currently unallocated rather than new money. So, there have been some changes in our FT budget, but there is some scope to recycle as well, so we'll try and make all of this as clear as we can, anyway, in the final budget.

What is the limitation on recycling, because I assumed that, when you had it, you could continue to recycle it?

Yes. We have repayment schedules with Treasury, and we have to meet those, but, within those constraints, we can recycle as much as we can, really.

Thank you. Can I ask you about the mutual investment model projects, or three big MIM projects—the A465 dualling, Velindre Cancer Centre and the construction pipeline for schools? I won't go through my view on MIM, because I think that's quite well known, but what is the impact on current and future costs of inflation?

Well, inflation is having a big effect on our investment programme, regardless of how we're financing it. Obviously, it's impacting on capital funding programmes, and it's certainly affecting the price of all infrastructure. So, on the schools, financial closure was reached on a couple of MIM schools projects before Christmas. The final price of those was significantly above the level at the outline business case stage where Ministers first took decisions to proceed. So, we're seeing that across the board, but it's worth reiterating the point that this isn't particularly an issue for MIM schemes; it's an issue for capital schemes more generally. And, I suppose, a point I would add is that the A465 contract, which was signed in October 2020 now—more than two years ago—inflation risk was taken by the contractor at that point. So, there has been significant cost inflation in road construction in the last two years, but that is being absorbed by the contractor because that's what the contract set out. So, we're not seeing price escalation on that project in a way that you would, perhaps, in a capital scheme.

Well, one of two things has happened, then: either the contract had too much money in it, or, secondly, they're going to give the contract back to you and just claim for what they've spent. 

Well, neither of those things have happened.

But there are only two possibilities, aren't there? If you set a contract for £100 million, and £20 million has been added to it, and they're absorbing that, either they're being paid so much that they can afford to absorb it and continue to make a profit, or they'll just get ready to hand it back and claim for the work they've already done.

Yes, the margin is being squeezed—that's the first place to go.

Okay.

I think Rhianon wanted to come in.

Okay. I was just going to ask for some clarity, similarly to Mike, in a sense. Once the outline business case has been permitted, and that funding has gone into schools as a base for that, with the new inflationary levels and the impact on that, that doesn't come back to Welsh Government at all then, does it? It's still within the local authority’s mandate. What I'm thinking is: is it going to be a case that some of these projects are going to be absolutely unviable, and will there be some sort of conversation in terms of how they can still go ahead? Because, obviously, they're much, much more expensive than when they went through the outline business case and then the go-ahead was given. I'm just looking for a little bit of clarity, because I don't quite follow the process on that, if that's okay, Chair, very briefly. Because it's about the viability of this band B programme.

Yes, I suppose the key thing to say is that the commitment is made at the point the contract is signed. So, you have various stages prior to that where decisions are made to proceed to the next stage. But it's only at the point where you're signing the contract that you're really committing to spending the money. So, you do have that final decision point before you—. So, the OBCs for the Rhondda Cynon Taf schools and the Flintshire school were considered, I think, in 2021. But the funding was only committed at the point the contract was signed and financial close was achieved in October/November this year [correction: last year]. So, it's at that point you have to accept that the price is worth paying or not, as the case may be. It was very challenging, because the price had gone up a lot for us in the Welsh Government and for RCT and Flintshire for those schools, but, in the end, Ministers and local authorities decided to go ahead with those schemes based on the final price. But, yes, it does have a big effect on affordability.

Okay.

Thank you.

And finally from me, you know how few private finance initiative schemes there were in Wales—thank you very much, Rhodri Morgan. Have you considered paying them off at some stage? And with interest rates going up, I know, from a discussion we had with Anthony Hunt this morning, the Public Works Loan Board is lending at 5 per cent at the moment. Are you borrowing from the Government at exactly the same rate?

Do you want to come in on this one as well?

Yes. So, I think that's a bit higher than the rate we would get. I think we're looking at less than 4 per cent at the moment on—

Just can you write to us? 

Yes, sure.

There we are. Peter.

Thank you, Chair. I wouldn't mind exploring budget prioritisation and prevention and how the impacts of the budget are demonstrated. If I could start by—. What are the implications of pausing or reducing revenue spending in areas where you've decided to take this approach?

So, ahead of the publication of the draft budget, one of the pieces of work that we did was to reprioritise funding from some parts of Government towards public services, specifically local government and health and, obviously, we had some interventions that support the cost-of-living crisis and so on as well. So, there were areas where portfolio Ministers agreed to release funding from. So, I'll give you an example, being the prioritisation from within rural affairs. So, that's been limited to farm funding outside of the basic payment scheme, and I know how Mike Hedges will feel about that, so I might wait for him to come in on that. But it did reflect a reduction to the rural economic and sustainability budget expenditure line. So, that main expenditure group has a £63 million uplift through the multi-year settlement in 2022, but that's now been reduced by just under £9 million to £54 million. So, I know that Lesley Griffiths is now working through what that means for the specific things that she'll be able to support through that MEG, and I think that she gave evidence to the environment committee yesterday exploring in a bit more detail some of the difficult choices that she'll have to make in that space. That's just one example. 

Yes—

Sorry, Peter, just on that point, which one was the largest-sized reprioritisation that you had? You talked about that one. Was it that one from Lesley Griffiths, or was it—?

Yes, percentage-wise, in terms of the overall MEG, it was the rural economic and sustainability BEL.

And in financial cost, the actual quantum?

I think the biggest area of reprioritisation, just because it's the biggest budget, is within the health MEG. 

And was that one thing in particular?

No, it's spread across a lot of different programmes within that.

Okay. Sorry, Peter. 

Thanks for giving that example of the one MEG, and that's where it's difficult, when many areas of things are now held or—not deprioritised, but sort of have to be shelved a little. When it's spread over so much, it's very difficult for us to challenge and understand what the actual impacts of that are, and it's something that is a theme, I think, others have felt; it's difficult to track what the implications of that are. And I'm conscious we won't be able to explore that here, but I think it would be helpful for the committee to perhaps get a deeper understanding of the consequences of having to prioritise—what that might have meant for the health MEG for instance. Because it's difficult when you're putting additional consequentials in, but you're taking something out or stopping something. It's difficult to understand the picture of that. So, it might be helpful if we could understand that at some point. 

I think the BEL tables are really helpful in showing where money has been moved away from through the budget-setting process. And then every Minister has provided a written paper to committees, and often they tease out and explain some of those things. And also, obviously, each Minister will be discussing the particular movements within their budget within their own committees. But one thing that we have done in recent years is pull together the committee evidence—the papers particularly—and publish them as a single document, so that there's a greater level of transparency. And I think that the third sector, particularly, has found those helpful, so that they're able to see all of the evidence together and then look for those kinds of cross-Government implications of choices that have been made. So, we do make as much of it as accessible as possible. 

Because that's the point—it's the implications for health, but it might have an implication, then, on social services, on transport, and it's that overarching—. It's the theme then, and then it's from that that you work out what the implication is to our communities and to our councils, or to whoever that's been targeted to. So, it's welcome to see that sort of work being done, and it is helpful, and more can be done to get into that detail. And the earlier that is able to come out, the better, obviously, for scrutiny sessions, and for being able to respond to budgets and say, 'Well, this is what we would have done if we were in your seat.' But, we're not able to do that, because, sometimes, the transparency isn't there until after the fact. So, it's always a difficult one, isn't it?

Shall I invite Emma to come in on this? But, before she does—and I hope she wasn't going to make the same point—it was around the strategic integrated impact assessments. So, the intention of that is to understand the multiple impacts, the cumulative impacts, of decisions that are made, particularly on people with protected characteristics. So, just understanding that decisions made here, and here, can have, combined, a very large impact on certain groups. So, it's trying to take decisions in a way that aren't isolated—[Inaudible.]