Pwyllgor yr Economi, Masnach a Materion Gwledig
Economy, Trade, and Rural Affairs Committee01/03/2023
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Darren Millar AS||Cadeirydd dros dro|
|Hefin David AS|
|Luke Fletcher AS|
|Samuel Kurtz AS|
|Sarah Murphy AS|
|Vikki Howells AS|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|David Staziker||Banc Datblygu Cymru|
|Development Bank of Wales|
|Edel Moroney||Llywodraeth Cymru|
|Elizabeth Thomas||Llywodraeth Cymru|
|Gareth Bullock||Banc Datblygu Cymru|
|Development Bank of Wales|
|Giles Thorley||Banc Datblygu Cymru|
|Development Bank of Wales|
|Lesley Griffiths AS||Y Gweinidog Materion Gwledig a Gogledd Cymru, a’r Trefnydd|
|Minister for Rural Affairs and North Wales, and Trefnydd|
|Rhian Elston||Banc Datblygu Cymru|
|Development Bank of Wales|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Evan Jones||Dirprwy Glerc|
|Jennifer Cottle||Cynghorydd Cyfreithiol|
|Lara Date||Ail Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.
Dechreuodd y cyfarfod am 09:32.
The committee met in the Senedd and by video-conference.
The meeting began at 09:32.
Bore da. Croeso i gyfarfod Pwyllgor yr Economi, Masnach a Materion Gwledig, a Dydd Gŵyl Dewi hapus i bawb.
Good morning. Welcome to this meeting of the Economy, Trade and Rural Affairs Committee, and a happy St David's Day to all of you.
Welcome to you all. It's great to able to chair this committee in the absence of my colleague Paul Davies, who I'm sure we all wish the very best for the treatment that he's currently undergoing. The only apology we have is from Paul today. Are there any interests that Members need to declare before we move into the rest of the agenda? If there aren't, we'll move on to item 2.
We've got a couple of papers to note. The first is a letter from the Minister for Rural Affairs and North Wales, and Trefnydd in relation to the Finance Committee's request to ensure that the Welsh Government's responses to the Finance Committee report on Bills are received prior to the Stage 1 debates. So, I’ll take it that that is noted. There's a good commitment there from the Government to try to make sure that those things are available.
We also have a letter from the Minister for Rural Affairs and North Wales, and Trefnydd in relation to the Approved Country Lists (Animals and Animal Products) (Amendment) Regulations 2023, which are something to do with Switzerland and Iceland export issues, which the committee will consider at a future meeting. So, I take it that we will note that as well.
We'll move on, then, to item 3 on today's agenda, the Food (Wales) Bill, evidence session number 7. This is an important session, of course, because we have with us today the Minister for Rural Affairs and North Wales, and Trefnydd. We're delighted to have you with us, Minister. We're very grateful for your attendance, and I want to welcome also, to today's meeting, your officials. If I could ask your officials to introduce themselves, just for the record, that would be great, and then we'll go into questions, if that's okay.
Okay, thank you.
I'm Elizabeth Thomas, senior lawyer in the office of the chief veterinary officer's food, fisheries and marine team in legal services.
Hello. I'm Edel Moroney, senior food policy manager.
Welcome to you, Edel, too. Obviously, after today's meeting, you'll get a copy of the transcript of the proceedings. With your permission, Minister, we'll go straight into questions, if that's okay, but feel free to give a little introductory statement as well if you want to.
One of the things that we're struck by is that the evidence that the committee's received to date appears to be overwhelmingly in favour of the Bill that Peter Fox has brought forward. In fact, 76 per cent of the respondents so far have indicated their support for the Bill. You've obviously got a difference of opinion with them. Can you explain why that is?
I quite agree with you. When you see the responses and the evidence that not just you, but the Finance Committee and the Legislation, Justice and Constitution Committee have taken on this Bill, there is overwhelming support for it. But I think the main reason for that is that stakeholders think that our food policies aren't joined up. Now, I do disagree with that, however, we all know perception's everything in politics, and if that perception is there, then that needs to be looked at and understood. So, I don't dismiss at all that our stakeholders think that that is absolutely the case. But I think what is really important is that we look at that perception and we also look at the facts. So, if you look at the evidence that committees have taken, there is only one example—unless I'm mistaken and anybody wants to tell me any different—there's only one example that's been given as to why people don't think our policy is joined up, and that is around the support that Welsh Government has given for the egg and poultry industry in mid Wales and water pollution, and I would say that, yes, policy should be better aligned in respect of that one example. I can't see any other examples, and if you look at how complex food is and the breadth of food policy in particular, for me, what this shows is how well Welsh Government is managing our food policy.
On the letter that you sent me, Chair, around goals—and I appreciate I only responded yesterday, but I do hope Members have had the opportunity to look at that—I gave, I hope, a significant and substantive response to every area of goals and what's been achieved by our food policy. I think every aspect of the goals has been covered, and is covered, by Welsh Government food policy. But, as I say, personally, this is Stage 1, obviously, of scrutiny. Wherever this goes, I would be particularly interested to know why our stakeholders are so adamant that they don't think our food policy is joined up, because I would want to get to the root of that, really.
So, the other reason—and I've stated this both in the Siambr and in committees—is I don't think legislation is needed to cover the things that the Bill is proposing. And I've had lots of discussions with Peter Fox around this, and I think there are quicker, cheaper—. 'Quicker' is probably the main reason—that you can do things far more quickly than going through a very long legislative process.
Do you mind me asking what do you think that Peter's vision is outlining that you may be able to do more quickly?
Well, it's quite vague, and I don't want to be disparaging; I'm not at all. Peter's got some ideas that I think we will take forward, we need to look at. So, the national strategy, at the moment I don't think it's necessary, but people are telling me, 'Well, perhaps we could look at that', and, as I say, once Stage 1 is over, then it's something that we can look at. But there are lots of things that I'm not quite sure how the Bill would make things better, for example. The food commission is just another layer of bureaucracy. So, if you think about—. I've said, in other places, that I think what Peter has done is to take the Good Food Nation (Scotland) Act 2022 and try and bring this to Wales. We've got the Well-being of Future Generations (Wales) Act 2015 here in Wales, which governs all our legislation, as you know. So, if you think of the Act in Scotland as being square, they're trying to push it into a round place here in Wales. So, I think we need to look at using, perhaps, our public services boards in a better way. That's one of the things that Peter's suggesting with food plans. Maybe we could look at that, for instance, but we wouldn't need legislation to do that.
Okay. You mention the well-being of future generations Act; of course, the future generations commission supports the Bill as well. And, of course, in the fifth Senedd, there was a committee, the committee on climate change, which called for a more integrated and holistic approach into the food system with clear targets. I mean, are those things that you've picked up from the work of the previous Senedd in your inbox?
Yes, absolutely. So, just going back to your first point around the well-being of future generations commissioner—of course, we've just had a new commissioner, last month—and, interestingly, food as a whole isn't included in the future generations Act, but, of course, food production is. And, if you look at A Prosperous Wales, 'A Healthier Wales', et cetera, food is absolutely at the heart of that. I'm meeting with the new commissioner this month to see what more we can do in relation to food. Because, again, I'd be very interested to know why he's—. And it's interesting, isn't it, even people who don't support legislation still think we're not joined up in food policy. So, it is a real issue, and you don't not go into that in depth as a Minister—you really want to understand why people think that.
In response to the previous Senedd—I think it was the Climate Change Committee it was called then—yes, absolutely, and, at the time, we were developing our strategic vision for food and drink, which was replacing our food and drink action plan from 2014 to 2020, and we were already developing that. And what our strategic vision—. I launched it back at the winter fair, in November 2021. And what that vision emphasises is the approach to the food and drink industry here in Wales—to develop the manufacturing and the processing industry in a much more rounded way. It also sets out very clearly the connections with other policy agendas. We're a very small Government, and you can link up much more easily than larger Governments. So, it just shows how all those policy agendas fitted in together. I think it's also about raising the profile of Welsh food and drink very positively. I think we've had tremendous success, and I referred to the food and drink action plan that finished in 2020, which overachieved. And I think that's down to our amazing Welsh food and drink producers, but it's also down, I think, to the leadership shown by Welsh Government.
Okay. Thank you for that. I'm going to hand over now to Sarah Murphy.
Thank you very much, Chair. Thank you, Minister. The explanatory memorandum highlights data showing a rise in childhood obesity in recent years, and that Welsh reception children are more likely to be obese compared to those in Scotland and England. Does not more need to be done in this area, and how could you see that being done through a food strategy?
Well, of course, more always can be done, can't it? Childhood obesity is a very serious public health problem, not just in Wales, but across the UK, and I would say it's also growing in many other countries across the world. What we need to do is really actively pursue policies that do address it, and, obviously, it's not my portfolio, but 'Healthy Weight: Healthy Wales' is probably our main policy that takes that forward. I think that was launched about three or four years ago now. It's a 10-year plan, and that's got a very comprehensive, targeted approach. I suppose that's why I'm going back to saying: how will a—? Whilst I've said a food strategy I don't think is necessary, I'm prepared to look at it, because we want to do all we can. But, at the moment, I can't see, in answer to your question, how a food strategy could affect childhood obesity. I think what is really important is that we look at early intervention. As I say, this is not in my policy area, but we need to look at early intervention and behaviour changes. I suppose one of our other policies that can help is the free school meals—having that healthy meal every day, for every child, in every school, will help us address that.
I suppose what we've heard, though, in our evidence is that, at the moment—. Like you said, if you take the free schools meals, it's about making sure that schools are able to get, then, that fresh food, and that is not always possible, and there is not that joined-up approach to it. I've also been on the Equality and Social Justice Committee, where we've looked at the Social Partnership and Public Procurement (Wales) Bill, and maybe it was a bit of a missed opportunity, and I've discussed this with Peter as well, that something couldn't have been put in there around food security and food strategy, in terms of the procurement of food for schools, for the free school meals, as you said. So, I suppose maybe now there has been that missed opportunity, there is that gap there, and I suppose people could say, as you said, that there hasn't been that joined-up approach. So, I suppose, to put to you, I guess, then: how do we fill that gap, then? How can we make sure that those free school meals, as you mentioned, are getting the kind of food quality that they need, and it's local and it's sustainable and it's coming from, hopefully—that's the point of it—Welsh producers?
Yes, I do think we will miss an opportunity if we don't procure more Welsh food and drink. For people like Darren, who's been here as long as me—when I was health Minister, we could not get Welsh food. Welsh lamb was the main one. We had a famous chef who was doing programmes on hospital food in Wales, and he couldn't believe that we could not procure Welsh lamb, which he could see in the field opposite. It was too expensive, that was the basic—. Because we were procuring the cheapest at all times. Procurement is obviously something we're having to look at. As a country, we probably won't be self-sufficient in fruit and vegetables for a long, long, long time, but I'm trying to do all I can to encourage horticulture to come forward with a lot more. It's only 1 per cent of the agricultural sector at the moment in Wales; there are huge opportunities to expand on that, but we need a market for it, don't we? And so, working on the market with our trade missions, et cetera, it's really important that we look closer to home. It's local authorities, our hospitals, our public sector where we really need to get more, and that's something I'm looking at very closely. The agriculture Bill that we're bringing forward—absolutely, food production is at the heart of that as well.
Okay. Thank you very much. And then also the Food Foundation has reported that 18 per cent of households in Wales were food insecure in September 2022. I imagine it's probably higher than that now. What are you doing to tackle this issue, especially with the cost-of-living pressures, and do you think that more needs to be done?
Well, let's be frank—we don't have all the levers in relation to the cost-of-living crisis. The two main areas where you can have the most influence are the fiscal policy areas and the benefits system, both of which rest with the UK Government. I think the UK Government needs to look at the budget this month, and this is an opportunity for them to do more in relation to the cost-of-living crisis. You'll know of the significant amount of work Welsh Government has done trying to get money into people's pockets. The Minister for Social Justice, particularly, is doing a huge amount of work.
I think, going back to what we were saying about universal free school meals, that's an area which—. It's a step to break that long-term cost of poverty, for instance, that we know families are facing. But I've worked with the Minister for Social Justice. It's interesting. As you know, we're looking at a community food strategy as a programme for government commitment, and I asked officials—David Lloyd-Thomas isn't with me today, but he's leading on this piece of work—to map out what was being done across Government—this is going back nearly two years now when we first came back after the election—what was being done in the community food strategy space across Government, and I was astounded how much work was going on. But a lot of it is in the Minister for Social Justice's portfolio. She's extended the Big Bocs Bwyd programme, which I think has been very successful, and also the community-level Food Sense Wales model.
Food security is very, very complex; I'm learning this. It's obviously integrated across the UK, but we've seen, haven't we, that what happens in Spain has an impact on our food security in the UK. I can't control that; the UK Government can't control that. So, it is such a complex and big area. As I say, we just cannot do it on our own.
Thank you very much, and my last question: you told the Legislation, Justice and Constitution Committee you don’t believe the Bill provides the solutions to the issues included in the EM. Can you further explain that assertion to us, please?
Yes. I suppose my starting point in relation to that is I don't accept the central argument that's in the EM that policy is not joined up, so I suppose that's where my basic point—. If you look at the EM, it repeatedly claims that policy is incoherent, but there is no convincing evidence to me that that is the case, and you can see that in the consultation responses that you've had to the Bill. I don't think there's much substantive evidence in the evidence that you've taken to support that either. So, for me—and I go back to my initial answer to the Chair—I think a lot of this is based on perception, and I absolutely accept that perception has to be dealt with.
I hope that the letter I sent, Chair, really does outline why I think that. I've listed substantively all the areas and the goals and what we're doing in each policy area. There are specific, there are very relevant, targets in all those areas that fully address, I think, the food goals that the Bill has.
Thank you very much, and thank you very much, Chair.
Thank you. Luke Fletcher, you wanted to come in before I come to Vikki Howells.
Diolch, Cadeirydd. Just very briefly, the Minister mentioned Big Bocs Bwyd as an example. Of course, as we've already well rehearsed in the committee, the strategy is to try and get that food policy joined up. An example of Big Bocs Bwyd locally in Bridgend—. Sarah will be aware of a lot of the good work that community organisations are doing with food. When Big Bocs Bwyd came in to the Bridgend area, what ended up happening was Big Bocs Bwyd was competing with a lot of these community organisations already for the same load of food, and what we saw then were shortages of food—difficulties in those community organisations in getting that food. Is that not an example of policy not being joined up? Isn’t that something that a strategy could potentially address?
I think not having duplication is very important. I suppose that’s another thing for why I’m saying we don’t need another piece of legislation, because we’re really keen to avoid that. I don’t know the specifics of the case that you’ve just brought up, but I think it is really important. Just last week I was on a farm during recess where—this is for purchase, but a farmer was diversifying to have boxes of vegetables being delivered, and I thought was doing it on quite a small scale, but she was really keen not to duplicate. I’m saying it is really important that we don’t duplicate, but, equally, we need to give people the opportunity to have those fresh fruit and veg. But, certainly, I will mention that to the Minister for Social Justice.
But, as I say, for me, I don’t think the Bill—. It’s not just the perception about not being joined up, but I don’t think the Bill grasps the points around the Well-being of Future Generations (Wales) Act 2015, which we already have. I’m very keen not to duplicate that. For a Government it’s hard enough, when you’ve got these priorities that you have to—you know, competing priorities. But, if you think about our public services boards, which don’t have the capacity that Welsh Government has, it’s going to be very difficult for them to do it, I think.
Okay. Vikki Howells.
Thank you, Chair, and good morning, Minister.
We’ve already touched on the complexities of food policy and acknowledged the fact that the majority of stakeholders don’t believe that Welsh Government policy is sufficiently joined up, but I’d just like to explore that a little further. A Food Research Collaboration review in 2020 found that there were 16 different UK Government departments involved in food policy, so has the Welsh Government carried out a mapping exercise to understand where all these various strands of food policy actually sit, and how they work together?
I’m not aware of a mapping exercise. I just referred to a mapping exercise we’ve done around community food strategy; I’m not aware of a mapping exercise in the way that you suggest, but probably that’s because we’re so much smaller than the UK Government. But it certainly does sit not just in my portfolio. Even within my portfolio I’ve got my food division, which obviously leads on policy and support for our manufacturing and food and drink producers. But that team, even within my own portfolio, is connected to, if you think about it, agriculture, fisheries, land management reform—so, that’s just within my portfolio. Then you’ll have a team within the foundational economy, you’ll have a team within trade and investment, obviously public health—I work very closely with Lynne Neagle in relation to public health. And then we’ve got the prosperous futures and support for learners divisions, which are looking at free school meals. So you can see right across Government there are several departments. I’m not aware of a mapping exercise specifically to look at that, but, as we’ve said, it’s a very complex and very wide area of policy that certainly does fit way across Government. But I think because we are such a small organisation it is very easy to make those links.
And are there any particular mechanisms, then, that are used by Welsh Government to ensure oversight and join-up? Or is it about those individual strong working relationships that you’ve already alluded to?
No, we do have a variety of mechanisms. It does depend on the specific issue. So, some can be much more formal in nature, but we have several groups, we’ve got several reporting systems to Ministers. Ultimately, Cabinet is the end point—that’s where the decisions are obviously taken. But, if you think about free school meals, which is obviously a very significant policy for us at the moment, there was a food supply working group that was looking at that policy, and officials would attend that. It was jointly chaired by several deputy directors, so, senior officials in the civil service. They would have a formal agenda, it would meet regularly, there would be terms of reference, there would be membership of that group, and that, then, would provide very clear, joined-up policy to the different Ministers that those teams worked for. Now we've got our programme for government—so, obviously, we're just in the second year of that—and we've got the co-operation agreement now as well, so there is a Welsh Government-wide group that looks at all the different policies there as well. That's chaired by the Permanent Secretary, I think, and, again, senior civil servants would attend that frequently.
Thank you, Chair.
Okay, Vikki. We'll come over now to Hefin. Hefin David.
Just to be clear, Minister: are you arguing that there should or shouldn't be a national food strategy?
Me? Are you asking me that? Sorry.
Sorry, Hefin. So, I don't think it's necessary. However, what I've said is, if, during the scrutiny of the food Bill, it becomes apparent that it could do something for us as a Government, and it could make the complexity of policy simpler, I'm very prepared to look at it. At the moment, and certainly in the initial discussions I had with Peter Fox, I would say there isn't a need.
And how—? If you started to change your mind as a result of this process and Stage 1 report, how would you envisage the process for developing a food strategy happening?
We have given no consideration to that whatsoever. It's something that we would have to look at. So, as you know, I'm hoping to make some progress on the community food strategy in the very near future, and perhaps we could look at it alongside that, because I don't have a huge capacity in my food division. I've got 44, I think—44 officials—in my food division team, which sounds a lot, but it really isn't when you look at the significant work that they do. As I say, at the moment, I'm still not persuaded. What I do take away from this is that we need to look at why people think our policy isn't joined up, and even people who don't think we need this piece of legislation think our policy isn't joined up. So, there is—. Whether it's perception, whether it's fact, I think, as a Minister, I'd be very foolish to ignore that, and that is where my main focus will be.
That's a very open answer, thank you very much. And just as the—. You mentioned your officials and the civil service capacity. That does sound concerning. Is there an element that the work going on on this food Bill is distracting from other things, the agriculture Bill, for example?
No, not the agriculture Bill, that's a very different team, but it certainly is taking away from the community food strategy. I appreciate it's a five-year term of Government, and it's policy within the programme for government, that will be delivered in this five-year—. But we started off really enthusiastically. As I said, we did this mapping exercise right across Government, and we were going really well, but David Lloyd-Thomas, who is the main official working on that, has now been working on this food Bill, so we haven't made any progress probably now for the last six months. You know, we only have the number of officials that we have, and you have to make the best use of them, and obviously this has a specific timetable that we have to follow. So, I would say, primarily, the piece of work that has been most affected is the community food strategy, which is very important to me, because I stood on a manifesto that said we'd deliver a community food strategy, and it's a very important programme for government commitment for me.
That's a significant point, and I think there's a wider issue for all committees about the capacity of the civil service to deliver Welsh Government programmes. And the other question I had was just, below strategic level, how can we be confident without a Bill that the secondary goals that you have and targets that you set with regard to food objectives are met and are measured without the statutory duty?
Well, we certainly don't need the food Bill to do that, and I appreciate—. Annex A of the letter I sent to committee yesterday sets that out, and I appreciate that you might not have had time to read it, because I only sent it yesterday, but just looking at it now—I've brought it with me—it's six pages, or five pages. Every goal, it's explained what the Welsh Government policy is and how they're measured. I'm a Minister that likes targets; I do like targets. I know, sometimes, they can have outcomes that perhaps we don't want, but I always try to think, 'What's the endgame? Where do we want to get to?' and then work backwards. If having targets gets us to the position we want to be in, then let's have targets. Sometimes, they can, as I say, have outcomes that we haven't thought about, and not always for the best. But everything that we do is monitored, and the targets—. I think the other thing as well, isn't it, is recognising that targets are the minimum. So, if you go back to the food and drink action plan we had from 2014 to 2020, when we started that process in 2014, I wasn't, obviously, in this portfolio, and I remember thinking that was a really, really ambitious target by 2020 and no way would we reach it. It was a target to grow the industry up to £6 billion, I think it was, turnover every year. And we reached £7.3 billion. That was brilliant. And I thought it was overambitious. So, it just shows you that they do better, sometimes, when you don't have a target, but there we go.
Was that before you were Minister, or—?
So, Alun Davies was the Minister in 2014, who I remember bringing it to Cabinet, and me thinking that was very ambitious. I was very lucky to be the Minister when we achieved it, and actually it went way, way over the target. It was brilliant.
We're not going to hear the end of that now. [Laughter.] And finally, I'd like to ask about the Welsh food commission proposal. You said it overlaps with the Food Standards Agency, whereas Peter Fox has said that it doesn't, because the FSA is more about food safety and standards. How do you respond to what Peter told us?
So, I think there are a couple of issues around the food commission. And I'm going to be very blunt now: there is no money, and a food commission would cost a significant amount of money. You only have to look at the commissions that we currently have to see the costs there. I don't have any money, and I think it's highly unlikely there will be any money coming forward.
I hear what Peter said about the FSA, but I think it's around the actual relationship between the actual Bill text, the existing law and then the FSA, and that's not very clear cut. He's quite right, the FSA's main focus is around food safety and standards, but they do have functions around developing policies. I certainly meet with the FSA. It doesn't sit in my portfolio, it sits in Lynne Neagle's portfolio, but I certainly have meetings with the FSA. I think one of the functions they have, as I say, is around
'developing policies (or assisting in the development by any public authority of policies) relating to matters connected with food safety or other interests of consumers in relation to food; and'
'providing advice, information or assistance in respect of such matters to any public authority.'
Now, that function alone could overlap with the proposed commission. I don't think Peter—. He certainly hasn't explained to me—I don't know if he's explained to committee, or if he's been in front of committee yet—why that's not the case or how the Bill as it is in its current form, Peter's Bill in its current form, could be amended to address that risk. So, that's not for me to explain; that's for Peter, as the proposer of the Bill, to explain, really.
Okay. I suspect if I go any further on that issue, I'll be overlapping into what Sarah Murphy might want to raise later, so I'll stop at that point.
Thanks, Hefin. Sarah Murphy.
Thank you. I hope it's the right time for me to come in with this question, because it's something that we've had come up a couple of times about a Welsh food commission and a Welsh food commissioner. I can absolutely see—. If you look at the commissioners and how much they cost and the budgets, I can absolutely see that that's prohibitive at the moment. But I was thinking, as we've been going through this process, about the possibility of having a, for example, deputy commissioner within the future generations commission team, because it would allow, then, the two to work very closely. But I have to say a lot of the evidence that we're hearing is the reasons why people seem to want to have a commissioner are because they do want somebody who's overseeing and making sure that things are joined up, making sure there isn't duplication—a bit of a figurehead, I think, in some respects. As we heard from Vikki Howells, there are 16 different parts of UK Government that deal with this. It's also working across all the different policies that Welsh Government have coming out. So, is this something that you would be open to, integrating it into the future generations commissioner, instead of creating a new one?
So, I mentioned that I'm meeting the new commissioner this month, because, as I say, food is not something that I think the previous future generations commissioner looked at in the way that is being proposed with the commission. So, I suppose—. I can certainly ask that question of him. I think he's only just started, so he may not have had the opportunity to think about that, but, obviously, the future generations commissioner, the office, does cover—. And I think that some of the deputy commissioners look at different topics, so maybe food—. It's so important; it's important to everybody, isn't it? Everybody—. We think about food every day, some of us more than others, but it's a very, very important issue, and it's a very complex issue. I just explained why food security—. I can't deal with food security on my own for Wales; I have to do it as part of the UK. But, even as part of the UK, what happens in Spain, I have no control over. In fairness to Thérèse Coffey, she said the same last week. But it is very, very true, and that's why I want to build up the horticultural sector, for instance, in Wales, to make sure we have more locally produced vegetables. I would much rather buy vegetables from a local greengrocer. And it's interesting, isn't it: at the moment, we're hearing lots of issues around our supermarkets not having fruit and veg; our greengrocers seem to. But it's personal choice as well, and, of course, cost has to be thought about as well. But I'm certainly very happy to take that to the new commissioner.
Thank you very much. Thank you, Chair.
Thank you. I'll bring Vikki Howells back in now, if that's okay, Vikki. Then over to Luke.
Thank you, Chair. Moving on to local food plans, could the requirement for public bodies to produce local food plans, with support from the Welsh food commission, improve co-ordinated local-level implementation of food policy?
I think, in fairness, I can't answer that question with much certainty at the moment. It would depend how well the commission works, the capacity of it, what the expertise of it would be, who would be working in it, the question of how it functions to inform, whether it advises public bodies. I think the bigger policy point for me is the waste of resources a Bill would cause, because there's already a governance infrastructure in place, thanks to the well-being of future generations Act, and that's there to provide and to co-ordinate policy and planning. As we know now, under the WFG Act, local authorities produce well-being plans, and that can and does cover food-related matters. So, already, we've got that ready-made mechanism in place for making and improving the co-ordination of local level policy. As you know, the well-being of future generations Act did establish our PSBs, and so those well-being plans are considered and address at the local level issues in a very co-ordinated way, I think, so I'm not quite sure why Peter hasn't looked more at that and what the potential role of PSBs could be within that, and certainly, that's something that we're looking at as part of the community food strategy, which as I say, is a programme for government commitment and will be being brought forward.
Thank you. So, just to clarify, then: you believe that this is an area that could be covered by the PSBs, and also by the incoming future generations commissioner having a role in this area as well.
Yes. So, as I say, the Act brought into being the PSBs, and so they certainly—. I don't see why they cannot focus on food perhaps a bit more, but the reality is very few have given food any attention to date, so I think that needs to be something that we can look at within the PSBs. They need to start looking at that. But we've already got that governance there, and we wouldn't need a further piece of legislation.
Thank you, Chair.
But you'd have to do that by giving them direction to consider these things more, would you, Minister?
Yes. As I say, it's something that I'm very happy to look at with the new future generations commissioner to see if there is more we could do.
Okay. Luke Fletcher.
Diolch, Cadeirydd. If I could just touch on the question of resources briefly. You've said that Bill is resource consuming. Hefin David touched on capacity, and you also mentioned there's no money, but we have had evidence that the approach set out in the Bill will potentially save money in the long term around people's health and environment. Simon Wright and the Nature Friendly Farming Network have been some of the people arguing this point. In fairness to you, I think it's fair to say you've agreed that there's a need for some long-term thinking here, but would you not see this Bill as a potential investment in the long term?
Food is very long term, as is agriculture. Certainly, that long-term thinking is very much needed for our food issues, and that's what we do through all the policies we put in place—they're all very long term. If you look at the strategic vision that I mentioned that I launched back in November 2021, interestingly, we didn't put an end date in this time. The food and drink action plan was 2014-20, but we've left this with no end date, because I wanted to be able to adapt it or update it as circumstances change, because we know how quickly circumstances do change.
I'm not wholly convinced by arguments that the Bill will save money in the long term. I suppose the main reason for that is that the costs, I think, have been very much underestimated, even if you just look at officials' time, for instance. As I say, Scotland have got the Good Food Nation (Scotland) Act 2022, and my officials have been talking to their counterparts in Scotland. They are saying that it's far more resource-intensive—that's both finance and in officials' time—than they thought. The other issue is we know the Bill would cost a lot of money to implement. How much will the food commission cost to set up? You can look at the future generations commissioner's office, you can look at the children commissioner's office and maybe that's a bit of a ballpark, but there isn't really a figure, I don't think, in the Bill that would help me there realistically.
I also think the likely workload of implementing the Bill—. There are very specific timescales, so you've got to set up a commission within two years, for instance. That might sound like a long time, but it really isn't. We're two years into this term of Government already. Time goes really quickly. So, on the points about it will save money, if you look at all the evidence that we have up to date, I don't think it's evidence, and I think there's an element of, 'Trust me, this will save money.' I don't see it coming through, unless you can tell me any different.
Say now we were able to come back to you with figures on those savings, then that would change your mind.
Well, I'd certainly consider them, but having had—. I haven't had discussions; as I say, officials have had discussions, and I don't know if it's you or if it is just David, so I don't know if you can say any more, but I know you've had discussions with Scottish counterparts. I don't know if you have anything extra you can say.
Absolutely, yes. Everything we do in the food policy area we co-ordinate inter-governmentally. Just to mention the strategic vision, 30 internal Welsh Government departments were consulted by the food policy team, just to check how the new vision would relate to education, environment and health. But, yes, we've been in touch with our colleagues up in Scotland and it seems that the original budget was—. It's impossible, I suppose, to decide how much something is going to cost—things change as they go along—and they found that it has been increasingly more expensive than they anticipated. But with regard to saving money, I would say that all Welsh Government policies existing in place actually reach the secondary goals, so Welsh Government see now that there's no need for this Bill because the goals are being met, and if there is any area that isn't, the community food strategy will meet those goals.
On that point of underestimating costs and costs changing all the time, you could argue that in any policy, though, couldn't you? And then where would that leave you with other policies?
Yes, absolutely. Invariably, costs go up, don't they, and we've seen that. But, as I say, it's not for me to say how much this is going to cost—that's for Peter to explain. Certainly, the evidence that officials have taken—. I use the Scottish good food Bill as an example because I think, and Peter would be the first to say, there are similarities between the two.
And of course, the Finance Committee will report on the financial implications of the Bill and look at that in some detail. Sam Kurtz.
Thank you, Chair. Minister, good morning. The Bill affords some level of flexibility to you as a Welsh Minister and your successor, whoever that may be, at whatever time, through regulation-making powers, for example to amend the description of secondary food goals and setting targets for these goals. If this Bill were successful, how would you use that discretion and is that flexibility needed?
I haven’t given any detailed consideration to that at this stage. Obviously, this is just Stage 1. If we got to the scenario of having to operate the functions imposed by the Bill, I think we might need to see how matters progress to make a judgment about whether descriptions or goals should be amended, for example. That’s probably the best example I could give you. So, we really haven’t given that detailed consideration. I would question whether the Bill does provide sufficient flexibility to cope with the very complex co-ordination of planning, targets, monitoring and review activities that it would put in place. I’m not quite sure there is that flexibility, but as I say, that’s just an initial reaction, really.
Because there were a few witnesses who gave evidence who would have liked it to have been a bit more specific in certain areas, then on the understanding that Peter wasn’t going to be the Minister enacting this, they understood, ‘Ah, hence the vagueness’, given that flexibility. So, is there a level of contradiction there in terms of what some of the witnesses have said around flexibility and your interpretation of it?
Well, that’s my view, it’s my officials’ view. I go back to what I was saying in a previous answer to Luke about having two years to set up a commission. That’s not very flexible, is it? ‘You’ve got two years to set it up.' That’s really inflexible. That sounds a long time, but it really isn’t, and I’m not sure that we could complete everything within two years. Given the complexity of the issue, I’m not sure we could complete that in two years. So, there’s no flexibility around that. They’re saying that we would have to set targets by regulations for each of the secondary food goals every two years. You’d just be completing it and then you’d be starting again. That would be a rolling programme. Sorry, the commission—. Hang on, let me get this right. The commission has got to be set up within three months, hasn’t it?
Yes, sorry, three months, not two years. I’m getting my dates mixed up. Three months is nothing to set up a commission, and that’s completely inflexible. So, I probably do disagree.
Okay. And then going back to the Chair’s initial questioning around 76 per cent of respondents to the draft being in favour of legislation, and then your answer to that is around perception rather than what is true at the time in terms of Welsh Government policy, what is it out of this Bill that you like?
What do I like?
Well, the aims of the Bill—I’m not disagreeing with what he wants to do. He wants to get that more joined up. But what I’m saying is that, when the respondents are saying that policy isn’t joined up, the only one example I’ve seen, unless you can tell me any differently, is the one about the support that the Welsh Government has given to the egg and poultry sector in mid Wales and the diffuse water pollution and that they weren’t aligned. And I would agree with that, but I can’t see anything else. What do I like? The aims; I don’t disagree with what Peter’s trying to do. What I’m trying to say is that we can do a lot of it already—we can do the majority of it already. And I’m very happy to look at the perception that we’re not joined up.
Just on the point about the egg producers and water pollution, I think we’ve had evidence before from NRW to say that there isn’t a direct correlation between the two. So, is that a disagreement between yourself and NRW on that assessment?
No. We have at least three substantiated agriculture pollution incidents every week and we have had for many years. I don’t know the details of every one, obviously, off the top of my head, but clearly we have seen some increase in pollution that we are trying to address, as you know, in another policy area.
In terms of all the work that Peter and the stakeholders have put together in this, are you looking at that evidence and saying, ‘Oh, actually, that’s something that we could take forward’? Are there any examples?
Yes. Obviously, officials are scrutinising the evidence in a far more thorough way than I am. They’re looking at every committee session, and there have been a few, as you know. We’re looking to see what we can take from that. I’ll pass over to Edel to see if there’s anything she can say specifically. I don’t know if there’s anything that has come to the fore.
Just with regard to the work on the community food strategy that's running parallel to this work on the Bill, yes, officials have read every single paper, we've listened to every session that's ongoing here in the different committees, and we do sit down and discuss as a group all the evidence that comes in. But not just that; we go out to other teams as well regularly—environment, health, education and the like—to see what their opinions are as well, because every Welsh Government policy is co-designed and co-produced.
On that point, Edel, in terms of the breadth of evidence that's coming in and the committee sessions around this, what is, from an official's perspective, something that may be a light-bulb moment that's come off in terms of, 'Ah that's a good piece of work' or, 'That's evidence that we weren't expecting' or even, 'That's a perception that we weren't expecting'? Are there some examples? I want to see if there are tangibly things that have been worked on quite hard by the Member and stakeholders, to see if there is some good work being potentially fed up the food chain into Welsh Government policy at a later date, if this isn't successful.
I would say that is the perception that stakeholders have that our policies aren't joined up. They are joined up. For the strategic vision, 30 internal departments were consulted. On the community food strategy, 11 different departments so far were consulted, and meetings, e-mails back and forward, ideas and opinions. And indeed with regard to the evidence that has come in for this Bill, food policy officials have been in touch with 11 other Welsh Government departments, so that is what officials have taken from the evidence that's been submitted.
So it's merely the perception from the outside rather than anything internal or a change to policy that's specific that's been taken out of this at the moment. So, there's nothing, policy wise, that's come forward through the Bill that could be of benefit to Welsh Government policy down the line.
I think within the community food strategy there could be. I think that's fair to say. As I mentioned, initially we did this very large mapping exercise across Welsh Government, and I think there are perhaps some takes from the food Bill that we could put into the community food strategy. Certainly, I've said that to Peter. I'd be very interested to work with him on that.
And just coming back to Sarah's point around the Social Partnership and Public Procurement (Wales) Bill and the Agriculture (Wales) Bill, which is at Stage 2 at the moment, is there anything that's coming up in this that might not be for the community food policy that you've just mentioned? Is there something that sits within another legislative piece of work?
I can't think of anything at the moment. Obviously, the agriculture Bill includes the production of food, setting targets. There's an aspect of the sustainable management objective, of course. The social partnership and public procurement Bill will obviously include food issues, but I can't think of anything else specific.
Basically, the work on this fits within that community food policy. Okay. Thank you. Thank you, both.
Can I ask, Minister, about this issue of misalignment? It's been suggested to us that there are other examples of misalignment, and I'm sorry these haven't been picked up by you yet, but one is the planning system, which allows for fast-food restaurants outside our schools, which obviously clearly misaligns with the work that we're doing on childhood obesity. Another is the NHS having vending machines with unhealthy items in them in our hospitals, for example, while we're trying to give positive health messages. So, there are other gaps, aren't there, which for some reason have been missed and aren't receiving the appropriate attention. They're just two other examples.
So, how would the food Bill address that?
It's not just eggs and support for the poultry sector and the impact that that might have on the environment, is it? Do you accept that, that there are other areas?
That was the only one that jumped out at me when I looked at the evidence—
But these are two other obvious ones, aren't they?
So, how would the food Bill address those points? Put that question to Peter Fox, then; how would the food Bill that he's proposing address those issues?
I'm not Peter Fox so it's not for me to say, but Peter wants this overarching national strategy, which would have a framework on which action could be taken to address these sorts of issues.
But as I say, because in Wales we've got the well-being of future generations Act, that is something that that piece of legislation and that governance structure could look at.
One of the things that you told the Legislation, Justice and Constitution Committee was that one thing that you could consider, potentially—and we appreciate that you don't see the merits of a food commission—is an internal Welsh Government board to oversee these things, and to drive the delivery of the food agenda in Wales. Do you want to tell us a little bit more about your thoughts on that?
So, obviously, we do have internal groups, probably, more than boards, and I gave you some examples before around it. So, what I've said is that that is something that I could look at, because—I go back to what I keep repeating, really—the thing that struck me the most was this perception that our policy wasn't joined up and coherent. So, for me, it's really important to understand and consider why people think that, because that is the theme. And I go back to what I was saying before—even people who don't support having legislation, they believe that as well.
So, if it is genuinely an issue that needs addressing—and I'd say you'd be very foolish as a Minister to ignore that—I think we need to look at how we can put that right in a non-legislative way, because it's quicker, it's cheaper and it's more flexible. So, it's something that I—. I haven't taken any decisions on it; I think we need to see how Stage 1 scrutiny goes. But it's something that I would certainly be prepared to consider, with my ministerial colleagues, to see if there was a way, if you needed a more formal structure, for instance—obviously, it would be a decision for the First Minister—but it would be something that I would be very happy to take to him, and my ministerial colleagues, if I thought that would help. It could oversee current working arrangements, for instance, but that's as far as I've got, really, at this time.
And, obviously, we are grateful for the letter you sent yesterday, which does detail a lot of the work that's going on across Government. I think this is the first time I've seen a document that brings all of that work together. So, isn't that another example of the disjointed nature, or people not being able to look in one place to see the action that Government is taking on the food agenda?
Because I was amazed when I saw all of the detail, bringing it together in one place. That's never been done before, as far as I understand, even within some of the work that's been taking place with the strategic vision.
I suppose, because I see this all the time, perhaps I'm—
Yes, but is this one of the reasons why people have a different perception, perhaps?
Yes, it could be. Absolutely. And that's why I say we need to understand. So, I noted that the chair of the food and drink industry board—who I rely on a lot, on that board, for advice in a very complex area—that was something he said. So, I need to speak to him to find out why he thinks that, because that's certainly not something that I've picked up from the board before.
But you certainly accept that the Welsh Government's got to do a better job of communicating what it's doing around food, and how it's impacting on all parts of the Welsh Government, all departments, and in terms of everybody working in the same direction, and for the same objectives.
I mean, certainly, you can always communicate better, can't you. But you have to also accept the restrictions on the capacity of the civil service. I want something, I don't want it next week, I invariably want it last night, and—that happened last night—officials are great, and they work really hard, but, ultimately, as I say, I've only got 44 in my food division. Would I like to have 144? Of course I would. But, just being political for a second, if we weren't still dealing with Brexit—that's taken away a huge amount of capacity from my division and my portfolio, and we're still dealing with Brexit—how many years later? We're now dealing with the retained EU law. It's a huge amount of work for Welsh Government; it will be a huge amount of work for the Senedd.
We'd all like more capacity; I'm sure that you would, as a Chair, for your committee. So, it is about making maximum use, and that's what I said—I am genuinely really interested to know why people think our food policy is not joined up, because I don't think I've had it in any other area of my portfolio in the way that this has come to the fore. And, as you say, maybe this is a great outcome from Peter's proposed Bill—that we've all had to really sit up and say 'Okay, we need to do more work to make sure—'. Like you said, this document here, now, I don't know how this document is communicated to people—I don't know if you can help me here—but I see this document a lot, and documents like this all the time. But you're right—how do we communicate that to the wider world? Did you know, for instance, and I'm very proud of this one, that Welsh leeks have just—and I think it's an appropriate day to say this—had protected geographical indication status, with the new geographical indicator scheme that we've had, having left the European Union? When I came into portfolio, I think we had a handful of products; we've now got—. Well, we've seen the biggest increase in Wales, and one of the targets in the strategic vision is that by—I don't know, where we now, 2023—by 2026, we will have 25 Welsh food and drink products, and we're well on the way. As I say, the Welsh leek has just acquired that status. And, as a Government, and for my food division, that's a really important piece of work. So, if we've got a Welsh—because they're iconic, aren't they—if we've got a product that wants to gain GI status, we hold their hand, we help them, we support them, we provide finance, and, for me, that's really important. Did you know that? Probably not.
You're certainly helping me work up an appetite. [Laughter.] We all take a great interest in food—me probably more than others around the table. But, Minister, I think we'll close the evidence session, unless there are any further questions from Members, on that note. We are grateful for your attendance today. Thank you to Elizabeth Thomas and Edel Moroney as well. We wish you a very happy St David's Day.
Dydd Gŵyl Dewi hapus.
You've given us some food for thought, and hopefully, we've given you some as well. And, obviously, you will receive, as I said earlier, a copy of the transcript, so that you can correct anything in there. The committee will now take a short break until 10:50, when we will resume with our next panel of witnesses. Thank you.
Gohiriwyd y cyfarfod rhwng 10:31 a 10:52.
The meeting adjourned between 10:31 and 10:52.
Welcome back to the Economy, Trade, and Rural Affairs Committee. We're now moving on to item 4, our annual scrutiny session with the Development Bank of Wales. And I'm very pleased to be able to welcome to our meeting today: Gareth Bullock, the chair of the development bank; Giles Thorley, chief executive; David Staziker, chief financial officer; and Rhian Elston as well, who's the investment director. Welcome to you all. We've got plenty of areas of questioning that we want to ask you about, and, obviously, we've had the opportunity to look at the annual report, which was published in respect of the last financial year. It's been 12 months since the bank appeared before the committee for its previous session, and we're obviously looking forward to hearing what you've got to say today. Mr chairman, I understand that you wanted to make a few opening remarks before we get into the questions, if that's okay. So, over to you.
Yes. Okay. Many thanks. Do I need to press anything?
No, no. The microphone's working.
Okay. Look, I'm very conscious, Chair, of the committee's time, so I'll be brief. But I thought it important to perhaps give a sense and some context to the committee on the scale and scope now of the development bank, given that we passed our fifth birthday last October, and are now into our sixth year. In terms of scale, over that time, we've deployed about £1.2 billion into the Welsh economy. That's in our traditional business of making loans, and also investing equity into Welsh enterprises. We count in that number the private sector moneys that we bring in in co-financing, and, as we administer the Help to Buy—Wales scheme as well, we've added that money into that as well.
We've gone in that time from, when I started seven years ago, 140 employees now to about 280. I would describe us now as a Government-owned financial services company that supports Government policy objectives, and we operate wholly in the private sector. I consider us to be a centre of excellence in our chosen activities. We routinely invest somewhere around £100 million to £120 million, a bit more, annually in the Welsh economy, and we have now about £1 billion of firepower, if I can put it that way, that we can invest in Welsh enterprises in the future. So, we are funded and focused.
In terms of scope, I think it's interesting just to look at the range of activities and how they've developed since inception. We can make loans from £1,000 to £10 million in the development bank, and that through micro, small and medium enterprises. We invest equity for the long term. Our loans can go out to 10 years, so it's real patient capital. And I think also we're a specialist now in the property development lending sector, which is a sector where the big banks have progressively deserted. We're an efficient administrator of the Help to Buy—Wales scheme, so we have that skillset within us. We're on our way now to developing a specialism in delivering financial products to support climate change and transition to net-zero challenges. And we support the Welsh Government's key infrastructure projects in the mutual investment model. And we have just set up a recovery support group that has been created for what I call proactive and pre-emptive support of companies that are getting into difficulties. Banking experience tells you that early intervention gives the best chance of success.
So, lastly, I'll just say the board of the development bank—I'd say it's experienced, it's committed, it's independent, it fully supports the executive whom we believe has the requisite degree of expertise, professionalism and positive culture to execute the remit that the Welsh Government has given us.
Thank you very much for those opening remarks. We do recognise, I think, many of the successes that the development bank has enjoyed over the past five years. But, of course, they've also got to be measured against the Welsh Government's own targets that were set for the board when it was established, and one of those very important targets was the ratio of investment—private sector investment on top of the pounds that you have—of a 1:1.15 ratio. That appears to have been missed, doesn't it? Do you want to explain why that is and what the current ratio is?
Yes. The target in the five years was £502 million, of which we achieved £365 million. But that is slightly misleading in that a significant growth in the area of business that we've done is property finance—residential property finance of well over several thousand homes. We've funded the construction of several thousand homes. We have three property funds, and those funds don't tend to attract the same level of private sector leverage. And when I say that, I mean in definition terms. There is a very significant amount of capital provided by the developer in those properties, but it's not a value that we are allowed to ascribe to the number. So, if we look at the actual investment in small and medium-sized businesses, we're very close to the target that we were originally set.
So, it's the emphasis on property investment, you think—
It's not just the emphasis on property, it's just that property is now almost around 40 per cent of our total investment in the year, so as a result of the growth in that sector, it doesn't attract the same level of private sector leverage that you were referring to.
I think it's fair to say that we're a gap funder, and just on the normal, big high street banks and their lending, it's one of the reasons—they've just deserted that sector. So, actually getting banks to come in alongside has just been almost, frankly, impossible.
But, obviously, that explosion in the growth in the market and property prices has been relatively recent, hasn't it? So, has your investment strategy changed over the five years since your establishment?
No. We have to go back slightly further than five years. Just over six years ago, we identified a problem in the market for Welsh small house builders. They were simply—. As a consequence of the financial crisis and also changes to the regulatory capital of banks, banks had simply stopped lending to these small house builders. Those house builders, as a result of which, were building—to the extent that they were continuing to build houses—from their own resources. We identified that if we were able to fund some of those construction costs, it would allow them to secure the next site, and they would then be able to seamlessly move on from the construction of one site onto the next one and so forth. That has now turned into a £250 million loan business. We have backed more than 20 developers across the whole of Wales; we have funded the construction of houses in every single local authority in Wales, and we have supported a growing community of sustainable house building. In fact, now we're actually moving on to a green homes scheme, where we're actually incentivising house builders to build more energy efficient and environmentally efficient houses as well. That growth is the reason why, specifically to your question about the co-investment numbers, is lower. So, of our total investments of around £110 million, around £40 million-worth of that will have been in residential and now commercial property buildings.
But obviously that is still your target, right, the 1:1.15 ratio?
So, what are you doing to get there?
Well, as I said, in relation to the small and medium-sized enterprise investments, we're very close to the 1:1.15 ratio, and, in fact, this year—
But this is an overall global target that you've got. It's not part of what you do, so you've got to get to the 1:1.15, haven't you? You've got to strain every muscle to aim for the target that you've been set by the Government.
Indeed, but as I said, the mix of investments that we've done has changed in the five years since those targets were set. So, for example, for the next five years, the target is broadly similar to the amount that we've achieved—it's just over £360 million.
So, you've had that dialogue with the Welsh Government—
We have indeed.
—and they're comfortable with shifting the dial, as it were, in order to respond to the current market conditions, yes?
Indeed, and I would argue, just to be clear, that this definition is an EU definition, which is completely arbitrary. So, for example, an entrepreneur who has committed millions of pounds in developing a product and a business off his own back, who then comes to us for funding, we are not allowed to factor in any of the goodwill and the development that he has developed of his own; it's only the money that we bring in from third parties in addition to that. So, in my opinion, it significantly undercalls the value that we've ascribed to the Welsh economy as a result of supporting these sorts of businesses.
Can I just turn to one of the other targets? That was for 20,000 jobs created or safeguarded. That, again, is another one that you appear to have fallen short by. How many jobs have actually been created or safeguarded?
Well, in total, 32,862, to be precise.
Is that right?
Yes, although the reason why we have excluded—. We purposefully excluded from the calculation those jobs safeguarded through the COVID Wales business loan scheme, which we regard as not business as usual, which was 16,055, to be exact. Again, the key thing about the target for jobs created and safeguarded is that we don't, as an organisation, operate on the basis that we are forcing behaviours to specifically meet a target. So, an extreme example: we could fund a call centre with a very large number of people and low-grade jobs versus an engineering business with a very small number of people with very skilled jobs, and we make sure that we actually support businesses on their merit and not on the basis of the result it's going to have on our targets.
Again, I understand that, but if you're set a target, you've got to try and do your best to achieve it, don't you? So, when you exclude the COVID-related business, if you like, you've still fallen short, haven't you—
—in terms of those jobs. And in terms of the split between jobs created and jobs safeguarded, the ratio of that split is also rather important, isn't it?
It is, and we have a very careful process that we have to do to analyse the numbers for each of those categories.
And what is that current split?
For the current year?
This year—current year. So, we've created and safeguarded 3,500 jobs. So, the created is 2,000 and the safeguarded is 1,500.
Okay. And is that a similar ratio for the previous—?
I think you can assume a similar sort of ratio.
Obviously, we were very pleased to see that the target was achieved in terms of the number of businesses supported over the past five years, and you've clearly had some discussions with the Welsh Government about the rationale or the reasons for not being able to achieve those ratios, and for some of the challenges that there may have been in terms of the prevailing market in recent years as well, even on the job numbers. So, those headline targets have now been revised and reset, have they, for the next five years by the Welsh Government? And your experience in the first five years has obviously helped to inform that. So, you've already told us that the ratio is being changed in terms of the public/private investment split. Remind us of the figure that you've been set for job creation and safeguarding. It's 20,000 again, is it?
Yes, 20,000. So, over 20,000 jobs, 2,200 businesses, direct investment of over £650 million into Welsh—. And a target investment of business funds of 1:1, which is to your 1:1.5 number. And then we have some additional targets, for example, a net promoter score. We have a number of targets in relation to moving towards net zero, which I'm sure you'll want to ask us about later. And within that, there is a further push into improving the amount of equity or increasing the amount of equity we invest. Maybe, Rhian, you want to just mention that.
Before you do, Rhian, could you just—? Net promoter score—what is that? Help me.
Okay. A net promoter score is a method of determining how well we are performing and how well the performance is perceived by our customers.
In simple terms, negative is a minus number, positive is a—. Sorry. So, somebody who has a negative view gives you a minus number, somebody who gives you a positive score gives you a positive number. So, a net promoter score of 60 is a very, very stringent target.
I see, I see. Rhian, did you want to add anything before we move on to—?
Yes, just picking up on the equity point. So, we've been investing equity since the beginning of the development bank, but as part of the plans moving forward, we're putting more emphasis on equity. So, we've got an aim there of investing around £100 million over the next five to seven years. We see it as a key tool of ours to promote growth in the businesses that we're supporting. It's naturally very patient capital, so we're looking to promote that across the businesses, covering both the tech equity investment through to growth capital and succession deals that we back at the moment.
Okay. Thank you for that. Sarah Murphy.
Thank you very much, Chair. Thank you, all, for being here today. To follow on, really, about the figures around job creation, but specifically looking at the high-pay jobs, the latest annual report contains some heavily caveated data on the quality of jobs created. What conclusion should be drawn from the fact that 41 per cent of jobs created are in median to high-pay jobs, compared to 60 per cent in 2020-21?
I'll take this one. There are probably two aspects to have a think about where we're recording the quality of our jobs. So, the first is around the methodology that we use to get this information, and then the second is around the make-up of the sample with any particular year. So, if I cover the first point first and talk about that methodology—which is a fairly dry subject, sorry—but how we actually capture the information. So, we collect this through impact-of-investment forms that we ask for from the companies, and that's right throughout the life of the investment while they're with us. So, they give a form back after the first year anniversary, and that will carry on throughout the time when they're a customer of ours. What that means is when you're looking at the data in any particular year, you're not just looking at results from investments that have been made in that period; it'll be a mix. So, you will have some that will be returning their first-year forms, and others will be perhaps on their second or third. We've been following this methodology—this is our third year—so I feel we need a bit of time for that to bed in, and hopefully reduce some of the volatility in the numbers.
The second point when we dug into the data in a bit more detail was around the make-up of the sample, and what we found in this particular year was that a higher percentage of the jobs created were coming from the food and accommodation sector, and that's probably to be expected—there was a bigger demand from that area during that year, particularly as the banks pulled back from that sector—and generally they tend to be the lower paid jobs. So, if you look at the sample compared to the year before, it almost doubled with the jobs in that area, which do tend to be lower. What we also saw was that the amount of jobs coming from tech businesses dropped, and tech businesses generally create those higher paid jobs. So, if you look at the percentage of those jobs that are higher paid, that’s something like 88 per cent, so a much higher proportion. So, there are lots of different factors that feed into it: it’s how we record the data, but also what type of company is in the particular cohort at that moment in time.
So, in terms of setting your targets, you wouldn’t want to see that go back up again, of course.
I think it’s very volatile, is the honest answer. So, in terms of being able to predict exactly what it would be like this year, because you’ve got that factor of what the mix is, the types of different businesses that are in there, I think it’s difficult to know exactly where it’s going to come through. I think there’s a link to the equity that I just spoke about, because the more that we invest in those high-growth businesses, those tech businesses, they do have the tendency to create those higher paid jobs. I think the only other note of caution that I’d say at the moment is we’re seeing far more jobs safeguarded than created, which is just an indication of the current economy, with companies looking to protect their existing jobs, and even when they are looking to create new jobs, there are record vacancies at the moment, so often those jobs aren’t filled as quickly as they would want them to be. So, quality of jobs is an ongoing, and that impact measuring is something that we continue to refine as we input that data.
Wonderful. Thank you very much. And then, to what extent does the methodology used to collect this data allow meaningful year-on-year comparisons, then, to be made? Because, as you said, I know it’s volatile, but—
I think that’s the point, yes. That’s the challenge, because the sample changes year on year, so you’re not looking at the same cohort every year, and within that you have a mixed effect of some returning their first-year forms, some on their second or third. I think over time we’ll be able to drill down in a bit more detail and spilt out the different types of businesses and the different periods of reporting.
Okay. And then, I suppose, create a strategy to raise it.
Yes, I think the way we raise it is around the types of investments that we make and try and the types of businesses that we’re supporting. So, if we’re providing equity into those growth businesses, they generally do create those higher paid jobs. But we are a gap funder, so we are going to carry on supporting those businesses that are maybe creating the lower paid jobs, but still a very important part of the Welsh economy.
Thank you very much. And then the annual report shows that, in 2021-22, three local authority areas, Gwynedd, Merthyr Tydfil and Blaenau Gwent, attracted the lowest amount of investment from the development bank. What work does the development bank do to understand these figures, and how have they guided the bank’s activities in the current financial year?
Me again—sorry. Do you want to take this one?
I’ll just say, generally, we actually look at data on a monthly basis by every local authority, both for investment in SMEs, but also in terms of the residential and commercial house building. And as I said earlier, we have invested in every local authority on both fronts across the five years, but specifically we need to look at the—
Yes, some of the detail. Yes, it does educate our business development and marketing strategy, so it’s something that we look at, and we do it in a couple of different ways. So, the annual report gives you the unitary authorities by amount of money. What I think is quite important to look at is the number of businesses that we’ve supported in that area as well, which would paint a slightly different picture. So, that actually brings Gwynedd into the mix in terms of some the under-invested areas—sorry, Torfaen into the mix. And what we also look at then is how does it compare to the business population. So, we have a report that looks at the business population through unitary authority and compares that with the percentage of investment that we’ve made, and what that showed us for this particular year is, out of the ones we’ve talked about today, Gwynedd was under-invested. So, that has 5 per cent of the business population, but only 4 per cent of our annual investment that year. So, we will use that then to drive our business development techniques to see how we can increase in that area.
Positively, a lot of these unitary authorities are in the west Wales and the Valleys areas of Wales, where we have a significant amount of money to invest. We were lucky enough to get more money from the Welsh European Funding Office this year, so we have an additional £12 million to invest in that patch before December 2023, which is great news. So, we’ve got the capital to do it and various different strategies to try and increase the activity, which could be things as easy as deal clinics in the area, or sponsoring events—we do the Daily Post event, which is in Gwynedd—as well as recruitment, so ensuring that we’ve got the people on the patch to deliver.
Thank you very much. And my last question is on the quality of the data held by the development bank on the ethnicity of the owners, directors or shareholders of the businesses it supports. How do you collect that and how does that, I suppose, guide your activities?
Yes, again, I think that's Rhian's bailiwick.
Yes, so, on how we collect the information, that comes through on a diversity monitoring form that we get as part of each investment. That's done at the time that we do the deal; it's anonymised data that comes through. The data that we capture at the moment is very driven by our European funds, so there's set information that we need to capture. Next year, we're hoping to improve that. So, as we move out of European funds, I think there's some best practice that we can bring in, in terms of the quality of data that we capture—just better questions that we can ask—but that's what we do at the moment.
The annual report from this year talked about 10 per cent of owners, directors and shareholders that reported that data being either from black, Asian or minority ethnic. It's difficult to get comparable data out there. The work that we've done identifies—. One report talked about 1.5 per cent of small and medium-sized enterprises in Wales being led by individuals who are either black, Asian or ethnic minority. The population is about 5 per cent, so, on those metrics, the 10 per cent for that particular year looks good, but, you know, it will be volatile again.
Then, it's about activity—what can we do to actually improve in these particular areas? For this topic particularly, we've got two champions in the team, and, actually, this year they've done quite a lot of work on it. They've been looking at three areas. How do we improve access to finance? That will be role models and that will be about the champions within the team linking up with existing groups that already operate in these areas, and working with Business Wales. Unconscious bias training is something that gets rolled out to all of the individuals within the development bank, and then, lastly, it's about representation within the bank itself, so, looking at our recruitment methods to ensure that we're as diverse an organisation as we can be. So, there are a few different strands to try to pull that together.
Thank you very much.
Thank you very much, Chair.
Thank you. We're going to bring Hefin in now—Hefin David.
Yes, can we just have some further detail on your relationship with the British Business Bank and whether there's likely to be overlaps of activity?
Yes, Hefin, thank you very much for the question. We have a very strong working relationship with the British Business Bank. It's worth noting that the British Business Bank operates slightly differently to the development bank. The British Business Bank provides the capital to organisations to then distribute it, so appointing banks and other advisers to distribute their funds. In fact, we are a recipient of British Business Bank funds in England and we manage almost £200 million-worth of investment funds of the British Business Bank through our English subsidiary, FW Capital—or our regulated subsidiary, I should say, FW Capital.
We continue to operate in Wales alongside, for instance, British Business Bank activities. The start-up loan fund is a British Business Bank initiative that's been in Wales for a number of years; I think it's just had its fifth anniversary. Recently, the British Business Bank announced the intention to launch a £130 million fund for Wales. Frankly, we think this is all very useful in terms of supporting the Welsh economy. We will certainly be working with the British Business Bank in an effort to be one of the fund managers of that fund, but we would expect them to appoint others as well.
Given the circumstances in the market, particularly the continued retrenchment of the mainstream lenders from certain parts of the Welsh economy, I think it's very useful to have additional funds coming into Wales that will be invested alongside us. I don't see it as competition at all, really, in a true sense, where we're going to be trying to push pricing et cetera.
Okay, that's fine. With regard to the Wales flexible investment fund, the Minister has said that he wants that year-round availability. Are you making progress towards achieving that and where are you currently on that?
Yes, Staz, do you want to comment on that?
Yes, thanks, Hefin. The £500 million Wales flexible investment fund is set up and it's delivering investments now. It is structured to be an evergreen fund, so it's our responsibility as fund managers to make sure that we manage the returns so that we maintain the £500 million of capital. To date, we're on track with the business plan. So, we've invested £78 million of the £500 million, and I'm pleased to report that, currently, default and return levels are actually also in line with the business plan.
The £500 million Wales flexible investment fund was the replacement for our previous largest fund, which was the EU-backed Wales business fund, which is now in its final year of investment, and that's grown from an initial £136 million to £216 million since its launch in 2016. And some good news here is that the legacy returns from this fund and other European-backed funds that we manage can be recycled and form part of this £500 million capital in the Wales flexible investment fund.
You're talking about evergreen there. Just for those of us who perhaps sometimes find terms like this a pain, what do you mean by 'evergreen'?
That once we've invested in the original capital, we get that back and it is then available, subject to budget cover, to invest again.
Indefinitely, so it keeps recycling.
Indefinitely. So, 'evergreen' as in its life is indefinite, rather than term limited.
Ok. Lovely. Thank you very much for that. And in the remit letter, the Minister also invites the development bank to actively work to identify solutions that create the potential to increase the flow of funds into Wales. How are you making progress on that?
I think we're making very good progress on that front in a number of regards. We've already discussed with the Chair the £365 million of additional capital co-investment that we attracted over the course of the last five years, and the target is similar for the next five. In fact, actually, this year, it looks as if the number is going to be closer to £100 million in the year alone. We've already achieved almost £70 million-worth of co-investment to the end of January, and a recent transaction of one of our bigger businesses has attracted almost £30 million-worth of additional capital, so I feel reasonably confident that we'll get to £100 million.
And, then, there are other aspects of the business. In the course of the term, we launched the Wales management succession fund. That actually was the first fund where we attracted institutional investment. Arguably, that money came from Clwyd pension fund, so arguably not from outside Wales, but it was the first time we've actually attracted money from elsewhere. Our Angel investment network has continued to grow over the course of the last five years. We now have 334 angels, of whom 70, so 21 per cent, are based outside of Wales. And, very recently, we launched the funding in conjunction with the British Business Bank of £20,000 to support the first all-female Wales angels syndicate, which is, actually, looking at its first investments at the moment.
Okay. Luke Fletcher.
Diolch, Cadeirydd. If I can touch on employee-owned businesses in my line of questioning, obviously the Welsh Government has made the commitment that they want to see greater support for worker buy-outs and they want to double the amount of employee-owned businesses in Wales. Over the last year, what has the development bank done to help reach that commitment?
Rhian, do you want to talk about the details here?
Yes, I can take that one. I think it's helpful, on employee-owned businesses, just to share the overall number of how many businesses there are in Wales at the moment that are employee owned. You may already know the detail, but there are 44 businesses in Wales that are currently under that employee-owned structure. We've provided funding to three of those to date directly to fund that transaction, so moving them from privately owned to be owned by their employees. But we've provided further funding to 10 of them, which is more general growth support. So, of the 44, around 13 of them have had interaction from the development bank.
The way we support the Welsh Government on this ambition is to work with Cwmpas. They are the advisory organisation that is really trying to encourage and help businesses understand this as an opportunity. So, we work closely with those individuals. That's included things such as co-investing as part of the conferences that they hold. We've rolled-out seminars and training to Business Wales and Welsh Government colleagues that are having a direct interaction with businesses, and we've done smaller things like strengthening our website to ensure that it's clear as to what employee ownership is about and linking through to the Cwmpas website there.
So, if we look at 2021-22 data, I think there were six employee ownership trusts completed during that period. We provided funding directly to one of them, to support the actual transaction itself, and then funding to a further two, which was more general growth funding again. So, around half of the ones that were done during that year we had involvement with. It's useful to note that employee ownership transactions are quite often funded internally from within the business. Only around 11 per cent of them get external bank funding, and if you consider we're a gap funder and so, again, a smaller part of that, I think the numbers are not that surprising as to the level that we would be involved with.
I suppose, vice versa in terms of that question, is the Welsh Government supporting you guys, as well in trying to use that commitment?
It goes back to the link between Business Wales, the Welsh Government account manager structure and then Cwmpas. They're the parties, really, that need to be fully aligned in what we're offering. So, Cwmpas are the guys that are out there talking to the businesses. We get involved then when there's a funding need. It's also worth noting that succession is a big part, more generally, of what the development bank is looking to try to support. Now, that covers lots of different methods of succession, but, within that, you have management buy-outs, which is, albeit a small cohort of employees, those managers buying the business and taking that forward. If you look at the numbers there, we did around 43 during that year, so that's a much bigger part of our activity.
I was going to ask about the 2021-22 figure, but you've already covered that. But in terms of this current financial year, where are we at?
We've got two potentials at the moment where we're funding the transaction itself, so they haven't completed as of yet. But two that are work in progress.
It's also worth noting we have one of our non-executive directors, Dianne Walker, and she is a huge proponent of employee ownership trusts. She is the chair of one EOT and she's currently providing advice to another to convert. So, as Rhian said, specifically, the employee ownership trust is quite a small sector, but growing, because there are particular tax advantages for a founder to exit a business in that way. But, in terms of the wider sale of businesses, then we're also actively involved through the management succession fund.
I guess you can only help those that come forward asking for your help, right, as an organisation. It's more about promoting yourselves as someone that they can come to if they need to for financial support.
But there have been some good poster-child companies or businesses that have opted for an EOT as an exit strategy. For example, Go Ape, which was a UK business that the family opted to exit—the family of a Conservative MP—. So, they've opted for—. So, businesses like that help other organisations understand the merits of the sale, because it's quite complicated, and it's a 10-year programme normally to transfer the ownership, so you have to have the right structure, really, to make that happen.
Okay. But, obviously, we expect this to be a growth area in the future, given the fact that more and more people are becoming aware of this as an opportunity in terms of a disposal of their business interests. We're going to look at the green business loan fund now. Vikki Howells.
Thank you, Chair. Good morning, panel. The need for sources of capital for businesses to invest in energy-efficient machinery or green energy has been the No. 1 issue that's been raised with me by businesses in my constituency over the last few years. So, I was delighted to see the evolution of the green business loan fund, and I've just got a couple of questions on that for you today. Firstly, I'd like to understand a little more about the process that the development bank went through to develop the green business loan fund, following the announcement from Welsh Government on that in October last year.
I'll just give you the background, and then Rhian will—. She actually dealt with all the detail. We identified the opportunity to create finance that would encourage businesses to change behaviour some time ago. In fact, we've been working on this project for almost two years. I would say that was delayed by COVID, so it's been in our hopper of things to do, and, in fact, Rhian and I both attended the Montreal Group sessions in London last summer—the Montreal Group is the consortium or the club of world development banks—where the whole focus was on this particular topic. That led us to push more aggressively to get the project under way. And then, Rhian will give you the details.
It's good to hear, Vikki, that you've got customers talking to you about that need. Hopefully that's future customers for the scheme, so that's positive.
In terms of the detail, as Giles said, it's been under development for a while. We've talked to lots of different businesses and also to support agencies that are operating in this field already, to really try to understand exactly what the gap was, and that included both our portfolio companies but also businesses that we reached through the likes of the Federation of Small Businesses and Confederation of British Industry, and worked closely with the more specialist organisations such as the Carbon Trust and Energy Savings Trust to understand what was working well already out in the market.
I think what that identified for us is it was really twofold. There was the need to have funding available, so there was a need to have a loan, and a loan that was offered at discounted interest rates, to encourage the businesses to take action and patient funding to allow them to address that initial capital expenditure. But I think, importantly, it also had to be coupled with additional support for those businesses that weren't ready to access the loan and effectively were at an earlier stage. So, we've been very keen to ensure that the scheme came out with access to consultancy support, which is run through Business Wales, where a company can get half of the cost of getting an energy audit done paid for, and also the support that they can already access through Business Wales resource efficiency advisers, where you can get fully funded support there for businesses. So, for us, it was very much about the package, and that's what we wanted to promote out there, so that businesses understood the loan was available, but also if they didn't know where to start, they could go elsewhere and access funding that way.
It is a pilot, so we have said that we will make the scheme available and we will wait to see what the demand is and whether we need to change certain parameters a bit going forward; there is an element of seeing what comes through. But so far, so good: we've got about eight applications come in, which is great news for something that's only been launched for a couple of weeks.
Thank you very much. So, we know the Welsh Government's intention is for the fund to invest £10 million over the next three years, but given that businesses can borrow between £1,000 and £1.5 million, are you able to give any indication of how many businesses in total you expect to support?
It's a good question, a hard question, because the honest answer is that we don't know, and it goes back to my point, I guess, earlier around this being a pilot, and we need to see what demand comes through. We talk to lots of people that have looked at something similar in the past, and the general consensus is that the loan amount would be fairly small. We don't expect to see many people applying for £1.5 million; we expect it to be at the lower end. So, in the financial modelling that we've done, around 170 businesses is our estimate, which is what we used to build up the models and the resource plan that we need around it. So, that's what we're estimating at the moment; exactly what it will be, will depend. The ones that have come in so far, we've got one that is large, but the others tend to be smaller; they're sort of sub £50,000.
I think it's worth mentioning there, Rhian, actually, the kind of organisation that we are and we've become: we're a learning organisation; we fill a gap; there is a gap. A lot of people are talking about what they can do in terms of financing the transition to net zero. We thought it was important to get going and put something in, and not let, if you like, the best be the enemy of the good, and just say, 'Let's learn from this.' I think one of the things that we're flexible enough to do and have the right culture to do is that when the learnings come back and we need to change things, we'll change things, because we can, and we can do it quite quickly. So, in that sense, I think it was much more important for us to get out there without all of the things being known, in order just to get going, because it's such as an important subject.
Thank you. Can I ask what steps you're taking to promote the fund?
There are a couple of different areas. So, we've got digital campaigns going on where we're promoting it through social media and when they come through the website. We've invested quite heavily in the website, so we've got a new section on there now that tries to pull together all of the different aspects of the offering, including the consultancy support. What we're also doing is pushing it then through membership organisations, so FSB have been particularly helpful, so we've pushed it through their membership base; CBI, we've presented to their members as well. And then another important channel will be the supplier network, so we're looking to ensure that they're aware of what the offering is as well, because they are the ones that will be out talking to the businesses with this as a possible solution.
Thank you, and one final question: just to ask if there's any further detail on how you will assess the effectiveness of the fund towards the end of the pilot period.
I guess the first thing will be around, 'What has demand been?', so trying to understand how many people have looked to apply for the loan, but also how many people have tried to access the consultancy support as well. So, that will be the No. 1 assessment of how effective it's been. We will also be measuring the expected carbon reductions and the cost savings that the customer will hopefully get as part of the installation, so we will be looking at that.
One area that we do need to spend more time thinking through is exactly how we monitor the environmental credentials of our companies going forward, and that's not just for this fund, that's something we need to get our head around for the whole portfolio. And that's something that lots of financial institutions are grappling with: how do you get the balance right between trying to get information from a company around their wider environmental, social and governance credentials without being overly burdensome to what, at the end of the day, is an SME that doesn't want to be providing lots of different pieces of paper to multiple parties. That's something that we're hoping to move forward next financial year in a bit more detail.
Thank you. Thank you, Chair.
Thank you, Vikki. That brings us nicely actually on to the questions that Sam Kurtz wanted to ask.
Indeed, thank you very much, Chair. I'm just looking for an update on your position with regards to the development bank's decarbonisation road map.
Chair, do you want to give an overall view or shall I—
You take that one. I think—[Inaudible.]—decarbonisation.
The organisation, we started our decarbonisation plan probably three and a half years ago, and we started doing research on our businesses and one of the questions that was asked in relation, for example, to pay, we now, as part of our assessment of businesses, categorise every single company that we support according to—. There are a couple of databases that identify a business by the type of activity and, therefore, would assess broadly what sort of carbon footprint you would expect from that type of business.
And, in fact, as part of the next five-year plan, we've set ourselves quite clear objectives to deliver debt and equity funding on a social impact, but to promote the advance of a green future for Wales. As an organisation, we've been carbon neutral for the last three years, with an offsetting scheme, and, in fact, right now, we're building a sustainability strategy to publish over the next year. We signed a partnership with the Partnership for Carbon Accounting Financials to provide data for the estimation of portfolio emissions, which is the database that I was mentioning. We're signatories of the United Nations' Principles for Responsible Investment, and, this year, we took part in the Welsh Government's 2022-23 carbon accounting exercise, committing to the net zero by 2030.
All businesses now, we expect to—. We do, effectively, an ESG impact assessment as part of our investment strategy, and maybe, Rhi, you want to talk about some of the other details.
Yes, I can pick up some of the detail of that. So, that's been one of the new things that has come in this year—it's around that assessment. So, for each deal we look at now, there's a section in the sanction paper where we need to comment on specifically how the company is positively contributing to four impact themes that we work to. But then they also need to comment if there are any risks or challenges where a company might negatively contribute to any of those four themes, and if that is the case, we then need to think about whether it's a business we can support or whether there are any conditions of that support that we would need to bring on board. So, that's been brought in now—that's something that is considered as part of every deal that we do.
The second important point then is what we do from a portfolio perspective, so when it becomes a customer of ours, we can be more hands-on with the equity investments that we've got. So, the team there will develop an ESG plan with the company as part of the value creation plans that we do, and that's something that is just recognised now—our businesses understand the value of having that developed ESG plan, so we can support them on that front.
With the debt book, it's a much bigger book that we've got there and a much bigger breadth of companies that we support. So, we do that slightly differently. That is more about referring across to the Business Wales individuals that we talked about—they've got the resource efficiency advisers there—but also with various seminars: so, we've run a couple of sustainability seminars this year, where we've brought cohorts of our debt book together.
Just quickly on the offsetting scheme that was mentioned, what is that offsetting scheme that you run yourselves?
Actually, Staz, you've read it. We've actually purchased trees that are planted by schools in Wales.
So, we use a company called Carbon Footprint. So, we effectively pay them some money to go out planting trees so it offsets our carbon footprint.
Are they involved in the purchase of any agricultural land in Wales for carbon offsetting, that you’re aware of?
Not that I’m aware of. So, no.
It’s just that’s quite a contentious issue at the moment, and robbing Peter to pay Paul, in that sense, could be detrimental to other economic activities—
No, indeed, but in terms of the carbon-offset cost, it was probably three times as much to do a scheme in Wales rather than a mangrove swamp in Puerto Rico or Guatemala or somewhere. So, we're very specific about ploughing the money back into the Welsh economy.
Okay, that's helpful. In terms, then, of businesses coming to you for finance, for support, is their decarbonising journey a key element of that, because sometimes that's around efficiency savings, not the growth of a business per se? How would the development bank perceive that and look at that application?
Yes, very much so. A number of things: the green business loan fund is specifically targeted at businesses to make an investment to actually reduce their carbon footprint in one form or other, and we want to get to a position where we have, through the advisory service that is a part of a package, a suite of products, activities or methods that we can deploy to help businesses to reduce their carbon footprint much more efficiently. I also think that there is an opportunity for the development bank to support businesses that are developing new carbon saving or energy-efficient products. And this would be an open offer to any business in the United Kingdom or elsewhere in the world: if they want to come to Wales to commercialise their product, we have a customer base that we want to actually fund for the acquisition of those sorts of products. So, we would be able to support that business and we would also have a customer base for them to sell their product to. And we've looked at a couple of businesses on that front. There is an interesting pumped storage hydro business, which is based in Canada and the UK, that instead of pumping water up and down like at Dinorwig, they use a more viscous liquid, which is more dense and therefore produces more energy. We have a lot of hills in Wales, so is that a possibility? And there are various other schemes like that that we are looking at.
Okay, that's helpful. In terms, then, of the development bank's corporate plan 2022-27, it states that, as part of the bank's third economic contract pledge, and I quote,
'By 2024 we will ensure that carbon emissions and net zero plans are a mainstream part of our sanction considerations for investments we make.'
How is this being communicated to applicants and customers of the development bank?
Well, Rhi has touched on it, but maybe she can give you more detail, because it's in all of our sanction activity now.
It goes back to what I talked about earlier. So, it's about bringing it into part of the sanction decision, where we're looking to understand where the businesses are. I think it's a difficult balance, because we are here to support businesses, and often small businesses that can't access finance from elsewhere. So, I think we do see our role as directing the businesses down this route through putting them in touch with the right people, which they might not have the time or resource to do themselves. So, we are encouraging the businesses down this route and it's part of the assessment already.
So, there's a bit of hand-holding there with businesses.
There has to be.
And then that's at an early stage of the assessment process, rather than their getting through 99 per cent of it and then, right at the last moment where they think, 'We could be on positive ground here', 'Ah, this is something that we can't continue with.'
Yes, if we identify early days that there's a significant issue that would cause a problem at the back end, we need to tell them about that upfront, absolutely, so that they would be aware of that.
The green energy fund is really one of the first of its type in the world. We did this assessment when we met with the other development banks. I think there's going to be an evolution. So, at the moment, it's very much more carrot. So, we're incentivising and we're encouraging people to make the decision to change. And, over time, that's going to move from carrot to stick. It's going to become more obligatory to meet some of those criteria. How long that timescale is is really dependent on the type of business, the market and—. But, increasingly, consumers are demanding a better understanding of what the position of the business is, whether that's customers or consumers. And I think that's going to be the thing that's going to change: customer behaviour and consumer behaviour is going to be the thing that's going to change things faster.
Okay, excellent. And just one final one if I may, Chair. In terms of what you offer that a traditional lending bank doesn't offer, what are the benefits that you'd say—? And I know, Gareth, you mentioned in your introduction some of the benefits around the development bank over normal banking, but is there anything that they're doing that you're not doing at the moment—something that you're looking at introducing?
Well, one thing is, we're not in a position to compete. Despite all of the positives that we've made, we are a minnow in the world of UK finance. At the last count—. We're doing between £100 million and £120 million-worth of investing a year. The last number I saw for overdrafts held by UK banks on small businesses in Wales is over £600 million—so, just overdrafts. But the key thing is that we are providing finance where there is no finance elsewhere available. And there's a second differential, which is that we decided, very early on, that it was still critical that we would be an organisation with a human point of contact. Most high-street lenders who are lending to small businesses now have thresholds—maybe £2 million to £5 million—where everything is done as an online banking service, and you might get hold of a call centre, but generally all activity is remote. We are still maintaining people throughout Wales who are there to provide direct assistance to customers, whether that's positive, to have a growth conversation, or whether they are actually in financial challenge and we need to provide support to them.
Okay. I take from that, then, that you're plugging the gap in terms of where that support is available. Is that gap wholly filled by yourselves, or is there some way that you'd like to be able to take up not more of the market, per se, but, 'Oh, we could stretch a little bit further here to gain,' if the gap's not fully filled by what you're doing.
That's a good question, and I think that the answer is it's a constantly changing one. We have an economic research organisation called Economic Intelligence Wales, which is a joint venture with a number of universities, with Bangor, with Aston and Warwick University business schools, and also with Cardiff business school, where we actually ask that very specific question of where there are gaps in the financing market. The market in relation to small house builders and residential and commercial builders is one that we identified as a result of that sort of activity. So, we're constantly looking at other areas where we think there might be financing issues. I personally have a view that, as a consequence of the changes to or the removal of the common agricultural policy and the introduction of environmental land management schemes in England and the equivalent scheme in Wales to be announced, there will be an opportunity or a challenge for the financing of some of the smaller community farms. So, we have been doing some work in that regard. We have no idea yet whether that is actually going to be an issue or not, but it's examples like that, where we're constantly thinking.
Another interesting example is in relation to the land-based energy production. We've put in a proposal—. For some of the larger land-based energy production, where there's a community opportunity to invest in the scheme, generally, the communities don't have that money, so to what extent can we actually provide that funding to the community so that not only can they get back the benefits of renewable energy but they can get back the benefit of the returns made on that renewable energy? Rhian, do you want to talk about that, because that was one of your initiatives?
It is, and it plays to the Welsh Government's desire for local ownership on the renewable projects, so we certainly think there's a gap there for fairly sizeable investment for us, but to stand behind or alongside that community group so that they can become shareholders in these large, probably onshore, windfarms. We're in conversation with probably three or four developers. These are long-term projects. They're not going to come to fruition for another couple of years yet, but we think there's a gap there. And also perhaps for some of these more localised energy hubs, so not big farms but where perhaps there might be a single turbine, some solar, perhaps some battery storage, where they're supplying the energy locally to an energy user, which could then spur off to a couple of local businesses in that area, and we're looking at a particular project at the moment that might fit there.
So, acting as a facilitator for a community who are clubbing together and going, 'We've just not got the capital to do this', and then you can step in—
And we can fund that. We have a local energy fund already that has funded a number of community-based projects. Egni is one that you may have heard of, which is a community group that rolled out solar panels on schools. They did the velodrome. We provided them with the funding to do that.
I think it's just worth making the point that—. Your question was whether we're—. Our job is to fill a gap. There is a gap. I'm not aware of any of the major banks who have got, excuse the phrase, an oven-ready green scheme to deliver to all of the companies in the UK. And that's not a criticism; they are just huge, and to do that would take a huge amount of work. That's why I said we came out of the trap very quickly, and this is a sort of do and learn, and adjust as we go. And I think we're fulfilling our purpose, which, actually, in Wales, is to be the gap funder, and, in some cases, if that's a 100 per cent gap, because it's not been done before, then I do think that's part of our remit as well, and this is what we're doing in this space.
Okay. That's really helpful. Good closing remarks, I think, there. Thank you, Chair.
Are there any further questions from Members? No; I can see that there aren't. If I could ask you just to provide some additional information to us, if I may, in relation to the point that Sam Kurtz raised, because of the sensitivities about the buying up of land for carbon offsetting in Wales, we'd appreciate that. But I take on the point that you mentioned, Giles Thorley, that it may not be the most economically efficient way to offset carbon, buying land in Wales in order to plant trees.
You'll receive a copy of the transcript of proceedings for today's meeting. Feel free to contact the clerks if there are any issues with the accuracy of those, and we'll get them amended. But thank you very much for your attendance, and a very happy St David's Day to you.
Thank you very much.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(ix).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(ix).
Cynigiwyd y cynnig.
I'll now move a motion under Standing Order 17.42 that the committee resolves to exclude the public from the remainder of today's meeting. Is everybody content? Everybody's content, so we'll go into private session. Thank you.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 11:51.
The public part of the meeting ended at 11:51.