Y Pwyllgor Cyllid

Finance Committee

16/05/2024

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Altaf Hussain yn dirprwyo ar ran Peter Fox
substitute for Peter Fox
Alun Davies yn dirprwyo ar ran Rhianon Passmore
substitute for Rhianon Passmore
Mike Hedges
Peredur Owen Griffiths Cadeirydd y Pwyllgor
Committee Chair

Y rhai eraill a oedd yn bresennol

Others in Attendance

Shona Robison ASP Ysgrifennydd y Cabinet dros Gyllid a Llywodraeth Leol, Llywodraeth yr Alban
Cabinet Secretary for Finance and Local Government, Scottish Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

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

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

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

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

Dechreuodd y cyfarfod am 09:29.

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

The meeting began at 09:29.

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

Croeso cynnes i'r cyfarfod yma o'r Pwyllgor Cyllid. Mae'n dda eich gweld chi y bore yma. Mae'r cyfarfod yma'n cael ei ddarlledu'n fyw ar Senedd.tv, a bydd yr holl drafodion ar gael i'w cyhoeddi yn ôl yr arfer. Mae'r cyfarfod yma'n ddwyieithog ac mae cyfieithu ar y pryd ar gael. Dŷn ni wedi derbyn ymddiheuriadau gan Peter Fox a Rhianon Passmore, a dwi'n falch o groesawu Altaf Hussain ar ran Peter ac Alun Davies ar ran Rhianon Passmore. Diolch yn fawr iawn i chi am wneud yr amser i ddod y bore yma ac ymgymryd â'r gwaith. Felly, dwi jest eisiau gofyn a oes gan unrhyw Aelodau unrhyw fuddiannau i'w datgan? Os oes yna unrhyw beth yn codi yn ystod y cyfarfod, fedrwch chi wneud hynny yr adeg hynny hefyd. Dyna ni.

A warm welcome to this meeting of the Finance Committee. It's good to see you all this morning. This meeting is being broadcast live on Senedd.tv, and the Record of Proceedings will be published as usual. This meeting is bilingual, and interpretation is available from Welsh to English. We've received apologies from Peter Fox and Rhianon Passmore, and I'm pleased to welcome Altaf Hussain on behalf of Peter Fox and Alun Davies on behalf of Rhianon Passmore. Thank you very much for giving your time to join us this morning and take part in our work. So, I'd just like to ask now whether Members have any interests to declare. If anything arises in the meeting, you can do so at that time as well. 

09:30
2. Cysylltiadau Rhynglywodraethol Cyllidol: Sesiwn dystiolaeth 5
2. Fiscal Inter-governmental Relations: Evidence session 5

Felly, fe wnawn ni symud ymlaen i eitem 2.

We'll move on, therefore, to item 2.

So, we'll move on to item 2 this morning, which is our substantive piece of work that we want to do this morning, and it's the fifth evidence session in our fiscal inter-governmental relations inquiry. We're very glad to have our witness with us this morning, and maybe you could introduce yourself for the record. 

Thank you. I'm Shona Robison, I'm the Cabinet Secretary for Finance and Local Government in the Scottish Government. 

Well, you're very welcome. Thank you very much for coming this morning. It's great to see you and great that you've made the time to help us with this important inquiry that we're doing. We've allocated questions and we'll have some questions as we go along. I'll start the questioning off, but I'd like to give you the opportunity just to say a few words at the start, if you wanted to, just to maybe set some context.

Well, bore da. Thank you for inviting me to speak with you today and share our experiences of fiscal inter-governmental relations. I have provided a short background note, which I hope is helpful for the discussion today. I think the fiscal context that we're operating in really means that good relations between the UK Government and the devolved Governments are very important. And, clearly, of course I would like Scotland to have full fiscal powers, and the Scottish Government has called on the UK Government for further tax powers, broader borrowing powers and greater flexibility. The revised fiscal framework that I agreed with the Treasury last year didn't go as far as I would have wished, but it did deliver some fair and pragmatic improvements.

I welcome the Finance Committee's focus on this issue and the consideration of how arrangements guiding inter-governmental relations might be improved, going forward. I've been very pleased to work with Rebecca Evans over the past year on areas of common interest, and the Finance: Interministerial Standing Committee has provided, I think, an important forum for devolved Ministers to discuss important issues with the Chief Secretary to the Treasury. So, I do look forward to a constructive discussion this morning, which I hope will inform your inquiry. Thank you.

Thank you, and I think we'll touch on quite a few of those aspects that you've talked about. I'd like to start by looking at the Scottish Government's relationship with the Treasury, and then some of the principles around the inter-governmental relations review, and then maybe look at the strengths and weaknesses of the FISC and seeing how that works. How would you describe the relationship with HM Treasury, and how effective have the reforms been? I know you noted that they hadn't gone as far as you'd want, but how is that relationship currently?

So, I would say that, in the main, it was pretty constructive with the former Chief Secretary to the Treasury, John Glen, who I have to say was probably instrumental in helping us to conclude the fiscal framework arrangements and adjustments. John Glen, I think, probably always blushes when I say this, but he is a bit of an oasis in a desert within our relations with the UK Government, in that he very pragmatically wanted to secure agreement and improvements, and we wanted to do that as well. So, we had a very good relationship. I would say that that good relationship has continued, by and large, and relationships matter when you are trying to negotiate and get the best outcome for public finances and the services that they fund.

Where I think things are difficult is in some of the structural issues. So, if I can give you one example—and I know that Rebecca Evans has raised this as well—and that is the very late flow of information. So, for example, when we get supplementary estimates late in the year, we often have already had to take very difficult decisions around our funding. The funding landscape is difficult across these islands, and getting very late notice of supplementary estimates—sometimes we've already had to announce reductions in funding; I know that happened in Wales as well.

So, there's something about the structure of our relationship around how funding flows—it's far too late in the year, so even with the best relationship through FISC, that isn't going to address some of those structural issues, and I would be hopeful, going forward, that we can begin to address those. We absolutely need earlier sight and certainty over our funding position at the beginning of the financial year.

09:35

So, you talked a lot about personal and interpersonal relationship building there, but there is a power imbalance between the Scottish Government and Treasury. Relationships, as you say, can only go that far. What's been your impression of that power imbalance and does it shift as you change personalities, or is that power imbalance always there and it's just how you mitigate it with relationships?

Yes, the power imbalance is absolutely there and it can be helped to resolve issues through good relationships, but the power imbalance is there. So, as the other devolved administrations will say as well, I'm sure, we rely very much on the funding decisions that are made by the UK Government—funding flows from those decisions. And, of course, that creates difficulties. I've mentioned one: the lateness of knowing how much money is flowing in-year through supplementary estimates. But also there's sometimes a bit of an opaqueness around decisions of where there are Barnett consequentials and where there are not. So, we've often had to pursue clarity, and it sometimes takes a while to get that clarity from Treasury—are we going to get Barnett consequentials from this or are we not? And, ultimately, the Treasury decides. Now, there are dispute resolution mechanisms and all of that through the FISC and inter-governmental relations, but at the heart of it is the truth that the Treasury ultimately makes the decisions and we will be on the receiving end of that. So, that power imbalance I would like to see addressed.

I think the way that fiscal events work, they are far too late in the year. The autumn statement, for example, in particular, causes us huge difficulties in being able to take through the democratic parliamentary processes here in Scotland, and we literally get a call on the morning of the statement to tell us the high-level figures, and that's it. And that's difficult when you're trying to plan. So, I think there's something—

On that bit, is it then an attitude towards devolution that's based within the Treasury that it doesn't matter as much? Because it's a respect thing, in a way, if it's last-minute. Do you get a sense that it's that, or is it just a, 'Well, it's just something that we have to do'? What's the driver behind it?

I think it's partly—. It can sometimes feel like a bit of an afterthought. I know that sometimes decisions made by UK Government themselves are last minute about which departments are getting what, and I think we’ve seen quite a lot of clearly behind the scenes bargaining between Whitehall departments, and where that lands very much influences then where devolved funding comes from, because if it’s in devolved areas, then, clearly, it flows; if it’s not, clearly it doesn’t. So, those decisions—. We are never in the room, clearly, when those discussions between Whitehall departments and Treasury are happening, but they are very important, and they’re also very important in-year around how adjustments are made. So, if Whitehall departments are told to absorb costs, for example, then we're waiting to see whether they, essentially, are able to do that, or whether, towards the end of the financial year, funding flows to Whitehall departments. For example, if you take the health department, that is where the largest pressures around our budget are, and it’s also where we get particularly late notice of consequentials, so we have to almost second-guess around what the level of support for the health service will be and then that is confirmed late in the year.

So, I think there’s a structural issue. I think the focus is not on devolved funding when there’s an autumn statement. I don’t think that’s the No. 1 priority, so I think there are definitely a number of issues there that could be addressed around the flow of information.

09:40

Some of the principles that were established as a result of the inter-governmental relations review underlined that mutual respect for the separate and shared roles and responsibilities of the Government. It’s built on trust as well. Thinking about what you’ve just said, do you think those principles are being adhered to, or is it a work in progress, or what? You’re on the coalface when it comes to this. What are your thoughts on that?

So, I think it’s work in progress. Let me say a couple of things first of all, because I don’t want to sound overly negative. So, our officials have very good relationships with Treasury officials, and actually, in many ways, that has been one of the most helpful things, because they can sometimes get information and probe and get information that is very helpful. So, for example, around the review of the fiscal framework and some of the bargaining, I guess, that went on between the UK Government and ourselves, a lot of that was smoothed out by the very good work of Treasury officials and our finance officials here in Scotland. So, I would want to put that on the record.

Also I think, on the relationships between the Chief Secretary to the Treasury and ourselves, I rehearsed earlier on that those relationships have mattered and they’re very cordial, but I do think there is a structural issue about the way fiscal events happen, and the lack of information and the lateness of it. And that leaves us in a position—. Even with respect and all of that, it just leaves us in a position of not knowing what the position is going to be, and then having to work through the year kind of second-guessing, trying to get information from Treasury. At some points, they don’t have it themselves; I’ve had some pretty frank discussions with the Chief Secretary to the Treasury, and he will say, ‘I don’t know at the moment what the position is going to be.’ So, there’s maybe something about how Whitehall departments are managed as well, and some of the kind of horse trading that goes on quite late in the day, and perhaps that’s not great either, around the certainty that they have.

So, helping with communications and getting that message across to the Treasury, is that one of the strengths of the FISC arrangement? Or maybe you'd talk about what some of those strengths and some of the weaknesses are, and is that communication, or is that something that, hopefully, will develop through—? FISC is fairly new, so how will it help you in making that devolved nations appeal, effectively, to the Chief Secretary, and say, ‘Look, this is impacting on us’?

Well, these issues are raised. I think they've been raised at every single FISC meeting that I've been at, not just by me, but by the other finance Ministers also, and it's good, obviously, to have Northern Ireland back around the table as well. They've been raising the same issues about the lack of certainty, the lateness, the lack of notice. So, all of these matters have been raised. So, they do require a response, and the response, I think, has to be far more detail, earlier on in the process, around what we can expect around information to be able to help us not just with setting our budget, but our in-year position as well. Now, I could rhyme off a whole host of other things that we would want to secure around additional powers and everything else, but I think those things would be a common approach that all of the finance Ministers of the devolved administrations would say would make a real difference. But that requires a different approach from Treasury.

09:45

Okay. Does rotating the chair help, do you think, in trying to combat some of that—making sure that a different voice is heard from the chair every time that you meet? Does that help or is it a hindrance?

I think it's a good thing in principle that there's a rotating chair. It allows us to make sure that the agenda covers very much the issues that the devolved administrations want to raise. Whether the response is always as detailed as we would like—. Sometimes we will get an acknowledgement of the issue, but perhaps not much else. I think, to be fair, the Chief Secretary to the Treasury is quite often constrained by what she is able to tell us at that particular point. There's been a lot of flux, I guess you could describe it, in terms of the way the UK Government has been operating, so I think that perhaps doesn't help. But what I would say is, around the table, the relationships are good, but, as I've said a couple of times, relationships don't fix some of the fundamental issues around flow of information, around transparency and what we require in terms of the level of detail at particular times during the year. The best of relationships aren't going to change that. 

Alun, if you want to come on this, then I'll go over to Mike, and then we'll carry on. Alun.

Thank you very much, Cabinet Secretary. It's a fascinating insight you're giving us into the workings of some of these functions. You seem to be describing quite a transactional relationship in terms of you are describing how you will discuss what is coming up and decisions that you would wish to take and that are taken in London and the rest of it. I'm interested to understand how far those conversations actually go.

Certainly here in Cardiff, people were quite surprised last December when the Northern Irish Secretary announced a financial package for Northern Ireland that included, the quote from Hansard is, 'a needs-based formula', recognising the differential needs in Northern Ireland. Now, in Wales, as you will be aware, we've been arguing that Barnett is outdated and a needs-based formula would be important for this country as well. To what extent—? I'm interested to understand whether Treasury officials or Treasury Ministers have discussed the overall funding structures of the United Kingdom in any detail, whether, specifically, any information has been provided to yourselves in Scotland over the situation in Northern Ireland and whether there's more policy development work going on across the different Governments, if you like, that is more detailed and longer term, rather than the in-year conversations you've been describing.

So, let me say, first of all, it's great to have Northern Ireland back round the table, and I wouldn't begrudge them any of the funding that they've managed to secure, but there is a lot of politics, obviously, behind some of that decision making, and we raised—I say 'we'; it was raised by Rebecca Evans as well—the need for Wales and Scotland to also have the needs of their public services recognised. We have been through some very tough fiscal events, from the impact of the mini-budget, high inflation, the erosion of public funding through that high inflation and reductions to our capital budgets, so the point we made at FISC in and around the time of that announcement was the need to recognise Scotland and the Welsh funding requirements as well. So, those points were made; I think they were noted, but, of course, we've not seen any equivalent package coming forward to recognise some of those financial pressures. So, I would, of course, like to see many of the changes made to recognise, I think, more fully, for example, the impact of inflation, the erosion of the budgets and the pressures that that brings, and also the restoration of the capital cut to our budget over the next few years, which we will pursue Treasury over.

In terms of looking to the future, we are keen, through discussions in the here and now, but also in terms of the future, post general election, to look at where there are improvements that can be made around our fiscal position. We gained, as you know, some concessions and improvements, practical improvements, through the fiscal framework, but we are keen to look at the fiscal framework again in terms of, for example, prudential borrowing and being able to more effectively respond to some of these fiscal events and pressures in the future. When we had COVID and the cost-of-living crisis, our ability to be able to respond to that as a devolved administration requires us to have some of those additional powers, and prudential borrowing would be a key ask, going forward. So, we'll continue to make these representations.

09:50

And going on from what Alun was saying, is there any joint working going on on policy development in that area? Do you work in your silos or do you try and collaborate on some of that policy development?

Well, we're keen, very much, across the devolved administrations, to work together on areas of common cause. We also have different fiscal arrangements across the devolved administrations and we recognise that. So, the fiscal arrangements here in Scotland are different from those in Wales and Northern Ireland, but there are some common areas. I mentioned a few earlier on around the transparency and removing some of the opaqueness around funding decisions, where Barnett flows, where it doesn't flow, having earlier sight of budget expectation and funding and those in-year positions. So, there are areas, I think, that we are keen to continue to work with Welsh and Northern Irish colleagues on. We do meet regularly across the devolved administrations. We meet in advance of FISC meetings as well, so that we can, if you like, co-ordinate the landing of our messaging around things like more support for the cost-of-living crisis, for example, and other areas that we have common cause around. So, those areas of work across the devolved administrations are very important to us.

The committee has heard that the inclusion of a secretariat was a modest but important step forward. How effective is the inter-governmental relations secretariat in its impartiality, and what are the benefits of it?

I think the work of the secretariat and the support around FISC is very important, and we very much appreciate the work of the secretariat. They do a good job, they make sure that the meetings are conducted efficiently. They, obviously, rotate around the various administrations in terms of hosting, and the communiqué that comes out of the FISC, which is published, is crisp, it's to the point. Also, the agenda, I think, is constructive, with the consultation of all parties. So, I would certainly commend the work of the secretariat.

09:55

Thank you very much. The Treasury's announcements on devolved funding can be unpredictable in terms of timing and lack of transparency regarding Barnett consequentials. I think you said something very similar to that in your opening remarks. In Wales, we've had two things that we've been very unhappy about. The London Olympics, which was their proper title, didn't produce Barnett consequentials for us as we would have and should have expected. HS2 is a running sore in Wales regarding the fact it's an England-and-Wales railway plan that doesn't come very near Wales at all. It was coming close to the Welsh border, but that bit has now been cut out. So, we certainly have concerns over the Treasury making these decisions that something is or is not to go into the Barnett formula. Do you have the same problem in Scotland?

I think that you make some very, very strong points around subjectivity, which I think would, maybe, be the description, and what we really need is objective and understandable decisions. You've mentioned the Olympics. There are also the decisions on the categorisation of Crossrail, HS2, which you've mentioned, and the different classifications. I think it comes back to, sometimes, the opaqueness of decisions. Quite often, when something is announced, we might hear an announcement in Westminster, and we're like, 'Okay, wait a minute, does that have Barnett consequentials?', and my officials would pursue the Treasury for clarification. So, I think there is a concern, which you've just really articulated, around needing objective, understandable, transparent decision making around these issues. Going forward, I think those principles should really apply so that we can all see how the decisions have been made, what the categorisation is, and the rationale for whether Barnett funding flows or does not flow.

You mentioned earlier in your contribution that there were mechanisms to be able to challenge and that your officials look at that. How do you avail yourselves of those ways of saying, 'Well, we don't agree with you, Treasury'? Would putting those on a statutory footing be better? How are protocols—? How do they work? How do you raise—for example, HS2 for us—a similar element in Scotland? How would you raise that with the Treasury and what avenues would be available to you to be able to challenge those decisions?

So, on a day-to-day basis, my officials will contact officials in the Treasury and try to get information and try to find out and question what the decision is and the rationale behind it. So, on a day-to-day basis, that is done fairly regularly. I guess if you get into more formal disagreement territory, then of course there are a number of ways of doing that. FISC, as a forum, provides an ability for us to raise issues, raise issues of concern, and we do that on a regular basis. There are then dispute resolution mechanisms that are more formal again that can be raised through FISC and beyond that through the inter-governmental machinery. We haven't, to date, raised any formal disputes through those mechanisms—I'm aware that the Northern Irish have raised one—because we do try to resolve matters through the machinery of FISC. So far, we haven't raised any formal—

10:00

And do you confidence that that could work? I know you haven't tested it yet, but—

We haven't tested it. If I'm to be totally honest, at the end of the day, the power imbalance means that Treasury will decide and, therefore, we could go all the way through these disputes—and we've had one or two where we've pursued for quite some time around where we thought funding should have flowed, and, at the end of the day, we did not succeed in persuading Treasury—and they will be the ultimate decision maker here. So, I guess I would be sceptical, I think, of the machinery necessarily delivering a different answer than we would have got through some of the more informal communications around these matters.

You talked earlier about late funding announcements. We know that we have the autumn fiscal statement, which, quite often, becomes the winter fiscal statement, and that the pluses and minuses have to be netted off. Does that cause you any problems, and would it help if you could just do it over the year—that the financial end of the year was not a cut-off point, but you could manage across years?

Well, it causes us enormous problems. I said a little bit about that earlier on, but let me just build on that a bit. So, the lateness, first of all, of the autumn statement is our first big hurdle, because we have processes within Parliament, we have the Scottish Fiscal Commission, which requires a period of time to do their forecasts and assessments, and we then have the parliamentary processes, and we have to do all of that before the beginning of the financial year. So, the later the autumn statement is, the more difficult that becomes. And we literally, over the last period of time, have had a slot of about a week between the autumn statement and us kicking off our processes in Parliament. So, that's not great. It's not great for parliamentary oversight and scrutiny, it's not great for the Scottish Fiscal Commission and, therefore, that is a major issue in itself.

We then have the in-year supplementary estimates and the end-year outturn position, and, again, we have to try and second-guess through information from Treasury that our officials try to glean what the position is, but getting that very late notice is hugely problematic. The £680 million that I had to go to Parliament to announce last year of savings in-year—and I think I did that around October time—was very, very problematic, because later, at the end of the year, we then had late consequentials of hundreds of millions, which meant that I potentially wouldn't have had to have made some of those very difficult decisions that were very unpopular across many aspects of our public services, and very unpopular in Parliament. I'm aware Rebecca Evans had a similar situation, where she had to go to the Welsh Parliament to announce similar cuts and then, again, had late in-year consequentials. So, it's not the best way to manage public finances, and it's not the way I would choose to do so. I think, if we take that as a starting point of wanting to avoid a scenario like that, we then should work back from how do we avoid the scenario, and it comes back to that clarity and early information, much earlier in the year, on what our funding outlook and position is going to be.

Thank you. And finally from me—this, really, carries on from what I said earlier—would it help if we didn't actually have of an end-of-year really key point, but that we could actually move money across years, i.e. borrow from next year or pay into next year, rather than having to balance exactly on a date, when you're getting some late money, which probably isn't too much of a problem, because spending money is not that difficult—you've got organisations outside like housing associations you can ship money out to. But actually discovering you've got £100 million less to spend in the year a month before the end of the year, of course, can cause problems, can't it?

10:05

Yes, and that end-year flexibility, I think, would be extremely helpful. It would certainly help with the flow of resources and more flexibility around that end-year point. I think it would be helpful for all of the devolved administrations. We’re all in slightly different positions with regard to that, I should note, but I think, collectively, the more flexibility we have across our finances as devolved administrations, the more we can manage some of these in-year and end-year difficulties. So, I think that would be a very helpful suggestion. 

I was just going to say, as a fairly political point, that we really do need to get the devolution settlement, certainly in Wales, Scotland and Northern Ireland, to be exactly the same, so you know what's devolved and what isn't, and you know what you're going to get Barnett consequentials from and what you're not going to get Barnett consequentials from. I probably should end that with, 'Do you agree?'

Well, I think, again, we're all in slightly different positions with our fiscal arrangements. So, in terms of our fiscal framework, in terms of our tax position, we're in a different position from Welsh and Northern Irish colleagues. We also have devolved responsibilities for areas that are not devolved elsewhere, so I think we have to recognise the devolved landscape is a bit more complex, but I think there are some fundamental principles about the flow of Barnett consequentials—that earlier clarity around our fiscal position and those flexibilities that enable us to manage in-year pressures and end-year flexibilities—that are probably a common cause across the devolved administrations. I think we would speak with one voice on that.

Thank you very much. Good morning, Minister. It's good to know what you're telling us. The Welsh Government also remains concerned about the late funding from HM Treasury, and you did talk about the challenges it has presented to you. Should the UK Government commit to making such announcements in a timely manner? And have you been in touch with them?

Yes, I think this is one of the key matters—the notification of significant changes to devolved funding late in the year at supplementary estimates, as I said earlier, causes huge problems for the management of devolved budgets. It’s very difficult to plan when we see late volatility in our funding. I mentioned that, last year, in the autumn of 2023, to balance the 2023-24 budget I had to announce savings and reprioritisation of £680 million. We then found that we had £500 million of additional funding that came through at supplementary estimates, so had we known that, we wouldn’t have had to make some of those very difficult choices—things around higher and further education, or around transport. There were many areas—employability—where I would have maybe made different choices. Rebecca Evans, I know, last October, had to make a range of savings to the Senedd, and has, I think, made the same point—that had she known the additional money that was coming at supplementary estimates, she would have made different decisions. So, that greater clarity on block grant funding is critical. Earlier information about likely consequentials—critical. And we need to find ways of making that the default position of the way funding is agreed, rather than the rather chaotic position that we have at the moment. And I think we also need to be on the same page on that. So, I don't think there's a—. We all have different political persuasions across the devolved administrations, and yet I think we're all speaking with one voice here. 

10:10

Thank you, Minister, and I know you touched earlier on transparency. What are your views on this in terms of, as you said earlier, transparency, and should a more formal process be implemented when you think about the Barnett consequentials, to ensure that Treasury provides credible evidence for using central reserves, particularly when this results in circumventing the Barnett formula?   

Yes. To be clear, where Treasury allocates additional funding in areas of devolved responsibility, it absolutely should trigger a consequential. Those principles are established in the statement of funding policy, and that should be transparent, it should be understandable, but, as you pointed out, Treasury can cut across these principles and where they do so, there is an immediate loss of transparency. I recognise that, sometimes, there are complexities from the standard arrangements. So, if you take EU replacement farm funding, for example, where perhaps a standard Barnett arrangement wouldn't have worked, given the differing needs across the UK, so there has to be some flexibility, but I think that should be on an exceptional basis rather than on a recurrent basis. And I think where we don't understand the reasons for divergence, we challenge those. But ultimately, as I said earlier, Treasury makes the rules. 

In addition to that, we have expressed a lot of concern around things like the levelling-up funding, the application of the United Kingdom Internal Market Act 2020, and I think we need to, perhaps, re-establish some of the principles around devolved funding to try to get away from what is a perception, certainly, that Treasury sometimes tries to circumvent the devolved funding arrangements, and I don't think that helps with transparency.

Thank you, Minister. My last question, really, is: evidence presented to the committee highlighted the subjectivity of HM Treasury when categorising spending programmes such as HS2 and Crossrail projects, as examples where Wales received Barnett consequentials for Crossrail, but not HS2, due to their classifications. How do you think the approach to categorising spending programmes could be made more objective and fairer for devolved nations? Thank you. 

As I said earlier, we absolutely need to get away from any subjectivity with different classifications and that opaqueness to a transparent process, where there is clarity on decisions on categorisation, that there's consistency on categorisation, because otherwise it leaves us with a question mark about why that decision was made differently on Crossrail to HS2, and we've all got quite strong views, I'm sure, around HS2 and other large infrastructure projects. So, we need to have that transparency.

So, how would you do it? At the moment, the Treasury is judge, jury and executioner when it comes to this. Have you given any thought to what it would look like? Does it need an Act? Does it need an independent arbitrator? What actually could you do?

So, I think the Treasury, first of all, should show their workings. If there's a categorisation, on what basis? What are the workings on how they have come to that decision? So, full transparency around why, and what they've applied, and the rationale. I think they show the workings, and I think that would help us to understand why a decision has been made on a particular issue.

There's also, I think, the opportunity around the rules of the spending review, going forward. I think there are opportunities to tighten some of those, and to have agreements around more transparency and clarity around categorisation. So, we could look at some rules that will be agreed with the devolved administrations. We were consulted, obviously, around the last spending review, back in, I think it was 2015, but being consulted and having involvement in some of the decision making are two different things. I think we can strengthen some of that involvement. We can strengthen the rules, we can strengthen the transparency, and we can have transparency around the workings. I think those things would help immensely.

10:15

I'm conscious we're out of time, but we've got a few more questions, so I hope you're okay for a few more minutes. 

Thank you very much for that, Cabinet Secretary. It was interesting listening to you describe some of those issues around Treasury decision making. The Treasury isn't known for its willingness to be transparent in any circumstances—you hear Ministers in the UK Government saying something very similar. So, is there a way forward where the Treasury isn't judge and jury? Because it seems to me that one of the great fundamental weaknesses of the current constitutional arrangements in the United Kingdom is that the Treasury takes decisions that impact the Scottish Government, the Welsh Government, Northern Ireland, but also, sometimes, departments of state in England. And it appears to me that, as Governments in Wales and Scotland, you are unable to get over those Treasury decisions. And I share your scepticism that a Treasury acting as judge and jury will never find against itself.

So, do you see any realistic prospect for some sort of independent office? We've got the Office for Budget Responsibility, which has shone a light on the Treasury at least, and has put the Treasury under some pressure—it's the only thing I can think of that really does pressurise the Treasury. But do you see some sort of parallel independent structure that could ensure that the Scottish or Welsh Governments, in these circumstances, would be able to argue their case to somebody who isn't a Treasury official?

I think it's an interesting idea. I think there would have to be faith and trust in any such structure that it was based on an equal power arrangement that was able to look at, for example, some of the categorisation decisions, the Barnett consequential decisions. Where would it sit with the dispute resolutions around FISC and IGR? I think it's worthy of some further thought and consideration. The OBR has been very important for us, in terms of being able to look at the forecasts and being able to use that as the basis for our fiscal outlook.

You made an interesting observation about Whitehall departments themselves. I think part of the difficulty over recent years, of course, has been the lack of funding, and because all departments are under quite severe fiscal pressure, that leads to Whitehall departments themselves being given quite exceptional savings targets that they have to absorb, and the pressures themselves in relation to pay, for example. And that means, for the devolved administrations, that it's only really late in the year, if Whitehall departments have managed to win the argument with Treasury that they are not able to balance, because they've done everything they can and there's still a gap, that it's at those points that sometimes funding flows.

So, we need to look at all of that and we need to unpack all of that in an honest and transparent way, and ask ourselves, collectively, 'Is that the best way to fund our public services? Is it the best way to address pay issues across the public sector?' My view is that these are not the best arrangements, because they don't work for us; I think you've quite rightly pointed out that they often don't work for Whitehall departments either. So, I think we have to have an honest assessment of what works for public services and the public sector in the funding arrangements that we collectively have, and I think that needs to be the starting point of what arrangements and rules and dispute resolutions would flow from that.

10:20

I'm grateful to you for that, Cabinet Secretary. We could continue this conversation for many hours. Can I just ask you one final question, where we are this morning? The Welsh Government, as you may be aware, submitted a request to the UK Treasury to devolve powers for a vacant land tax. I think it was four years ago, and there's been zero progress since then. And I'm interested as to whether the Scottish Government has made any similar requests—I presume the powers exist within the legislation for you to request a new tax that doesn't exist in Scotland at present. And if a request for a new tax, such as a vacant land tax, which isn't, I don't think, too controversial, is able to make no progress at all, then it appears to me that we have a power that can never be used. And if so, we have a structure, again—I think it's the theme of some of our conversations this morning—that all roads lead back to a Treasury official, and whatever the powers that may exist in the legislation for us to have a two-way conversation, those conversations tend to end up being one-way conversations.

Yes. So, let me say, first of all, I'm very sympathetic to the Welsh position on the vacant land tax, and in many other respects. So, under the current devolution settlement, the Scottish Parliament cannot legislate for a new national tax in Scotland without further devolution of powers from the UK Parliament, and I think there's a fundamental issue there. I would just comment, before coming on to one specific tax that we've been negotiating with the UK Government in a second, that a general observation I would have is we're in discussions with local government here in Scotland around their call for a general power of competence. They also, local government here, have powers of prudential borrowing, so they, in some ways, have more financial flexibility around borrowing powers than actually the Scottish Parliament has and the Welsh Parliament has. So, there's a fundamental issue here, at this stage of maturity of devolution, that we really ought to be trusting, I think, our devolved administrations around our borrowing capacity, around our ability to develop and deliver new taxes in a prudent, sensible way, rather than having to negotiate every single aspect with Treasury.

Let me talk briefly about one tax that we have just managed to get agreement around, and that is the building safety levy. We required this power to support cladding remediation costs, which mirrors quite closely the power that the UK Government has as it developed the levy that it's developed itself. And, of course, we're required to do something similar in order to address some of our similar remediation of cladding issues. And we managed to get to a position of agreement in principle to devolve the necessary powers to the Scottish Parliament to allow the introduction of a building safety levy in Scotland. It hasn't been without its challenges, we've been backwards and forwards over a number of issues with it, but we have got to a sensible place. But I think on a point of principle going forward, we really need to—. Well, it goes back to that position of trusting our devolved administrations to develop the appropriate regulatory and taxation framework for what's appropriate for Wales, what's appropriate for Scotland, and what's appropriate for Northern Ireland, and I think we just need to be trusted to get on with that.

10:25

On that note, thank you very much for this morning—a wide-ranging conversation and really helpful for our inquiry. There might be one or two questions that we've missed or that might occur to us later. Are we able to write to you with those to get your thoughts if needed?

Yes, we'd be happy to furnish the committee with any other further information that you think would be helpful. And thanks very much for your questions and time.

Thank you. No problem. There will be a transcript available for you to check for accuracy in the normal way as well. But thank you very much for your time this morning.

3. Cynnig o dan Reol Sefydlog Rhif 17.42(ix) i benderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn ac o ddechrau'r cyfarfod ar 22 Mai
3. Motion under Standing Order 17.42(ix) to resolve to exclude the public from the remainder of this meeting and the start of the meeting on 22 May

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod, ac o ddechrau'r cyfarfod ar 22 Mai, yn unol â Rheol Sefydlog 17.42(ix).

Motion:

that the committee resolves to exclude the public from the remainder of the meeting, and the start of the meeting on 22 May, in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

I'll move on now. I propose, in accordance with Standing Order 17.42, that the committee resolves to exclude the public from the remainder of this meeting and the start of the meeting on 22 May. Is everybody in agreement? Lovely. Thank you very much. We'll go into private.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:26.

Motion agreed.

The public part of the meeting ended at 10:26.