Y Pwyllgor Cyfrifon Cyhoeddus - Y Bumed Senedd
Public Accounts Committee - Fifth Senedd15/07/2019
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Adam Price AC|
|Gareth Bennett AC|
|Jenny Rathbone AC|
|Mohammad Asghar AC|
|Nick Ramsay AC||Cadeirydd y Pwyllgor|
|Rhianon Passmore AC|
|Vikki Howells AC|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Adrian Crompton||Archwilydd Cyffredinol Cymru|
|Auditor General for Wales|
|Alan Brace||Cyfarwyddwr Cyllid, Llywodraeth Cymru|
|Director of Finance, Welsh Government|
|Andrew Slade||Cyfarwyddwr Cyffredinol, Grŵp yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru|
|Director General, Economy, Skills and Natural Resources Group, Welsh Government|
|Andy Falleyn||Dirprwy Gyfarwyddwr, Cyflenwi Seilwaith, Llywodraeth Cymru|
|Deputy Director, Infrastructure Delivery, Welsh Government|
|Dr Andrew Goodall||Cyfarwyddwr Cyffredinol Iechyd a Gwasanaethau Cymdeithasol, Llywodraeth Cymru/Prif Weithredwr GIG Cymru|
|Director General, Health and Social Services, Welsh Government/Chief Executive NHS Wales|
|Helen Arthur||Cyfarwyddwr Gweithlu a Datblygu Sefydliadol, Llywodraeth Cymru|
|Director of Workforce and Organisational Development, Welsh Government|
|Matthew Mortlock||Swyddfa Archwilio Cymru|
|Wales Audit Office|
|Simon Jones||Cyfarwyddwr, Seilwaith yr Economi, Llywodraeth Cymru|
|Director, Economic Infrastructure, Welsh Government|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Claire Griffiths||Dirprwy Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Dechreuodd rhan gyhoeddus y cyfarfod am 13:16.
The public part of the meeting began at 13:16.
Welcome, Members, to this afternoon's meeting of the Public Accounts Committee. I also welcome our witnesses. As usual, headsets are available for translation and sound amplification. Please turn off any phones. In an emergency, follow the ushers. We've received no apologies today. Do Members have any declarations of interest they'd like to make at this point? No? Okay.
Item 3 and a couple of papers to note. First of all, the Welsh Government has submitted further information following the evidence session on 24 June. With regard to the MyTravelPass, I think there's a need for some further clarification around the number of passes that have been issued and are being used arising from the letter for completeness. Auditor general, did you have any comments about that?
Okay. So, we'll seek clarification on some of those numbers. We need to note that letter.
Secondly, the public sector ombudsman for Wales has responded to our letter of 4 June seeking further clarification on some of the responses to our recommendations made to the PSOW in our report on the scrutiny of accounts 2017-18. I'm broadly happy with the response that we've received. It breaks down into three parts—first of all, the advisory panel and the audit and risk assurance committee. Following the committee's recommendations, the ombudsman's two main committees are now chaired by different people. We feel that having a member of ARAC who does not also sit on the advisory panel would strengthen the PSOW's governance arrangements given ARAC's role in reviewing the comprehensiveness and reliability of the control environment. So, that's one area that we've sought a change to. Secondly, the issue of special payments, and the ombudsman has confirmed that all special payments were connected to the termination of employment and they provided value for money. While noting the steps taken by his office in respect of the payments, there's no detail about how the payments did obtain value for money. So, we might wish to return to that. And the third area is the annual report and accounts. I don't know whether the auditor general or the audit office had any comments on the—.
Nothing to add to what is an accurate description of the factual requirements for both the production of their report and accounts and our work in respect of it.
Great. Okay. So, as I say, broadly, I think that it's a positive response and there's been an attempt to deal with our recommendations. So, are we happy to note that letter? Good.
Chair, sorry—. To note that—but in regard to confirmation around the special payments, is it possible to get further detail around that, even though it states it was connected to termination of employment?
Yes, because there's very little detail in the response they've given us. So, I'm happy to follow up on that if you'd like, in addition to the clarification on the earlier points. Yes, we can do that. Okay.
Housing adaptations—we've had a letter from the Welsh Government providing an update on the progress being made on implementing the recommendations contained in our report. There appears to be a continued focus on delivering the actions, which were prompted both by us and by the audit office's reports—the auditor general's reports—which has also been supported by the work of the housing adaptations steering group. Four of the six recommendations are now complete, and progress is being made on the two outstanding. The Welsh Government will provide the committee with an update on these at appropriate times. I don't know whether the auditor general had any comments—no. Okay, so we note that letter.11
Finally on papers to note, the Welsh Government has published its response to the recommendations contained in our report on the lessons learnt from the governance review at Betsi Cadwaladr health board. The response is positive, and we are set to receive a further update on the progress made on recommendation 1 in due course. Are Members happy to note that response from the Welsh Government? Yes.
Moving on to the substantive item today, item 4, and the M4 relief road and our evidence session with the Welsh Government. I welcome our witnesses from the department. Thanks for being in front of the committee again in such a short space of time. Would you like to give your names and positions for the Record of Proceedings?
I'm Andrew Slade, director general, economy, skills and natural resources. And on my right—
Simon Jones, director of economic infrastructure.
And on my left—
Andy Falleyn, deputy director, infrastructure projects.
Great. Thanks for being with us. Obviously, we've asked you to come in in the wake of the recent decision on the M4 relief road and the decision or the announcement by the First Minister that there's to be a commission to look at alternatives for easing congestion. So, we've got a number of questions for you. I'll kick off with the first. With regard to the public inquiry, the inspector's report on the M4 relief road concluded that the scheme would offer at least sound value for money and, in all probability, good value for money, and he considered the benefit-cost ratio of 1.92 to be a reasonable estimate—all things I'm sure you know. The Welsh Government evidence to the inquiry gave a benefit-cost ratio of 2.29, including wider economic benefits. However, the First Minister said that Cabinet had concluded that, due to the costs, the scheme would have an unacceptable impact on other priorities. Can you provide the committee with any further information on the changed financial and political circumstances, including when these became apparent?
Chair, I think it's worth going over some of the context behind the road—I think that might be helpful to the committee—and the project that was put to inquiry and on which the First Minister took his decision. The First Minister's decision, of course, was based on two factors: one was about the availability of public money to support the delivery of the road option and, in particular there, to ensure that we had the means necessary to pursue the road through to completion, not least in regard to compulsory purchase orders, because you can't enter into a decision to proceed with a project of that sort unless you can guarantee that you'll go all the way through within a reasonable time frame because you're effectively interfering with individuals' and businesses' rights. The other element of that was in relation to the value and weighting that he attached to environmental factors within the report, where, although he didn't disagree with the inspector's findings, he did attach a different set of priorities and weightings to those elements in particular in respect of the impacts on the Gwent levels. So, that's the basis of the decision, just to sort of reprise that.
A lot has happened, contextually, since the first plans were drawn up to move towards a road. The concept of an M4 relief road has been around since the mid-1990s. I think committee members will be aware from your own backgrounds that route protection has existed on the road since about 1995. We've really got going in earnest on this since 2013-14. Prior to that, there was a very significant set of work done to have a look at options, which basically began a process of funnelling down how we address the problem that we've got around congestion in south-east Wales and a range of other problems associated in terms of the economy and also the environment—what's the best way to proceed to address those. And so began the process of drawing up what became the M4 relief road project in order to get to a point where we could produce draft orders, which would effectively, again, have an impact on people's businesses and their properties. We had to get down to a very specific level of project detail, and we fully expected—I think it's fair to say Andy's steeped in all of this—that we would end up at inquiry because somebody would object and, indeed, we had a number of objections—
—so we ended up at inquiry, and we made provision from the get-go on the assumption that we would end up in a very heavily openly scrutinised process. But we had to get the road project to a point where it could be looked at at that level of detail. Since, of course, we've published the draft orders and we had the referendum on leaving the European Union, shortly after the inquiry started, the process of triggering article 50 got under way in respect of our leaving the European Union, and then, of course, we had a general election. Brexit has been a huge rock thrown into the pond in the context of what we've been doing across Government generally, and we've talked about this many times before.
The financial situation has not improved, as I think I said to the committee last time I was here. Welsh Government's budget in real terms is down about 5 per cent compared to where we were in 2010. In relation to capital, about 10 per cent down from where we were in 2010, and we were fully expecting a spending review process. That hasn't materialised; there's no indication when that will happen. We're working, essentially, now on a one-year budgetary process—not even the three years that we might have had hitherto. So, that's the sort of financial context.
Just to be clear there, the First Minister, when he made his statement—he didn't cite the financial issues, although they were significant, as the overriding reason for rejecting the project, did he?
He said there were two factors: one was the availability of the money and his ability, therefore, to make the orders and start to interfere with people's property. In other words, taking it away from them through compulsory purchase on the one hand, and on the other, the impact on the environment where he attached a greater weighting to the environmental impact than the inspector has done, which he is entitled to do, was entitled to do, as part of the decision-making process.
And just to round this out, in recent times, in respect of the environment, we have, of course, had the UK Committee on Climate Change's advice to the UK Governments and our own Government on what needs to happen to meet the Paris agreement of 2016 and, of course, very recently, we've had the United Nations report on biodiversity. So, over the lifetime of this project, a lot has changed. I don't know whether colleagues wanted to say something about the funnelling-down process that gets us to a point where we have a road scheme to take to—.
Yes. So, the process started back in 2010 where about 200 options were pulled together in the period 2010 to 2012-13, and from that, this scheme was selected. I think it's worth just emphasising a point that Andrew made as well about the—
You mention the original scheme back in the 1990s. I seem to remember—that was the M44 back in those days, I think—it was going to go right through the middle of the Gwent levels, wasn't it? The scheme's obviously changed a lot over the decades. Sorry, I'm interrupting.
I was just going to elaborate on one of Andrew's points, if I may, which is the point about the level of detail that's required, because I'm sure people will have questions at some stage about how the £140 million was made up. Just to set the context for that in terms of the level of detail required: as Andrew says, making the statutory orders impinges on people's human rights. So, there are some obligations that Ministers have to take into account before they commit to that. And in order to be able to tell people what the impact on them will be, we need to work up detail to a sufficient level that allows us to be able to tell individuals what the impact on them will be. So, that requires a huge amount of design work to work out, for example, how much land is going to be taken from each of the land holders along the route. And it can't do that without working out what the drainage is going to be like, what the slopes on the embankments are going to be, what the finalised route is going to be. So, there's a huge amount of detail that has to go in order to be able to get a scheme through a public inquiry. The process that we go through is to take a scheme to public inquiry in order to be able to get a successful recommendation at the end of that, because that is the way that—.
Adam Price, did you have a supplementary?
Right. So, the primary reason given for rejecting the scheme was financial—the money wasn't there.
The First Minister had two grounds for not making the orders: one was money and the other was the weighting he attached to the environmental factors.
Yes, but he did say that the primary reason—that was the reason he was rejecting, but he went on to comment upon the environmental grounds.
He said that had the money been available he would not have chosen to proceed because of the environmental impact.
Yes. But his primary formal reason for rejection was because of the lack of—
No, it was both of those elements. What he said in his statement was that, actually, if you haven't got the money available, you're not really required to go on and address those other factors. Nevertheless, he had chosen to do so and, indeed, spent a lot of time considering the inspector's report very carefully.
Let's just focus on the financial reason then, shall we? The inspector said in paragraph 8.503, on page 491—I'm translating from Welsh, but I can give you the essence of it—that finance by the Government has been earmarked for the project. He was correct in that statement?
At the point we went into the inquiry, that is correct, but we had to get to a point where we had the confirmation of budget available, including from the UK Government. And by the end of the inspection process, or the inquiry process, we didn't have that clarity. I think that's fair to say, Andy, isn't it?
Yes, I think that's the case. I mean, with the publication of draft orders—there is a requirement where we are confident that resources can reasonably be made available, based on what Andrew said. Because we are affecting people's human rights, because we are affecting the land they own, we have to be reasonably confident, I think the language is, in the availability of resources in a reasonable period of time. And I think that is possibly where there was a change in position by the time the First Minister came to make the decision.
Maybe if we could just—. I know there's a lot to get through, but, okay, at what point did that situation change? So, you were under an obligation to say, and you did say, 'The money is available'; at some point, you just said, during the process, that was no longer true. At what point precisely did that happen and did you communicate that publicly?
I don't think there was a particular absolute point in the process when everything suddenly flipped. The inspector finished their work taking evidence in, I think, March of 2018—
Yes, March 2018.
—and then went into closed session to write up the report with his colleague, and that arrived with us in the autumn. We then did a certain amount of fact checking around that. During 2018, but I can't remember exactly when, the First Minister wrote to UK Government asking about our borrowing powers and for clarification on available finance, and we didn't get a substantive answer to that.
So, on receipt of that letter, was there a discussion at a senior official level and then with Ministers that came to the conclusion: the statement that we'd given to the inspector, which said—and you've just said that you were under a formal legal duty to provide them with that information—that we had the money available for the scheme, and, as a result of that letter that you've just referred to, that, in our view, is no longer the case—? So, was there a discussion and is that minuted? Was it discussed at that point?
Discussions about money happen all the time between senior officials and with Ministers; what you then have to look at, as a Government, is the overall balance of the things that you want to spend your money on and what certainty you've got about available budget. Cabinet took, most recently, that set of issues for consideration at the end of April and concluded at the end of that discussion that, given everything else that was going on—
Okay, I'm just trying to establish—. So, if I can summarise—there wasn't any point when there was a discussion that said: the statement that we've given to the inspector that money is available for the scheme, it's earmarked, is no longer true. There was no specific point when that discussion was had in Government, there was no decision, and that wasn't communicated to the inspector or publicly.
There was no crystallised point, during the process when the inquiry was ongoing, where we would've been at the stage to say, 'No, we're now reversing out of the financial position.' At the point that he embarked on his inquiry, we had reason to believe that we would be through austerity, out the other side of Brexit and be in a position to make the money available, and as far as we were able to, in respect of our existing borrowing powers—we felt that we had adequate cover to proceed. But in the gap from the inquiry ending to the point when the First Minister was making a decision, the context had changed quite markedly: we hadn't had a Brexit, we hadn't had a spending review—we don't even know when the spending review is likely to happen—and we've had no increase to our borrowing powers that would help cover the gap—
[Inaudible.]—the First Minister has said that it was during that that process that he was concerned at the spiralling cost of the project. He said in a statement recently—
Cost is an issue, yes.
—so, it went from £1.4 billion, then he said it was looking like £1.6 billion and then up towards £2 billion. So, it wasn't just the availability of money from the other side, he cited the cost—the spiralling cost—of the project as well. Is that a fair assessment?
Is it worth getting into the costs, because I'm sure the committee will want to consider those at the point we went to inquiry and what happened since?
Yes, I want to bring Gareth Bennett in, actually, but I can see Adam is trying to—. I think we—
Well, I want to reiterate the point that you're making, because you seem to be putting a lot of emphasis on the availability of finance, not so much on the cost of the project itself. But, if we're coming on to that—. When you made the orders, your estimated cost was £1.3 billion, not including value added tax at 2015 prices. Is that correct? The figure, then, that was quoted by the economy Minister at 2019 prices was £1.57 billion. That also didn't include VAT—
That included—. Did you want to address that one?
Yes, just to make that point. So, the £1.32 billion is absolutely correct, that was Q4 2015 prices. That didn't include VAT. The £1.577 billion did include non-recoverable VAT, and that was adjusted to reflect 2019 prices. Now, as far as VAT is concerned on projects of this nature, we have a well-established way of looking at how you calculate VAT on these projects. In very simple terms, where the work takes place on an existing carriageway or ties into an existing carriageway, we have the ability to recover VAT on that, but for lengths in between those, shall we say, on a greenfield, even though the site may not be particularly green, but known as greenfield, we're not able to recover VAT on those. So, that is how the VAT calculation is determined by us.
In terms of presenting information into the public inquiry, it's consistently on the basis of VAT not being specifically included, although it's always made clear whether VAT is part of the sum or not, because the benefit-cost ratio is calculated on a basis without VAT in it.
But at the point that Cabinet was making its most recent determination on availability of money and the balance of spending priorities, we wanted to ensure, at the end of April, that Cabinet had the figure, including what we thought couldn't be recovered. So, that's a total figure based on the—
I need to bring Gareth Bennett in, but I just want to be clear, because in the Minister's statement the £1.32 billion, which in 2015 prices equates to £1.57 billion in 2019 prices—that £1.57 billion, does that include VAT, or does it not include VAT?
It includes those elements of VAT that we couldn't expect to recover.
Could I, Chair, just—
Very briefly, Adam, because I've really got to bring other Members in.
Yes. I just want to understand—comparing like for like, the 2019 figure with the 2015 figure—purely the cost increase, right. So, if you put it in the same years' base prices and you strip out the VAT element, because that's not in the 2015 figure, what's the pure cost uplift?
This is a very important point. I think it is worth just explaining £1.13 billion through to £1.32 billion and then what happened thereafter.
So, the beginning of the public inquiry, we obviously had a figure of £1.13 billion, I believe, and we can check the figures for accuracy, but it was of that order. During the length of the public inquiry, obviously, certain things arose at the public inquiry we needed to take into consideration. One of those was the slip road into the Roadchef services at Magor. Obviously, the most substantial element was the mitigation measures that were required at the Associated British Ports works at Newport. They were added into the figure, and the figure was updated then during the public inquiry process, which arrived at the £1.321 billion, excluding VAT, figure.
As part of the work and the paper that was provided through to Cabinet on 29 April, clearly the important thing, obviously, was to update that figure so any decisions or discussions around that could have the most accurate figure in front of those decision makers. So, the figure then was upgraded to include non-recoverable VAT and also to factor up from Q4 2015 to Q2, I believe, 2019, and that took the figure from £1.321 billion to something of the order of £1.45 billion, and then the inclusion of non-recoverable VAT added on [correction: added on took it] to £1.577 billion. That's the figure that was discussed at the Cabinet on 29 April.
Thanks, Chair. You've gone into some of the reasons for what the public saw as the spiralling costs of the project, so thanks for clarifying it to the extent that you have done. You mentioned a couple of things were added factors, like the slip roads, the mitigation measures—okay. But, presumably at the start of this kind of massive infrastructure project, these kind of added costs could be foreseen, perhaps not specifically, but there are going to be additional features. Given that, in 2015, the First Minister, who was then Carwyn Jones, was reported as saying that the M4 project would cost nowhere near £1 billion, is it therefore a mistake on his part to project such a cost? Or were there other factors that we haven't gone into today that meant that the scheme spiralled, or are there in-built factors in these massive infrastructure projects that mean that costs do spiral and you can't anticipate how expensive schemes are going to be? Because it seems to get from nowhere near £1 billion to £1.57 billion in a small space of time. It does seem a big increase.
As far as that's concerned, to the best of my knowledge, when the First Minister at the time was quoting those figures, I think there's a high likelihood he was referring to construction costs. Clearly, as part of these projects there are many other costs over and above construction costs that add to the overall cost of the project—there's land, there's compensation, there are mitigation measures. At the time—I think it was late 2014, early 2015—the First Minister in position was making reference to a potential construction cost, and he may even have had in his mind that, at the time, I think contractors were bidding for the project. So, clearly you don't have an acceptance, or give contractors something to aim for, but I think that's probably the explanation for that difference.
Okay? Rhianon Passmore.
We've covered some of this in regard to non-attributable VAT, but, in that context, how much did the UK Government's VAT additionality contribute to the unaffordability of the project, in your view, if at all?
We're regularly in dialogue with UK Government about VAT issues. We tend to work on the basis, as Andy has said, of excluding VAT because VAT is subject to change and there are different components, particularly in a road scheme, where VAT will be chargeable and where it won't be. I don't think it was a killing factor in the context of the road. The road had to be looked at in its totality, but it is undoubtedly a factor. I don't know if you want to add to that.
I think you're right. As with these matters, there are any number of costs that could change or contribute to the overall cost and the overall impression of the cost of the scheme. I think our calculation, based on the formula we tend to use for road schemes and the conversations we've had with HMRC, I think we were looking at a figure between 11 per cent and 13 per cent of non-recoverable. So, that was the amount that would be added to, shall we say, the raw cost of the scheme.
So, is that then accounted for in the £1.57 billion? That has been diligently added up.
Yes, it has.
So, there is no mystery there. You've obviously had those discussions around that, so, in terms of VAT, it wasn't something out of the blue; it's something that you'd built into your inquiries. Okay, thank you.
In his decision letter, the First Minister said that the allocation of the funding was
'beyond the scope of the public inquiry'.
That's what he actually said. Therefore, the Welsh Government spent £140 million on project development, and we had the public inquiry. Now, the cost of the public inquiry—I've got that in front of me as being £61 million. Is that in the right ballpark?
I'm not exactly sure whether that is including VAT or not. It depends what you mean by the 'cost of the public inquiry', without being pedantic. We've quoted figures of £11 million, which is the pure administration cost of the public inquiry, but clearly, to support a public inquiry, as Andrew said earlier on, you need extensive research and evidence gathering and reporting. So, that's where the larger figure comes from. At one stage, we reported it as £44 million. That was the cost part way through the inquiry, but, of course, as we all know, the inquiry extended to become one of the longest running public inquiries in Wales on a road scheme. So, the cost added up as we went on from there, hence leading to the £61 million.
There's quite a difference between £11 million and—. And even a difference between £44 million and £61 million. That's a significant cost. Some road schemes themselves that the Welsh Government have done would come in at less than the cost of that public inquiry.
Yes, that's absolutely correct, but obviously the preparation costs on this scheme compare well to other projects. I think the figure we've quoted in percentage terms is 6.3 per cent, which is quite a bit lower than some other scheme projects. The point Andrew was making earlier on was that the level of detail required to support decision makers at a public inquiry and subsequently to support the First Minister in his decision-making process is extensive, as it should be. Obviously, the powers to CPO land are very powerful, therefore the level of scrutiny required also has to be powerful. But, as we went through the public inquiry, we were in detailed discussions with NRW, for example. We developed new mitigation measures and we worked closely with the RSPB to develop mitigation measures for the cranes you might have heard of—not construction cranes, but Lofty and Gibble, the cranes. So, these take an incredible amount of work. At one stage, we had a team of over 100 working on the preparation of evidence for the public inquiry, because we need to know how bridges are going to be constructed, where beams for the bridges will sit, where they're going to land. Every single detail needs to be worked out. It's probably no exaggeration to say we have to justify every single square metre that we want to CPO.
In addition to that as well, and we may pick up on that here, there's an obligation on Welsh Government as a promoter to support the equality of arms—that where alternatives are raised by different organisations, different bodies, or by individuals, we have a duty to work up that level of detail. We have a brochure, which I can circulate, which is so thick, of all the alternatives and the level of detail we worked up. So, in parallel to working up the detail in evidence for, shall we say, the promoted project, there's also a team working on the alternatives as well, working on that, establishing what the impacts might be. So, I think it's probably something in the order of 40 sq km where we need to know every single environmental impact as far as that's concerned. We need to know the lay of the land, the drainage of the land. So, that hopefully gives you some idea of the scale of work that's required to support an inquiry like this.
So, the public can have confidence that that £61 million was well spent, that it did provide value for money, because I imagine that a lot of people looking at it, novices to this whole process, would say, 'Well, this was all for a road that never actually got built in the end', and yet £61 million of taxpayers' money was spent up to a point where, quite late in the day, a decision was taken not to proceed with it. Do you think there are lessons for the Welsh Government to learn there in terms of the point at which considerations will come into play that mean that the road won't go ahead?
I might, if I may, bring Simon in on this in a moment, but I think we have to be quite careful here. If you're promoting a scheme, as we were, and taking it to inquiry, and you have to get down to that very, very fine level of project detail and you want to get the decision maker, in this case the First Minister, into the best possible position to make that decision, effectively, on the back of a report that has thoroughly considered all of the evidence that we've provided, you've got to go after it properly. You can't go after it half-heartedly. We couldn't have had a position where we were sort of spending public money on supporting that endeavour, because I think we might well have been here in this committee asking me why we had half-spent money and then ended up with a problem as a result of that. So, when you're into promoting—
I don't think that's the accusation, is it?
No, but the point I'm making here is that, when you're undertaking an endeavour of this sort, you have to do it properly. We benchmark costs so we make sure that we're not doing things out of kilter with what's going on across the rest of the UK. Andy's talking regularly to his counterparts in other parts of the United Kingdom, and working with the Highways England experts as well to get their sense of how much we should be spending on these sorts of things. Anything we did went out to tender, where appropriate—competitive tender. So, we're doing everything we can, where we're spending money, to get the best possible value for the thing that we're trying to achieve. But to build a motorway through a complex area, with lots of businesses, dwellings and an important part of our natural environment, costs money to get to a point where you can get to a final investment decision.
Yes, I was going to make pretty much the same point. The counterfactual is that, if we hadn't spent that money and we'd been unsuccessful in the public inquiry—so we might have spent half of that money and been unsuccessful—quite rightly, people would have been asking questions about what we'd been doing. And there have been occasions in the past, 10 plus years ago—I can think of two occasions—where the Government was unsuccessful in promoting schemes that failed at public inquiry. So, all the expenditure up until that point was essentially written off. And quite rightly, people then ask questions about why we got ourselves into that position. So, I think as Andrew says, you don't approach these with a view to be unsuccessful going through the public inquiry. You need to provide the correct level of information in order that all of the questions can be properly answered.
I appreciate that, but there must have been some lessons learned from this process, and you'd expect that from any scheme of this size, and any proposals.
We've learned lots of lessons, Chair, through this process, including in respect of specific parts of the project. As you pointed out earlier, we're running other road schemes alongside what we're doing, going back a year or two with the M4 project. Learning from other work on trunk roads can also feed into that process. We're also learning from experience elsewhere in the United Kingdom. These sorts of projects, to varying degrees of scale, are going on across the United Kingdom and elsewhere all the time, and a key part of what we do is learn from others' experience and, indeed, our own.
Perhaps it's just worth saying that one of the key outputs of this work was the traffic model that we created to understand the movement of goods and people around the region. That model is the underpinning of all of our work on things like the metro. So, there's quite a lot of really valuable information that's been created, and lessons that have been learnt in terms of how we implement things.
Maybe just one other bit of backdrop for this. When the decision was made in 2014 to proceed with this scheme, it wasn't a single decision, actually; there were two things that were decided upon then. One was to pursue this road, the other was to pursue the metro. So, in fact, the two things have been going along in parallel, so there are lessons that have been learnt between the two things as well.
Okay. A couple of supplementaries. First of all, Adam Price.
You refer to two other Welsh Government-promoted schemes that failed at public inquiry. Did they fail because the Welsh Government turned round and rejected its own scheme?
No. I think on both of those occasions they failed to get a positive recommendation from the planning inspector. So, the point I was making was there's no point taking something to public inquiry unless you're going to convince the planning inspector.
Is it fairly—? How rare is it for a Government that has promoted a scheme—? If you read the inspector's report, throughout it says that the Welsh Government says all these wonderful, glowing things about the proposal that the inspector recommended, but the Government rejected. So, has this ever happened to the Welsh Government before—that you've turned down, effectively, your own scheme? And how rare is it across the UK for a project of this scale?
It's not unheard of for decision makers to go against the recommendations in an inquiry. That's the first thing to be said—both positively and negatively. So, I think from memory, but colleagues may remember better than I do, that in Scotland there was an inspector's report that was not in favour of a particular road scheme and, in fact, the Government decided and argued the case that they wanted to proceed with that. Have we got a recent example, or a relatively recent example, of where we've had a positive recommendation from an inspector and not gone ahead with it?
Not to my knowledge, no.
The question, actually, is a different one. The question is: where the Government is the promoter, it is a Welsh Government scheme—or, indeed, any Government in the UK—. I've actually tried to look myself, and I can't find another example. How rare is it in the Welsh Government's experience and across the UK for a Government, having received a positive recommendation in a public inquiry, to then actually turn round and reject its own scheme?
It's rare, but the context is extraordinary. So, Brexit, our financial position, where we are globally in respect of the natural environment—these are all huge factors in wider decision making.
Have you come across other examples?
Not recently, no.
In the last 20 years?
I'm pretty sure there will be if we all went away from here and spent time looking for those. And as I said, there are examples in relatively recent history of the reverse happening. But as I say, the context is extraordinary.
You've outlined the context several times, and nobody's going to argue with that. In regard to the extensive backdrop of work that has been undertaken in regard to preparation for this decision making, you've mentioned the metro, but how transferrable will that work be as outputs that you've discussed in regard to actually mitigating the severe congestion that is still in the same place as it was a year ago in Newport and the tunnels?
I think the model is the key component of this. So, that tells us where and how people are moving, what the composition of the flows on that bit of motorway is. And I know that that's something that Lord Burns is particularly interested in—understanding that as part of the phase that he's just embarking on to understand what potential solutions might be available to him. So, having a clear definition of what the problem is you're trying to solve is absolutely key to that. But that isn't the only thing that we've managed to get out of this. There's a whole load of clearer understanding of the environment on the levels. One of the areas that we were going to take the highway through was the spoil site for the Tata steelworks. Now, having a clear understanding of what's going on there is really important, because if there's ever going to be some kind of repatriation of that site at some stage, that information is going to be really, really useful. There's the property assets that we own, which can be used for other things. So, there's a whole load of things there that have value now and in future and can be used for other things.
So, to that extent, even though we are where we are, a lot of that work is important to where we need to go in terms of congestion mitigation.
And Government policy around solving the issues. The overarching need to address those problems in relation to south-east Wales has not changed, and this is now the task before Lord Burns.
Thank you, Chair, and panel. I've been listening very carefully about this whole M4 spectacular failure of the Welsh Government. On certain areas I would like to ask—. Because if you break it down into six years, the first three years, then the final three, the April 2013 to March 2019—. So, every project, megaproject like this, the M4 relief road, is massively expensive, and you must have done some sort of homework, a feasibility report, or TAN—advice, whatever it is. So, have you got a copy of that? Because you've spent zero money on design and preparation for this project—Welsh Government I mean. This is in your diagram. I'm not saying anything; this is your diagram.
Which bit were you referring to?
Look at page 58 with us—it may be page 4 on yours—and there is March 2013 to 2016, and then 2016 to 2019. And on the left, the second heading on the top, the top one—you've spent zero money on the design and preparation costs.
We've spent a great—. As we're discussing, we have spent rather a lot on this over the last few years. Andy, do you want to pick that up?
I think you make a good point, but that's probably around definitions. We're very clear that until we have statutory consent or approval for the scheme to proceed, no detailed design is carried out. We carried out—
Just to be clear, what Oscar referred to is the statutory undertakers—
It is a breakdown.
Yes, but I don't think that's whole story, is it, that figure?
It is zero there.
Sorry. I can explain that figure. The figure we're talking about there is statutory undertakers, which are utilities—gas companies, water companies, electricity companies.
Utilities, I understand. And design and preparation—I asked you for a feasibility report. So, when you do feasibility, you haven't done—. I can see the bible in front of the M4, but is a feasibility report included there?
I think it's in the original number in the table, which is the work with Costain/Vinci on the early contractual, technical and procedural work, which is £26.4 million in that period. So, there's a lot of work that had gone in in relation to the SEA—the strategic environmental assessment—before we even get to this point.
On the point that's been raised, obviously we were in consultation and discussion with the statutory utilities to understand the effect of the scheme on there. It will have been incorporated in the overall figure.
And the fist three years never costed any payment.
But we would have consulted with the likes of Welsh Water and Wales & West utilities. And I know, for example, that there was scheme development to ensure that we minimised the impact of those utilities. So, it would have been included in that general figure, and it hasn't been listed in the following table, but it has, obviously, from the period onward from there. But it would have taken place. It would have taken place.
It's a little misleading. When you look at design and preparation, there's clearly a definition there, so I'm very amazed. The first—
But that is specifically about statutory undertakings, that design work. So, in a sense, it's not entirely surprising that we haven't got detailed design for rerouting of electricity pylons and gas mains at that early stage. That would have been part of the feasibility work, which would have been in the Costain/Vinci numbers; it would have been part of the £26 million.
I'm coming on to this. Now, the first three years, you only spent £36 million plus—it means that, for three years, the groundwork was going on. And after that, the following three years, you spent nearly £78 million, when you look at that. So, basically, it means that things were going pretty much in the direct direction, by the look of this, until the inquiry started. So, is it the Government—who is responsible? I just want to know how this funding has been allocated, in various areas, in such a massive way, when you look at Costain and Vinci. These contractors are engaged already, while the public inquiry—. I keep coming on to feasibility. If that had been done properly, it wouldn't have gone this far at all.
Well, I don't think I can accept that. You won't be surprised to hear me say this, Mr Asghar. The point is that getting to 2016 is the point at which we're publishing the draft orders; it's then about another year—just under—before the inquiry gets going. We're undertaking a huge amount of work through that period, and, as we get to a point where we're publishing orders, those costs go up—that's what happens in these sorts of projects. Through the inquiry, as you rightly say, costs went up further, as we explored a number of areas. So, Andy referred earlier to work to look at objectors' propositions and others with alternatives, which is that document there that I'm holding up. There's a lot of work went into that, and that's a big cost there. Costs associated with a whole range of issues were thrown up during the inquiry process, which included, as Andy mentioned earlier, slip roads at Magor services, and the need to incorporate those, and further work at Newport docks. So, there's a suite of things of that sort, along with the actual cost of the inquiry, which, as Andy mentioned earlier, was about £11 million to administer, but you've got all the prep for that as well.
We know it's over £13 million that has been spent on the inquiry—[Inaudible.] And a final point: you've spent a lot of money—£114 million is serious money for any Treasury or whatever. So, all the expenditure—is there any amount that is recoverable? I'm not talking about VAT here; I'm talking any other that has been spent and can be recovered or make profit. Say you bought land, or a property—I know I've seen somewhere in your working papers that some property, or some asset, has been bought and sold already. It's written there—
Well, you asked me about this at the last committee, and I said we'd better come to committee armed ready to answer that question.
So, are you ready now?
So, we have value from the money that's been spent, and Simon has set that out in terms—value in terms of the modelling, value in terms of all the studies, the data that we have, a hugely rich bank of data now, which will now be used by Lord Burns and his commission. So there's value in what we've got in terms of the spend there. We then have properties; some of those are, as you suggest, a matter for potential sale and recovery. But we've also got rental parties in those properties. Do you want to add to that?
Yes. Obviously, we only acquire those properties that make an application through either statutory or discretionary blight. So it's not a case of us going around buying property in advance; we buy them in response to a statutory blight claim. So, yes, in terms of value, then we do have a number of properties along the route of the scheme that will have value. Some of those properties we bought 10, 15 years ago, so one could imagine that maybe the value of those properties are now greater than what we paid for them. We did buy a number of properties, obviously, during the public inquiry. Whether or not they've increased or decreased in value, we don't know, but we don't leave properties sitting empty and idle anyway—we let those out, and tenant those properties. So there will be value in those. In terms of direct recovery of costs, we're not in a position to recover costs. Because we've expended cost gathering that rich pool of data, we can't recover those costs. But, in addition to the value we have in, shall we say, the intellectual evidence we have, we do have physical properties, which at the appropriate time can be sold and moneys recovered.
So, basicially, my point is that £114 million is the actual cost, but you already have some assets in your bag, so we need to know the exact loss, rather than—. You're still keeping some properties—land or properties, whatever it is—so at least they can be deducted from this figure and then we can come to the realisation of total net cost or total net loss.
I think that that is an entirely fair point, and we will need to come back to the committee, and I'm happy to undertake to do so, but there will be some time to go before we're at that point, because we address each property on a case-by-case basis and we also need to allow Lord Burns to do his work. So, we—
I was going to ask you that. When you talk about an appropriate time for getting the money back, are you duty bound to hang on to those properties until the commission has said whether they might want any of that land or not?
We're looking into that right now, because it may be that some properties are less critical in light of the First Minister's decision. That's part of the process that we're undergoing at the moment, but by and large we're trying to leave the ground clear for Lord Burns and his commission.
Yes, sure. I think other Members might be mentioning the commission afterwards, so—. Thanks, Oscar. Adam, do you have any further questions?
Yes, just on the development costs. In your evidence—. Well, the Minister has said that the figure compares favourably—so, that's £114 million including VAT—to other schemes, and there's a list of other schemes, with percentages. But, just to be clear, you haven't included the winding-up costs in that figure, have you, £9.2 million, so—.
That figure may go up slightly, but, in relative terms, against the overall cost of the project not hugely, I wouldn't think, Andy, will it?
No, I don't think so. The winding-up costs are estimated costs. We've made an estimate of the cost for winding all those up and providing and formulating that evidence that can be as useable as possible by Lord Burns. But by no means—we may not reach that figure, but you make a fair point.
And what do those winding-up costs consist of?
Well, there's a vast amount of data that needs to be collated, digitised. One specific area is geotechnical survey work. We've done the field work. We feel there would be much greater value in that field work if we were to complete the reporting of that field work and put it, again, into a digitised form or a form that can be used by anybody in the future. Likewise with the traffic modelling, we need to tie up loose ends. So, there are a number of costs associated with that. We need to liaise with the 200 landowners and decide exactly how they're affected by the decision. So, they are the feel for the cost, but I think it is important to stress that they are estimated costs. They're not a target to spend. We will spend as little as possible as we can on those.
It's worth noting that a chunk of that money is for fielding queries that the Burns commission may have of the existing scheme as well—so, maybe not what you'd immediately think of as winding-up costs. There will be questions that might get asked of the supply chain that we used on the M4 scheme that we need to pay for to get answers for the Burns commission.
Yes. I think it would be fair to say a layperson might think £9 million is a lot to spend on winding up a project that isn't going to happen. So, what you're saying is that some elements of that will be actually feeding into the follow-on work.
Yes, using the suppliers that we've got and contracted for.
Have you got a rough estimate of what proportion?
So, I think—the moth-balling element of it, we think is about £3 million and the rest of it for being able to field these potential future queries as well.
Some of the projects—or at least one, anyway—that you've used for comparability are completed projects, rather than prospective projects, and, to be a fair comparison, would you accept that there would inevitably have been further development costs in this scheme because of the suggested amendments that the inspector recommended?
No, I think it's fair to say the cost comparison we've done is for the same stage of work, the same element of work, so it's not—. As those schemes have been completed, you're quite right, there would have been further development costs, but we have just extracted the development costs for those projects to make a direct—
Up to the point of 'go/no go', basically.
In all cases?
Right, okay. Okay. Finally, I'd love to have a copy of the brochure that you referred to. So, maybe you can see me afterwards or whatever; I don't know what the phrase is.
This one? Is that the one you—?
Yes, well, where you go through—. You provided, basically—. As you said, you had detailed costings and analysis of all the suggested alternatives, yes, so—.
This is a summary of it. There's detailed evidence behind it, but we can let you have a copy. Or the committee can have sufficient copies, and we can send links to the evidence as well.
Great. Okay, that would be great. I just had one specific, Chair, if I can test your patience. Alternatives 20 and 25 related to tunnel alternatives. One was a very long tunnel and one was about half the size, I think. The costs there were the prohibitive factor, I think, from the perspective of the inspector, or whatever—£10 billion and £5 billion. Could you just say what was your estimate of the cost per kilometre for those—? Well, how much of those—? I'll ask a more general question, then. How much of that estimated cost, presumably that you gave, was the tunnelling cost of those tunnelling projects?
I must admit, I don't know the answer to that specific question. We can find that out. Obviously, we will have generated those costs. I don't know what was the proportion of lead-in to the tunnels and the tunnelling itself.
Just to be clear, that's tunnelling beneath the Gwent Levels. We're not talking about—
We're not talking about the possibility of new tunnels at Brynglas—
Tunnelling, generally, is an extremely expensive business, but the proportion of the cost we'd need to come back to.
Would you—? Because there are—. The Infrastructure and Projects Authority, for example, just did a major benchmarking study on—. The cost of tunnelling is a subset of the cost of infrastructure; there's a huge interest in the very great range and also the gap between some continental costings versus in the UK—you'd be familiar with that. But, yes, so they have done a pretty extensive benchmarking. Would you have used the Infrastructure and Projects Authority benchmarks for cost per kilometre, cost per volume?
I presume that we wouldn't be talking about a cut and shut either, would we, where you dig the trench and—[Laughter.]
To be fair, I haven't got that specific information. We certainly would have benchmarked those costs. We would have got them from somewhere. The best thing that I can do is go away and provide you with that extra evidence, as far as the breakdown of tunnelling costs, how we benchmark them, and what percentage they were of the overall cost of the alternatives.
Yes, because, just on the tunnelling side, there does seem to be quite a big gap between the figures that you arrived at for—what is it, 16 km or 16 miles?
It's probably of that order.
It would have to be, wouldn't it?
It would be of that order, but we will provide the committee with that breakdown.
Okay. Yes, if you could give us that, and also all the other details that went into the cost estimates.
Okay, thank you.
Thank you. I'm delighted to hear that Lord Burns is looking at the traffic flows, because that seems to me to be absolutely crucial to understanding what are the public transport solutions to getting commuters off the M4, which in my view is the main cause of the congestion. But I think it poses the question as to why the public inquiry was set so narrowly to look at the merits or demerits of the black route, as opposed to looking at the problem of congestion on the M4 and the alternative solutions, which included the work that Simon's mentioned about the metro, the south Wales metro, which was running in parallel to the public inquiry. So, I just wondered if you could tell us why the public inquiry was so narrowly focused.
Do you want to kick off on that?
Shall I have a go? So, the public inquiry was an inquiry against the 1980 Highways Act, where the scheme promoter takes a scheme where there are a series of orders that need to be made and they are evaluated. It wasn't a public inquiry against a wider transport corridor intervention.
So, why wasn't it, though? Because the problem was the congestion on the M4, not—
That's the nature of the process, that you take a scheme to inquiry and that is then tested very thoroughly. Sorry, I've—. Go on.
Sorry to interrupt. What you might want to do is go back one step further: how we alighted on, or crystallised on, a particular solution. We've already made reference to the CEM process, which was the corridor enhancement measures process, which was widespread consultation that took place between 2010 through to the end of 2012, in which there were extensive stakeholder consultations, there were workshops, there were—as Simon mentioned—100 plus options looked at. That was the time when people were looking at ways of tackling congestion on the M4 and there were various scenarios that came out of that, but the conclusion that was arrived at in the report on that process was that, in order to tackle the congestion problems based on the objectives that were set at the time, there would need to be two strands to the solution.
The one strand was further road capacity, in the form of a new section of motorway, but the other strand was to be the development of the metro. And, at the time that that was announced in July 2013, it was clear that Welsh Government were going to adopt something called a draft plan to take it through a strategic environmental assessment process. But, at the same time as that— perhaps it has been lost sight of in all of this—Mark Barry was appointed to develop plans for the metro proposal. So, in 2013, there were two ways of tackling congestion on the M4: one was more road-based, was more road capacity, and the other one was more public transport capacity, and that was taken forward and is now being taken forward as part of the metro. The other strand to that and the other element of that was more road-based.
So, the process that perhaps you might be referring to, in our minds took place during the CEM process, in which two strands to solving the solution to congestion on the M4, one of which being the metro—which, obviously, we know where we are with the metro now—and the M4 relief road crystallised out of that. So, that was then tested at a strategic environmental assessment process, and something called a draft plan was published and consulted on in 2013. So, I suppose, at that stage of the process, the two strands had been identified. The M4 followed that strand leading into the adoption of a draft plan in July 2014 and the announcement of a preferred route, and then the metro has obviously taken its development proposals the way it's gone on. So, at that stage, Welsh Government had crystallised on the other arm of tackling congestion on the M4, announcing a preferred route and going through that process.
If Members would or could recall, or might recall, that decision was tested in the High Court in a judicial review. It was the first challenge. It was the first challenge to Welsh Government's decision making in 2013, September 2013, when a pre-protocol letter was published, was issued. But it was fully tested at judicial review in 2014, the findings of which were announced in March 2015. So, at that stage, Welsh Government were embarking on the other strand of tackling congestion on the M4, which, based on the objectives at the time and the work done at the time, was more road-based capacity, hence leading into where Simon was picking up on the public inquiry.
Just on the original point about the modelling of the traffic problem, when we were preparing for this one of the team did a bit of looking into the figures, which were presented to the inquiry. So, through that stretch of Newport, 30 per cent of all the vehicles there are HGVs. That's twice as many as you see on average on the UK road network and about 10 per cent of the traffic through Newport is Newport to Newport, internal commuter traffic. So, those are the—. I guess it's figures like that that Lord Burns is going to want to have a look at to try and understand what solutions are going to be available for dealing with those kind of movements, with those kind of flows.
But you can see the frustration of members of the public that, having made a decision not to proceed with the road solution to the congestion, we're now having to set up an additional commission of experts, mainly transport experts, headed by Lord Burns, to look at how we're going to deal with the congestion, which some people would argue is the question we should have been picking up back in 2013.
Yes, I can understand that perception, but I suppose, back to Andy's point, some of that work had already gone on in relation to the corridor work back in the early twenty-teens, and out of that grew, ultimately, the metro proposition and the suggestion of, or the plan, ultimately, for, a new stretch of road. And it's worth just saying, going back to the point that Andy was making a few minutes ago, that other alternatives within the context of the road arrangement were looked at during the inquiry.
Okay. But we obviously are still without the specific solutions to the problem that we, hopefully, are going to get in the next six months. So, I think, for example, the future generations commissioner did argue that the public inquiry was simply looking at road solutions, rather than the new technology that's developed in the last seven years—you know, the massive changes in the way public transport can be delivered, Brexit and its impact on the economy, and the development of things like the automation of traffic flows, et cetera. So, although the public inquiry did consider 28 alternative proposals put forward by stakeholders, was it simply impossible, given the, if you like, judicial framework, not to have allowed the public inquiry to proactively look at alternative solutions to the problem?
Well, I think there are two elements to that. One is the point about the very, very specific level of project detail required to take the scheme through the inquiry process. So, it wasn't an inquiry about the generality of options; it was a very, very specific inquiry around the road.
Yes, but could it have been different, or were there legal reasons?
Well, this is the second point then, because, as Simon said, the inquiry was carried out under the auspices of the Highways Act 1980, which is now nearly 40 years old, and one of the things that I think we not only want to consider, but we're actively considering following the consultation we had last year, is the nature of the statutory consenting process in Wales for things of this sort. In time, it would require primary legislation to start to address some of the points that you and I think the future generations commissioner brought out. So, can we have a one-stop shop? Can we consider things in the round? Can we make the process more time bound than it is at the moment? There are a number of other things of that sort, where a different consenting process might go some way towards—. I'm not sure necessarily it would completely solve the point that you make, because you'd still have to get to a point where you're putting a proposition forward, but it might go some way towards addressing the points you've just made.
Okay. Thank you for that. My colleagues have just joined me, but I'll just start you off on the specifics of the properties that the Government now owns as a result of this process. You’ve already told us that the properties, where possible, are rented, even though we own them for a specific purpose—that’s fine—and that you don’t want to tie the hands of the Burns commission in ensuring that they have maximum options when they’re looking at solutions. So, I wondered if you could just give us a little bit more detail on this. For example, when was the last property acquired?
I might bring in Andy on this, but it's worth just saying, generally, that the process of purchasing takes a while, so we may well have been involved in negotiations with landlords or sellers, residents, for some time before we actually get to the point of purchase. And I think it’s also just worth—with apologies—bringing to the committee's attention that I think under item 16 of the annex, the property described at Danygraig, we appear, presciently, to have said the property will sell in August of 2019. It should have said 2018. So, apologies for that. That was sold last year. Do you want to add to the recency of purchases?
Yes. I think there are two properties on there that were completed in April 2019, and I can understand people's views on how those properties were purchased. But I think Andrew's kind of covered the point, really, that the whole process to acquire a property probably takes six to nine months, so the actual acquisition of those properties probably would have commenced—we can find out exactly the date if you wish, because they're probably subject to statutory blight. We could find out the date of those. But the actual last two properties acquired were in April 2019. Once the process is started, it follows through because, obviously, people have sold up, they've moved on, when we're buying their properties.
Okay. Thank you for that.
So, looking at all of the properties then, how have they been used since acquisition? You mentioned renting. Would all of them fall into that category now?
Well, we've obviously got a mixture of residential properties and land. Clearly, wherever possible, residential properties, when they're acquired, they're managed and then they're disposed of. We have a team within Welsh Government that oversees that process, the team that deals with the acquisition of properties, that make blight applications, and then when they're in our hands, obviously, there's a period of time—as we all know from the inquiry today, delivery of infrastructure projects can take a period of time. So, until such a time as we are ready to dispose of those properties, we rent them out, we tenant them, and then when we know that a property isn't required any more, we give due notice to those tenants, we support them in their moving, and then we dispose of the properties.
And do you have a time frame over which that kind of process would occur?
Well, I think there are two things. The point Andrew was making earlier on is that what we're trying to do here is make every option open to Lord Burns. So, we don't necessarily automatically dispose of properties if we think they may be of use to options going forward in the future. We may take a view, I think as Andrew said, based on the First Minister's decision, that there is no need to retain a property, but we will review each property on their own basis, because clearly if there's a 12-month tenancy in that property, we would have to let that tenancy run. So, we will identify and provide—. Perhaps when we have more feedback from Lord Burns, we can come back in the future and then we can provide you with a timetable of disposal of properties, but we can't do that right now.
And how will the Welsh Government ensure that disposal returns value for money to the public purse?
We have a standard set of—. Go on, Andy. That's fine. I'm talking in front of the expert.
That's okay. Yes, I mean, there will be a standard policy to follow to ensure we deliver value for money, and one of the first options that we have with properties that we own is to offer them to other public organisations to see if they can use those properties in a positive way. In the next instance, then, we will obviously go to the open market and advertise them widely to make sure we get full value for money. We use the services of the district valuer to help us value those properties and go through the process.
Okay, thank you. I'm just looking at a list of properties that we received as part of our evidence pack for today's session, and for some of those the date of sale and the sale price is not available. Could you tell us why we weren't able to access those records?
Which ones might that be?
So, where the sale price is not available, they remain in our ownership. So, some of these properties, at the bottom half of the table, are properties that we've subsequently sold.
Okay. Thank you for clarifying that.
Any further questions for our witnesses? No. Okay. Can I thank you for being with us today, Andrew Slade, Simon Jones, Andy Falleyn? It's been a very useful session. We wanted to pursue some of these questions at this point while they were still fresh in our minds and current, and we've done that, so thanks for your co-operation. If there are any other questions that occur to us after you've gone, if we can write to you on those, then that will be most helpful. We will also send a transcript of today's proceedings to you for you to agree to before it's finalised.
Thank you. Can I just thank the committee, because I know at one point you were hoping to also talk about the airport before the summer, but you very kindly agreed that we would come back to that in September? So, I shall look forward to that occasion—Simon, as well—after the summer recess. But I'm grateful to the committee for accommodating—
We didn't want to overload you with—
That's very kind of you.
—trains, boats and aeroplanes. [Laughter.]
Okay, thanks. We will now take a short break.
Gohiriwyd y cyfarfod rhwng 14:28 a 14:47.
The meeting adjourned between 14:28 and 14:47.
Great. Can I welcome Members back to this afternoon's meeting of the Public Accounts Committee? We now have item 5 on the agenda, which is the implementation of the NHS Finance (Wales) Act 2014 and an evidence session with the Welsh Government. Would you like to give your name and position for the Record of Proceedings?
I'm Andrew Goodall. I'm the director general for health and social services and the NHS Wales chief executive.
I'm Helen Arthur. I'm the interim director of workforce and organisational development in the health group.
Alan Brace, director of finance for health and social services.
Great, thanks. I understand that you have diary commitments later. We're ahead of schedule anyway, but if there are any issues, we'll simply write to you with any further questions, but I think we should be fine, to be honest.
Thank you, Chair.
So, I'll kick off with the first question. How realistic is the expectation in your written assessment that there will be no financial deficits in 2021, given the significant long-term challenges that Hywel Dda and Betsi are facing?
Chair, if I can start off broadly, we're trying to base these assessments on financial discipline and an approach that we've been putting in place over the last three years, underpinned by the three-year planning duty and our responsibility to ensure that the overall NHS finances and, of course, the ministerial budget finances are balanced. I think we've been trying to work through quite a different system over the course of the last two or three years where we have been calling out pressures and problems within individual organisations. They have been transparent within the annual accounts process and we have taken an approach about ensuring that we put in place control totals and we expect organisations to deliver over them. I think that the premise for why we feel that we're making progress in part is because of how we have delivered for the financial year that's just gone compared with the year before.
You will have seen from our evidence paper that we've seen an underlying improvement in the NHS deficit position by around £70 million. So, that is a material improvement in terms of what in the past has been a deteriorating position. We have seen progress with organisations in Wales with three out of the four health boards that were in deficit actually improving their underlying position, and, positively, we have two organisations in 2019-20 only suggesting that they'll have a deficit. Now, no doubt there'll be ups and downs of pressures. We're spending nearly £8 billion-worth of money, of course, on the NHS, so even matters of days and weeks can make a real difference, but we will need to focus, I think, on the two residual organisations that have the greatest financial problems at this stage. But our approach isn't just speculative. We are trying to ground it in our own assessments for our teams and a number of approaches that we've put in place, not least the analysis that's undertaken by the finance delivery unit. Alan may want to particularly talk about why we feel that we should be aiming for that lack of an NHS deficit in 2020-21.
Yes. If I just expand a little bit on what Andrew said around what the basis is for that assessment, I guess what we've been building over the last few years is to make sure that we've got a good composite picture of how we're allocating resources across health boards, how health boards are allocating resources within their board areas. Through the efficiency, productivity, clinical variation framework, we've got a really robust assessment around how well those resources are being utilised, and that's at a local health board level and, in some aspects of the framework, that's right down to patient-level costing and patient-level data.
Then, the final piece that we are really building is the outcome framework, so particularly the outcomes that matter to patients, through the value-based healthcare work. So, again, that gives us a clear picture of how outcomes are being delivered across LHBs, within LHBs and, again, very much with the patient-reported outcome, right down to patient level. So, that's started to give us the confidence that we can see how we're allocating resources, how well they're being utilised, and what outcomes those resources are delivering.
As Andrew said, we've used that, and I think it's been one of the reasons we've moved £70 million from the last two financial years in terms of improvement, and we use this to set control totals. So, I think it's why three out of the four boards hit their control totals, but also we used it very much with the work with Cardiff, which is why we think Cardiff have now moved into recurrent balance.
Specifically with Hywel Dda and Betsi, I think there's probably increased confidence with Hywel Dda. I think they've now got some real clarity. I mean, first of all, they know where they're going with their clinical strategy—that's really important. They've built their efficiency, productivity, clinical variation framework very much in the way that we've done it nationally, so they've got a clear framework in terms of where their opportunities for improvement are. Perhaps where they've been weaker is translating that into some very detailed programmes of work and getting traction on it. They've had a turnaround direction, so they are increasing their capability to do that, and we've just commissioned KPMG to go into Hywel Dda, just to make sure that the delivery framework is more robust and, particularly, that gives us the confidence that they should hit their control total this year.
With Betsi, it's slightly different. They haven't had a good pipeline of opportunities for improvement. They've had some issues around their delivery framework, so PricewaterhouseCoopers and the finance delivery unit have just completed quite a substantial bit of work around their financial plan, strengthening their delivery framework, and an experienced turnaround director has now gone in to make sure that they get pace on delivery. Again, that would probably start to give us confidence that they are now in a better place to deliver.
Did you want to add to that?
I think it's just to demonstrate that it is progress. We spend a lot of our time setting challenging and stretch targets for the system, but we do feel that, in looking at the underlying financial position of NHS Wales, we should set that aim for 2020-21. It's not just about a calculation and a set of numbers; we're basing that on some of the progress that we have seen genuinely over these last two years in particular. So, we'll still have to make sure that Hywel Dda and Betsi Cadwaladr do step up to our analysis to the level of opportunity that they have within their system—
In relation to Betsi—you mentioned the turnaround officer. I think, from previous evidence we've taken, that's not someone who's coming from outside, is it? That's an internal appointment.
No, indeed so. There has been a turnaround function that Betsi Cadwaladr have had in place internally previously, but they have gone out for an external turnaround director. That's in line, actually, with the PAC recommendation, of course, that came through. And they have appointed an individual who is starting in July, and that will give an extra focus, I think, for the level of savings that are necessary in the organisation.
I think Hywel Dda, in terms of meeting their control total last year and actually improving their underlying financial position—that was the first time that they had done that over the last number of years—that was actually, in part, due to what the team did in general terms, but also they had a turnaround director function, which we do believe has brought savings to the table.
Just before I bring other Members in, your written evidence makes the rather bold claim that
'the integrated planning approach we have adopted for NHS Wales is now delivering benefits',
with the scrapping of the previous—the internal market. Is that a fair assessment or, if you look further back, to 2009, actually, were the boards performing in a better position then? So, are you really just comparing the current situation with the very recent past and, if you go back further than that, there's still a lot of ground for these boards to make up?
So, I've been a chief executive in Wales for some time, and I was a chief executive when, I think, we had as many as 37 health organisations, and I would argue that, from a structural perspective, the numbers that we have now are better in terms of bringing the system together. There were concerns that, amongst the conversations across organisations, sometimes there wasn't the right focus on how services could be changed around patients and pathways. Having been a health board chief executive myself, you do have the responsibility to look yourself in the mirror as an organisation, so if you're trying to develop services on behalf of your population, you also have the responsibility to deliver the change in services, and I think that's an advantage.
I think the environment has been quite challenging, of course, over these last 10 years. Public services have been working in a broader austerity environment, but I think there are a couple of examples about where I think we have worked better. In the past, there were financial difficulties spread across these individual organisations, but they would tend, in the round, to be dealt with. I think we've made a very specific choice to actually call out organisations where we believe the analysis is that they have financial pressures that can be managed, and we have seen some success in those improving over time. I think we've also seen a shift, however, in the level of savings that were necessary. Again, some of that would have been necessary, given when the general austere environment started. But there was a very large increase in the level of savings that were achieved almost in the first year or two years of when health boards were created in Wales.
What I would say is that we've seen a shift from perhaps more of the traditional areas—procurement, medicine savings—into a change more around service change, alternative settings across pathways, probably a better focus on quality to drive some of these changes as well, and, of course, developments like our prudent healthcare approach in Wales. I would also say that the level of savings that we make are less about a smaller level of saving necessary in one year. We've seen a much higher proportion of recurrent savings being made in the system. So, in fact, I think this is probably—the year that's just gone is the year where we've seen the highest level of recurrent savings in the system, which, again, I would say, shows greater discipline within the system.
Okay. Vikki Howells.
Thank you, Chair. Looking at the new funding formula, that's going to apply to discretionary hospital, community and health services and prescribing. Can you confirm for us exactly what that covers and what's excluded?
Alan, do you want to help with that description? Thank you.
Yes. This first phase of the formula development—and I guess, just to emphasise, it is the first phase—covers everything other than primary care services, mental health and specific funding streams like the transformation fund. So, about 70 per cent of what we allocate to local health boards is covered by this first phase. Why we've excluded primary care and mental health is—all of the work that we've done so far is about resident population and relative need within that population. Aspects of primary care like general medical services, GP services, is on a registered population, but they also use nationally negotiated and agreed contracts in terms of how funding flows and how that looks within any given LHB. So, at this point in time, we don't want to destabilise primary care with the many challenges it's got, without having something that is going to bring greater benefit than what we've already got. So, that probably needs a little bit more work, and there are very few funding formulas, because we've compared all of the UK funding formulas, those in New Zealand and others, to see whether there's good practice that we can adopt here, and primary care is probably one of those elements that is more underdeveloped, probably for the reasons that I just described.
And then with mental health, we've obviously got ring-fenced mental health services, national plans and very targeted investment. And, again, mental health is complex, it's a wide spectrum of illness, and what we don't want is to get the weightings wrong for mental health and that we put it into the mix and that, actually, we don't achieve anything better than what we've got now. The Scottish formula has probably developed the most around mental health, so we're having a look at that, having a look at the Welsh data, and starting to model what that would look like for Wales. And, again, we want to implement that when it'll bring greater benefit than the approach that we've currently got.
So, does that mean that you're not specifically looking to roll it out in time for the 2020-1 financial year?
The first phase that we're doing now—we're hoping to finish most of the work by the end of the summer. The two areas of work that we're currently modelling are the excess costs of community services. You would have seen a couple of weeks ago that the Nuffield Trust published a report that was looking at the evidence about whether community costs, rurality—whether that drives excess costs. So, we're having a look at that, and we're also having a look at the impact of long-term conditions and what that does in terms of relative need. If we're confident on those, the first phase will be then ready to roll out.
And then, with the wider review of the full allocations and ensuring the overall funding is fair, what kind of timescale are you looking at for that?
The way we've constructed the formula and the data sources we're using is very much that this will become a live process. So, this won't be perhaps as we've done in the past where once every five or 10 years we do a formula review and leave it static. So, as we're ready with the next components, mental health, and if we're confident on primary care, we'll begin that roll-out probably in the following year, then. So, we will just keep on developing this formula and it'll become more of a sort of live bit of work.
Alan, I just wonder if it's worth explaining, perhaps, the levels that we're able to get into with the allocation beyond just the health board level, firstly, and also, it just might be worth you knowing some of the examples of the criteria that we're using, just to have an understanding of how the formula works.
Yes. The way we've constructed this formula is that the building blocks are very much the local authorities and then we can aggregate up to local health boards, but we can also disaggregate down to clusters. So, we can have a look at the way that we are, I guess, cutting the cake up nationally to local health boards, we can then see our local health boards are using that at a local authority level, and then we can see how that is working its way down to cluster level. Obviously, that will help with the current distribution, but it will also help in terms of the more targeted use of resources, be it the transformation fund or—so we can start to see and measure the impact of this over time, which is why we've used more reliable data sources. We can keep this live and we can track improvement in a bit more of a structured way.
So, they would be the main differences and advantages of the advised approach, then, as far as you're concerned, compared to the existing approach.
Yes. I think the way it's constructed will be a big advantage. I think the way we're using data sources will be much more helpful, because you'll know in the previous formula we used the Welsh health survey that isn't used now. So, it's important that whatever data sources we use are live and kept up to date. The formula itself is quite transparent and modular, so we don't have to rejig the whole formula if we add mental health in—if you could almost picture it as being something you can build on. And then the final bit, which I think is where it'll become really helpful in our system—if you look at the work of the director of public health in the Rhondda, he's done a lot of work approximating the number of long-term conditions you've got against the use of health services, as opposed to perhaps the more traditional, 'the older you are the more you use healthcare'. So, if you look at that, you'll find that, actually, it's not age, it's the number of long-term conditions, and the more you have—there are almost thresholds when some of that usage steps up. And within those long-term conditions, mental health is always one of them, which shouldn't be a surprise, but to some extent does need thinking about around how this impacts on the use of healthcare and then what is the response to dealing with that.
So, we are now testing some of his work. There's some work in America that's been used in England to try and see if that models through in terms of formula, so we're taking more bespoke work in Wales and running that through the formula as well. So, I think that's the sort of broad range of advantages of this approach.
Okay. Having modelled the new formula, would you be in a position now to tell us which health boards are likely to see their allocations increase faster and which ones might see slower growth?
It's probably a bit early given what I've just said about some of the sensitivity work that we're doing, but we're hoping that with this formula, and I guess what Andrew described with the more deliberate development that we're doing—. So, we did the zero-based budgeting review in Hywel Dda as part of our work on escalation—we are hoping that this formula is not going to give material differences from current funded levels. Because, in the past, there have been some big discrepancies and because growth funding has been used to equalise organisations, that's taken an extended length of time. We're hoping that there won't be those material differences, so we can move to full fair shares more rapidly.
Okay. And what about cross-subsidisation? Will the formula address the concerns around that, because we've previously heard a number of concerns from health boards that provide tertiary services to patients from other health board areas?
I think cross-subsidisation, particularly in specialist services, is probably a slightly different point. From what I understand in terms of what those concerns were, there's been a concern about whether some boards are commissioning enough activity for specialist services, and then the secondary concern is: are they fully recovering the costs of those specialist services? So, I think that's more about how boards plan and work together, particularly through the specialist services committee, because it's not just within Wales—obviously, a lot of specialist services are commissioning in England—so, making sure you understand the needs of your population, you're commissioning enough and, particularly within the Welsh setting, that that's adequately recovering costs. But I would add, particularly in terms of specialist services, if you have a look at where we're now heading with personalised medicine and precision medicine, as we move more into gene therapies—and we're doing some work with Swansea University and industry at the moment, because some of these gene therapies are close to £1 million per therapy—it's quite important that we have got a way to deal with that within the Welsh context and make sure that we adequately fund that and take advantage of this, because there will be long-term benefits, and that's probably not best done through a formula approach. Given that we're a small country, that's probably something that we target a little bit more nationally through some different routes, and I think that's where some of the specialist services are now heading.
Okay, thank you.
Just before—[Interruption.] Sorry, just before we go on, I think—Jenny Rathbone, did you have a—
Yes, I've got a couple of points. One is the points about cross-subsidisation—
—supplementary? She was very eager to come in.
—which was, obviously, that Cardiff and the Vale have long told me that, because Cardiff has the only tertiary hospital and has quite a lot of specialist services, they feel that they haven't been adequately compensated for the level of provision for people who don't actually live in Cardiff and the Vale. So, do you think this formula is going to recognise the extra costs involved in ensuring everybody has access to these specialist services?
I obviously know the Cardiff and the Swansea situations really well, and I have not seen any compelling evidence that that is the case. There are lots of arguments around access to specialist services and the costs of those. For me, I think that's probably better dealt with through the Welsh Health Specialised Services Committee, which is about the level of specialist services that we need and then to make sure that the funding flows flow properly to recognise that. There is a sub-group of the all-Wales finance directors that have been looking at exactly that: how funding flows, what level and how that should work in the system. I think that's probably, for me, more a sign of a maturing system and LHBs working together in a more collaborative way. So, I can't see—. Specialist services tend to be small numbers of population. A funding formula where you're always applying relative weightings to big populations—there's a real danger that that actually doesn't help the situation, given the relatively small numbers. I don't know if that makes sense—by the time you start weighting specialist services, you may end up with the wrong outcome.
Okay. I understand that, and thank you for that. I just wanted to probe the other point in your paper, where you talk about the Nuffield Trust report on the impact of rurality on the cost of delivering healthcare, where you, in your paper, say that it's 'problematic' to quantify excess costs as a result of rurality and that the research evidence is 'mixed'. So, how, then, are you going to resolve this issue?
Tricky, in the sense that, if you take the zero-based budgeting exercise in Hywel Dda, we did exactly that exercise. We said, 'What do we think the excess costs are of that type of population?' And, a bit like the Nuffield work, they said that rurality and, I guess, the sparsity issue—there was no evidence that drove excess costs, but what it did impact on was scale. So, if you take an example like Bronglais, you are running a full range of services for a relatively small population, and that's where some of the evidence was emerging that there may be excess costs, and that was one of the conclusions of the zero-based budgeting review. We know England have done some work in hospitals like Hereford and some in similar sorts of situations to some aspects of ours, and, again, they are suggesting that some of that pops up in some excess costs around some aspects of service provision. So, we're working with a firm of experts who do a lot of work on this to start looking at the Welsh data, taking that evidence, and see if there's anything that we could and should recognise in the formula, or whether, actually, the evidence is not strong enough for us to do anything with it.
Okay. Because it's difficult, isn't it? Are we continuing to fund services that are not efficient, or is it that there are very specific issues? This is something we all need to know about, and so you'll be able to tell about that early in the autumn, will you?
Yes. But the other bit where—I think what we're trying to do is not look at resource allocation aside from utilisation, so, if you take the framework that we've got on efficiency, productivity, clinical variation, that also tells us a lot, even within that context of some of the smaller hospitals, on where the opportunities for improvement are on efficiency and also on outcomes. So, we just need to be constantly making sure that we knit that together and take a really broad view of how services are being funded, how resources are being utilised, and what outcomes they're delivering.
Okay. Thank you for that. Sorry.
Back to you, Vikki.
Yes, just one final question from me, seeking an update, really, on the transfer of the population of Bridgend. It's obviously a critical time with both health boards now in escalation, so I was wondering whether there was agreement on the practical, operational and financial consequences of that transfer, and how you're working with the two health boards to manage any risks associated with that.
Yes, it was obviously a very significant approach that was taken by both organisations. The value of what's been transferred from the old ABMU organisation over to Cwm Taf is in the order of around £290 million. The organisations were able to do everything that they needed to do from 1 April, so staff did transfer across at that time, and we tried to ensure that from day one the finances weren't the overarching concern, because there was still some reconciliation. Both organisations have only just declared their annual accounts, which is part of the baseline that we actually need to work our way through here. Inevitably, there are some transition issues for organisations as they've transferred staff. There are some staff that have had to stay over in Swansea Bay rather than completely move across to Cwm Taf as an organisation at the same time that Cwm Taf needs to grow capacity. But, at the request of the two chief executives, we're just undertaking, firstly, some due diligence work, and, secondly, just an arbitration process on some outstanding issues to land the full final budget for 2019-20. We'll be, I hope, finishing that work literally over the next few days, couple of weeks or so, just to feed back to both organisations. We've tried to be pragmatic on the one hand, but we need to make sure that the right assumptions have been made, and there was a financial model that was actually developed by both organisations together under their project arrangements. Alan.
Yes, on the financial side, just to say, on the positive side, the main issue on 1 April was that we transferred allocations, that the appropriate staff transferred, and that assets transferred, and both organisations were established to run under the new arrangements. So, that was a success. As Andrew said, there are probably three financial issues we're dealing with. The former ABM was in deficit, the former Cwm Taf was in balance, so we just wanted to make sure that the treatment of any underlying deficits has been dealt with properly and we're getting involved with the two organisations on that. We're also doing an overall due diligence of the whole process just to make sure that it's been fair and equitable and all aspects have been dealt with.
The other financial issue is, obviously, Cwm Taf is now a bigger organisation, so it will be scaling up. Swansea Bay is a slightly smaller organisation; it's going to have to think about its structure. And we're treating this very much as a transition year. This is not a set-piece event where everything has to happen on 1 April. We can work over the next 12 months to make sure that both of those things are being managed properly as both organisations start to change.
Then the final financial issue is Cwm Taf had cleared its waiting lists for elective surgery, ABM had a backlog that needed clearing, so we are working with Cwm Taf now to make sure that we've got firm plans in place with resources to clear the backlog that they would have inherited for the Bridgend population.
You may have seen the Minister making a statement about use of performance moneys, and there is an allocation there that is supporting Cwm Taf Morgannwg with that investment for this year.
Okay. Thank you.
Great. Adam Price.
In your October 2018 letter to us you referred to a full review of the escalation framework system. Could you update us on where you are with that review?
Yes, indeed. The escalation process actually was a recommendation of the predecessor PAC, and we responded to that and put it in place around four and a half years or so ago now. So, we do have the experience of using the escalation framework and I think, as I've said to the committee before, the escalation framework is there to be used; it is part of our response.
We've had a couple of review moments alongside tripartite colleagues who sit around that table, so, whilst Welsh Government oversees it, we do so with some support and intelligence around the table from Wales Audit Office and Healthcare Inspectorate Wales. We developed the initial framework together in terms of how it would apply, and at the moment we are working through how we would enhance it, associated with developments around the NHS executive function, which again I've referred to in previous committee meetings. There are a couple of aspects about it, though. There's a general review of what we need to do for the system in overall terms, and there are some particular issues around individual organisations. So, for example, I'm just working through, on the application of the escalation framework, in a discussion happening in the next 10 days or so time, a review of criteria to applied around Betsi Cadwaladr and the experience to date, reflecting on the Public Accounts Committee report and what that will mean for the criteria for the future. We will come out of that process with some advice to Ministers and for the tripartite process, and our next tripartite meeting is in early August, where, as well as reviewing individual organisations, we'll have the chance to review reflections on where we are, effectively four years into use of the escalation scheme as well.
So, I do think, to answer your question, though, that there will be a change about using the development of the NHS executive, because some of the challenge about the escalation framework isn't just the designation or the criteria; it's what is our capacity to introduce new support into the system. So, looking at how we've developed that over the last two or three years, when we started the escalation framework, we didn't have the financial delivery unit in place. We probably were more reliant on external support for some of that financial discipline and reconciliation, and, over the last 18 months, having established that committee, we've demonstrated that we've been able to be more self-sufficient around some of our use. So, I think that probably developments in that order of more pairs of hands, and more experience around the escalation support, is going to be quite important.
Obviously, I'm sure you review everything on an ongoing basis, but just to be clear—so, in preparation for the NHS executive, the formal review that you refer to in the letter, will that have been completed, and by when?
It will be alongside the NHS executive. So, we've—the Minister will be making an announcement shortly, and we've managed to have advice agreed by the Minister about legal frameworks and constitution. So, we'll be working through the detail of that through the summer into the autumn. Personally, I feel that, having done the next tripartite meeting in August, by the time we get to the autumn, we should have a really firm view of escalation.
The NHS executive function itself, though, will be bringing together planning and performance capacity within the system, some of which already exists. So, it will bring together the delivery and support unit, the finance and delivery unit. We're proposing that work happening on planning around the NHS collaborative will be in there. So, we already have a firm view of some of the foundations of it. But it was just not about regathering the existing infrastructure; it was also about developing and investing in more support as well, given the organisations who do need support in Wales. But I would have thought the autumn.
Okay. I'm sure you'll have seen the comments by Andrew Davies, the outgoing chair of Swansea Bay University Health Board, and indeed a former Cabinet Minister in the Welsh Government, referring to micromanagement by Welsh Government—cites three or four conference calls a day with Welsh Government officials. Do you accept the picture that he painted as accurate?
I accept the position that organisations that are in escalation need to have greater contact, and need to give greater reassurance about the progress that they're making. There is a difference between organisations in escalation and those that are in normal monitoring, for example, about some of the choices that they make. So, I know, for example, you were having evidence from Aneurin Bevan health board last week, which is in normal monitoring and we are leaving to work its way through its choices around plans on performance, on quality, and on finance. And I think it's discharging that well.
We placed AMBU into intervention back in 2016, and what came with that was a high level of contact that needed to take place with that organisation on a range of areas that were highlighted, including finance and performance. On the particular of the contact that happened, I think this is referring to the sort of emergency calls that take place, which support the NHS across Wales on a daily basis. And, interestingly, I know the inception of this, because I was actually the health board chief executive who introduced those, because they're actually NHS calls, not Welsh Government calls. And I actually operated the first calls myself when I was in my role in Aneurin Bevan health board. And the reason that they take place is, at times when there are pressures across the system, it's the opportunity to talk through those pressures, offer and agree reciprocal support.
So, as an example, last week, there were a couple of extra calls that took place on a day. These were facilitated by the NHS. They're chaired by a director of health organisations in Wales, not by Welsh Government. And Morriston Hospital was asking for support from other sites, given that they had particular pressures at that time. So, I think we probably need to discriminate examples where they are related to escalation and us wanting to see that there is progress, and, no doubt, you would hold us to account for some of that progress around this table here. And I think that ABMU into Swansea Bay has demonstrated some improvement in their performance, and I think, particularly so, Cardiff has definitely shown some improvement over the last 18 months or so. But I think the need for emergency system calls that take place over weekends and through the day is an operational matter for health boards in the system. To be very open, Welsh Government officials will join the call and will help and take some views as necessary, but they are deliberately chaired by the system. And as I said, I know that, because I actually introduced the first ones myself. But there was a need for some level of detailed scrutiny on finance for the organisation, because that was one of the areas why it went into targeted intervention. And we did do the due diligence work and the Deloitte review, which are in the public domain, about some of the pressures on the organisations.
We commissioned Deloitte to look at a number of aspects of financial governance in a number of organisations, including ABM. And in terms of the board, they drew a conclusion that there were low levels of detailed financial scrutiny at board level, gaps in financial capability amongst board members, to the extent that the board was providing insufficient oversight of the health board's financial position. It was also a significant outlier in that it didn't have a dedicated finance committee below board level. So, we obviously wanted to make sure that the board oversight and financial governance was significantly strengthened, and obviously that involves a lot of detailed work with the board to make sure that they address it. They have addressed it, and we've moved our attention now away from board oversight into some weaknesses that they've probably got around delivery of opportunities. And I guess that's the whole purpose of escalation: make sure that we've got an adequate diagnosis, and then we put solutions in place, and when we're confident, we can de-escalate those bits.
And we would hope that a good example is that, on the financial grounds, if we were reviewing at a level of detail, they achieved their control total—that was an improvement in their underlying position from the previous year. And they are offering the opportunity that that organisation can break even in the year ahead as well. So, I hope it will be a balance of the board's governance working alongside a level of higher Welsh Government intervention—at least on that financial example.
Just before you go on, Jenny Rathbone, did you have a brief supplementary?
Yes. I just wanted to pick up on what you were saying about BCUB. Because, obviously, they're the ones that haven't even kept to the deficit that was agreed last year, and they've now got a £41 million deficit. So this new external turnaround director, starting in July, what are the qualities this person is going to bring to this post that's going to really help to make the transformation we've all been looking forward to?
Well, firstly, they've recruited externally. It's an interim position—deliberately so, because it's an individual who will come in and give that experience. It's an individual who has done the turnaround function elsewhere. They've also got—
Are we able—? Do we know—? Is it in the public domain as to who this person is, in terms of being able to—?
I don't know whether it's been publicly announced yet. I can drop a note to the committee, if that helps, just to understand it. But they've got experience of doing turnaround elsewhere. That was one of the underlying criticisms of Betsi whilst they were adopting a turnaround approach—it wasn't quite translating into the experience that would be delivered elsewhere. We're also looking to continue a level of support for that organisation—necessarily so—and there is something about making sure that they have still the right capacity. I think one of the difficulties of turnaround is, whilst it might deal with that immediate position—whether it's for a six, 12 or 18-month position—what we're looking for in these plans—and I think we've been seeing it in the improvement in three of the four health boards—is that there is a progressive improvement in the underlying financial position. So, it's about sustainability, about finance, alongside lots of other choices. But, obviously, the board has wanted to achieve this, and I hope that the fact that it's chimed with the PAC recommendations as well—that's a timely moment, and we should be setting clear expectations, of course, for Betsi Cadwaladr.
Adam Price, would you like to finish? Back to you.
Yes. Do you accept, though—? I mean, there comes a point when—. So, on this issue about national involvement, I accept, from what you're saying, there might be some degree of mistaken understanding about the nature of those meetings. But does there come a point when there is, under the escalation framework, so much national direction that you might as well be running the NHS as a national body directly from Cathays Park? Is there a line that you recognise?
Yes, I think there is a line, based on experience. And, clearly, whilst we have boards in place, there remains accountability for delivering. Betsi Cadwaladr remains overseen, although being under a special measure status, under the direction and operation of a board, and of an executive team up there. And whilst we are challenging them and expecting progress and developing a framework for how we show improvement in that organisation, there is still that local accountability.
The example I would give—just if I'm reflecting back on the last 12 months—would be Cardiff and Vale going through an escalation process, being targeted intervention. The reasons underpinning that were wanting to get to a plan approval, concerns about their finances, and also some of their delivery. If I reflect on the last 12 to 15 months, as we have taken more confidence from the team there about the progress they're making and seeing it translate into outcomes and in their financial performance, we have stepped away, actually, from the level of contact we've had with the organisation. I think that the last targeted intervention meetings we were having with Cardiff were really more about looking at their plan for the future than it was about revisiting some of these basics. They were converted to an organisation lower down the escalation because in the tripartite process the recommendation was that they should be reduced to enhanced monitoring.
So, I think there is a balance with different organisations. Welsh ambulance service trust was at a high level of escalation, a lot of contact operationally about concerns, if we go back three or four years or so ago. We are obviously overseeing the system, but that organisation has a clear plan, its finances are in order, and we're able to sort of observe in a different way the system. So, there's a trick to understanding when the line occurs.
You mentioned the creation of the NHS executive and the consequences that will have to the reform of the escalation framework. Has consideration been given as part of the creation of this new national kind of delivery body to splitting your role, effectively having a different person in post as chief executive of NHS Wales and director-general of health and social services? I saw the organisational chart the other day with Welsh Government and I see the long list of responsibilities that you have. I have to be honest with you, Andrew, my heart went out to you. How is it possible for one person to do all this? So, has there been some thought given to that possibility?
There has been some thought, again, with the advice that's been going up to the Minister, and he will have choices to make about that spilt. Openly for the committee, when my particular role has gone out to advert in the past, there's always a moment, I know, when Ministers have previously considered is it one that you keep together or you separate out. There are advantages and disadvantages of it. There is a closeness and proximity in Wales on the one hand. The level of questions that we'll get around committee tables or more broadly is at a level of detail.
Having said that, when the parliamentary review gave its reflections, interestingly, their recommendation was that they felt that there needed to be a greater central guiding hand, maybe—that was their reflection. That was quite close to how the OECD had defined stepping up with a bit more national direction, but didn't feel there was a necessity to separate out the role; it was more about judging the pros and cons. So, certainly, in advice to the Minister at the moment, there's some consideration of how you have the balance.
I think whether the role is separated itself or not, that's partly why what we're at least trying to get right is the balance of what is contained within the NHS executive function. Because if that allows a level of capacity that is appropriate to drive the system and to set expectations and to respond to a mandate from the Minister, at least that in itself as an infrastructure I think would help, because at least it would have some separation from the duties. But it's kind of a moot point and it will be an option for the Minister to decide whether they do discriminate it, because there are broader responsibilities in a director-general role. Scotland do keep the arrangement together in a similar way to the way in which we've discharged it in Wales.
One of the issues in driving savings—the flip side potentially is that that could involve harm to patients. How do you square that circle? What do you have in place to prevent those kind of cost savings, which actually could have an unacceptably negative impact upon patient welfare?
I hope we do bring a rounded perspective to the table. I know that I've previously commented that, to some extent, tolerating control totals and deficits for organisations is a bit of a judgment call in our reconciliation analysis of making sure that we allow organisations to choose to make the right kinds of decisions in these sorts of areas. I wouldn't mind giving you a rounded view, but I just wonder, Alan, if as director of finance you'd like to give a feel for quality being important to you in overseeing the system as well.
Yes. Very specifically for those organisations in escalation, we have been testing all of their savings plans line by line to make sure that we're clear what they're trying to achieve and that we've got confidence in them and they don't do anything short term that is going to probably damage some longer term benefits. We test all those savings against the efficiency framework and clinical variation and outcomes framework that we've got. A lot of the clinical variation work that we've got in there is driven by the national clinical leads in respiratory disease, lymphoedema, cardiovascular disease. So, they've got a real handle on the evidence, and that's in the framework. So, we're testing it against that. If anything, we're probably prompting more opportunities where they could improve outcomes and patient safety and still not necessarily reduce costs, but allocate money in a slightly different way.
I'd probably want to pick up on a broader point, though. All of the evidence is that those organisations or healthcare systems that drive good patient outcomes and good patient safety spend less money than their peers. That is the foundation of the work that we're doing on value-based healthcare. It's the foundation of the work on 1000 Lives in terms of patient safety. It's the basis for the way that the national clinical leads work and, to some extent, is much more about how we're using resources within the system, as well as what we're saving. There's a couple of important components to that. The first one is that all of the evidence says that if you genuinely co-produce and empower patients, they probably use a lot less healthcare than probably healthcare would give to patients. I know that you took evidence from Aneurin Bevan. If you look at their work on inflammatory bowel disease and the way that they are using patient reported outcome measures, they are using significantly fewer outpatients, pulling people in. That's probably where we want to get the system to.
We also know, from our work on lung cancer and from the work in Aneurin Bevan on dementia, that some parts of our communities, and more those in the deprived areas, are accessing services very late. Therefore, in the case of lung cancer, the disease is quite progressed, and the options tend to be quite expensive radiotherapy, whereas there may have been better options had they presented earlier. So, we are looking at things like rapid access to primary care, rapid access to diagnostics, work that we need to do on smoking cessation, work that we are doing with other groups within Welsh Government and Swansea University on the impact of air pollution. So, we're trying to make sure that we're building a 'here and now' picture about how we are using resources, but then how we get ahead of that as a more integrated system and across public services for the long term. That's the foundation of what we're trying to do in this area.
Right. So, you're driven, really, by the dual goal, effectively, of improved outcomes at lower cost. So, the two kind of drive together.
We have to drive it in that way. While there are mechanisms like prudent healthcare and value that allow us to do that, I think that there's also something about the parameters that we set—not least how we performance manage organisations. So, we've just been doing the end-of-year reviews for all of our health organisations across Wales. Again, if I go back to the Cardiff review, which was about two or three weeks or so, clearly, from an organisation that has had to recover its financial position, I was pleased to see they were also showing us that they were improving their performance position on areas like waiting times and how they perform around A&E. But, they were able to articulate for us, very strongly, in their presentation and support papers, how they had progressed on quality as well. I think that we need to make sure that it's not a choice of one or other. We absolutely need to have a set of expectations together.
Could I just ask you—? In evidence, we've heard two very different approaches to the first stage in savings planning—one that is setting, department by department, specific targets, which at least to me suggests that there's been a bit of consideration given to the context in each individual area, which is going to be different, to then a blanket, across-the-board cut in every area. Do you have a view on whether one is preferable to the other?
I'd use neither. I think that it was McKinsey, when they looked at the NHS in the UK, that said that the trouble with the NHS is that it's preoccupied with the 5 per cent that it hasn't got, and the opportunity is in the 95 per cent that it has got. You probably heard from Aneurin Bevan that they are much more focused on the £1.2 billion that they spend, rather than whether they need a 1 per cent or a 2 per cent cost improvement programme. I think that what we're trying to do—and I guess this is back to that question about what is different in our system—what we're trying to create in every board is a clear understanding of where their opportunities are for improvement. The vast majority of people who work in the NHS don't turn up to save money or to address a 2 per cent CIP target or a 3 per cent CIP target. They turn up to provide really good care, and they do engage where there are opportunities to improve outcomes, to improve care for patients, and use resources better. So, if you look at the framework that we're trying to make sure every board adopts, they're clearly focused on those more traditional savings—procurement and medicines management, and particularly where we can do those better at an all-Wales level. Then we need to make sure that they're really clear on their opportunities to improve productivity, efficiency and effectiveness in their operational spend. So, that's things like the way they use theatres, the way they use out-patients, the way they use day-case surgery. Then we move up into, I guess, what I would call the area that the national clinical leads lead on or unwarranted variation, where we know we can improve access to angiography, angioplasty and use beds better; where investment in community respiratory nurses can reduce our reliance on hospital services. So, the whole suite of work is about improving and tackling unwarranted variation and standardising, I guess, caring about some of the big disease areas.
Then, I think the final bit, which is the most powerful, is the outcomes that matter to patients and how you address those, not just within healthcare, but across broader public service partnerships. We want to see those types of frameworks in place in every board. Then we want to see clarity about how they work through to plans, and that they've programmed this work up, and they're really clear about how they're going to deliver it, when they're going to deliver it, and that they've got some sense of beat to make sure that that happens at a pace and gains traction. And then they've also got a mechanism to keep topping up those opportunities for improvement, so it's not just a static, 'We chase these down and now we're back to square one', but that this is almost a continuous improvement cycle, across a broad range of activities.
You referred just now to 'value-based healthcare', and it's a phrase that is in your evidence as well. Prudent healthcare was the animating principle a few years ago. Are these related ideas? Value-based healthcare, does it come from McKinsey, or is it Mark Moore or someone else? Tell us a little bit about where that's come from? How's it related to prudent healthcare? And how is it changing your policy approach?
We've retained the prudent healthcare principles in 'A Healthier Wales'. It's very high profile and is embedded within our system, and our challenge is to demonstrate how we are making progress on it. The value approach is a complementary mechanism allowing us to move to more of the implementation side. So, again, Alan, do you want to just discriminate how you would see the difference, and why we've been using the value label in the context of the umbrella of prudent healthcare?
Yes. I think, as Andrew said, prudent healthcare gives you the overarching framework. Value-based healthcare is almost how you operationalise that at a detailed clinical level. So, I guess, if we use one of those principles I just mentioned: co-production. Co-production is a really broad piece of work that we need to progress with in Wales. The Aneurin Bevan example with inflammatory bowel disease is a really practical example of where you are co-producing using patient-reported outcomes and allowing them to take responsibility for the management of their own conditions. That isn't prudent healthcare in its entirety and that isn't co-production. It's an operational aspect of how you can deliver it in practice at a clinical team level.
On value-based healthcare—just to answer that question, I guess—it started with Michael Porter and Bob Kaplan in Harvard. It was very much designed to tackle the problems in the American healthcare system. It has gained much more traction in Europe, to the extent that Michael Porter is now in conversation about working with us in Wales and how we can do some of that. So, it's interesting—
He isn't cheap, so be careful. [Laughter.]
We've been taking advantage, and it's very free at the moment, and we've been very conscious about where we move from that. So, actually, it's much more of a European movement, because it probably lends itself to publicly funded systems.
He's very good as well. I'm an ex-student of his, but he isn't—. I think he used to work for the Welsh Government before on the economy side. Just, finally, you've referred to the finance delivery unit—is it?—the financial delivery unit and the national efficiency healthcare value and improvement group. Presumably, they dovetail, do they? How do you measure their effectiveness? Do they have outcomes? And is there a measurable target in terms of the savings that they directly or indirectly have led to?
So, my overarching comment, and Alan can focus on the detail, is that these were both established deliberately to ensure that, rather than just look at organisations in the eyes and set expectations, that we were also taking on a national responsibility to broker the support that they would need. So, the finance delivery unit has grown because it has a broad responsibility for the system to help us to reconcile and seek opportunities, but it deploys a certain role in supporting those organisations under the greatest financial challenge and scrutiny.
The group that focuses on value and efficiency and choices there is, again, another opportunity for us in an environment where organisations may say, 'There's really nothing else that we can do to find a way of balancing savings with quality', to keep finding opportunities to talk of that. So, whether that is the implementation of biosimilars, as we made reference to in our evidence paper—a process that we oversaw nationally, and then it was able to be translated into a £7 million saving within the system that could be very practically implemented pretty much overnight—we are constantly searching for some of those opportunities.
But the reconciliation between the two means the financial delivery unit is actually getting a level of expertise on how it can promote these opportunities from our wide range of data sources and information and expertise within the system. So, I just wonder, Alan, if you just want to help the understanding between the two.
Yes, I think it's fair to say both are relatively new. But if you have a look at the impact that I think they've made, at a very high level I think it’s probably the reason that we saw, last year, the highest level of recurrent savings and less one-off savings. If we look at the month 2 monitoring returns from the LHBs and the trusts, we're already £5 million ahead of planned savings. That's probably the first time that that’s happened, and I think it probably can be attributed to that. It’s probably why three out of four organisations hit their control totals last year, and it’s probably why we're confident that we'll have a further step down this year and hopefully get all organisations into balance the year after.
At a very practical level, I guess, just to sort of answer the question, 'What savings?', Andrew mentioned biosimilars. That was probably about £6 million last year with a further £5 million to come this year. We've just approved a lymphoedema business case, across all of Wales, that will save a minimum of £5 million and up to £10 million. So, we're quite confident in that level of savings. The work that we've done on chronic obstructive pulmonary disease, we've managed to take money out of high-cost, low-value interventions like inhalers, put it into more lower cost, higher value interventions like smoking cessation, pulmonary rehab and save £2 million. And that, probably, will be a growing amount. We've highlighted a lot of length-of-stay variation to boards, and if you look at the plans this year, there are £5 million associated with length-of-stay activities and better utilisation of beds, and I think that’s because of the framework and the finance delivery unit.
We have just worked with the directors of nursing, and this will come to the next efficiency board. We've analysed nurse rostering and deployment over 460 wards and we've been working with the nurse directors to highlight where further improvements and standardisation come. I think that will bring us benefits around agency and the way we use nurses. So, there will be benefits from that. We've done an extensive bit of work on mental health benchmarking to have a look at, all the way from hypnotic anxiolytics, about where we're spending money and variation, all the way up to low-secure, to map the pathway and the spend, and we've highlighted differences for boards to tackle.
And then, finally, the most extensive benchmarking, I think, in northern Europe is the UK NHS benchmarking. So, we've commissioned them to do a study for individual boards, to show where they're an outlier, where their opportunities for improvement are, and where to focus their attention. And, again, we expect that now to work its way through into plans this year and plans next year. There’s a whole raft of other work they're doing on value-based healthcare, working with the national clinical leads, but that’s probably a flavour of some of the practical stuff they're up to.
I think it means that we don't just revert to the monitoring role. It is trying to find this line—and you used that phraseology earlier—about where we can help to step into the system alongside and help to generate those opportunities. And I think we've moved much more into that territory over the last couple of years.
Okay. Thank you.
Okay. Mohammad Asghar.
Thank you, Chair, and my couple of questions to the panel will be regarding service transformation. 'A Healthier Wales' accepts the need for strengthened national direction on service transformation. How have you progressed this during the first year of the plan and what have been the initial impacts?
I think there’s been a very visible commitment, of course, by the transformation fund that was launched and described by the Minister, with a set of expectations to mobilise how services could be better co-ordinated. The fund has been set with criteria, however, not to fund the forever, but to pump-prime and to initiate these transformational services, and we've now got to the point where the Minister has been able to confirm approval for £87 million-worth of bids over the course of the next couple of years, which now represents every geographic area of Wales. The last one that we'd been just waiting to secure for a geographic area was the recent announcement around Cwm Taf Morgannwg, and that has taken place.
My balanced response on this, however, would be that we're always really mindful that the danger is that the new fund that is announced becomes the focus for the transformation. As Alan was describing earlier, we need the system to look at the existing health and social care resource across Wales. We have, between both health and social care, over £9 billion-worth of resources and budgets that are available to be used differently, but you do need, at various stages, conduits. One description within the system was people were unable to set up the parallel services that would make a difference. We've tried to remove that as a concern by focusing on this.
So, we have got a number of schemes that we've introduced. We have evaluation processes in place with all of those transformation proposals to make sure they deliver what's necessary. We've tried to spread across Wales different experiences, ranging from doing learning disabilities up in north Wales through to a focus on children's services over in the Aneurin Bevan health board area, to focusing on improving clusters in Swansea bay. An interesting test for why the system was going to be any different was when ABMU at the time came forward with its proposals for a cluster around Cwm Tawe. We actually, through the Minister, agreed to that as an individual proposal for getting all of the services lined up in a cluster, but we actually went back to Swansea bay to actually say we wanted them to scale it up for the whole of the organisation, so that they would actually deliver that consistently across all areas.
So, there is money there being spent. There's evaluation in place, baselines are being set for the improvement, and there are a number of conditions around the funding that's happened. Positively, however, these are partnership funds. These have been facilitated through the regional partnership boards, and I think that, building on other experiences, they have genuinely helped a focus. The trick will be to make sure that people also apply themselves, obviously, to the broader funds and budgets that are available. I'm happy to run through a list of the individual schemes, but I've just given you a few examples of those that do exist across Wales.
Thank you. The auditor general highlighted that the funding increase in 2018-19 was less than the cost pressures identified by the Health Foundation. How do you expect the health boards to free up funding to invest in new ways of working, and is the £100 million from the transformation fund, over two years, realistically going to make much of a difference?
So, if I could comment broadly, and then, Alan, maybe you could pick up on the particular reconciliation of the numbers. As I said, if we put all of our expectations for change and transformation in Wales on a £100 million fund, which is material but is the smaller amount of a £9 billion fund, I would rather focus our broader attention on how we get all of the different organisational funds to work differently. But you're right to say that the Nuffield Trust work, and subsequently the update that was provided by the Health Foundation, has been very influential in Wales, and also a methodology that has been used elsewhere across the UK to just assess the level of demand into the system. I'm not sure I would reconcile precisely to the number that you've had. We've been really mindful of this level of running at sort of the 2 per cent, and obviously these have been political judgments that have been made over the course of the last two or three years in particular. But Alan, do you want to just work through the calculation? I wasn't aware that we were necessarily running under.
I think just to, I guess, remind everybody what the Health Foundation said: it was forecasting pay inflation and price inflation at a moment in time, but it said that the NHS in Wales should plan for growth of about 3.2 per cent. There should be an expectation of 1 per cent savings, so it should always be putting in around 2.2 per cent to cover pay and non-pay inflation. I think the number you were referring to is the £231 million the auditor general used in his data tool. We did say to Wales Audit Office that we didn't recognise that number, that we've been putting more funding in place, and if it's helpful to the committee we can write and just show exactly what we have funded, and our approach. Particularly if you look at the budget settlement this year, we have been conscious to make sure that we meet the Health Foundation requirement. We call that 'keeping the wheels on', so we just make sure that we're funding the system. And then any other flexibility that we've got, particularly now, we're targeting through those 'A Healthier Wales' priorities. So, the budget has been constructed exactly that way—a complete separation. Last year, we did the same. We met the Health Foundation requirement, and then any other funding was specifically targeted at developments we wanted to drive nationally. But I'll write to the committee with a reconciliation, if that helps.
That would be very helpful. Oscar, I think you're straying into Jenny's questions, so Jenny, did you want to come in at this point as well?
Yes, I wanted to follow up on this. So, it's quite right that we need to keep the wheels on, but at the same time other parts of the public sector are feeling that the health service is having a lot of money shovelled at it, some of which is to do with people's failure to take difficult decisions. So, I think when we heard from Hywel Dda last week, I was a little surprised that they still hadn't drawn down any money from the transformation fund given the financial challenges they clearly face and some of the clinical challenges too. Is that indicative of—? I mean, do you regard that as of concern? There were lots of good intentions, but they weren't able to come up with concrete examples of what they were actually doing in the way that Aneurin Bevan, who followed them, was.
There's a difference in terms of when different parts of Wales had their agreements made. So, for example, the Cwm Tawe cluster proposal was the first, I think, that the Minister approved at that time. He was visiting himself, personally, recently to just hear about the progress that's been made just to receive a more personal update. Hywel Dda was later on down the approval process in terms of making a difference. I think there's a balance in these areas. We are looking for the impact and for the money to be spent over a two-year period. So, we're not trying to penalise the organisations at the moment, but they do need to make sure that they can recruit. But, clearly, they're unable to make that progress until, actually, they've had that authorisation. So, whilst they might be slightly slow on the uptake, they were just further down the pipeline of the approvals that happened.
I think it's important, though, that they're not just chasing down the transformation fund proposals themselves. So, during our overview and assessment of Hywel Dda's improved financial position into last year, I was personally struck, having been looking this organisation in the eyes over the last two to three years, that we were seeing a shift from the more traditional areas that were just the obvious things that all systems would go at as opposed to things that would seem to be a bit more in the quality space: reconfiguration of services, being challenging to themselves about the way that they were deploying support for surgery or for critical care, looking at different opportunities for pathways around cataracts, for example, using community settings more so than just using the hospital side of things, involving geriatricians around care homes so that they were taking advantage of the broader system. So, whilst they may not have articulated well their response on the specifics of the transformation fund, I would say I saw more of a transformation focus in their general savings plans through last year than in just the traditional areas that I've probably observed over many years. So, I think, possibly, in reflecting on their evidence session, I felt they probably fell a little short of some of the information detail that they actually gave us in a whole series of targeted intervention and escalation meetings that took place over the last 12 months. And that just might be worth revisiting with the organisation.
Okay, because it's obviously important given that Hywel Dda, along with Betsi Cadwaladr, are the two organisations you still don't think are going to be able to have a balanced budget by the end of the next financial year.
No, not for the end of 2019-20. We've set a control total for Hywel Dda to drop down again, which will be a material improvement of around £11 million, to around £25 million for this year. But, yes, of course we need them to make progress on the balance of savings and opportunities within their system and we still believe that, irrespective of driving a model that will feel very rural based, they have opportunities to recover that financial position. The zero-based budget exercise showed us that, if we could find that level of resource support for them.
Okay. So, looking more generally now at the other areas where you're hoping to see transformation, obviously, the auditor general's report on the integrated care fund isn't being published until later this week, so you won't be able to comment specifically on that, but in terms of the—. What, in your view, are the key successes of these regional partnership boards? Particular