Cynulliad Cenedlaethol Cymru

We've had some technical difficulties. It means that we are now mainly virtual, but all our witnesses are with us and our Members are with us this morning. We've had apologies from Rhianon Passmore and Sam Rowlands, and Janet Finch-Saunders is here instead of Sam this morning. Croeso cynnes, Janet. Good to see you. Thank you for coming. I'll just start by asking if anybody has any declarations of interest? I don't see any, so that's great. Thank you very much.

We'll move on to item 2, and that is papers to note. We have one paper that I will probably be responding to—a letter from the Business Committee. We'll note that letter and respond to it, if everybody's content with that. Yes, I can see that. That's great. Thank you very much.

So, we'll move on to our substantive item this morning, which is item 3, and it's our second evidence session on the draft budget. We've got witnesses with us, and friends of the committee. We've had evidence from you in the past, and we're always very interested to hear what you have to say. I wonder if you would introduce yourselves for the record. If we could start with Guto.

Good morning. Bore da. My name's David Phillips. I'm an associate director at the Institute for Fiscal Studies, and I lead our work on devolved and local government finance.

Fantastic. Thank you very much, the three of you, for coming this morning, and sorry for the delay in starting. I want to start by getting your views on the Welsh Government's budgetary approach this year, and what it means for scrutiny opportunities during this budgetary session. And so, I'd like to have your views, to start with, on the Government's approach to setting the outline draft budget and the fact that the Government is describing it as a neutral budget. So, could you unpack that for us, and explain, from your point of view, what that means? David, your mic's open, so I'm going to come to you first.

Okay, great. I firstly want to say that the context of this is what is a difficult year for the Welsh Government to set a budget. Its funding is going up by less in the coming year than it has seen over the last couple of years, at least after the top-ups that Ms Reeves brought in in her first autumn budget. It hasn't got a majority, and it could, obviously, see further changes in Caerphilly, and there's a competitive election looming. So, it is a difficult year in which the Welsh Government has to try to pass a budget. So, what the Welsh Government did back in July is it said that, 'The approach this year we will take is to initially propose a budget where all services just see their budgets increased in line with inflation—we take the budget for this year and increase it in line with inflation.' Actually, what's happened is a little bit different to that. They've accounted for wage costs and other costs a bit separately, and the overall amount is a little bit above at least the current forecasts of whole economy inflation, but, broadly speaking, all budgets have been increased by about 0.3 to 0.5 percent above the existing forecast of overall economy inflation, with some adjustments alongside that to make things a bit more consistent over time, although, they might come back to some of those, about whether they are really making it more consistent over time.

The Welsh Government has, in the past, described this as a neutral or business-as-usual budget. I don't think that is really the case. The way it's been sold is that by doing this inflation-plus-a-little-bit, that gives some money for the next Senedd to make decisions about how that's allocated on top of those neutral and business-as-usual issues. But, of course, we know that the pressures facing different services do differ. The pressures on the health service, for example, with an ageing population, rising costs of treatment, are different, say, from the pressures on schools, where, yes, there are pressures, but there are also, say, declining pupil numbers, which offsets some of those. So, a business-as-usual budget that meets the business-as-usual pressure that different services are facing probably gives different amounts to different areas, and you've got the fact that you'd probably need to do more than just that small above-inflation increase, certainly for things like the NHS.

So, whilst, in principle, you can understand the difficulty the Welsh Government's facing and, at first glance, it seems laudable to do a neutral budget and then give the next Senedd more choice about how to allocate funding, I don't think framing the existing allocations that have been proposed as neutral or business-as-usual has been that helpful. In the evidence that Mark Drakeford gave to the committee last week, he did start to move away from that framing a little bit and started to say that, actually, you would need to give some of this money to health, social care and councils to meet those business-as-usual pressures. I think that's a welcome change in emphasis, because it's not a neutral starting position. Business-as-usual pressures would be different to this.

Diolch. I'll come to either Ed or Guto—who wants to go first? Ed. 

Yes, I can take that, Chair. I agree with what David has been talking about, about the framing of the term 'neutral' and what that means for the different areas. I do want to focus in also on what this means for the NHS, because the health and social care budget is increasing by about £261 million in 2026-27, and that's in line with the other increases for pay elements and non-pay elements. That's a 2.1 per cent increase in nominal terms, but it's only 0.5 per cent in real terms. That's way below the historical growth rate in health spending. It's below the 3.6 per cent real-terms annual increase that we've seen in the NHS. It's below the 2.1 per cent real-terms increase we've seen since 2010, which includes, of course, the austerity budget years. So, that kind of additional level of funding for the NHS would be significantly lower than what we have seen, and also what we're seeing as planned for the NHS in England over that period. So, the difficulty with the budget from our perspective is that, even though there is room put in there for unallocated funding to be made available for cross-party negotiations or for the next Government, actually that's probably unrealistic, because if that were to be put forward, then we'd have a historically low settlement for the NHS. So, I think that the amount of additional money from unallocated funds is quite a bit smaller than is presented.

Guto, you've been doing a little bit of analysis work, I think, on some of this. So, that £380 million that we heard about last week, split between revenue and capital, which is held as an unallocated fund, what implications does that have for the ability of the Senedd and the general public to scrutinise the Welsh Government's budgets and priorities and decision making? So, maybe looking at it from your point of view on what we've heard from Ed and David. 

I guess you can only scrutinise what's in front of you. Like David was saying, it does tell you a bit about the priorities and decisions that the Welsh Government have taken. It's not totally neutral. So, for example, it's a political decision to increase every part of the budget in the same way and protect budgets at least from inflationary costs or projected inflationary costs. That's a political decision. It's a political decision not to use the income tax powers to increase the overall size of the budget. And just to go back to the NHS point, we know from the recent block grant transparency data that came out from the Treasury that consequentials from NHS spending in England next year are about £518 million, so the increase to the NHS is going to be below that. That, again, is a political decision the Welsh Government has taken. As to some of the numbers, if we were assuming that the £231 million unallocated fiscal resource—so, day-to-day spending—all of it, went to the NHS, you're still looking at about a 2.5 per cent real-terms increase in NHS spending. That is, as Ed said, below England, below the historical average increase, but that would leave nothing for everything else in the budget. So, there are some big political decisions, like you said, that will need to be scrutinised further down the line. 

David, do you want to come in on that?

Yes, just to say that, effectively, what Guto is saying there is that even if all this unallocated money for day-to-day resource spending was put into the NHS, that would still be only roughly in line with the estimates of what you need to just keep things steady in terms of performance, let alone see the improvements we want as we recover from the COVID pandemic impacts. So, there really isn't this sort of money for the next Senedd to do as it pleases with, unless it's willing to make tough choices on things like the NHS or other public services. Therefore, I think the initial framing of this draft budget approach was a little bit unfortunate, and it was good to see the finance Minister reflect that a bit in the evidence last week, because I think there was already a little bit of damage done by implying that he'd met neutral and business-as-usual pressures, and this money was money to play with for potentially new things.

So, basically, there's no headroom is what you’re saying. That £380 million will be eaten up. If that money was to be allocated to something else, then you'd be looking at real-terms cuts in NHS or local government spend. 

I think on this, I'd distinguish between, first of all, the resource and the capital side. On the resource side, the money left is about 1.1 per cent of resource spending, and if you wanted to, if you like, meet the NHS pressures, that could absorb all of that money given historical estimates of NHS spending pressures. It would mean if you wanted to find money for new policies, that would mean either not giving that to the NHS or cutting back some of the allocations for other things, or coming back, again, to look at taxes. 

On the capital side, it's more like about a 4 per cent amount still to be allocated. I think that does give a little bit more flexibility to say, 'We're going to channel a bit more money to certain areas', especially if it's an area where—. Capital budgets are typically quite low and that 4 per cent of the overall budget can make a big difference to what you do. So, I think there's more flexibility on the capital side than there is on the resource side. On the resource side, if you want to start to use some of that money for new initiatives, that means either difficult choices for the NHS or difficult choices for other services, or difficult choices for tax.

Thank you. Normally, there's about a week between the final budget being published and a vote on the final budget. Do you have any suggestions of how scrutiny of that aspect—? Any ideas on how to best scrutinise those decisions if there are any deals or any negotiation that comes to an end? Would you suggest that you should have a longer period at that point? Because, obviously, we're up against timescales of hard deadlines of having to pass a budget, and the implications of that, of course. Ed.

It'll be a busy week, I think, if that's the case. As you've mentioned, Chair, there's a trade-off here in terms of time. There are several things that will be happening, of course, if there are budget agreements with different parties. You'd have to analyse what the implications are of those. Actually, in the interim between now and then, we'll also have the UK Government budget, which might have implications for consequentials. We're going to have new devolved tax and block grant adjustment forecasts. We're going to have changed inflation forecasts at the end of November. So, all of this is going to change the actual spending, as well as whatever is agreed within the Senedd. Some of that will be up to analysts, but hopefully there will be some additional detail on that that would be provided in the budget documents as well.

This is the first year for seven or eight years that we're having the two-stage budget process. Any thoughts on how it looks—? It's the first time it's happened for quite a long time. Any initial reflections on the impact on the work that you do and, obviously, on the initial scrutiny process that we're going through at the moment? David. 

I'm actually not averse to the Welsh Government initially setting out the higher-level budgets to broad service areas—the main expenditure groups—and then fleshing out the detailed allocations later on. To some extent, that's consistent with the Government as a whole—the finance Minister taking a view of the broad priorities, and then letting the portfolio holders for the individual areas work out exactly how that's allocated across the different areas. I think it's actually quite similar to the approach taken in Westminster as well.

But, of course, I think you want to make sure those broad allocations are set accounting for the pressures and opportunities for the various subcomponents within those budgets. What you don't want to happen is that, down the line, you realise that all the little subcomponents of, say, the health budget, those pressures all add up to more than we've given at the high level, and that then needs to be either squeezed or we need to revise the high-level budget, and cut money from one of the other MEGs to make that up.

So, I think it's okay to have the detailed allocations, to some extent, taking place and being finalised after the main MEGs have been set, but you'd want to make sure that there's been analysis about those subcomponents that's fed into those main MEG decisions.

I can't remember which one of you said it now, but obviously a fiscal event is going to happen in Westminster bang in the middle of this process as well. We know the dates of that. Before the Welsh Government outline the detailed draft budget, we're going to have that event. Do you see that as a benefit or are there drawbacks to it? Maybe compare and contrast what's happening in Scotland and Northern Ireland. They've decided to delay laying their budget until after they've seen what's happened in Westminster. Obviously, over the last few years, that's what we've done here in Wales, waited for the autumn statement before doing it, but then that curtails on scrutiny. What are your thoughts on timings, I suppose, and the intricacies of the moving parts? Guto.

David alluded to some of the benefits of this approach in terms of the clarity of the document. It's a more concise document. It's easier to maybe look at the big picture, rather than going into the nitty-gritty, and there's maybe a bit of an overload of information in the full, detailed draft budget that maybe the big picture gets lost. So, I think going a bit earlier and setting out the broad approaches to the budget is probably welcome. I think there's a disbenefit or a con in terms of publishing the budget so early that there will inevitably be changes—like you mentioned with the fiscal event—even though we're not expecting a huge amount of additional funding, since the spending review has just set the budget for next year.

In terms of the approach specifically for this year, if you were going to give a lot of weighting to inflationary forecasts and making decisions on the basis of inflation forecasts, I think waiting for a more up-to-date inflationary forecast might have been a good idea. This is already six months out of date in terms of the forecast for inflation next year. You could have set out that you were going to do this and then set a similar budget after you get a clearer sense of what the inflation will be next year.

I think the last point I'd make in terms of the benefits or otherwise of producing this draft budget is it's worth noting that, probably, last week was the least amount of media coverage and interest that the Welsh budget has seen that I've seen for quite some time, which isn't great in terms of public awareness of fiscal issues. If you compare that to the budget event in Scotland, now budget day is quite a big event, it's covered by lots of media coverage. So, if the whole purpose of tax devolution was to get people to take more interest in devolved budgets, it's not as encouraging in terms of that.

Briefly, I think I would also say, when comparing the situation with Wales and Scotland, it is worth recognising that the circumstances are a little bit different between the two countries. As Guto was saying, given the spending review was set in June, we probably don't think there'll be much change to the block grant adjustments, at least in this first year of the spending review. If they are looking for any fiscal savings on the spending side, that's probably going to be later in the period. And of course, this is a one-year budget for the Welsh budget. If there are changes, it will more likely be from the forecasts and from policy changes on the tax side, where there could be changes to the block grant adjustments, than the Welsh tax forecasts.

For the Welsh budget, they matter a bit, but they don't matter all that much. In Scotland, though, the tax forecasts matter to a much, much greater extent, because much more of the budget is covered by devolved tax revenues and is affected by the block grant adjustments. The Scottish Government is trying to do a three-year spending review, and it's more likely there'll be changes in those outer years. So, I think there's a reason, potentially, for those different approaches between Scotland and Wales. Their circumstances are different. Scotland is more exposed to the risks that come from the budget, and is also trying to do things for the longer term. So, I think, in Scotland, it definitely makes sense to go after. In Wales, as Guto was saying, it's a kind of trade-off, if you like, between getting this greater scrutiny earlier on and then getting more up-to-date information. And I'd agree that inflation, perhaps, is the biggest issue there on the Welsh side.

Thank you very much. I'll bring Mike Hedges in at this point.

Diolch, Cadeirydd. The Welsh Government has made comparisons between a revised baseline for 2025-26, which includes in-year allocations in relation to the increase in employer national insurance contribution costs for devolved public sector organisations, and also removes some other revenue and capital allocations. Do you have a view on this approach?

Who wants to take that? Guto.

I'm happy to take it. I think it's broadly a sensible way of approaching it. I think it's worth noting it's much better than last year, where the two budgets were being compared on different accounting standards, and there was a lot of in-year spending that wasn't included in the baseline. As you mention, this year we've got the NICs that have already been allocated in the supplementary budget, so we know where that is going. It would have been nice to have a bit more, as ever, information as analysts on, for example, the breakdown of public sector pay that has been announced since that supplementary budget. We don't know the breakdown of that between the main expenditure groups.

And lastly, there's also in-year spending that was included in the supplementary budget, namely the £100 million for the NHS to reduce waiting lists. That is not included in the baseline. A similar thing happened last year—I think it was £50 million to reduce waiting lists. I'm presuming that this, from our understanding, would be taken as non-recurrent funding for the NHS and hasn't been baselined. But given that it's going towards priorities that are going to still be a priority next year, I think I'd question the degree to which it in non-recurrent. It perhaps overstates the increase in planned NHS funding from this year to next year by not including that £100 million in the baseline. So, there are a couple of issues with the approach that they've taken.

I'd echo that. I think, in general, it's good to add in the kind of in-year spending that's been added to budgets like the national insurance compensation and the pay. It's good to see that. You don't want to compare the budget for next year with what we initially thought we'd spend this year; you want to compare it to the most recent estimates to get a real like-for-like comparison. But, like Guto, I'd say that, when it comes to stripping things out, it's not just whether or not they are non-recurring items that the Welsh Government has added in in terms of funding, it's do these relate to non-recurring pressures. So, where pressure is going to be recurring, I think you do want to include that in your base year, because you'll still need those resources next year to continue to meet those pressures. And if you don't include them, you're potentially overstating, as Guto said, the increase in resources available. So, I think, actually, more detail on what those adjustments are, those non-recurring items, so we can actually see are these actually one-off pressures or are these things that we'll still need to find that money for next year to meet that pressure. I think that is a key point.

The latest available OBR forecast was published in March. Given both price and wage inflation have been higher than anticipated in recent months, how reasonable are the assumptions in the draft budget for wage inflation of 2.2 per cent and non-pay inflation of 2 per cent?

Thank you for that. There is a small cushion in there. The modelled GDP deflator number for next year, for 2026-27, is 1.7 per cent, so there's a small cushion in there up to 2.2 per cent. But, of course, if that number increases in the November forecast, then there will be pressure for further increases to respond to that price increase and for the subsequent demands on pay. Of course there's a risk inherent in that, if inflation moves higher than the 2 per cent non-pay and the 2.2 per cent wage inflation that's been included in the budget. 

But regardless of the inflation forecast, there's an underlying assumption that the pay bill across both the NHS and more widely will simply grow in line with wage inflation. That's ignoring recent trends in headcount, because headcounts have been increasing, particularly for higher paid occupations. A good example is the NHS. Since 2020-21, we've had a workforce increase of 13 per cent, but medical and dental staff numbers are increasing at roughly double the rate of administrative staff, so 17 per cent medical and dental, 8.5 per cent administrative staff. We've also seen similar patterns in the Welsh Government workforce as well—much smaller increases there, but the composition of the workforce changing, smaller numbers of administrative roles and an increase in the number of senior posts. So, we've got—. In addition to just overall pay growth, we've got the composition of workforce that differs as well.

Thank you for that. I expected to have an argument over it, but we're in agreement. Have you undertaken any analysis or do you have a view of different rates of inflation for different services? I mean, people I've talked to in local government and in health, and my own calculations—. The different rates of inflation for health and local government are between 4 per cent and 5 per cent, and the lower figure is, probably, I think, the better one, because I think people are putting hope into the 5 per cent. And the carry-forward being suggested by the Cabinet Secretary for finance that all you need to do is 2.2 per cent for wage inflation and 2 per cent for non-pay, to me, seems running at roughly half what it should be. Why am I wrong?

Who wants to tell Mike Hedges that he's wrong? David.

Tell me why.

Or not.

So, I'm not going to tell you you're wrong, actually. So, I think there is a good reason why, to kind of look at real terms, whether it's revenues or spending, the Government uses the GDP deflator. It is the, sort of, most comprehensive measure of inflation across the whole economy. But you're right that different services and the public sector as a whole can face an inflation rate that differs from that overall figure.

Now, what I'd say is that I wouldn't just want to compare, if you like, the increase in the price of inputs that the Government has because you would also hope that there's some increase in the productivity into which those inputs are put. So, if your wage bill goes up by, say, 4 per cent, you'd hope you were getting a bit more out of those workers because of new processes and technology and so on, which means that maybe, actually, you know, you get a 1 per cent or 2 per cent improvement in the output you get, so the actual cost per unit of output goes up by more like 2 per cent. Now, traditionally, we haven't seen so much of that in services like social care, like parts of the health service that are very labour intensive. So, what I'd say here is that, looking historically, there are indices of, if you like, costs that the Office for National Statistics produces for things like health and social care, and you can kind of track those, and they do often show increases in prices—not always, but often—that are above whole economy inflation, particularly for social care, where they suggest there's been quite a big decline in productivity.

Looking at the kind of figures—. I've done this, not for Wales, but for England, but when we looked at the kind of cost pressures faced by many of the services for councils in England, you did see things like adult social care costs, care home placements, homecare per hour, home-to-school transport for disabled children, temporary accommodation, things like that, going up by substantially more than the whole economy inflation. So, when I looked at it between 2019 and 2023, I think overall inflation over that period was about 18 per cent, but the cost of homecare and care home placements for the over 65s went up by almost double that. In part, driven by the cost of the higher national living wage, which is a kind of key part of the costs faced by some of those services.

So, I haven't got any kind of precise figures for you, and we don't have forecasts for these, we just have outturn data for these, unfortunately, but I think it is fair to say that, for certain services, at least—some of those in the NHS and some of those in councils—there have been increases in costs that have outpaced overall economy-wide inflation. And coming back to the previous point, the most recent independent forecast average is for consumer prices index inflation of 2.4 per cent next year and wage growth of 3.2 per cent. Now, actually, back in March, when the OBR made its forecasts, it was for about 2.3 per cent and 3 per cent respectively, so above what the OBR was forecasting even back in March. The OBR has tended to be a bit more, if you like, on the low side compared to other forecasters on things like earnings growth and price growth over the last couple of years.

We heard on the radio this morning that the reported inflation figure is about 3.8 per cent and staying steady, rather than reducing, so that feeds into the narrative of what number we are believing, I suppose, isn't it, and what we are actually measuring. Mike, sorry.

I was just going to say, CPI is meaningless, in many respects, to health and local government. Health, especially, doesn't go out buying new cars, doesn't go on holiday, doesn't engage in the type of expenditure that you and I engage in. And CPI isn't particularly useful for looking at different people's expenditure, because some people go on holiday a lot, some people don't go very often, some people buy a new car every year or every two years. Their inflation rate is different. But at least you can live with that. What I'm trying to get you to tell me is that the rate being produced by OBR is not suitable for local government and health.

Guto, did you want to say something?

Yes, just to reiterate what David said, but, specifically, in terms of pay-related pressures, 2.2 per cent is probably on the low side of what you would expect in the public sector. Given the recent trends and given recruitment retention issues across some parts of the public sector, you'd expect pay deals to eventually come in above that. And as Ed said, the budgets aren't including increases in headcount, in terms of from the demand side as well, which is going to increase the size of the public sector pay bill. And then David mentioned the national living wage. I think the latest forecast, or the central estimate of the Low Pay Commission, is about 3.4 per cent, which is higher than the overall wage inflation that the Welsh Government is building into the assumptions for this budget, which is going to have a bigger impact in some sectors, particularly social care, which will see a higher level of costs compared to other sectors.

One thing I think David was talking about last year, when we were talking about NICs, is that, effectively, the pot available for pay increases is going to be smaller because national insurance contributions will lead to, especially in the private sector, people having to spend on wage increases and settlements. Is that prediction, I suppose, still true? And are you seeing any evidence of that?

So, what I'd say on national insurance is, obviously, in the first year it came in, this year, the increases, there was concern, I think more so in Scotland and Northern Ireland, but also to an extent in Wales, that additional funding provided via the Barnett formula wasn't sufficient to cover the full extra costs, given the higher public sector employment in Wales, and then the costs for commissioned services, things like social care, and that created a hole in the budget. I think, in the first year, that was true.

Now, I think over time, actually, the OBR at least assumes, and economic evidence would suggest, that a lot of the impact of the higher employer national insurance would get shifted on to workers in the form of slightly lower wages. And, actually, I think that's one of the factors underlying the OBR's relatively muted wage growth forecast, because they're assuming that that starts to feed through into wages fairly quickly and fairly significantly. So, I think the question is: is that actually happening, or is wage growth holding up? Because we're not seeing that transfer of the burden, if you like, on to employees.

Now, from the Welsh Government's budgeting perspective, obviously, if it's starting to get transferred on to workers through lower wages in the private sector, that then probably starts to reduce pressures on wages in the public sector, because, of course, there's competition for workers between those two sectors. If that isn't happening, that means that that slight, not pressure, but downwards shift in required public sector wage growth wouldn't be happening. I haven't got the latest figures to hand, and I wouldn't want to draw strong conclusions when we're only six months into the adjustment cycle, but my expectation would be that, over time, we'd see some of those pressures start to move from the employers on to the employees, in the form of lower wages. But, of course, if that's slower than the OBR is expecting, that will mean that wage growth is higher next year than they were expecting, and therefore that means a bigger pressure on employers and public sector employers' budgets than was anticipated.

Thank you. 

Can I push you there? What's your prediction of inflation for health and local government?

Has anybody got a prediction? 

We haven't really done specific work in terms of cost pressures in the NHS, but we're in the middle of updating some modelling on local government pressures. But that, again, is still based on the latest forecasts that we can have from the OBR, which will need to be updated, of course. And it's very difficult to know—. With that sort of top-down level of modelling that we do, it's quite difficult to get the intricacies of some of the inflationary costs that local government face. So, those are better captured by the bottom-up modelling and aggregates that the Welsh Local Government Association put together. And I know that they've put out some analysis that suggests that inflationary costs are going to be a lot higher than the 2 per cent that we'd estimate.

David. 

We've not looked at this for Wales; we looked at this for England a couple of years ago. The likes of the Local Government Association and I think, probably, the WLGA produce projections, to some extent, based on projecting forward past trends. And as I said, the last few years have seen both quite substantial increases in costs above overall inflation, and increases, in certain services, in demand. In England we've seen a rocketing demand for things like special educational needs, temporary accommodation, the most costly forms of adult and children's social care services. At some point, you'd expect those pressures to abate, but you don't know when that will be the case. So, projecting forward existing pressures another year, perhaps, is not an unreasonable approach to take. Projecting them forward another four, five years—well, at some point, not every child can be on special educational needs, and at some point the competitive pressures will eventually kick in when it becomes sufficiently profitable to operate in some of these sectors. 

So, what I'd say is: I haven't got any kind of predictions for what the cost pressures here will be. It would not surprise me if they were above, overall, economy-wide inflation. And when you add in demand—. We know that with an ageing population, more old people, more people with special educational needs and so on, demands are going up, but I don't think we can just project forward the costs of the last five years indefinitely, because, at some point, those pressures will start to abate. It has been an exceptional period for some of those services, particularly on the local government side. 

If you were to project last year's forward to this year, what level of inflation would you have?

I don't have those numbers to hand, I'm afraid. 

Could you send them to us, please?

I can see what we've done for local government in England. It won't be for Wales, but I can share the information there. 

In terms of ballpark figures, I don't think it's going to matter a great deal whether it's England or Wales. Anyway, that's me finished. Thank you, Peredur. 

Diolch, Mike. Janet, I'll bring you in for your line of questioning. Diolch. 

Just coming back to David, temporary accommodation—. Just on a Member basis, in terms of my own constituency, it is a fact that there's an increased demand now on temporary accommodation, because landlords have been chased out by this current Government, with lots of the regulations. I've probably got one or two landlords a week leaving the industry. So, for every landlord that goes, that means that that family ends up in a hotel now—a bed and breakfast is the best they can offer. And the costs of that are £100 per person, per day, £76 per child, per day. That's four times as much as it would cost to rent that equivalent property. And we're just seeing more and more of that. Plus, children with additional learning needs are on the increase in my constituency, as are—. We've got pupils now going out of Wales for treatment with very, very complex needs. We've got one child alone costing £1 million a year, and it's increasing. So, I don't know where you see that that's going to abate any time soon, because what happens—. I've got numerous constituents who contact me now where the mental health issues of young people living in a B&B—you can imagine them, but they're real. So, I can't see how that's going to abate any time soon. So, have you factored in to local authority spending a percentage rise, because, when I was shadow Minister for housing, we were writing to the local authorities on an annual basis, and we were seeing figures for my own constituency going from £1.6 million on temporary accommodation, then the next figure that came in was just under £3 million, then £4.6 million, and it's now over £6 million, and it literally is, it's just drawing in money. Where's the scoping that you've done to indicate that that's going to abate, because I have serious concerns that it isn't?

And factor two, my other concern is that in most pieces of legislation that I've been on committees here for there has been an impact on local authorities to pick up a lot of the costs. Take something like the clean air Bill: that has direct implications for local authorities, but Julie James was adamant that she was not going to provide any extra money for local authorities. So, every time a new law is passed here, it lumbers the local authorities with a lot more spend, and I wonder how you've looked at that aspect, about the impact that legislation passed here has on our local authorities to then deliver what they have to deliver and need to deliver. 

Yes, so, I'll—

So, two points there.

Yes. I'll deal with those questions in reverse order, if I may. So, the first thing I'd say is that we've not looked at the, if you like, cumulative impact of new burdens on Welsh local authorities, or, actually, English local authorities, as part of our work. In England, there's something called the new burdens doctrine; I'm not sure that that applies in Wales. The new burdens doctrine for local government is that, when the Government creates a new responsibility for local government, it should provide funding to address that responsibility. Each year, there often is some new burdens funding associated with some of these. There is, then, a question about whether that really is covering the full cost of those new burdens. One thing I've discussed in a forum on the English local government system is that some countries have not only what's called a new burdens doctrine but, if you like, an existing burdens doctrine, because, over time, the cost of existing burdens on local authorities can change as well. So, for example, in Germany, local authorities can take the state authorities to the state constitutional courts where they think that there is a burden that they're meant to meet but there aren't sufficient resources either from the state Government or that they can raise themselves to cover those costs. We don't have that sort of set-up in the UK, and the new burdens doctrine is only something that is sort of—. It's not set out statutorily, it's, you know—

It's more a protocol sort of thing, is it?

Yes. On the first point about the pressures abating, I think you're right, and I will admit this: I've been surprised that they have continued to grow as substantially. So, in England, I was surprised, when they increased the local housing allowance rates back up to 30 per cent, that that didn't seem to slow down the increase in homelessness costs, because it had been claimed that part of it was driven by the fact that, actually, housing benefit, universal credit, wasn't covering people's rent and that was leading to rent arrears and evictions and so on. I was expecting to see at least a bit of a slowdown in that, but we didn't really see that. Homelessness costs are still ratcheting up at 25 per cent a year in England.

We have started to see a slowdown now in the costs for children's services in England at least. Children's social care services have started to slow down a bit. The reason that I would expect some moderation at some stage is that, even if the numbers are going up, the percentage increase in the numbers I'd expect to slow down, because, in many of these cases, we were starting from a relatively small base. So, if you start off with, say, 20,000 homelessness cases and it goes to 30,000, that is a 50 per cent increase. If it goes to 40,000, that's 33 per cent; if it goes to 50,000, that's 25 per cent. So, I would expect, over time, to see some moderation in some of these pressures as they become a little bit less niche, unfortunately. But I'll admit that it hasn't happened as quickly as I would have expected. I would have expected there to be more of a reversion to some of these trends that we had in the mid 2010s by now. It seems that the pressures that started to kick in in 2019 have been more sustained than I would have expected. We might touch upon the stamp duty and the land and buildings transaction tax stuff a bit later on, but I think, with the rental sector, there are multiple pressures affecting rental and the price of temporary accommodation through a combination of demand from other uses and through, if you like, what is now quite a strong discouragement in the tax system to the rental sector.

If I might just come back quickly, Chair, with a little nugget here, and that is the statementing of children. The minute the child gets that statement, that proof that they've got additional needs, with that comes a cost. The school then has to take up that additional need and, basically, fund another teacher or a classroom assistant or whatever. What we're finding now, not just in my constituency, but generally, is delays to getting those statements. So, we're almost building up a debt where it can take now—. The Minister here will turn around and say, 'Do let me know of any examples where it's 12 months.' I can give several examples where people have been waiting—parents have been waiting—for 12 months to get their child statemented. So, that delay—the minute those children hit the system, 'Yes, I've got a statement', those additional costs are yet to come. So, I worry whether any of that has been factored in—the actual delays to the statementing of children.

So, again, I'll perhaps hand over to Guto to talk about how that's been taken into account in his modelling. In terms of the IFS, again, we've not looked at the Welsh system. We've looked quite a bit at the English system, and one of the issues we've found there is that, because there is this cliff edge in the support you get—. If you get an education, health and care plan, it opens up not quite unlimited, but, basically, there's a requirement there to provide whatever is deemed medically necessary to support the child. Below that, if you don't have an EHCP, it's a more discretionary approach. That's creating a very high stakes sort of situation, if you like, where councils like to get children on to an EHCP—sorry, schools like to get children on to EHCPs—because it gets them more funding from the council, parents obviously want it so that they get their support, but councils are trying to hold down that growth. And what we've advocated in England, effectively, is to try to reduce that cliff edge, make the support you get a little bit more sort of gradated, if you like, so that you don't need to have so much reliance on this one, if you like, document, which is creating this system that isn't pleasing parents, but is also putting councils under a lot of pressure.

Thanks.

Guto and Ed, you've been doing some modelling around local government funding. Are any of these trends coming through in some of that, in some of what you've heard? Guto, do you want to just briefly talk about some of the trends that you're seeing?

Yes. Some of it is quite difficult to model, again, from a top-down end, trying to find a basis on which to model these factors. For example, you're talking about the number of children in care, which, as David alluded to, is increasing at quite a rapid rate from a low base. Now, the increase in the number of children in care is increasing at a slower rate over the last couple of years, which feeds into what we can model going forward. But that, of course, doesn't take into account maybe the complexity of cases or the individual costs associated with the children in care, which might not be consistent.

I think, overall, what we've found—. And, again, it is very reliant or highly sensitive to the assumptions that we make, based on those forecasts of inflation and wage costs from the OBR, and the national living wage as well and the sorts of demand pressures that we can take into account. This settlement might mean that the local authority—. Well, these spending pressures are going to be lower than they have been over previous years. We know that inflation has come down. So, the national living wage was increasing at about 9 per cent, 10 per cent, a couple of years ago; that's going to be lower next year, and, in the context of this settlement as it is currently, local authorities will have to increase council tax quite significantly again—a real-terms increase in council tax again—to meet these spending pressures, but they might be in a position, especially with drawing down on reserves, to meet those spending pressures maybe more than they've been over recent years. But, of course, that's reliant on our assumptions on costs, on demand. So, for example, the number of pupils has been falling—that could translate into lower demand for school spending, but the degree to which there are fixed costs that you can't lower when the number of pupils declines, that's going to have an impact on any sort of spending pressures that you model.

Diolch yn fawr. Janet. Hang on. There we are, okay.

Yes, great. So, there's a lot of talk, as you can imagine, amongst politicians here. A lot of it's dependent on the result tomorrow, but I suppose what impact is the current uncertainty around budget allocations likely to have on key sectors leading up to the final budget, and then subsequently, if a final budget is not agreed by the Senedd on the scheduled date for a vote, which is 27 January? I know from organisations I speak to, my own, you know, council members locally to me, there's this nervousness around how will we cope generally if that budget is not agreed.

Ed.

There are kind of two aspects, I think, to this. On the one hand, there's not a great deal—. I'll come back to the political uncertainty about the budget, but, in the short term, there's not a huge amount more uncertainty than usual, because, as we explained earlier, there's not a lot of additional unallocated funding. If we're assuming that a lot more is going to be allocated to the NHS from this remaining unallocated, then there's not a lot more that could be allocated. So, on that level of change within the budget, we wouldn't expect a significant difference with the final budget. I think, if the Senedd is unable to pass a budget, that of course is a whole other level of magnitude of uncertainty, and, as you know, the Cabinet Secretary last week was laying out the kinds of consequences of that, and we really couldn't comment, because it's 'all bets are off' at that point. But I certainly take your point about the political uncertainty at that stage.

But have you—anybody on this panel—have you even thought or factored in options, if you like, of, I suppose, the best, the worst, of the scenarios? Because public services have to go ahead, they've got to be funded, and there is that uncertainty. I know the Finance Minister tried to reassure us only yesterday that the formula goes forward if you haven't got an agreed budget, but there's an awful lot of—. I would have said there's more uncertainty now than ever since I've been here, and that's 14 years. I just wondered, in terms of the economics of it all, how you've scoped or even looked at that, or haven't you?

We haven't. We haven't, no. As you say, this is not a usual set of circumstances. We've modelled the impact of the budget as has been proposed, but we haven't modelled the impact of if it's not passed, or something similar to it.

Guto, did you want to add something, or David? David, did you want to add something to that?

Just very briefly, I'd add that the prospect of a reduction in budget—. Now, I know the initial reduction is to 75 per cent, but, really, it's to 95 per cent, because, if you get to July still without a budget, it goes back up to that level. The prospect of a 5 per cent cash cut in the budget, I think, is a very, very strong incentive to politicians to come to some sort of agreement. I think the question is whether that agreement takes place after the elections, or it takes place before the elections and before the draft budget. Now, I agree with Ed that the extent to which there'll be big changes, particularly big top-ups to other areas outside the health and social care MEG, is probably fairly limited. So, I think that service areas could start to budget now on the basis of what they've been allocated so far. But I think there is the possibility down the line that even more than is currently unallocated needs to go to the NHS and, say, local government, and that could mean some cutbacks to some service areas. I don't think the current allocations should be seen as floors, if you like. There may need to be changes that see some of those areas cut back a little bit, and the earlier you can do that, the better for services to plan.

But with an election and a potential change in Government, there will just be more uncertainty in next year's budgets for services. We've seen previously, when Governments change, changes to allocations. When the coalition at the UK level came in in 2010, they made some in-year cuts to budgets. When Ms Reeves came in in 2024, she made some in-year increases to budgets. So, there will, undoubtedly, be more uncertainty and more moving parts when you have an election, particularly when that election could see a change in Government. But I think if we could have a more realistic set of allocations across services sooner rather than later, that would help with planning.

The Cabinet Secretary told the committee last week that significant prioritisation decisions were made during last year's draft budget setting, and by rolling forward funding with inflation increases, these priorities are going to be reflected in next year's allocations. But is it clear what the Welsh Government is looking to achieve with this draft budget? And given the significant increases in revenue and capital funding for 2025-26, with a less promising funding outlook in coming years, have you seen a shift in preventative investment during the current financial year, and if so, has that been taken forward in the draft budget?

Guto.

'I guess not', would be the short answer to that. I think what's missing from this is a sort of longer term plan for how the Welsh Government will deal with a quite tough fiscal outlook. The three-year spending review should have allowed, would have allowed some of that medium-term planning that we haven't been able to do, maybe, over recent years, but the political reality ahead of an election year might result in a budget of what is, harshly, short-term expediency more than that sort of longer term thinking. If you compare it to the UK Government, which set efficiency targets and productivity targets, and the Scottish Government, which has a fiscal sustainability plan where it talks about efficiency savings, productivity, headcount growth, et cetera, we haven't really seen that from the Welsh Government. There's a commitment to establish an evidence base through the Welsh spending review programme to outline some of these issues, going forward, and how decisions will be made in the future, but that's coming a bit late for this budget report. I think I should mention that, in terms of that medium-term planning, there is some really good analysis in the Welsh economic and fiscal report, but it's not necessarily reflected in the draft budget itself.

Okay, thanks. Also, do you have a view on how the increase in employers' national insurance contributions, which was introduced in April, has impacted on the economy in Wales?

We haven't done any specific modelling on that. I think David can allude more to that and he mentioned the fact that it's likely to translate into the labour market and to lower wages in the economy. But I don't know if David wants to come in.

Yes, just very briefly. I refer back to my previous answer. Obviously, by increasing the tax wedge on employment income in particular, it does reduce the attractiveness of employment as a form of work. So, you'd expect there to be a bit of a shift towards self-employment, where there isn't the employer NICs, and there's likely to be a bit of a shift towards small-company owner-managers. The tax regime already favours those forms of work over employment. You'd expect it to reduce the overall level of employment a little bit, but you would also expect to see an impact initially on employers, because the employer national insurance contributions have been increased, but because that then reduces the demand for labour a little bit, that will then feed through into lower wages and, over time, the evidence suggests that perhaps around two thirds of employer NICs costs get translated into the form of lower wages for workers. Obviously, at the very bottom, you've got the minimum wage, which stops wages being pushed down there, but further up you'd expect it to basically slow down wage growth compared to what it otherwise would have been, a little bit.

I think it is too early days to say exactly what the adjustments and processes have been so far in Wales, or in the UK as a whole, but we would over time expect it to reduce employment a bit, shift towards self-employment, and for there to be somewhat lower wages. But, to some extent, any tax rise that increases the tax wedge on labour, on how much you can buy from what you earn, is going to have some of those effects.

Thanks. Productivity and relative gross value added in Wales have remained below most of the UK regions over time. What does this budget do to rectify this, and what actions could the Welsh Government be doing to boost productivity in the Welsh economy?

Ed. Yes, diolch, Ed.

Thank you for that. I just wanted to make one small point. I agree with everything that Guto and David have said on NICs. Just the one point I wanted to add to that is, remember that, in addition to the tax impact, the impact of that on employment and on wages, which I agree with, is offset by the additional public spending that that tax is putting into this budget as well. So, from a budgetary perspective, there's the revenue coming in from NICs that is facilitating greater spending, but I agree with absolutely everything that David and Guto have said on the impact on the labour market.

On productivity and on gross value added, I think this is a long-term challenge that probably goes beyond the scope of a one-year budget. Broadly speaking, the lower productivity and GVA indicators are about lower economic mass in Wales and lower skills relative to the rest of the UK. So, in those perspectives, you'd want to, over time, devote a greater share of the budget towards education and to skills, things like improving transport connectivity. In the context of other pressures that we've been talking about, that's very difficult to do, but I think, in the long term or in the medium term, that's where you'd want to be going to try and address GVA and productivity.

You've covered my other question.

David.

Just very quickly, I'd say, coming back to the point about the size of the public sector in the Welsh economy, I think improving public sector productivity and outcomes needs to be a key part of improving the overall productivity story for Wales. We've previously talked about how NHS productivity has been disappointing post pandemic. That is a drag on overall productivity, both directly and through the fact that, if people are ill and waiting for treatment and so on, that can affect their ability to work.

I don't think it's just about money for education. I think that some of the changes to the Welsh education system have helped, if you like, reduce outcomes for Welsh education attainment. We've seen, actually, a decline in the relative outcomes of Welsh young people in recent years when it comes to education.

On the broader thing, I agree with Ed that many of these things are long term, but there could be two things I'd see where action could start to be taken in the shorter term. In some ways, we are starting to see some action. The first is on the capital side of the budget. When looking at this across countries, the UK as a whole, at least, doesn't really skimp on transport investment. Our transport investment is actually fairly similar and sometimes higher than some of our western European counterparts. Where we seem to skimp is on investment in public infrastructure and facilities, so in things like the NHS, with scanners and so on. And if I was to think about where to allocate some capital, I'd probably pivot it a little bit towards some of those things that might help improve public sector productivity, so it can do more to support the wider economy and deliver better outcomes for people. Yes, there's a bit of a trade-off—if you spend more on equipment and software and other things to improve outcomes in the public sector, you can't maybe build that one extra bypass—but I actually think that where we've tended to skimp, compared to other countries, is more on that public infrastructure, public equipment, rather than on the transport side.

And then the last thing I'd say is I think we've started to see the Welsh Government take some action on property tax, with the announcement of a revaluation of council tax and keeping it up to date. I think there's more they could do on the property tax side to make our tax system more efficient. A combination of reforming council tax, reforming business rates, reducing and abolishing land transaction tax, potentially making up the revenue elsewhere if you needed to, or if you also wanted to look at the spending side, I think a combination of reforms to property tax could make it fairer, but also more economically productive by not taxing businesses when they invest in new properties and taxing people when they move around the country to take better opportunities.

Thank you.

Do you have any more questions?

No, that's me done. 

Okay, thank you very much. I'll come over to Mike to ask a couple of questions. I understand if anybody—. We're running over time because we were late starting. If anybody does have to leave, then thank you for that, but hopefully we'll be able to ask a few more questions and finish this session. Diolch. Mike Hedges.

On the positive side, inflation and wages will be above that anticipated in the last OBR forecast in March. How might this feed into updated forecasts in the UK and in particular the estimated devolved taxes? 

Ed.

Yes, I'd imagine that those trends, if we see these in the updated forecast, given that we've got the fixed thresholds of income tax, if we're going to see higher inflation and wage growth, we'll likely see more taxpayers being pulled into paying income tax, that fiscal drag effect. That is one of the main reasons why devolved income taxes have been performing very well compared with a situation in which all taxes were reserved to Westminster, because more of our earners are earning incomes at around about that personal allowance threshold. So, fiscal drag is going to boost the relative performance of Welsh tax and the Welsh budget relative to the England and Northern Ireland comparators on that.

Thank you. This is to Guto and Ed. You've estimated that the abolition of land transaction tax for primary residents would cost about £200 million in Wales. How would this impact on the Welsh housing sector and Welsh economy? My view is that all it would do is increase house prices. Do you disagree?

Guto. Hang on. Can we unmute Guto? There we are. Okay.

Yes, I think the £200 million figure was simply taken from the estimate of primary residential land transaction tax. I think there would be some evidence—there's been evidence from tax holidays that have been implemented in the past—that it does stimulate the number of transactions, and it does feed into higher house prices. It's slightly different if it's a permanent reduction. However, at the other end, it's £200 million less on public services, which also takes demand out of the economy, which needs to be taken into account.

In the longer term, from an economic point of view, it would result in a more efficient use of housing, a more efficient labour market, with people moving to jobs. It's quite a bad tax, as an economist. Economists would say that it was a bad tax. From a fairness point of view, the main beneficiaries would be existing home owners with higher value properties. So, in terms of fairness, you might want to recoup that funding from a more progressive annual tax based on property values, as David alluded to. So, I think these shouldn't be considered separately. I think you'd need to consider property taxation in the round. I think the council tax revaluation, and any changes to the council tax system, might be actually a nice time to look at this, and look at whether we need an annual transaction tax that does reduce transactions and house moving, which does have an economic impact. So, I think these things should be considered in the round.

David, did you want to add to that?

Yes. So, I'd agree very much with what Guto was saying there. Stamp duty land tax, or land transaction tax, is one of the most economically damaging taxes. It discourages property transactions, mutually beneficial moves and worker and business mobility. So, in general, reducing it or abolishing it would, if you like, improve economic efficiency. Now, abolishing it for those purchasing their primary residence will reduce the cost of property transactions for this group. It will push up demand, leading to higher property values, and also increase the number of property transactions by this group overall. Now, what this means, I think, as Guto was saying, is the winners are not just those looking to buy houses, but are also the existing owners of properties. But the fact it only applies to primary residences and that they're demanding more properties, that's pushing up prices; it would actually, if you like, further increase the relative cost of property for landlords. So, it would be another increase in the relative tax wedge on the rental sector, and that might see a further decline in the rental sector. Yes, there'd be, potentially, more homebuyers who can now move in because of the lower land and buildings transaction tax into the owner-occupied sector, but, actually, as Guto was saying, it's a tax that falls most heavily on the high-value properties rather than on those starter homes, where those moving out from the rental sector are likely to be.

So, you might actually see not only landlords being hit because they have to pay more for properties, but you might also see some tenants adversely affected by that, because they're still not in a position to get onto the property market. So, what I'd say is that, if you were to make a change to LBTT, I think it would be better to do it as an across-the-board cut rather than targeting it just at the owner-occupied properties, because already there's a big tax disincentive to the rental sector, and this would increase that tax disincentive to the rental sector. But I would agree with Guto again that, actually, if you are doing a council tax revaluation, and then potentially a broader reform to it, that is a natural point to look at also reforming your broader property tax, because there is the possibility to, if you like, reduce or abolish LBTT, which will mainly reduce bills for those high-value properties where it falls most heaviest. You could then increase council tax—so collect it as an annual tax rather than just when those properties are transacted—which will be fairer because you're not penalising those that just, for some reason, need to move around more, and will be more economically efficient, because you're not stopping people moving around, to take better jobs, or just to find a house that's more suitable for them. So, I think there is scope to look at this, but look at it as part of a broader reform of the property tax system.

But would it be reckless to do it just as a stand-alone, rather than as part of a package of reforms?

I wouldn't want to say it's reckless, but I think it would be—. It would depend on whether you could use it as a stepping stone to a broader reform, or whether it would reduce the likelihood of that broader reform. So, when I was thinking about this, I was thinking, well, if this was all you did, and you didn't do the broader reform, would it still be better than nothing? What I'd say there is I think you would need to think about the revenue effects, as Guto was saying—this would reduce revenues and public spending. But I think, in the round, despite the fact it would, as I said, increase this wedge between the owner-occupier sector and the rental sector, if you were looking for a tax cut, it is probably still one of the ones that would deliver a bigger bang for your buck in terms of improving the mobility and dynamism of the economy. So, I would not say it's reckless to do it on its own, but I would say that it would be better to do it as part of a broader package of reforms.

Diolch yn fawr. Mike.

I think that we haven't got time to discuss it, but you've got a third sector in there, which is causing serious concerns, which is Airbnb, which does have a serious effect on housing. We haven't got a chance to debate that today, so I'm just putting that down for the record. 

What are your views on the relative level of funding that the Welsh Government receives from the UK Government? What changes are needed to the fiscal framework? And should Wales offer to pay its share of the central Government expenditure in Wales and then keep the rest for running Wales?

Ed.

Yes, thank you for that question. In the big picture, the net effect of the fiscal framework since it was signed has been strongly positive for Wales, certainly relative to the previous system in which taxes were entirely reserved. So, in terms of performing to the fiscal framework as a whole, it's very positive. I think that the relative funding, given the fiscal framework and how it's performed, is actually reasonably okay, it's the absolute level of funding that is an issue. We're on a lower plane of growth, if you like, a lower plane of funding than we were before 2010. There's been a very big shift in absolute levels of funding. 

I think in terms of reforms, I'd want to concentrate particularly on budget management tools. We're seeing much more in-year churn in budgets, from the draft budget through to the final and the first and second supplementaries, we're seeing far more changes in-year, and that's why budget management tools are increasingly important, and the existing budget management tools are just not sufficient for the scale of the changes that are now having to be managed by the Government in-year. I think I'd also be wanting to look at capital borrowing powers, which have not increased in line with quite significant inflation, particularly on the construction side as well.

David, did you—? [Interruption.] Sorry. Janet, did you have a question there? [Interruption.] We can hear you, Janet. You can't hear us. Okay. 

And the question of should we pay our share of central expenditure and then keep the rest for Wales. 

I was going to come in partly on that one, there. So, I think that that is effectively a question on full fiscal autonomy. 

Yes.

So, as it stands, I don't think, at least given the current economic circumstances of Wales, that that would lead to more funding for Wales. The most recent estimates from the ONS suggest that public expenditure in Wales is about 10 per cent higher than it is across the UK as whole. When you include a population share of some of those UK-wide expenses like debt interest, defence and foreign affairs and so on, because unfortunately Wales does have lower levels of productivity and somewhat lower levels of employment, the tax revenues per person, particularly from the income tax and the direct tax side are lower and, overall, are estimated to be about 75 per cent or so of the UK average. So, if you were to say that Wales keeps its revenues, funds its own public spending and then makes a population-based contribution to the UK-wide situation, at least as it stands, that would lead to quite a large fiscal deficit for Wales. I think that when we estimated the, if you like, net fiscal transfer, the difference between Wales's relative revenues and relative spending, as it stands under current constitutional arrangements, current economic performance, it's about £12 billion to £15 billion a year, I think. I'd need to get the exact number. I was going to say, 'Don't quote me on that', but it's obviously in the Record now, but I can get the exact number. But it's a substantial number there. So, I know that there's a debate around fiscal autonomy in Scotland and, to some extent, Wales. I think that, in order for that to be a net budget benefit to Wales, you'd need to see something substantially change in terms of economic performance within Wales. 

Thank you, David. If you could send us the correct figures, then we can put the correct figure into the Record. Thank you very much. That's me finished. 

That's you finished. Guto, did you want to say something briefly, before we bring the session to an end? Yes. Guto.

Yes. Sorry, just quickly. I think David is right in terms of the overall picture, in terms of the total spending and total revenues in Wales under the current constitutional arrangements. But I think that shouldn't discourage us from pressing the point that further tax devolution might actually be beneficial, moving towards the Scottish system of devolving more in terms of income taxes, now that we've experienced tax devolution—you know, moving to a system that actually increases empowerment and accountability of the Welsh devolved taxes. Making something that's actually usable or more likely to be used to increase that fiscal accountability I think is something that we should be exploring in terms of broader reforms to the fiscal framework.

Yes, and just very quickly on that, I'd agree with what Guto is saying there. It's not a case of—[Inaudible.]—now and full fiscal autonomy. There are a range of options in between that, and I'd agree that you could consider changes to the income tax powers that the Welsh Government has had. I think there's a case, actually, not just to move towards, say, the Scottish model, but actually to think about the dividends and savings income within there. You can think about the apprenticeship levy, for example. I think things like corporation tax and value added tax are more difficult, given the challenges in allocating those sorts of taxes across jurisdictions—you see that internationally, let alone within a country.

Also on the fiscal framework side, around borrowing powers, as I've said in the past, in work with David Bell and David Eiser, I think there's a case for all of the devolved Governments, not just Wales, to have some discretionary borrowing powers for day-to-day spending. At the moment, on day-to-day spending, the powers are basically there just for forecast errors for devolved taxes, but we know that unexpected events can affect the Welsh Government's budget, not just through the tax forecast, but through the public spending side of things.

We've recommended having a constrained amount of day-to-day borrowing powers—not to make them unlimited, but to limit them like they are on the forecast error side. In part, that is a fairness issue, because there is no England-only borrowing by the UK Government. Any borrowing the UK Government does is either for UK-wide stuff, like defence or pensions, or for England-only and then generates money via the Barnett formula. So, giving unlimited borrowing powers on top of that to the Welsh and Scottish Governments would, in my view, and I think in that of my co-authors, feel, if you like, unfair because it would allow them to borrow on top of borrowing already done by the UK Government and get a lower interest rate than they otherwise would if they were facing their full borrowing. But to reflect the fact that they are separate Governments with separate pressures and so on, a small amount of discretionary borrowing powers, maybe 1 per cent to 2 per cent of resource spending, I think would give that extra flexibility to respond to pressures that emerge in-year, like, for example, whether it's wage pressures or pressures linked to challenges in one of the Welsh public services—not to indefinitely put off the reckoning with those, but give them a bit more flexibility to deal with that reckoning in the same way the UK Government can—you know, if it faces a pressure, it can say, 'Well, we'll borrow in the short term and address it in the long term.'

Thank you so much for your time this morning. That brings us to the end of our session. There will be a transcript available for you to check for accuracy, and, David, if you could make some of those figures available to us, then that would be great. Thank you, again, for your time.