Y Pwyllgor Cyllid

Finance Committee

30/06/2022

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Mike Hedges
Peredur Owen Griffiths Cadeirydd y Pwyllgor
Committee Chair
Peter Fox
Rhianon Passmore

Y rhai eraill a oedd yn bresennol

Others in Attendance

David Davies MP Is-Ysgrifennydd Gwladol Seneddol Cymru
Parliamentary Under-Secretary of State for Wales
Emma Watkins Dirprwy Gyfarwyddwr Cyllid a Busnes Llywodraeth, Llywodraeth Cymru
Deputy Director, Budget and Government Business, Welsh Government
Hannah Blythyn Y Dirprwy Weinidog Partneriaeth Gymdeithasol
Deputy Minister for Social Partnership
Jo Salway Cyfarwyddwr, Partneriaeth Gymdeithasol a Gwaith Teg, Llywodraeth Cymru
Director, Social Partnership and Fair Work, Welsh Government
Neil Surman Cyfarwyddwr, Partneriaeth Gymdeithasol, Llywodraeth Cymru
Director, Social Parnership, Welsh Government
Rebecca Evans Y Gweinidog Cyllid a Llywodraeth Leol
Minister for Finance and Local Government
Sharon Bounds Llywodraeth Cymru
Welsh Government
Simon Hart MP Ysgrifennydd Gwladol Gymru
Secretary of State for Wales
Sue Hurrell Pennaeth Caffael Gwaith Teg, Llywodraeth Cymru
Head of Fair Work Procurement, Welsh Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Ben Harris Cynghorydd Cyfreithiol
Legal Adviser
Georgina Owen Ail Glerc
Second Clerk
Leanne Hatcher Ail Glerc
Second Clerk
Louis Dawson Ymchwilydd
Researcher
Mike Lewis Dirprwy Glerc
Deputy Clerk
Owain Roberts Clerc
Clerk

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

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

Cyfarfu’r pwyllgor yn y Senedd.

Dechreuodd y cyfarfod am 09:30.

The committee met in the Senedd.

The meeting began at 09:30.

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

Bore da. Croeso cynnes i'r Pwyllgor Cyllid y bore yma. Croeso cynnes i Aelodau, ac mae gennym ni'r Gweinidog Cyllid a Llywodraeth Leol efo ni'r bore yma. [Torri ar draws.] Fe wnawn ni jest 'check-io' bod y translation yn gweithio. Ydy o'n gweithio? Ydy bob dim yn gweithio? Da iawn. Grêt. Felly, bore yma—. Croeso cynnes i bawb, ac mae gennym ni heddiw sesiwn efo'r Gweinidog cyllid bore yma, wedyn sesiwn ar y Social Partnership and Public Procurement (Wales) Bill, ac wedyn ar ôl cinio sesiwn efo Ysgrifennydd Gwladol Cymru a'r Is-Ysgrifennydd. So, mae hynny'n mynd i fod yn agenda llawn. 

Felly, dŷn ni am symud ymlaen. Does gennym ni ddim ymddiheuriadau, a dwi jest angen 'check-io' bod yna ddim datganiadau o fuddiannau i'w nodi. Na. Reit, gwych. 

Good morning and a warm welcome to the Finance Committee this morning. A warm welcome to the Members, and we have the Minister for Finance and Local Government with us this morning. [Interruption.] Yes, we'll just check that the translation is working. Is it working? Yes, thank you. So, this morning—. A warm welcome to everybody, and today we have a session with the finance Minister this morning, and then a session on the Social Partnership and Public Procurement (Wales) Bill, and then after lunch we have a session with the Secretary of State for Wales and the Under-Secretary of State. So, that's going to be a full agenda. 

So, we'll move on now. We don't have any apologies, and I just need to check that there are no declarations of interest. No. Okay, great. 

2. Papurau i’w nodi
2. Papers to note

Felly, symudwn ymlaen i eitem 2. Eitem 2 ydy'r eitem ar y papurau i'w nodi. 

So, we move on to item 2: papers to note. 

The first paper to note that we've got is a letter we've received from the Minister for Finance and Local Government about the budget timetable. I did write back to the Minister last week, so I was just wondering when we'd be likely to receive a response to that, or whether you're able to give us an update. 

Shall we look to do that within the next day or two, because I know the Minister for Rural Affairs and North Wales, and Trefnydd needs to write to the Business Committee? 

Fine. Lovely. It was just a quick letter as to when we'd hear. So, that's fabulous. Thank you very much. And then the second paper to note is a letter from the Legislation, Justice and Constitution Committee, and I propose that we just note that paper, that everybody's seen it. Thank you very much. 

3. Cyllideb Atodol Gyntaf Llywodraeth Cymru 2022-23
3. Welsh Government First Supplementary Budget 2022-23

Ocê, gwych. Felly, fe wnawn ni symud ymlaen i eitem 3. 

Excellent. So, we'll move on now to item 3. 

Thank you for coming, Minister. Would you like to introduce your—? I know we've seen you before, but just for the record, your team there, please. 

I'm Sharon Bounds. I'm the deputy director for financial controls. 

Bore da. I'm Emma Watkins. I'm deputy director for budget and Government business in the Welsh Treasury. 

Diolch yn fawr. Great, okey-doke. I've got a few questions to start off with. So, we're just looking to start off with the economic situation and how it's impacting on affordability of the current budget, and how the Welsh Government is planning to respond to these pressures. Since you published the budget, inflation is far higher and more persistent than anticipated. What assessment have you been making on how the revenue and capital allocations for this financial year can meet your objectives and those of delivery partners? 

Thank you for the question. There's nothing in the supplementary budget that relates specifically to the impact on inflation, because we are still very much early on in this financial year and it will take time, I think, for us to assess what the wider macro-economic trends are going to be and what their impacts will be on us here in Wales. But we've already made the assessment that our budget will be worth £600 million less over this three-year spending period than we understood it to be at the time it was settled. We've been making a strong case to UK Treasury that budgets should be given a general uplift to account for that to help us in meeting our plans. 

We are monitoring the in-year position very carefully. Every portfolio provides a monthly report to me and I meet with my officials to discuss them, and we are starting to see some early potential pressures already being identified in those reports. We'll work with our colleagues across Government to understand those risks and those pressures in greater detail, but at the moment we're not intending to make any changes at this point to our plans. I have to say, though, that if there is any additional funding forthcoming from the UK Government, it's probably going to be unlikely to meet all of the pressures that we are seeing. So, we will have to think about how we deliver our plans. I know that our partners in local government are feeling the same pressure, as will others elsewhere.

09:35

Have you given any thought to what sort of process you'll go through in deciding what to prioritise and what not to prioritise?

We have a robust series of meetings, budget bilaterals, with every colleague. Those are opportunities to talk about those particular pressures and how colleagues will manage those pressures within their main expenditure groups, on the assumption that there won't be further funding coming from local government. I know that areas such as housing, for example, will be feeling particular pressure, so the housing Minister has undertaken to support the housing sector by adapting to the current market pressures, seeking to ensure that the appropriate level of capital grant is there to ensure scheme viability. In the last financial year, £11 million in additional grants and £25 million of interest-free loans were provided to social landlords to help mitigate those costs. Also, in my responsibilities for procurement, we've also issued a policy notice supporting the public sector in Wales in terms of the increased prices and how to deal with inflation, both in terms of entering into new contracts, but also managing existing ones. So, we're trying to provide as much information and advice as we can to partners.

That goes a little way, then, to try and mitigate some of the pressures on the cost-of-living crisis. So, are there any additional things that you think you can do within the budget by reallocating from one department to another, or is it too early to make those sorts of calls yet?

I think it's too early in the financial year to make those particular calls. In the first instance, I think that Ministers would be looking within their own MEGs to explore whether they need to reallocate within the MEG to meet particular priorities and particular programme for government commitments. That will be something that individual Ministers will be looking at, but I'll be exploring it with them in our regular meetings.

What's the timetable for pay negotiations and pay awards across the public sector?

They vary. There are different timescales for each of those, and different Ministers obviously have a responsibility to different cohorts of the public sector. They really do range. We have education, for example, which is slightly different to the others in the sense it goes across two financial years. Local government is obviously negotiated on an England-and-Wales basis, so that's not something that we're actively involved in. Then health has its own pay review body that reports. So, there are a number of different bodies that advise on this.

So, is there any guidance that you're giving your colleagues on limits as to what you can and can't do, or is it up to them to present a case to you?

Whatever we decide has to be affordable within existing budgets, because, as you see in the supplementary budget, there's not a huge amount in the reserve. Obviously, when you do allocate from the reserve to pay, potentially you are building in pressures for forthcoming years as well. So, that will have to be a consideration. We did have a meeting of one of the inter-ministerial groups yesterday, which I attended, and I raised the issue of pay directly with the Chief Secretary to the Treasury. I was making the point that we are seeing very strong pay growth in the private sector—the most recent figures from the Office for National Statistics are 8 per cent, whereas it's 1.5 per cent for the public sector—so, clearly, we're seeing a disparity and a growing gap. It's the biggest gap, actually, that there's ever been between those two groups of people. What we don't want to see is pressure in terms of the workforce retaining workers within the NHS, within social care, within homelessness services and so on. So, that, again, is one of the challenges that is going to be there if you see a real divide between the private and public sector and what jobs can attract.

When it comes to capital, I'm told that construction costs are going to go up by just over 20 per cent. I'm sure that's a figure you recognise. What it means, effectively, is that if a council was going to build 10 houses, now it's going to build eight. So, it doesn't affect the budget, but it affects the outcome.

Yes, I would completely agree with that. I went to visit our first net-zero school in Rhoose just a week or two ago, and I took the Ministers from Northern Ireland and Scotland with me. It was incredibly impressive, but the project manager was very keen to impress upon us that if this school had been built today, it would have cost twice as much. That's the kind of pressure that there is in the system.

I do know that we've got feedback from the sustainable communities for learning delivery partners, again identifying those particular pressures Mike Hedges is talking about in terms of materials. Local authorities and further education institutions will be responsible for the procurement and the delivery of the projects, and, obviously, they are the parties who have the contractual relationships with the construction partners and their supply chains. So, ultimately, those decisions around the cost and material availability will be the responsibility of local authorities and the further education institutions as the contracting parties. But the point is correct, that you either build the same amount over a longer period, or you build fewer within the intended period. That's the reality at the moment, I think.

09:40

Just one connected to that, I know that the twenty-first century schools programme is a big thing for Welsh Government and for local government. Do you see that threatened? Are you starting to hear concerns from local authorities who won't be able to meet their 50 per cent or whatever, which is going to stop these projects moving forward?

I've had broad concerns from local government about capital overall. So, certainly, I think that school building and refurbishment and improvement will be part of that, alongside their other capital concerns. It is one of the first things that leaders at the moment want to raise with me in our discussions. 

Thank you. If we move on to some of the budget adjustments related to the implementation of the new accounting standards for leases—international financial reporting standard 16—most of the changes in the supplementary budget relate to adjustments arising from the implementation of the new accounting standard for leases, the budget implication of which you say is being met by HM Treasury. How have you obtained assurances over the figures for the Welsh Government and its funded bodies?

Yes, you're right that most of the changes within the supplementary budget do relate to this, and I think that that reflects that this supplementary budget does take us back to what we used to envisage supplementary budgets to be before the pandemic. They tend to be quite technical exercises, and, if you want a technical exercise, this is definitely one of them. I might invite Sharon to say a bit about the exercise itself and what it means for us, and then I might come in with some further information.  

Yes, okay. So, this is obviously a new standard—IFRS 16. It's a new lease accounting standard. It sets out the principles for recognising, measuring, presentation and the disclosure of leases. The new standard has actually been adopted by the private sector, so Companies Act companies have been using it for, I think, the last four years. But it's only been adopted by Government now since 1 April 2022. It's actually been delayed for a few years because it is quite complex and, obviously, with COVID, there were higher priorities to deal with within the public sector. So, it's coming from 1 April 2022 and, essentially, it requires the majority of leases, other than those for low-value items or those that are less than one year, to be treated more comparably like capital assets. So, at the moment we find, with some leases, you'll get into a leasing arrangement and what will go through the budget is just the annual lease payment, and that will be part of your revenue expenditure. Under IFRS 16, most leases now will have a capital element to them. So, the value of the lease will now show on the balance sheet. As far as Government expenditure is concerned, that means that there needs to be a capital budget hit when that happens, similar to what we do with purchased capital assets. And then, annually, there will be a depreciation element of that, and there will also be a small interest charge, just kind of reflecting the fact that leasing, to all intents and purposes, is a form of borrowing—that's the arrangement that you've entered into. 

In terms of how we gained assurance, when the spending review settlements came through end of last year, the Treasury hadn't taken account of IFRS 16 at all in the settlement. So, just before Christmas, the Treasury issued a commission out to all UK departments and devolved Governments asking for the information that was required in order to reclassify the budgets to reflect IFRS 16. So, within Welsh Government, we consulted all of our departments, our arm's-length bodies, directly funded bodies as well—it was quite a comprehensive exercise that was undertaken—asking for information on, as I say, existing leases, what was in the plans and what would the effects of IFRS 16 be on those plans. We had a technical working group working alongside that—so, finance professionals, who understood what the standard was, liaising with technical expertise within the Treasury as well. So, all of that was checked, and it was quite an iterative process, but quite a lot of checking throughout that process. We obviously looked at the areas where there was the greatest risk, so, essentially—and you'll see that in the adjustments in the supplementary budget—it's in the health service, it's in the climate change portfolio because of transport, essentially, the rolling stock leasing of trains, and then the property portfolio within economy.

Before the information went to the Treasury, the finance director of the Welsh Government signed off on that as well. So, there was a lot of assurance and checks and balances that went in throughout that process. When it went in to the Treasury, they also undertook some analytical review, which raised a few queries, and we were able to resolve those. And, essentially, then it got to the stage where the Treasury were comfortable with what we had provided and agreed the changes that would then be shown and reflected in the main estimates, and what we are now showing in this supplementary budget. They have said that, as this is the first year and it's still a relatively new concept that we're all still getting used to, it will be revisited in the supplementary estimates from a UK Government perspective, so we could very well see some changes, but it will give us a chance to review what has actually happened, are those numbers correct, and have an opportunity to revise that.

09:45

So, other than the technicalities of it, what are the main challenges when setting the budget and allocating, and would people out there realise that there was a problem, or is it just a paper exercise?

I think the important point is there's no change at all to our spending power. So, despite all of the technical exercise that has been undertaken, there's no material change to what we have available to us to spend.

As a quick comment, I think it's a really good idea moving that forward, people will be using leasing as a means of spending capital money without it counting as capital. And that was a means of gaming the system, and I'm very pleased that they've found their way around it.

Moving on to Ukraine, I've got one question in three parts. How much money have you had from the UK Government to support Homes for Ukraine? You've allocated £20 million in your supplementary budget to support the response to the crisis in Ukraine. Will that be enough, and do you know how it's being spent? And the third one is that, as of today, we know that a substantial sum of money is being taken off the Welsh Government to support weapons for Ukraine. How is that going to affect this supplementary budget?

Thank you. So, lots to get into on that one. The first thing to say is, in respect of the fact that local authorities will be receiving funding from the UK Government at a rate of £10,500 per individual who arrives on or before 31 March of next year, and also there's the £350 payment to those households who are hosting them, for the maximum of 12 months, up to 31 March of next year—there's no further commitment beyond that date—those payments will be channelled through the Welsh Government and passed over to us in the supplementary estimates. So, you won't see anything in our supplementary budget to that effect, but we do have an agreement with the UK Government that that will take place. You'll see it reflected in our second supplementary budget, which we would publish in February of next year. Local government will then claim from the Welsh Government for the Ukrainian people who are being supported through the scheme within their local authority area, and our officials are currently working with officers in local government to ensure that we have appropriate data so that the funding gets to those authorities properly.

Also, there is funding available within the education sector from the UK Government. That's to support young people entering the education system. But this has only been for one year of the three years for which people have the ability to stay here in the UK. So, this is something that we're pressing the UK Government on particularly, to confirm funding for years 2 and 3. Our concern is that they won't do that because I think that their view is that people arriving from Ukraine to the UK will become integrated into the welfare system, into the education system and that, potentially, they won't need support from years 2 or 3, but we're continuing to challenge that because there is a risk that local authorities will incur unfunded costs from next year.

We are putting together a package for people arriving from Ukraine that goes very much above and beyond that which is available across the border, and we're funding that from our own resources. So, this comes from the £20 million that Mike Hedges referred to and which is in the supplementary budget. That includes our welcome centres, it includes the free transport for people arriving from Ukraine, and it also includes the welcome hubs we have in places where we know people are likely to arrive in Wales. So, none of that is receiving funding, but we want to do it because we think it's the right thing to do, and also because if we support people quite intensively when they arrive, we hope that their placements with host families or with their own family members will be successful ones. We know that if we don't put that kind of effort in at the start, there's a real risk of breakdown and of people potentially entering the homelessness system, which is absolutely not what we want to see. So, as Mike Hedges says, £20 million has been allocated at the moment. Is it enough? Well, there is potential, I think, that further funding will be required later on and, if that is the case, you'll see it in the second supplementary budget. It does depend very much on how many people arrive, how long they stay in the welcome centres, and so on, but we're monitoring that really closely and working very closely with local government.

And the third issue was in relation to the funding that the UK Government has announced for supporting weapons for Ukraine. So, you'll have seen the news today that the UK Government has announced £1 billion of military support for Ukraine. The background to this is that I had a call from the Chief Secretary to the Treasury a week ago saying that the UK Government was looking to all Whitehall departments to return 1.5 per cent of their capital budgets to fund this particular intervention. And the choice at that time was to either provide an upfront contribution from Wales, which would be around the same order of funding, or to wait until later on in the year and have that reduced as a negative consequential. So, given the extraordinary situation in Ukraine, we accepted that at this time and took the decision to provide the funding at this point in the financial year, because it does give us that financial certainty and we're not waiting for the end of the year to find out exactly how much is coming off. So, that's why we took this decision. We want to support Ukraine, clearly, but we obviously don't want this to be a precedent as to how the UK Government seeks to fund matters that are clearly in the reserved space and which, I think it's fair to say, the UK Government could have found £1 billion for from other resources, if it had wished to do so.

09:50

The consultation, such as it was, was the call with the CST where he set out what the options are, and then we had a couple of days to consider those options before responding to the Treasury.

So, there was a 'now' or 'later', but not other means of doing it or of being able to give counter-proposals or anything like that.

That was the choice essentially: provide the funding upfront and know how much it is and then plan for that, or take the negative Barnett consequential later in the year. We did make a pragmatic suggestion, however, to have an additional £30 million capital borrowing available to us in this financial year. So, we're waiting for a response from the Treasury on that. You'll have seen the Prime Minister's press statement, which says that the funding from the UK Government departments has been met from underspends. But we're not envisaging those underspends because we've taken action within our capital budget to avoid that by overprogramming by £100 million. So, it was our intention fully to spend all of the funding available to us, and we planned on that basis, so we are asking the UK Government to take a pragmatic approach in terms of our borrowing for this year.

09:55

I thought with capital you can drift it into the following year, so you can slip schemes; some will naturally slip and some will—. You can artificially slip, and most people running these schemes do that, so I think that, with good management, people ought to be able to get around that.

The next one I've got is on the city and growth deals. Now, I'm speaking as somebody who's been an enthusiastic supporter of these for very many years. How is that £20 million going to be affected by inflation, especially as some of it, I'm sure, is going to be used for capital expenditure? How is inflation going to affect its ability to do what the four areas—the two growth deals and the two city deals—actually want to do, which has unanimous support across the local authorities in the areas?

I think that that, essentially, would be a question for the regions themselves in terms of their own response to the pressures they're facing, but the pressures that the city deals will be facing will be exactly those that we've talked about that the Welsh Government is facing, that local authorities are facing, in terms of their schools programme and so on, so they will be looking at their programmes and making choices within that as well, both in terms of what they decide to support but then the period over which they do it. But perhaps that's something to explore in detail with the regions.

The final question from me is about free school meals, and I'm speaking again as somebody who has enthusiastically supported it for very many years, when I was a lone voice on it at the beginning, but others have joined in. It's not simple—I think that's the point I'm trying to make. I've got schools in my constituency—and I'll name one, Blaenymaes—who could expand to doing 100 per cent of all primary pupils tomorrow because they've got it up to 80 per cent and they've got the capacity to do it. I've got other schools that have a much lower take-up of school meals, who have got smaller kitchens. So, I understand that some people are saying that some authorities can do it and some can't. My understanding, if Swansea is like everywhere else, is that some schools can do it and some can't, and there's money in the capital programme—. Has your colleague the Minister for education actually come to you saying, 'I've talked to the local authorities and these schools are the ones who need expanded kitchens, these schools need expanded dining halls, these schools we can work with if lunch spreads over a longer period of time so we can actually add a second or third sitting', and how much each of those is going to be costed at? As far as I understand it—and you can tell me if I'm wrong—it's going to be on a school-by-school basis, not an authority-by-authority basis, because some schools have got small halls and lots of pupils; other schools have got big halls, big kitchens, and fewer pupils than they were built for.

The education Minister is, or through his officials, certainly, liaising with all local authorities to look at things on that school-by-school basis to understand what the needs are in terms of being able to have that physical capacity to deliver on the commitment. We have provided £25 million in the first instance to support adaptations to schools to ensure that the facilities are there to provide those meals. I haven't had a request for further funding, and I'm sure that they're seeking to explore how they work through that £25 million in the first instance, and that's part of the overall £225 million, actually, which we're committed to over the period of the co-operation agreement to deliver the commitment. We're very aware of that particular issue in terms of the capacity of schools physically to deliver this, which is why we're trying to take a pragmatic view as well, in terms of allowing schools to look at other ways to provide food in the first instance while we start to make sure that that physical investment is made. But it's very much high on the agenda and something that officials are working closely with local government on.

With your local government hat on, are some local councils struggling more than others, or is that just the nature of it, as Mike was saying, that it's more school by school across the country?

10:00

I think it is school by school, but some authorities will have more of those schools that will be finding it more difficult than others. So, it's probably both, really. School by school is going to be challenging for some, but then some authorities will have more challenge altogether.

Right, okay. Just on school meals; a bit of a theme yesterday. Have you decided on what unit cost you're going to fund school meals? Because I know there's a range of those; there are upper levels and higher levels. What consideration will that thinking have to the inflationary cost of food moving forward? So, might you have to bring a supplementary forward or factor in a supplementary to cover additional food costs as that perhaps rolls out? Because I would have thought the Government is probably wanting to move away from the old regime of buying food on mainly price, and then a little bit on quality, and trying to balance that so there's more quality and less on price. So, I just wondered if there was any indication of where we're looking to put the unit cost of food.

From a procurement perspective, there's definitely a move to exploring how we can do better in terms of sourcing more locally and supporting the local economy in terms of the purchasing of food for schools. But on the actual unit cost, I'll ask the education Minister to write to the committee, because that's something that he would be dealing with, more so than myself.

Thanks for that. I know it's something the cross-party working group were quite anxious to understand as well, because it's a fundamental part of the roll-out and the procurement, for local authorities to work their procurement out and things.

Yes, I think you're right in that element of local procurement. You, having spoken to farmers, and meat farmers in particular, are keen to support that.

Thanks, Chair. Minister, I'm just going to move to the NHS and to look at some of the moneys we put in place to aid recovery. I'm conscious that some of these questions ought to be asked with yourself alongside the Minister, because there are clearly very many health management issues within it. So, in the response to the committee report on the draft budget for 2022-23, it suggested workforce capacity and planning remains a key focus for NHS Wales, and a report by Audit Wales, published in May, suggested that the

'workforce is tired, stretched thinly and under pressure',

and identified this as one of the serious barriers to restricting planned care services. I just wondered how is your investment in the NHS recovery addressing these workforce issues.

Thank you for that question and if I don't give the level of detail that the committee's after, I'll ask the health Minister to provide that, because she's very much in the lead in terms of workforce pressures. I do know that the Audit Wales report you referred to was actually very positive in terms of the approaches that we used during the pandemic, and said that we have to build on those in future years, but I also recognise everything that's been said about the very stretched workforce—understandably, after the last couple of years that they've had.

The workforce plan that the Minister is leading on is multifaceted. It's about having record investment in training and recruitment, and trying to retain people within the NHS as well, but also reflecting that we have to be using technology in a much smarter way as well. So, there's a strand of the work, I know, that relates to digital and technology within the NHS. But perhaps I'll ask the health Minister to write to you more widely on this issue.

Thank you for that. Audit Wales also found that NHS bodies struggled to spend all the additional money that you passed on for 2021-22 for planned care services. How are you addressing that with the additional funding for 2022-23? Because we can't just keep pushing money if they can't use it.

Yes, we did provide an additional £250 million for planned care within the last financial year, and that was intended to start addressing the backlogs and so on. What we didn't know at that time was that omicron was going to come along and throw a spanner in the works quite significantly, again taking us a step back, I think, in terms of our path through the pandemic. So, it was very much omicron that prevented the spend of all of that funding.

We do have significant funding available to the NHS now in respect of planned care. Clearing the backlog is clearly a major priority for the health Minister and something that I know she monitors very closely through the work that she and her officials do with the health boards.

10:05

The money's an underspend. I'm assuming—I should know this—they've retained that money; you haven't had to claw it back and then moderate the 2022-23 budget as a result. Because, obviously, if they hadn't spent what money they'd got, you're not going to give them more in your next settlement to not spend.

The second supplementary budget that we published shows the movement of money across Government. So, in areas where there might be an underspend, we would look to redeploy that elsewhere.

Ah, right. Okay. So, it would have been clawed back. Would it have been clawed back, or not, then—anything they didn't spend?

Oh, I see. It's not given to them. You held it and just didn't allocate it to them and moved it between departments, then.

It's all moved within—. The money's allocated to the health service, to the health main expenditure group, and then—

—they allocate it out to the NHS, and then it's up to the health Minister to decide what she does with that. It doesn't necessarily come back in that way.

So, it wouldn't necessarily have gone to the health boards, it would have been held back, and then as and when it's needed, it's allocated in the budget, but then the money—. They wouldn't have funding that would be, then, clawed back from their—. Would they have been keeping a reserve, or not? It's probably more of a technical—.

The health budget reflects the actual expenditure of all of the health boards. So, whatever they have spent is what you will see as the outturn within the overall MEG. So, they don't hold on to it. The underspend is the underspend of the Welsh Government.

So, that, then, all comes back. It's part of the overall outturn position, and then carry forward is part of the overall flexibilities.

It's not like local authorities where you've given it to them and then want it back. You didn't give it to them in the first place.

Absolutely, yes. Because health boards are part of central Government, that's the reflection in the budget. Local authorities, obviously local government, so it is a different budgetary—

That's helpful. They draw it down whey they need it, and if they don't need it, you keep it.

Absolutely. Thanks for that. If I move on, the NHS waiting lists for April showed that over 700,000 patient pathways were waiting to start treatment. I wondered what impact will the funding allocated for 2022-23 have on reducing waiting times, and do you anticipate providing further in-year funding? I'm conscious that the health Minister might have a perspective on that one as well.

I'm sure she does. We'll ask the health Minister to write to you on that particular point, but I think that she will probably point to the planned care recovery plan that was published in April, and that sets out the actions that will be taken within this space. But from a financial perspective, we've provided a recurrent £170 million additional support to help with the delivery of that particular plan. So, what you would hope to see would be the reduction in the overall number of open pathways, people getting to have their first appointment more quickly and so on—things that we would be expecting, through the health Minister, to be witnessing as a result of that additional investment.

How do you reassure yourself that you're getting value for money from the health service when you pass money on? What are you looking to measure?

So, health boards have detailed transformational plans related to the addressing of the backlogs, and that's part of their integrated medium-term plans that they present to the health Minister. Those IMTPs are scrutinised by officials, and then the health Minister, as I understand it, is in a position to agree those IMTPs or not, depending on whether or not they're expected to achieve the outcomes. And then there is ongoing work, through health officials, to ensure that those deliverables are being met.

10:10

Yes. So, you take a lot of your reassurance from what the health Minister tells you, really. I can understand that. Yes. Thanks for that.

Just a last one from me, Chair. The Welsh Government press release on the NHS waiting time statistics for April said that it was working with all stakeholders through national programmes to support improvement in NHS waiting times. Can you expand on that a little?

I will do my best. So, as I understand it, that related to the six goals for urgent and emergency care programme. The majority of the £25 million that we have provided towards that has been allocated to health boards to build capacity in terms of the urgent care pathway same-day emergency services to enable older people and frail people and those with specific complaints to be assessed, diagnosed and treated and then returned home to sleep in their own beds that night, and also the remote flow hubs, which are intended to book patients into the right service the first time via a telephone assessment, rather than going around different places, being moved on to the next professional and so on. So, there are some specific things that the funding is intended to achieve. As part of that, it's already seen the roll-out of the 111 Wales service, significant improvements to the 111 Wales online platform. We've got the new 111 mental health pathway. So, there have been some new things that have been delivered quite quickly as a result of the additional funding.

Thank you very much. I'm going to move to a line of questioning around the impact of funding for Wales within the civil service. But more widely to that, before I do go into that line of questioning, you've sort of briefly touched, Minister, upon the inflationary rises. I'm not sure if we mentioned the energy price cap and how that's going to also impact on that. And in particular, what I'm interested in, Chair, if I can get to the point, is that statement that you made about the pressures between public sector salary and private sector salary, that gap in how we retain our workforce. So, I don't know if you've got anything that you can add to that in terms of what we're talking about today as to how we're going to cope and absorb that, because, obviously, the Scottish Government is having similar issues and has made a statement around that. So, I'm not sure if there's a comment that you've got around that, in terms of how we approach that particular issue, before I go into my line of questioning. 

People sometimes say, 'What keeps you up at night?' and it is public sector pay, because it is so significant. Half of our Welsh Government budget is related to pay within the public sector and a 1 per cent movement equates to around an increase of £100 million, so we're talking significant sums of money. It's a concern that the Chief Secretary to the Treasury said over the weekend in some articles that were published in the newspapers that he doesn't see any scope for additional funding to be provided to meet pay pressures. So, he's been very clear—as he has been, I have to say, when I've spoken to him about it twice in the last month—that departments and devolved Governments are going to have to live within their means. He has said to UK departments that he would be expecting them to be thinking at the most in the region of 3 per cent, and anything else has to be absorbed within their own budgets as well. So, he's made that very clear, but we were stressing the point that additional funding is required to show the kind of level of respect to the public sector workforce, which has worked so hard in recent years. So, we're continuing to press UK Treasury on that; they do seem very fixed that there's not going to be movement, but we still try.

Okay. I'm sure that that's something we can return to, Chair, at a different time.

Sorry, if I may, on that point. There's flexibility there on—. Not flexibility, there's rigidity there in saying, 'There's no money coming here', but quite happy to take money from here to there. So, I just wanted to make that point, and, obviously, a point that you made earlier is that it was either the money for Ukraine—which is something that I support, that's fine, it's just the principle of that dialogue and being able to—. Well, it's one rule for one and another rule for another. So, it's just making that point, really.

10:15

Thank you. In May, the Prime Minister announced the plans to cut 91,000 civil service jobs. How will this decision affect the Barnett consequentials in particular, referring back to public sector employment in Wales?

So, UK Government, as you say, has said that it will cut 91,000 jobs. We didn't grow our civil service here in Wales to the same extent as they have done in England or Scotland, and they did so as a response to Brexit and then the pandemic. So, we don't have that greatly enlarged workforce, as compared to a few years ago. But, actually, 80 per cent of civil servants in Wales are employed by UK Government departments—so, the Driver and Vehicle Licensing Agency, of course, the Department for Work and Pensions, HM Revenue and Customs—so what we would not want to see is for the UK Government to be looking to cut large numbers of jobs in Wales. You know, these aren't Welsh Government jobs, but, nonetheless, we wouldn't want to see jobs in Wales being lost as a result of choices that the UK Government has made. So, it is a worry for us. We don't have clarity yet on what that might mean for our own budget. Clearly, we wouldn't expect to be penalised because of choices UK Government makes, but history has taught us to be wary of that. I'll check with Emma if there's been any recent dialogue on this.

No, and I understand from the Permanent Secretary that, although he's in a regular conversation with his counterparts on it, we haven't heard anything further about the impacts on us or the broader efficiency review being undertaken by the UK Government. So, there remains a level of uncertainty there.

And just to follow through with that, then, in terms of the level and ratio of jobs in this area, or these areas, across Wales, from the UK Government, have they indicated when this will occur in terms of the report that you talked of, or the review that you talked of?

Not to the best of my knowledge, no.

Two very quick questions. At what stage does 'no detriment' come in? And the second point is, in the 1960s, the levelling-up policy was about moving Government civil servants out of London to here, and we've got the DVLA in Swansea, you've got the Royal Mint in Llantrisant, which were all moved from London, which brought relatively well-paid jobs to relatively poorer areas. The point I'm making is: is there any intention to move further civil servant jobs out of central London, where recruitment is difficult, salaries are massively competitive, to Wales, where civil service pay is relatively high compared to local pay and where buildings are cheaper and where commuting is easier and where turnover of staff is much lower?

I haven't had any direct discussions with the UK Government on that. I know I've read about proposals in respect of Ministry of Justice jobs potentially being moved out of London, but that's just what I would have read in newspapers.

I obviously wouldn't want to speak on behalf of the UK Government, but they have, in the last couple of years, expanded the number of civil servants out in the regions and nations of Wales through—. There are now a number of Department for International Trade civil servants located here in Wales. There's the hub in the centre of Cardiff. There's also a series of posts associated with the levelling-up agenda that are here in Wales as well, and there's been quite a big recruitment drive with that. And obviously, the UK Government have had plans to move Treasury jobs out to Darlington, for example. So, that is something that they're undertaking, but, clearly, that's their decision.

Well, under the Treasury rules, under devolution and the devolution settlement, for decisions made at Westminster that have an effect on Wales over which we have no control and there is no equivalence, then there's a 'no detriment' in there. It came from the Scottish devolution settlement, where 'no detriment' came in first.

We'd have to consider that in terms of where our—. So, it should be no detriment, but then to what extent do we have devolved responsibilities in this area, because we're talking about non-devolved roles. So, I think that we'd have to explore that further.

Of course, yes. And just to finish that point, really, of the 91,000 jobs that the UK Government is looking to cut, a proportionate share of that for Wales would be 6,000 jobs. That's an awful lot of jobs.

10:20

Is that a proportion of the total civil servants employed in Wales or Wales's population—

—percentage, because we're over civil servanted now, compared to England?

Yes, that's a good point. So, that would be approximately the Barnett share, really, isn't it?

Because we've actually got more than the Barnett share of civil service jobs.

Yes. So, it is likely that we will be—. I mean, we don't know yet what will happen, but it's obviously a cause for concern.

It's just really in terms of following through in this theme. In May, you mentioned the Scottish Government's—or I mentioned the Scottish Government's—reset in terms of their thinking in terms of public sector jobs in Scotland and returning to the number of public sector workers to pre-pandemic levels. So, it's really Mike's question, really, which you've almost answered, in regard to our plans in synergy around that. Are we looking to reduce the cost of Government in Wales? And obviously, equally, the context that we're now in, which is, after COVID, we were not expecting further external events, and they keep on coming at us, don't they? So, are we looking to reduce the cost of Government—and I take on board Mike's point—given those pressures on public finances?

So, we have the annual civil servant employment survey, and that shows that, in Scotland, since 2016, they increased their civil servant headcount by 45 per cent, and, during the same period, ours only grew by 5 per cent, and it grew significantly in England. So, we are in a very different position. What the Permanent Secretary is doing at the moment is an exercise called Welsh Government 2025, and that's really about ensuring that we have people with the right skills, working in the right parts of the Government. So, looking across our programme for government, our priorities, are we putting the human resource into the right areas in the right way and so on? So, that's a piece of work that I'm sure he'd be happy to share some information about.

I think that would be very useful, thank you. And then, finally, the Welsh Government and the Senedd are seeking an unprecedented amount of legislative consent memorandums on UK Bills that need to be scrutinised to short deadlines. Are you confident that we have sufficient legal capacity for this flow of LCMs and the current legislative programme, which is extremely heavy?

I would say 'yes', but it's very challenging. We are constantly exploring the legislative programme. I think the First Minister's got his legislative programme update in the next couple of weeks, as we move towards the end of term, setting out our programme for the next year. But it is an area, I think, of real challenge in terms of being able to service all of the LCMs that are coming through, but then also our own ambitions in terms of legislation as well, so—

So, in that regard, in terms of, in particular, around legal expertise, one of my concerns for quite a long time now, especially around the Brexit issues and the movement, the virement, of personnel into different areas, is that we don't have that level of capacity within the building. So, what you're saying is that it is just challenging and you're still looking at that.

It's challenging, because we always want to do more, and so there's always more that we would want to do in the legislative space, but we do have a really ambitious programme in terms of our legislative programme, but, as I say, it is one of the challenging areas.

Diolch yn fawr. On that point, a challenging legislative programme needs the capacity of people to do it. Is there a challenge, then, on recruitment and the knock-on effect of making sure that enough people are trained in our universities to be able to come through and—you know, the knock-on effect down the line, so the investment in higher education and education to get to that point as quickly as we can? I don't know if there's anything in the budgeting process that you can help with, with the education Minister, in developing that competence and that level of training, and potentially not necessarily just degree-level training, but the apprenticeships and that element.

10:25

I think it might be something that Mick Antoniw would be in a very good position to give a view on, given his relationship with the legal sector. It's probably partly about trying to make sure that working within Government law is an attractive field of law for people to come into and so on. So, I think there are probably a range of challenges, but I think it would certainly be a fascinating area for any lawyer to be working in.

Very briefly, last year, you brought three supplementary budgets. Is it your intention to return to the norm of producing a first and second supplementary budget, or may we expect a third in between?

We all hope that there won't be any more surprises coming down the line, so the plan is to now be returning to the more traditional two supplementary budgets. As you see with this one, the main thing that we've talked about today has been the classification of leases, because the other items are just general transfers between MEGs. So, this is a much more traditional supplementary budget, and long may it last, Chair.

Obviously, we'll look forward to having your responses to the letter and the suggestions that we made, and with the letter going from the Trefnydd to the Business Committee. We're just keen to work with you to have as in-depth scrutiny as possible. We're always keen to have you here to talk to you and to understand your thought processes around budgeting and obviously how we make these sessions as productive as possible. As always, it's been fascinating. So, thank you so much for coming along. 

4. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o eitemau 5, 7, 9 a’r cyfarfod ar 7 Gorffennaf 2022
4. Motion under Standing Order 17.42(ix) to resolve to exclude the public from items 5, 7, 9 and the meeting on 7 July 2022

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o eitemau 5, 7 a 9, a'r cyfarfod ar 7 Gorffennaf, yn unol â Rheol Sefydlog 17.42(ix).

Motion:

that the committee resolves to exclude the public from items 5, 7 and 9, and the meeting on 7 July, in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

Yn unol â Rheol Sefydlog 17.42, dwi'n cynnig bod y pwyllgor rŵan yn gwahardd y cyhoedd o eitem 5, eitem 7 ac eitem 9, ac o'r cyfarfod ar 7 Gorffennaf. Ydy pawb yn fodlon? Grêt. Diolch yn fawr. Felly, awn ni i mewn i breifat.

In accordance with Standing Order 17.42, I propose that the committee resolves to exclude the public from items 5, 7 and 9, and from the meeting on 7 July. Are all Members content? Yes. Great. Thank you very much. So, we'll go into private session.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:27.

Motion agreed.

The public part of the meeting ended at 10:27.

11:00

Ailymgynullodd y pwyllgor yn gyhoeddus am 11:00.

The committee reconvened in public at 11:00.

6. Bil Partneriaeth Gymdeithasol a Chaffael Cyhoeddus (Cymru): Sesiwn dystiolaeth
6. Social Partnership and Public Procurement (Wales) Bill: Evidence session

Helo, croeso'n ôl i bawb i'r ail sesiwn yma efo'r Dirprwy Weinidog Hannah Blythyn a'i thîm. Ydy hi'n bosib ichi ddweud, ar gyfer y record, pwy sydd yma?

Hello, and welcome back to you all to the second session here with the Deputy Minister Hannah Blythyn and her team. Could you, please, for the record, say who is in attendance?

Welcome, Hannah, and the team. Could you introduce yourselves?

It's nice to see you again, in a different committee today. I'm very pleased to be here. I've got, to my right, Jo Salway, who's the director for fair work and social partnership—hopefully I've got that the right way round—on my left I've got Neil Surman, who's deputy director for social partnership, and next to Neil is Sue Hurrell, who is head of fair work procurement. I got it right this time.

Fantastic. Thank you very much. Welcome to the Finance Committee. We're looking at the Social Partnership and Public Procurement (Wales) Bill. We're concentrating more on the regulatory impact assessment and the finance element. I'd like to kick off. The RIA notes that the public sector would incur a cost of £20.8 million over the five-year appraisal period as a result of the Bill. Can you clarify whether you will be providing additional funding to support public bodies to meet these additional costs, or would you expect these costs to be absorbed from existing budgets? 

The Bill itself sets out a framework to set examples of good practice in social partnership working, fair work and socially responsible procurement outcomes that we are aiming to encourage through compliance as opposed to subsidies. We expect that many of the social partners and bodies who'll be covered by this will already be doing many of the actions associated with the Bill. So, at this point, we don't believe any additional financial support will be needed, and we expect the majority of them will be able to meet the cost. However, if public bodies, specific bodies, do have concerns, then we would encourage them to speak in the first instance to their Welsh Government-sponsored body. But we'll continue to work as we develop the statutory guidance in partnership, as we have done to this point, and be able to pick up any concerns along the way to make sure that we can address them and see what support and guidance can be in place. I think the annual reporting process that the legislation sets out will be a really helpful vehicle for sharing good practice and opportunities for public bodies to work together, so not just to address, perhaps, some of those cost concerns, but actually to improve outcomes as well. I don't know whether anybody else wants to come in. No.

Based on that, some of the evidence that the other committee has heard is to do with the auditory burden and the potential impact on Audit Wales. Obviously, as a directly funded body, we look at that budget and how costs might be incurred in that burden. Have you given any thought particularly to the smaller bodies that might have an extra element of auditing that might have a knock-on effect on the fees that they pay to Audit Wales? Obviously, then it has a knock-on effect on the block grant and that element.

Audit Wales, obviously, were one of the stakeholders who responded to our consultation last year. That was not a concern that I think the auditor general raised specifically. They did make a call for us to, as far as possible, align the various reporting arrangements proposed in this Bill with other existing reporting and accountability frameworks, which is very much our intention anyway.

The other element of potential cost—this may be a later question you'll have an interest in—is the future generations commissioner as well, and we've had questions about whether this Bill would impact on the functions of the commissioner, and therefore the cost to the commissioner's office. We don't believe it will, because it doesn't alter the functions of the commissioner at all. So far as Audit Wales is concerned, of course we're more than happy to continue conversations with them, but their consultation response didn't suggest that they saw any significant increase in resource required arising from this provision.

11:05

It was just the element of—. Because, obviously, we look at those budgets as well, and we're talking to them on fee structures and that sort of thing, so it will have some sort of bearing there. So, it's just to understand it further. 

I think, to add to that, the work that you're doing will be generally helpful and of assistance to us as we develop the guidance around the legislation to make sure, if there are any of those concerns, that we can take them into account, and perhaps address them ahead of that, and make sure that's built into the guidance and support that we provide.

If I just might say one thing about the procurement duties, they are designed with a kind of ramping up of activity depending on how big an organisation is, and how much larger procurement they do. So, if there's a small body that, in the course of a year, didn't do any larger procurement, they wouldn't be obliged in that year to produce an annual report. As Neil just said, we've made commitments to ensure that. All the bodies that have to comply with the well-being Act have to report, and we've made it clear that we want that reporting to be completely streamlined as regards procurement. There wouldn't be any additional work for bodies that are already doing that. So, those two things hopefully should keep the cost to a minimum for smaller bodies that aren't doing so much major procurement.

Okay. Fine. And with regard to the guidance that goes—. Forgive me; I'm fairly new to this as well. But with regard to guidance, would guidance then be flexed, and would it be in your purview then to be able to change guidance as that goes on?

So, that doesn't go to any committee or anything, or a vote or anything like that. That's guidance from Government on how—

And also, there'll be an ongoing evaluation process as the legislation is implemented, which will allow us to learn and to improve.

And to fine tune that. Thank you. You mentioned that the private sector would bear the £6.5 million of additional costs for the construction management. Do you feel that such costs would exclude Welsh small and medium-sized businesses from participating in public procurement, and how could this be mitigated?

I think the key point here—and I think Sue might have alluded to it in a previous answer—is around making sure we build in proportionality to make sure the clauses and the guidance can be applied proportionately through supply chains where outcomes are sustainable. In the contract management clause, those categories include things around prompt payment, compliance on employment rights, sustainability, training for workers, and we wouldn't expect bidders to be surprised by that, because they're the sort of things that are in line with existing expectations. I think one thing that we will do too is, alongside the statutory guidance we've touched on, make sure that support is available specifically for SMEs who might wish to subcontract for major construction projects. We can do that via those kinds of networks and organisations that are already in place, such as Business Wales, and do things like events to meet the buyer, to make sure they are fully inclusive and have reached out. 

If you don't mind me adding, one of the problems that businesses face is that, when there is poor contract management, there's a lot of uncertainty, and when you're bidding for a piece of work and you're not confident that that public body or organisation is really going to enforce those, then there's a lot of extra cost built in through managing the risk associated with that. I think there's some evidence to show that, where there's more certainty through a procurement process that things are actually going to be picked up on and managed properly, that can give confidence and will allow all businesses more confidence to participate. So, that's an offsetting potential benefit. 

Obviously, managing something requires the data to be collected so that you can actually make those proper decisions as to how you treat the guidance, and how you do that. So, is there an element there, then, of making sure for local procurement—? We talked in a different committee about the address or the locality of the businesses, and that element, and bringing that data forward to be able to be analysed, and then potentially to be able to have targets set in guidance to try and move that forward.

11:10

Yes, you're right. In a previous committee we did talk about the challenges as things exist at the moment, because we've not legislated on procurement in Wales previously, and all of the reviews have said that we do need to do this to actually get consistency and to improve outcomes. And I think the challenge we've got is that we don't have that much data at the moment, and so what this legislation and the process of putting it in place will allow us to do is to get the information that we do need in order to build those better outcomes and do the things that you're referring to.

Okay. Thank you very much. I'd like to just move on to—. Sorry, Rhianon. I'm sorry, yes. 

Thank you. Very briefly, in regard to the comments that you made at the beginning, Minister, you've talked about the potential of this being a driver for public bodies to actually work together and come together, discussing costs, and you mentioned other outcomes, and we've mentioned social procurement and local procurement, but what other outputs and outcomes would that engender in your mind? Obviously, we're talking to finance here today, but in that regard, what other outcomes would you expect?

So, the outcomes are all linked to well-being, the well-being goals. So, there will be a big focus on environmental protection and enhancement across the—

Yes, exactly, and local economic benefits, as we just discussed. And also a better handle on fair work through supply chains and employment, et cetera. Those are some of the things that we will be able to address through this.

Thanks. You mentioned that any costs incurred in the private sector arising from the increased expectation of delivering socially responsible public procurement outcomes are difficult to estimate. Have you attempted to model the possible scenarios you provide in the RIA, such as wider use of sustainably sourced materials and staff receiving more training and better terms and conditions of employment, to determine potential costs? And how significant do you think these costs could be for the private sector?

So, I think the first thing to be clear on is that the Bill covers a huge range of different types of public bodies buying across a wide range of markets and spread across all of the well-being goals. So, I think even in those areas that you mentioned in your question, it's very broad, so it goes back to not having that information, that data, to measure the baselines at present. I'm going to ask Sue to come in with a bit more detail, if that's okay. Sue. 

Yes. I think one of the problems is that there is very little detail available to us at the moment. In a sense, you can take one particular procurement and you can model cost-benefits around a particular important thing in that contract. It might be about decarbonisation, for example. And you can do that modelling. What's very difficult to do is to work out where people are on the spectrum of practices in those—just on that matter of reducing carbon, for example, across the board. So, modelling is possible in individual cases and it might be possible to take one category and look at it across the board once we start to have some data, but we just don't have that information available to us at the moment. And it's not just in Wales. The Scottish Government have had a duty on sustainable procurement for a number of years, and when you look at the Scottish Government's summary report of procurement outcomes, there's very little that actually reports on the outcomes in the figures and the numbers. A lot of it is still very input focused: the number or proportion of bodies that are including particular questions, or covering community benefits. So, I think we've got an opportunity to address that through the collection of really good data, but we aren't there at the moment.

And then building into it a constant review and continual improvement-type of development of the guidance and that sort of thing, alongside the Bill.

With regard to some of those aspects as well, I think in section 24(1) of the Bill, it talks about a local area, or the area. We're talking about local procurement, but what views are there on things like our global footprint and carbon and that element?

We're starting to have some more detailed discussions in this area at the moment. I believe that the way the legislation is drafted, we have to link things to local areas. That's what we can do in Wales. But, within that, and it's already the case in the well-being Act as well, that in so doing, we can make sure that we have a positive impact on our activities, on global issues. There's an awful lot we can do to look at some of these things. So, we're just beginning to explore some of those options.

It is particularly tricky in procurement, if you start thinking about how you can, for example, address fair work practices across the world, or environmental matters, because global supply chains are huge and complex, and someone in a public body in Wales is not able to do that degree of due diligence and auditing across everything. So, it's a matter of identifying what it is that's a particular risk in that particular contract, and then looking at what's out there in terms of standards or organisations across the world that might be focusing and auditing in these areas, and focus on those. So, there are great schemes, for example, in IT, and maybe around sustainable timber, and things that we can look at and see how we can build them in as good practice through the statutory guidance.

11:15

And the trick, I suppose, is to find that happy medium of making sure that we're giving due regard to some of those global issues that affect us all, as well as that locality issue as well. In the RIA, it notes that the financial benefits for businesses and organisations in supply chains could be significant if a socially responsible public procurement duty is implemented. What consideration did you give to undertaking a cost-benefit analysis to provide robust evidence to inform the RIA?

This goes back to what we've just been touching on around data. Without having those cost baselines, it's nearly impossible to carry out a cost-benefit analysis, especially when you're talking about—. We were just talking in terms of global issues, global responsibility, if the aims are to reduce exploitation and environmental degradation overseas, things that are going to be experienced in the future, reducing health and income inequalities. So, we recognise the series of challenges in terms of how we make these calculations apply right across all of the well-being categories in the Bill. We will hopefully be able to use that enhanced data collection to work out a cost-benefit analysis in particular cases, or with a particular focus on expenditure. People are nodding—.

Would there be any other legislatures that have—? Obviously, you've talked about Scotland. Anywhere else that we can draw on any information similar to this? I know you said with Scotland, it was different. Are there any other parts of the world where they've done this sort of thing? 

Well, we asked the team of people in Welsh Government who do this kind of research to look into that, and they did a fairly extensive literature review, and we're really struggling to find really concrete examples of where a particular initiative has delivered particular benefits. So, it's not like there's a wealth of material out there to go with. There may be some things that we can look at in more detail as we start to develop statutory guidance, but, yes, there's not masses, actually.

I think it's largely—. If you take a public body, you've got a small number of people involved in procurement and commercial activity. The average public body buys across a very, very wide range of different markets and areas, compared, for example, with a particular business quite often. In industry, you have to keep track of that value chain, if you like, through those products and services that you're in control of, whereas in the public sector, you've got small numbers of people doing a much wider range of different things, and that is very challenging. So, there's a lot to improve, a lot to work on.

Thank you, Chair, and it is good morning. Good morning to you all. Just carrying on with the theme of the RIA, it mentions that the public procurement duty could potentially increase bid prices and lead to additional costs through the real living wage across supply chains. How would you monitor the economic impact of these outcomes on contracting authorities and businesses?

I think the first thing to say is that we cannot mandate the payment of the real living wage in all procurement, and public bodies will need to base it on their own advice and make sure that there's a link with not just the real living wage, but employment practices and how that links to better service delivery as well. But we, obviously, would expect that this legislation will hopefully increase real living wage accreditation as one aspect of better employment practices. We all know from our experiences too that, when people are paid the real living wage, that does bring economic benefits not just to them, but the communities in which they live and spend their money as well. So, we'll need to consider in which ways we might measure any changes and report them as part of the annual review process.

If we use the recent live example of the social care fair work forum and how that's brought social partners across the sector together to be able to implement the programme for government commitment to a real living wage for social care workers to address those challenges across the sector as a whole—. So, from that, it's been estimated to cost over £43 million, but, like we said, we know there are other benefits to this because of people's well-being, they're going to be happier at work, they're going to hopefully going to want to remain in work, but then again it's actually about that income that is then put back in the economy as well. We would need to look at that holistically to be able to draw down what the broader benefits would be of improved employment practices.

11:20

Yes, I agree with that. Thank you for that. Just a supplementary to that. In your view, what impact would the public procurement duty have on Welsh Government's local procurement initiatives?

I might bring officials in in a minute. I'm not picking on Sue. Sue looks like I'm picking on her a lot over there. That's why she's sat so far away from me. There is work ongoing at the moment as part of the foundational economy programme to support local procurement. I think it might be helpful if I just perhaps share another example with the committee. That programme is supporting the NHS shared services partnerships—I have to get all these titles and things correct. That's about including socially responsible considerations in contract-award criteria. I think they've reported £38 million of extra expenditure that's been retained in Wales through that initiative. If the committee would like more information on some of these examples, I'm sure that we'd be happy to share them, following up from this. I do think you've got the facts and figures in black and white, so to speak, on there, but to give it a bit more context and colour, I think, is really helpful in terms of what benefits we can bring from doing that. Crucially, learning from all of what's happening already and what will happen in the future will feed into the development of the statutory guidance alongside this legislation as well.

Okay. I've got a couple more questions. The RIA notes the long-term objectives are for improvements to be made in contracts across all sectors, but the cost estimates have been calculated on construction contracts with values over £2 million. Does this mean that the Bill could lead to additional costs that haven't been included in the RIA, and how significant could these be?

Just to touch on why the focus of the Bill, in the first instance, is on construction, it's because we know, and you will know from your own experiences, Peter, that a large proportion of Welsh public funding goes on construction projects, and we know there are really complex supply chains, and we know, and Members will know from other codes of practice and things, that historically there could be, you know, unfair employment practices. I was trying to find the most diplomatic way to say that in committee. So, that's just to say why the focus is on that. Obviously, removing uncertainty around contract management in the way we're doing in the Bill in terms of the transparency and those clauses is actually good for business, because uncertainty increases risk, and managing risk is costly. I don't know whether anybody else wants to just pick up on that. Everybody's looking at Sue again.

Just going back to the broader issue of contract management, which has been picked up on in no end of Government reports as a weakness in the public sector, and not just in Wales; it's true across the board. My feeling is that one of the reasons for that is the legislation primarily focuses on the process from advert to award. That's where the attention is in the public body, on making sure you do the process right so you're not then challenged on that. There isn't so much pressure on organisations to ensure that what goes into the tin actually comes out at the end. There is pressure, obviously, because we have to account for the money that comes in and how it's spent, but I think having some duties that focus attention particularly on construction and some statutory guidance that puts expectations in place for what people need to do will require more effort and time spent, but the benefits could be quite considerable in cost savings. As we all know, if we don't keep track of any contract that we let—. Say we're doing a building project in our own home, if you just go away and leave them to it, you're not necessarily going to get the outcome that you want if you're not actually there and making sure it happens. So, I think, yes, there will be increased costs in some areas, but they could be offset by really improved outcomes and performance on some of those contracts. But the extent of that is unknown, because some public bodies will be doing great contract management, and others not so good, and we really don't have a handle on the amount of time and effort spent on managing contracts across the board. 

11:25

There's an awful lot of contractors who've mastered that wonderful skill of tender low and claim high, and the Welsh Government has been on the receiving end of some of these people who've managed to make very substantial claims. I was actually involved in Swansea council when they created a bridge across a river, and they put a claim in because they found water. [Laughter.]

Some of these things were discredited because they were used in PFI to get results that were blatantly untrue. Have you given any consideration to the increased income tax that may be paid if people are paid the real living wage—if people in Wales are being paid, and, therefore, we get 10 per cent out of the 20 per cent income tax? So, if we end up with 100 people being paid £5,000 more, it's worth £50,000 to us, isn't it. 

Those sorts of models are complex, aren't they? When you start to change one thing in these systems, they're very complex; you can't fix one variable unfortunately. That's why it's so difficult to work out cost-benefit stuff in procurement. You change one thing and you can have a knock-on effect. You can reduce the health budget by people being healthier. And some of the budgets, of course, we don't control, do we—the welfare budget, for example, may be causing benefits to budgets that are handled not within Wales. So, it is hugely complex. 

I'll rephrase it, then. Is there an expectation, if more work is done by companies in Wales and they pay the real living wage, more tax will be paid to the Welsh Government?

As long as, again, the locality, I suppose, of—. If those workers are based out of a head office in London, then, depending then—. It's down to the Welsh Revenue Authority then to make sure that that data is correct so that we do collect our fair share of tax, I'd imagine. 

Yes, so just to pick up on the locality point, perhaps, for Members that weren't in the other committee with us as well—

—at the moment, if it's based on postcode, a business or an organisation could use the postcode of their head office or elsewhere, so it may not translate to be accurate data about what's in Wales. That's why we need to improve that data collection. 

Well, as Peter will know, and others living close to the border, you can have English postcodes in Wales and Welsh postcodes in England. So, using postcodes is not a very successful means of doing it. If you actually want to do it, you're better using local authority council tax data, because the local authority collects council tax from people living in their area. 

Good point. We digress slightly but, as somebody that knows, I get quite a bit of correspondence from constituents asking why they've got an English postcode.

Just a final point from me. You have assumed 75 per cent of the construction costs associated with procurement duties would fall to the public sector and 25 per cent to the private sector. I just wondered if you could explain your rationale for the split, and how confident are you that the costing model you have used to calculate contract management costs are robust?

So, I know there were long and intensive discussions between officials and colleagues who are involved in major construction management at the moment. And, if you look, the duties in this Bill largely fall on the public sector, and the responsibility for showing socially responsible outcomes through supply chains lies with the public sector. So, on that basis, we expect the majority of additional resource to be allocated in the public sector. I don't want to look at Sue again, but just to give a little bit of background in terms of how those costs were actually calculated as well—. 

Well, there isn't an awful lot of science, to be honest, behind this, for the reasons that we've been discussing at length already today about not having that clarity on exactly how things are done across the public sector. So, this was largely a result of talking to colleagues who work, as the Minister says, in this area and, I guess, an acknowledgement that, within a construction business, they have to do good contract management, they have to have people in post to do contract management—that's how their entire business will work. But, at the moment, I guess those people's main focus will be on time, cost, quality, health and safety, for which there is already legislation. But the sorts of things that we're asking in addition here, around social outcomes and economic and environmental outcomes, will not necessarily be on their checklist for when they're doing their procurement. So, we're asking them to do more, but, in a sense, you've probably already got some of those people in post, so it's adding to their skills and what they're being asked to do. But, in the public sector, I think there's a sense in which we do need to significantly increase the amount of resources spent doing some of that work. It can't all be done by just throwing it over the wall and expecting the business to come up with all of the answers; there will need to be further effort put in within the public sector. So, it was just really from talking to people who are active and who have a sense of where the gaps are. It might not be right, but it's the best we can do at this point. 

11:30

Thank you, Chair. You've mentioned, Minister, and others, the hard benefits that you anticipate coming from this Bill, as well as some softer, more hard to measure ones in terms of well-being. How do these benefits from the Bill, in your opinion, justify the £5.2 million in annual contract management costs?

So, the construction management duty, and the associated due diligence that comes alongside it, will aim to ensure that projects are not only delivered on time, on budget, but they're done safely, and that those socially responsible procurement clauses are being embedded throughout the whole supply chain, so that the delivery is monitored as well. So, actually, that additional cost will not just bring about benefits in terms of the outcomes like that, but actually hope to prevent poor and unethical practice, including things like modern slavery happening to people in supply chains in Wales. So, actually, what we're seeing is that there is that cost, but the outcomes coming from it will outweigh it in terms of benefits.

Okay. Thank you. So, really, it's an underscoring of Government priorities through this Bill. So, you mentioned it's not possible, though, at the start of this session, to assess the extent to which a contract with an authority already resources contract management—or outsources contract management—but there are indications from the consultation also that enlarged support would be required. So, can you elaborate on what you feel this support would be and the related cost to that? That's directly coming from the consultation.

Yes. So, officials—and not just these officials who are with me here today—are planning a range of materials to support and help contracting authorities, whether they work in procurement or contract management. They are set out in the Bill's regulatory impact assessment. They include a range of things, from hands-on statutory guidance, guidance on the construction management duty, to awareness sessions, webinars. If the committee would be happy, I think we should be able to write to you with a breakdown of what we'd anticipate that guidance, that support, to look like. And, of course, as has been the case to get the Bill to this position, we've worked very closely with social partners and stakeholders, so we'll be involving them as part of that process as well, to make sure that we have the right support for the right people as well.

Okay. Thank you. Can you explain, finally, why the Bill would not have any financial implications—you touched upon this in the future generations commissioner segment at the beginning—given that it intends to amend the Well-being of Future Generations Act? Can you flesh that out—how, if it's amending that, there wouldn't be any cost implication, because that budget is already stretched?

So, I think Neil did touch on it at the beginning of this session, by saying that the Bill doesn't place any additional obligations on the future generations commissioner or the office of the future generations commissioner, and it doesn't change the general duty and powers of the commissioner. I think it's important—and I raised this in the Equality and Social Justice Committee too—to make the committee aware that, alongside this legislation, the Welsh Government is actually carrying out a review of the public bodies that are subject to the well-being duty as part of the—. I think that was on the recommendation of one of the Senedd committees. Because, obviously, since that legislation was enacted, there are public bodies now that are in existence that weren't there—to make sure the right bodies are being captured. That will, obviously, have an implication for the bodies that will then be captured in this legislation as well. So, we're working quite closely with my colleague the Minister for Social Justice, with the commissioner's office, on any financial implications that may come from that broadening of the bodies covered by it. There will shortly be a consultation on the review, where we'll be inviting views on the bodies suggested to be covered by it. And when we're talking about engaging with social partners and stakeholders when we're creating the guidance, obviously we will also be working very closely with the future generations commissioner and the office too.

11:35

So, in regard to that amendment to the future generations Act, which is obviously there, that's an ongoing, iterative process.

So, there are different things, aren't there? So, there is the amendment in terms of the 'A Prosperous Wales' well-being goals—so, changing from 'decent work' to 'fair work'. But that doesn't place any additional obligations or duty on the commissioner, so—[Inaudible.] But then, there's the separate thing, aside from this Bill, which will then have a connection around the review of the bodies covered, but that's an ongoing piece of work and there will be a consultation on that and we'll be working very closely to address any financial implications on that.

I think, in that regard, it would be useful for us to chase that as a committee in terms of how that impacts.

Yes, because if there are more reports coming in to the commissioner, there's a knock-on effect—there's more work for the commissioner to at least read them. So, will that then be looked at from a budgeting point of view for the commission, to make sure that adequate resources are put in there? And, obviously, it's the same with public bodies. If there's extra work, then it's a dialogue between those bodies and the funders—the Government and others—to make sure that there's adequate resourcing there to make sure that this thing works.

Yes, like I say, we're working very closely and it's being led by my colleague the Minister for Social Justice, making sure that we are dovetailing that work to make sure that any concerns or any implications from that review are addressed. I think it's in the committee's interest in this area, so I'm sure—I'm giving my officials more work—we could take away an action to make sure that the committee is notified when that consultation is active.

I'll start off by saying that I'm very keen on the social and economic impact of it and the fact that it would help medium-sized companies to grow into larger companies—something that we're very poor at in Wales—but I'm not allowed to talk about those. That's for another committee and another place. But what I am allowed to talk about—the only thing I'm allowed to talk about—is the financial benefits. When do you think you'd be able to quantify the financial benefits?

The broader financial benefits or the ones that you think are difficult to quantify?

A general ballpark figure of, 'Eventually, in year 5, we would expect—'. I mean, will you really need the results from year 1 to be able to predict year 5?

Well, built into the legislation, we will have constant, ongoing evaluation of the implementation as well.

So, we will be undertaking both a formative and a summative evaluation of the impact of the legislation, which would look obviously at what additional and better data we've been able to generate through these changes, what that has been able to tell us about the efficiency and the effectiveness of the system that we've put in place, how well procurement is or isn't working and how much may it improve as a result of these changes. So, that data, that report, will be available. At the moment, we're planning on a mid-term report as well as the final five-year evaluation report. That's not absolutely final. We're looking at the practicalities of that and whether, in fact, that is doable, but that's very much our hope—that we'll be able to do both a mid-term report that, of course, we'd be sharing with the committee in the Senedd, but also a final five-year evaluation, which I very much hope will give us the information that you're seeking. If it doesn't, our evaluation is wrong.

But with regard to that, even if we wind forward 10 years, Minister, would you want to be able to say, 'Yes, we did that', and what would it look like?

I think one of the challenges with what we're seeking to do through this legislation is that we're talking about systemic cultural change, which is difficult, in a traditional sense, to quantify. So, I think a lot of it will be from those qualitative conversations we have with stakeholders and the case studies that we're able to, hopefully, build to then reinforce how successful the legislation has been and the outcomes around it. So, if you look at the things that are difficult to quantify—if I think now, you know, about something like the workforce partnership council, that's produced guidance to support people in work about their hours worked, about the implication of digital. So, actually, we would then have to look at actually speaking with those stakeholders to get evidence from them about the impact that has had in practice.

11:40

We're also creating platforms and systems to make it easier for social partners to work together, and it's very, very hard to predict what social partners will use those for and how they'll drive it forward. So, we've got the views on what we're trying to do around this, which is about improving the decision making. Getting the fair work in the goal brings an added impetus for everyone to work together around that with the future generations Act, but what will actually be done around that, and the actions that public bodies will determine are the right ones to take, it wouldn't actually be right for us to try and predict that, because there's an assumption in the social partnership model that you're bringing people together to work out the solutions to some of those local problems and issues.

So, if I may—. Through the Chair, I completely understand that as a sort of broad vision, but there would obviously be some key performance indicators that would be measurable—you know, how many bodies have come together, what were the outcomes of that. I mean, I think, in terms of seeking reassurance for this committee that there are measurable data handles around this, I think, would be useful.

Just a quick comment, before I ask my next question. In West Glamorgan, in the past, when we had BP, British Steel and Ford, they actually set the standard rates for skilled industrial workers, and therefore other companies that wanted to recruit had to push their wages up accordingly in order to be able to recruit in that sector. Three of those have gone now and the fourth one is not recruiting in anywhere near the numbers, so skilled industrial worker rates have reduced relatively. So, I think there are some of those known unknowns. You know that it will happen; you just don't know how much it's going to happen by. But that brings more money into the Welsh economy, and I think sometimes—and I'm drifting and I know I should be getting told off, so I'm not looking at the Chair.

Sometimes, the economic benefits occur across a much broader area than the area you're taking legislation in.

Yes. That goes back to what we were talking about in terms of the impact of things like the employment practices and the real living wage, the impact that then has on the local community or across the sector, as you say, as a whole, where it kind of—. I hesitate to use the term 'levelling up', but it brings up standards across as a whole.

I keep on going on about the 1960s and I was a child then, and you probably weren't born, so it's dangerous in that respect. But, in the 1960s, a lot of these things happened that did achieve. They didn't use the term 'levelling up'; they talked about greater economic benefits for more disadvantaged communities. I think a lot of it worked very well. 

But, moving on, the additional costs to all parties in the shorter term—there will be additional costs to everybody in the shorter term. There always is, with change. Although it's probably less than you'd think, because people like change and there have been scientific experiments done on the benefits of doing change; we've got a couple of minutes, so I'll just briefly say it. The telephone system in America in the 1970s or 1960s, they kept on trying different things, and every one of them worked better than the original, because the new thing was new and everybody put a lot more effort into it. I think that, sometimes, with some of these changes, people put a lot more effort in because it's new. But you talk about costs to all parties in the shorter term, and in the medium term the potential for the introduction of the duty to cost less than the status quo. Have you got the curves? I mean the cost curves, where they sort of cross over each other.

So, I think, as I say, there are probably at least three areas where improved guidance, alongside the transparency and enforcement mechanisms of the legislation, could reduce costs for public procurement staff in the longer term. So, if you've got that streamlined statutory guidance that we've referred to previously that will help support public bodies to—. It's that principle of proportionality again, and reduced bidding costs, to make those markets more attractive to the innovative bidders and increase competition in a way that takes things up, rather than takes things down, as you referred to before, Mike. Those socially responsible procurement provisions are intended to realise longer-term cost benefits to public bodies through reduced inequality—environmental protections we talked about previously—and to stimulate and have a positive impact on local economies. And we also know that improved contract management has the potential to significantly reduce costs by removing that uncertainty that is an additional cost for business or for public bodies, and to maintain a clear focus on outcomes. I don't know whether there's anything you want to add.

11:45

Of course, with procurement, sometimes you have joint partnership working in procurement, which saves an awful lot of going through the process of getting people entering tenders and some people not entering tenders, and, more importantly, it means that you're working together, not against each other, and that's one of the problems we've had with procurement generally, that it's seen as a battle between the people putting out the item for procuring and the procurer and the people bidding, and everybody is trying to do the other one down, almost. The people who put the thing out for procurement are trying to get the lowest; those who want to win the contract, as I said earlier, tender low and then add on claims. I've seen really wonderful claims, like somebody who was asked to build a pavement, and they built the pavement and said, 'What about a kerb? Kerbs weren't in the contract; if you want kerbs, you have to pay for them.' But these people are really skilled at it, and, if you start working together in a socially responsible way, you can save money, not necessarily on the headline tender, but on the outturn cost.

There are some examples of good practice already and that's the sort of thing we want to spread through legislating. I've got actually one example here that I'm sure will be of particular interest to Rhianon Passmore, actually. [Laughter.] She looks suspicious now. So, last year, the Welsh Government announced the grant for school instruments, and, actually, the Welsh Local Government Association and Welsh Government teams on that worked collaboratively, in partnership, to identify opportunities for Welsh social enterprises, and, to cut a long story short, they were able to bring that together in a way that created new job opportunities, helping us put these back into the workforce, and those instruments were obviously wholly manufactured in the UK. So, without that collaborative working, that proactive intervention, that money would have been spent on far-east imports. So, there are some good examples of best practice already, but, obviously, reviews have consistently told us that, if we want to improve on that and build on that, then legislation is one of the ways to do it.

Just on that point—sorry, Mike—I've been speaking to, particularly, farming unions and farmers, which are, effectively, SMEs—they're very small businesses—and we were talking earlier to the finance Minister about free school meals and the procurement process within that, and we want to source locally for local food and that sort of element. Has any thought gone into how we support these smaller businesses through the process of procurement? Because, between milking and being out tending to the animals and everything, they're also going to have to do, potentially, procurement processes and all the rest of it, so is there any thought of support for those small and medium-sized businesses to be able to get some of these contracts and keep that pound local as well?

Yes. As we start to focus attention on developing statutory guidance now, we're starting to have these more in-depth conversations with colleagues in other areas, and there's a team of people who are really focused on how we can develop our foundational economy, particularly in the food sector, and we're beginning that dialogue about how we can use this legislation to really make sure that we address some of those issues, particularly in food. Now, as part of that discussion, we'll be able to explore not only how we support the public sector in doing the right thing, but how we can also, through that programme, that foundational economy programme, how we can actually develop support for business as well.

So, there will be two sides to it, really. One is that we ensure there's proportionality. I keep banging on about proportionality when I'm speaking to these committees, because it's absolutely key to this. If you're a small business and you're working in milk production, you don't want to be answering a whole pile of questions about stuff that is extraneous to you, particularly, you want to be focusing on the things that really matter, and that's what we need to make sure happens through this process. It is difficult in the public sector, because a procurement person who is working across lots of different sectors will have their standard list of questions, and they tend to go out with everything, so actually getting them to think about applying things in a risk-appropriate way is something that we really need to focus attention on—so, making sure the process is tailored, so those individuals are answering the questions they really need to answer, and then making sure that our business support function within the Welsh Government and Business Wales, and the IT systems that people use, provide that sort of tailored support and information for those that are new to tendering. So, we need to do both.

11:50

Yes. And maybe—. I've been talking to some in the voluntary sector as well and some are concerned it might become a race to the bottom just on cost, whereas quality and cost go hand in hand, and, potentially, especially in mental health, procurement of services and that sort of element would need to make sure that that quality element is taken into account more so than cutting costs constantly, so that you actually get services that, in the longer term, save money, because people are getting better over time and not doing the sort up and down, in and out of services and that sort of thing. So, have you given any thoughts to how those processes might be done? Because, effectively, it'll save money in the longer term, rather than in, 'Well, it's going to go for the cheapest possible right at the start.' 

—around the role of the social partnership council and the procurement sub-group around some of this.

Thank you, Minister. I just wanted to make the point, really, that although the committee, naturally enough, is focused today on the procurement provisions and the potential costs of those, there is a key part of this new framework that we're seeking to create in the form of the statutory social partnership council and beneath it the only statutory sub-group for which the Bill makes provision, and that is a sub-group dealing specifically with procurement, because we recognise the vital importance of procurement to what we're seeking to achieve here. But more importantly, I think, Chair, earlier on you referred to a self-improving system, and that's exactly what we're trying to build. We're trying to build a mechanism, in the form of the SPC and the procurement sub-group, which will help Ministers, through the advice they provide, assess how effective these changes have been, where further change might be needed, where our efforts might be better targeted in future, how we might improve upon data and target setting and so on. So, it'll be a crucial part of the system, and the performance of that public procurement sub-group and the social partnership council is going to, I think, be a very significant contributor to the kind of ambitions that the committee has expressed for public procurement this morning.

I will bring Rhianon in in just a second, but, based on that as well, what role have the public services boards got in feeding into that? Because those are bodies that have been set up that potentially have a way of delivering some of this stuff. What feed-in mechanisms are there to these discussions? Are there any, or are they going to be completely separate? 

There will be. Clearly, we haven't set them up yet, because we haven't got the structure in place; the legislation is not yet in place. But certainly the intention is that we create a system overall where information will flow and where the advice Ministers get—. The PSBs will continue to have their statutory role; they will continue to do what they do. But it will be very important that we learn not just from them, but from other partnerships.

At the Equality and Social Justice Committee, Members also heard about a parallel piece of work we're doing reviewing social partnership structures and ways of working across Welsh Government as a whole at the moment, and that's generating a lot of data for us about what we're currently doing within Welsh Government, the types and numbers of partnerships that we're involved in. We're looking to assess now how effective they are and whether perhaps any change might be needed in looking to the future when this legislation, hopefully, becomes law. So, there's this very complex landscape that we're dealing with, but our ambition, certainly, is to try and make sure that all the pieces work together as effectively as we can manage. It will never, I think, be a perfect system, but I am confident we can improve upon what we've got.

Yes, and I think, on what Neil was saying in terms of the social partnership council, obviously there's certain provision for representatives on it, but making sure, like Neil says, there's the mechanism for other organisations to be able to be a part and feed into that process. And part of the work we're doing in reviewing across Government is making sure that we're recognising capacity and making sure that there's not duplication, but that we have the best connected system that we can have to allow that. Because those organisations around that social partnership council table will want to have their own mechanisms too, in terms of how they represent their stakeholders or members as well.

11:55

I'll bring Rhianon in, shall I? I haven't forgotten about you, Mike; I know that you've got another question. And maybe the question about quality as well. So, if I bring Rhianon in first.

In terms of the last comments, I think this could be a very important jigsaw puzzle piece in that connectivity in that complex landscape. I want to go back to the procurement point that was made in terms of the theme, really, for today—you mentioned the proportionality theme—because that really will be, as you say, the proof of the pudding and that would be the aim. How do we then, on the ground, go back to that small local milk producer and make sure that he or she doesn't have 50 pages to fill in in order to be able to do that? How are you going to enforce that that happens? Because that will be key. 

Public bodies are responsible for their own procurement, so if they want to issue—

—lengthy questionnaires, they still can. I don't know if it's helpful—I did refer to this at the equalities committee as well—but a number of years ago, I was involved in developing something that was called SQuID, the supplier qualification information database, and that came out of a review that was done before that on breaking down barriers for SMEs. That was a piece of work that was done a number of years ago. Lots of the recommendations in that report were about simplifying the pre-qualification stage, that initial hurdle when these lengthy questionnaires go out to businesses. So, we thought, 'Let's just focus on trying to do something about that', because it was problematic in Wales, clearly. Each organisation had their own questionnaire, with similar but not exactly the same questions; it was a headache for everybody.

So, we went around Wales, in the days when we actually used to travel about and meet people in meetings, and we took each category—say, financial, appraisals, quality, health and safety or environment—and we asked each public body, 'Bring along your list of questions that you ask in these categories'. We put them all on the screen and we asked, 'Why are you asking this question, and what are you doing with the answer?' And if the response was, 'Because we always have', 'Don't know', 'Nothing', then we said, 'Well, let's cross it off and let's have a look at the ones that we really need to ask'. So, we ended up with a smaller list of questions. We also devised a little risk management tool that allowed you to type in, 'Does your procurement involve construction?' If it was 'yes', then you'd be suggested a set of questions—a little decision tree. If it was 'no', well, you skip all the ones around construction.

There is interest at the moment. I'm not in commercial procurement at the moment, but I know that my colleagues who are working in this area are looking at these types of risk decision tree-type tools that we can use. And if we can get to use some of those and it makes life easier for people, they'll do it. They'll do it if it makes life easier for them and if they feel as though they've been involved in creating it. Back then, people used this SQuID because they were instrumental in developing it and they felt that they owned it and that was a really good system. But, it was a lot of work dealing with just one aspect of the procurement process, and we would want to look at that, say, for developing contract terms or for other aspects of procurement as well—what policy prioritisation tool. There's some work going on at the moment, actually, with colleagues in procurement, looking at how we can develop a policy prioritisation tool, which would be really helpful, I think. There's loads going on in this area; it's quite exciting, as you can see.

Just briefly, before I come to Mike for a final question, on that race to the bottom on cost, is there work in place to try and better understand and get better quality services as well? 

Minister, is it okay for me to take that one? This has been a perennial issue, hasn't it, in procurement in the public sector. I think, at the moment, one thing that's quite interesting is that the UK Government's procurement reform has changed some terminology from something, at the moment, through the EU legislation, that was called 'most economically advantageous tender'. It's now changing to 'most advantageous tender'. So, there's a recognition across the board that we mustn't always focus primarily on the lowest price. So, I think, in terms of the framework, there is a change in the narrative in that respect. But really, it comes down to that constant tension in public bodies between the outcomes that you want to achieve and making savings, because of the cost pressures that organisations are under.

Really, without there being a legislative framework that requires people to think about these broader outcomes, when money is tight and times are tough, they're not likely to be as high up on the agenda as how we could get this more cheaply. So, hopefully, this piece of legislation will really help to address that, alongside what's going on on the UK procurement reform as well, I think, which is going along similar lines. So, I think everything is pointing in the right direction, but we just need to really make sure that what we develop can be applied.

One of the problems in public bodies is that people involved in procurement can be spread all across the organisation and may not necessarily be qualified people sitting in a central team—they may be in different areas. It's the same with contract managers; it's difficult to say how well or badly it's been done, because it may be spread right across the organisation. So, we need to develop things that not just the qualified professional who understands all the jargon can use, but everybody can make use of. It's quite a challenge ahead, actually.

12:00

Thank you. Sorry for railroading the questions, Mike. Over to you for the last question.

The last question is in two parts. I'm supposed to ask you about inflation, but I assume that you've got no better idea what inflation will be running at and what effect it's going to have than I have. So, I don't think you'll be able to give a meaningful answer. If you can, don't let me stop you, if you can predict inflation and its effect. The question I've got, which I think is answerable, is about setting a quality threshold and contract size. The smaller you make the contract size, the more likely it is that local companies are able to bid. We have councils that will put the whole of their school meat contract out and it'll be won by one of the two or three big companies. We have Welsh Government who put road schemes out at huge value. Instead of splitting the scheme up into manageable junction to junction, they do the whole or a large chunk of the A55—they knock out every Welsh contractor from being able to bid for it. They subcontract, but they can't become the primary contractors. Do you believe that we need to reduce contract sizes in order to let local companies have an opportunity to bid? And do you think that people should pass a quality threshold first?

Do you want to pick up that last point, Sue? Then I'll come back in, if that's okay.

On the quality side or the breaking up contracts bit?

It's a difficult one, that, because it really comes down to each individual procurement and where it's best to place that. There are times when it is better to let a large contract and then, through this sort of legislation, you can think about how those benefits flow down through supply chains and the next tier are still developing the economy, et cetera, through those subcontract opportunities. There are times when it would be better to split things up and let separate contracts. The factors that you'd have to take into account on those things include how much resource you've got internally to actually manage a multiplicity of contracts. So, it's never that easy. Splitting contracts into lots is something that is tried and tested in Wales, and certainly it was being thought about in Wales in my experience. I moved into procurement in Wales about 15 years ago from the UK, and at that point, Wales was definitely ahead of the rest of the UK in some of its thinking around SME-friendly procurement. So, there's a lot of good practice out there. It's really a case of helping that good practice to be mainstreamed. But it's never easy.

No, but some of these big contracts—I'll throw the Heads of the Valleys road in there to you—have certainly gone substantially over the tender.

It probably wouldn't be for me to comment on particular cases in committee—

It was a statement of fact. There are three other people in this room who would tell you that what I've just said is true.

Just on the point, Mike, I am, alas, unable to predict what inflation will be; I think I'd be in a very different role if I could do that. But just in all seriousness, we are aware that the cost presented in the Bill would be subject to inflation and we would expect it to rise in future years. But, like you say, there are a lot of unknowns in terms of whether budgets will rise in line with that, and around staff costs and so on, but it is something that we are alive to, and at this point, we don't think it would impact on being able to deliver the legislation, essentially.

Okay. Thank you very much. It's been a very, very interesting session. Thank you for making the time to come and talk to us today. I'm sure, between this committee and other committees, we'll see you again. But thank you so much for your time this morning. Diolch yn fawr iawn. We'll now go into private.

Daeth rhan gyhoeddus y cyfarfod i ben am 12:05.

The public part of the meeting ended at 12:05.

13:00

Ailymgynullodd y pwyllgor yn gyhoeddus am 13:00.

The committee reconvened in public at 13:00.

8. Trefniadau ariannu ar ôl yr UE: Sesiwn dystiolaeth 4
8. Post-EU funding arrangements: Evidence session 4

Croeso nôl i sesiwn y prynhawn.

Welcome back to the afternoon session.

Welcome back. It's good to be back, and the viewing public is back as well. I'd like to welcome our witnesses. I'd just like you to state your names for the record, please.

Simon Hart, Secretary of State for Wales.

David Davies, Parliamentary Under-Secretary of State for Wales.

Fantastic. It's good to see you. Thank you for giving your time this afternoon to come and give evidence to our inquiry on the post-EU funding arrangements. We're looking into those, and we've taken evidence from a number of stakeholders and Welsh Ministers. You may know we wrote to the Secretary of State for Levelling Up, Housing and Communities, and to the Under-Secretary for levelling up. Obviously, they weren't able to come to give evidence, but stated that you would be best placed to answer some questions in this area. So, we'll go straight into questions. Just to say that there will be a transcript available for you to double-check the accuracy afterwards.

I want to start by looking at exploring the arguments for and against the UK Government's approach to allocating post-EU funding. The Welsh Government has suggested that the UK Government is breaking a manifesto commitment by increasing the shared prosperity fund as remaining EU funding declines. You say that the UK Government is matching EU funding with the fund. Who's right and why, and can you share some of your workings out?

Of course. Shall I kick off, and then David can chip in?

I should say at the beginning, because you mentioned the Department for Levelling Up, Housing and Communities, that if there's anything that we aren't able to give you a precise answer on today, I'm very happy to follow that up with something in writing. We've got pages of material here, but you can be sure that one of your questions will not have an answer on a piece of paper. So, if that happens, we'll happily provide it.

Just on the substance of the question, there has been, over a while, some disagreement, as you're all aware, about funding levels. We maintain that our manifesto commitment is met; others have a different view. If I can just refer the committee to two things in order to reinforce what I think is a reasonable position. The first is evidence that may have been taken by this committee, but it might have been another Senedd committee, I'm not sure. The Wales Governance Centre were the witness—Guto Ifan—and David Phillips from the Institute for Fiscal Studies. We felt that both of their pieces of evidence, reinforced, to some extent, by Peter Ryland of the Welsh European Funding Office last week, indicated, firstly, that it is quite an imprecise science. And I say that because I think some of Welsh Government's figures have been quite vague about exactly what degree of shortfall they were referring to. The numbers haven't always been consistent. I think that it also relied on what a hypothetical funding level might have been in the event of the UK remaining part of the EU. So, there were one or two things that made an absolute precise measurement, I think, quite difficult. I was looking at Guto Ifan's piece:

'I can see the reasoning that the UK Government are using....new EU funding programmes would've taken a while themselves to come fully up and running in terms of actual spending.'

And David Phillips:

'I think it makes sense to ramp up the amount being spent by the UK SPF.'

But those are matters of record that you can refer to. The other thing I wanted to highlight, and then I'll hand over to David—

Sorry, Chair, but I don't quite follow. Could you just slow that down a little bit in terms of what the comment is that you just made?

It's the evidence provided by the Wales Governance Centre and the Institute for Fiscal Studies. I'm not sure if it was evidence to this committee— 

It was to this committee. I think what that did was confirm that there is some legitimate difference of opinion as to what the actual quantum may be. It's actually pointing at Welsh Government, to some extent, I think, a polite but accusing finger, saying that, actually, the numbers upon which they are relying are based on hypotheticals and an unknown future funding formula in order to make that point. I think we can sit here and make that point all the time, but that might be interpreted as just political positioning. I think coming from the Wales Governance Centre and the Institute for Fiscal Studies that adds an interesting dimension to the vagaries of this particular dispute.

Can I come back to the second part of the point and then hand over to David? I think in the overall funding arrangements, what we've tried to do is look at every funding source from 2017 and forward projections to 2024-25, divided into UK Government block grant, EU funding tail-off, UK shared prosperity fund, agricultural payments and UKG local growth funds, looking at those individually and the overall quantum, and the trend over that spending period, and that unquestionably shows significantly more funds pouring into Wales than would have been the case in other circumstances. So, even if there is a legitimate dispute about individual elements of that, collectively, the amounts we're talking about are, we would argue, significantly in excess of any manifesto commitment that was made. But David has more detail on it.

13:05

Just on that point, Secretary of State, you say you've looked at that, has that been published anywhere?

Good question. I think it has been published in part in lots of places. This particular document, which I'm very happy to share, by the way, is an internal document on which we rely as an aide-mémoire. I'm very happy to share that. There's nothing on it that is remotely sensitive as far as we're concerned, so we'll do that. 

That would be useful. Thank you.

I think Rhianon wants to come in and then we'll come to David Davies.

Thank you. Before we move off this particular point, because you're quite right in stating that this is the fundamental disagreement in terms of what we are debating today, I don't think there's any ambiguity as to what the Welsh Government has stated, which is that we would have been £1.4 billion better off from January 2021 to March 2025, that we've received £585 million through the UK shared prosperity fund, £47 million from the pilot for community renewal fund, and that meant that we would receive £632 million—that's a shortfall of £772 million. Now, we're not comparing apples and oranges here, are we? We're talking about your manifesto commitment, which was that Wales would not be worse off because of Brexit. We're not talking about COVID, we're not talking about cost of living, we're not talking about Ukraine and the other consequentials to Wales, we're talking specifically about this matter. What's your response to that?

My response, Mr Griffiths, is that the manifesto commitment was that we would match the money that was going into Wales pre Brexit, and the actual amounts were worked out at £337 million a year for agriculture and £343 million a year for what are referred to as the structural funds, the ERDF and the ESF funds, on average. Those figures, I think, were accepted—£343 million and £337 million. Now, we have matched those figures. We've actually exceeded them, but we've certainly matched them.

The dispute is over the fact that, over the next couple of financial years, there is still money flowing into Wales through what is referred to as the tail, the amounts that haven't yet been fully handed over. So, what the UK Government has done is to take that tail and then add to it to get to those two figures—£343 million and £337 million. As far as I'm aware, there's no dispute over the fact that we are now hitting those figures. I don't even think that there is a dispute over the fact that Wales is therefore in total no worse off. I think the dispute is that the Welsh Government—and you may correct me if I'm wrong—would like to have received those two figures, £343 million and £337 million, plus the tail as well. That was not something that was ever promised in the manifesto. I've seen a letter from your Minister Lesley Griffiths that makes clear that, while she disagrees with the Government approach and was surprised by it, she appeared to accept that the Government have actually done what they said they were going to do.

Well, that's news to us. In regard to the rural development programme payment of £234 million in terms of those receipts going back to you, I think this is the fundamental point of dispute—

May I just ask: do you accept that £337 million is the figure that we should all be aiming for here?

Well, what do you think Wales was getting on average each year between 2014 and 2020?

13:10

My point to you would be that if you total up the amounts that I've talked to you about, it comes to over £1.4 billion.

With the greatest of respect—

With the greatest of respect, we need to know, if you're not working off the £337 million or £343 million, we would be interested to know what figures you are working off and how they're calculated, because we've—

Well, the NFU seem to accept the £337 million figure for agriculture.

I think they do, I've spoken to them about it.

Just two quick points, really. I mean, I think the first one is that we can't get the Welsh Government to show us their workings out either, and that's one of the things that we as a committee are trying to get. If we see their workings out and your workings out, then we could have some understanding of which one is right or how wrong each one is. So, if you can give us your workings out, and if that's what's on that sheet of paper—my eyesight is nowhere near good enough to see at this distance—

Then we can wave that at the Welsh Government and ask them whether they think that's wrong.

The second point, which I think is, perhaps, more important: let's say we accept for the moment that the tailing off European money should be counted, does that mean that in two years' time the total amount will go up to what it was, the £337 million and the £343 million?

Absolutely, yes. It's all there in our figures.

It's nice to give a 'yes' or 'no' answer, and the answer is 'yes'.

Can I tell you, Secretary of State—? My eyesight is good enough to see you, but to read a bit of paper at that distance—I'm struggling reading a bit of paper at this distance.

We will get it to you as soon as we can.

We've talked about the shared prosperity fund ramping up and ramping down, the elements there. The Welsh Minister for Finance and Local Government last week asked us to ask you, so I'm going to do that, if Wales will receive less new funding through the shared prosperity fund compared to if the UK had remained in the EU. 

Well, we think the answer to that question is 'no'. We think that the amounts will be similar if not greater, by the way, over a period of time. We're only projecting forward at the moment to 2024-25, and our UK SPF alone, that goes from £48 million to £327 million [correction: £343 million] in that period of time, notwithstanding the point that my colleague has just made about the EU tail-off funding anyway. So, even if you took a crude calculation of those two things together, it would still exceed the amount of money that we were originally discussing as a manifesto minimum. So, I would like to be able to, and I would look him in the eye, and anybody in the Senedd, and say that we think these numbers are reversible.

In any case, Mr Griffiths, the Minister—and perhaps if she's before you again you'll ask this—has no idea how much money the UK would have received had we remained in the European Union, because the European Union are still trying to work that out. So, it's almost absolutely impossible to answer that question, unless she's got some magical way of divining what the European Union is going to be doling out to countries for the next programme.

That's essentially what Peter Ryland said in the evidence that I was quoting earlier on, when he said that he accepted the figure was an estimate—that's the £1.4 billion ERDF funding—and it was impossible to come up with a solid figure due to a number of unknown variables.

The point with the estimate is the margin of the estimate, isn't it, so that's where, obviously, there's a grey area there because we wouldn't know what necessarily would come, but it's the accuracy of how accurate that estimate could be.

I'm hoping the numbers that we can provide you in terms of what UK SPF and other funding sources are are more rigid, I was going to say, than that, because these are actual numbers rather than the figure that we were talking about—the EU number, of course, was very hypothetical, subject to significant hypothetical criteria. So, I would like to think this is reliable.

Sorry, Chair, with respect, I think, on the comment that you made about the margin of error around the £1.4 billion in the last witness evidence session we had, they were pretty clear and accurate that the margin of error around that was obviously a margin of error, but it was the £1.4 billion—

Did they say what their margin of error was, though, in percentage terms?

13:15

But we've got that on the record and that was clear, so we'll furnish that information to you if you don't have it.

That would be helpful. Thank you.

This is the crux of what we're trying to do in this review and trying to find where we agree and where we don't agree, and then try and work out what—. So, it's useful, as Mike would say, to show your workings so that we can delve into this and get one version of the truth, hopefully, by the end of it. And I know that other committees are looking to take this forward after this investigation into others.

Mr Griffiths, I appreciate we're here for 90 minutes or whatever, but to me, this is actually very, very simple, and the truth of it is this—and as far as I'm aware, the figures are agreed—that £337 million is what was going into agriculture, £343 million is what was going into the structural funds. The Government has guaranteed those figures going forward, but have said that they will take account of the tail that is coming in from the EU over the next two to three financial years, and the Welsh Senedd Government have said they want the £343 million and £337 million plus the tail. That is the crux of this whole session in 90 seconds, and we're all agreed that we don't think it is right to be paying the tail, the £343 million and £337 million, and the Welsh Senedd say it is.

Just to be clear for the record, as the tail-off diminishes and works out, the shared prosperity fund will escalate to match it.

Bear in mind—. I'd like to leap in there. The tail-off, unusually, actually goes up before it goes down. So, the tail off is at £410 million, for example, in 2023-24. It's not a gradually declining line. We're going from £375 million in 2020-21, to £326 million, to £375 million, to £410 million before it drops to £37 million in the same financial year, 2024-25, as UK SPF is at £327 million [correction: £343 million]. So, it's not a—whatever the word would be for a steady line.

Can I just say, I represent the Welsh Government on the WEFO and those are very much estimates and guesstimates? Certainly, outside agriculture, they may go up or down or move around. Most of it should be spent by the end of this financial year. That it hasn't is due to a whole range of things—COVID being probably the most important of them.

So, moving on slightly, Wales has received funding through the next round of EU structural funds, and the allocated funding would have been for seven years. Obviously, the shared prosperity fund will operate for three. What are the longer term plans for structural funds?

You're making the point, if I'm reading this right, between the seven-year spending period versus the three-year spending that replaces it, yes?

I think my initial reaction to that is that that is the regime under which we operate in the UK. That's what the normal spending review periods are. There was obviously an exceptional one in the early stages of the pandemic. So, for us, there's nothing particularly unusual about going to a three-year—

I'm not worried about that, it's what your plans are after the three years, so the longer term. Where are your plans taking you?

Well, at the moment we're projecting forward to 2024-25. Can I give you a hard-and-fast guarantee of what it will look like after that? I don't think anybody could sit here and say that. And I think that's been one of the flaws in the—[Interruption.] Say again. 

We may not be here. [Laughter.]

I think that's probably one of the—[Interruption.]

I think it arguably could have been one of the flaws of the seven-year spending cycle. Actually, that was unnecessarily restrictive. And David makes a good point, actually, because, as we know, we work in a volatile industry, and it is quite possible that there are huge economic changes facing us, depending on how the war in Ukraine goes, depending on how post-pandemic recovery goes, depending on food security, energy security—all of these issues that combine to have an impact on all the things that we’re able to deliver here. And the fact that I think we’re able to review it on a three-year anniversary as opposed to a seven-year anniversary probably gives a little bit of flexibility not only to UKG, but actually hopefully to Welsh Government too. So, being able to say with absolute certainty what will be the case in years 4, 5, 6 and 7, I don’t think anybody could honestly come and sit here and give you a set of figures upon which there would be no dispute and no opportunity to subject them either to an upwards review or a downwards review. I just don’t think that’s possible.

13:20

All things being well, it’s highly likely that the shared prosperity fund or something very similar would continue on and on and on to replace what would have been an on-and-on situation within Europe, I suppose.

That much is absolutely true, and I think we can be reasonably upbeat about that. We were talking about margins of error earlier on; there will clearly be margins of error, the 10 per cent here, the 10 per cent there, in terms of our estimations throughout that. Yes, UK SPF is here to stay. That is the replacement funding, and because we are supporters of it, and have spent a lot of time trying to get to a situation that is fair and equitable, we have confidence that actually we will do better out of this arrangement, because it’s a UK fund administered by the UK, and therefore more directly accountable to UK stakeholders and voters than any of its previous incarnations. We think that puts Wales in a very good place, and add that to our levelling-up agenda and suddenly you’re in a position where the bottom line of this piece of paper I keep referring to really makes for very encouraging reading.

In Neil O’Brien’s letter, he says that farm funding is being considered separately to the shared prosperity fund. Can you outline the UK Government’s commitment around the level of farm funding that will be provided to Wales?

Absolutely. It was always one of the separate schemes, and the various pots are quite complicated, but we generally look at two of the structural fund schemes. I always get the letters mixed up—it was the ESF and the ERDF, I think, that were the two that we count as structural funds. That’s where we get the £343 million figure from, and we’ve matched in full that going forward.

The agricultural funding, again, it’s a bit complicated. As explained to me, there is one large pot that was put aside for CAP funding and pillar 2. The Welsh Senedd Government moved about 15 per cent out of 1 towards pillar 2, but the overall amount worked out at about—. It varied from year to year depending on exchange rates, but we took 2019 as a baseline year and calculated that at £337 million. So, it may have been different in different years, but that was seen as quite generous, actually, using the most generous exchange rates. I discussed that recently with the NFU informally and they agreed that the £337 million was a good figure. They wanted assurances that they were going to carry on getting £337 million a year. We’ve given that assurance, that’s absolutely going to happen. Obviously, taking account of the tail, most of this is where we may have a continued dispute, but the amount of money going into agriculture going forward will still be £337 million, and that’s, I hope, a brief summary of how it’s calculated.

So, with what we’ve been explaining there with adding the fund with the tail, and the tail tapering off, will there be a tapering off of funding or do you envisage—?

I think, as the Secretary of State said, the tail-off in agriculture is rather more consistent, and it goes down each year. So, each year the amount of money going from the UK Government to match that will increase. We’ve got figures here that we can let you have, and the figure that we use all the time is £337 million.

That £337 million—I think I’m saying the same thing—that’s consistent—

Well, if you have an argument between yourselves, that’s fine. That makes it more interesting.

That’s consistent at £337 million. That was, I think, a quote for the lifetime of this Parliament. So, I’m taking that to go through to 2024.

Can I just come in? So, in regard to the Welsh Government’s assumption that they’re £243 million worse off in terms of the rural development programme, you would say that’s poppycock.

Well, with all due respect, where are they getting—?

Yes, it is poppycock. I believe that what they’re probably trying to do is to assume that they’re going to get £337 million plus tail-off funding from the EU for some years to come. 

13:25

You're always helpful. [Laughter.] Thank you, Mike. 

Right, I'm going to move on to some of the criticism that has occurred in regard to astute organisations, whether it be within the UK parliamentary select committee, whether it be through BEIS, whether it be through a number of others that I could articulate, in terms of criticism around not just levelling up, but in terms of the shared prosperity fund and the precursor, the community renewal fund. The House of Commons Public Accounts Committee has suggested realistic bids to the levelling-up fund might be missing out to shovel-ready projects—I think you know what I'm referring to—in terms of the way funding has been allocated, in terms of blurred accountability and in terms of the methodology that's been used. And I take on board that the community renewal fund was the pilot and you are learning from that in terms of the shared prosperity fund. So, the levelling-up fund might be missing out to shovel-ready projects. The Welsh Local Government Association also told us that timescales could compromise bid quality, and the Welsh Government has suggested there's a scatter-gun approach, which has been referenced by others, to the community renewal fund. So, my question, really: do you recognise any of those risks in terms of what I've inferred from others? And how does the shared prosperity fund avoid these issues?

I can articulate what various people have said in terms of their criticism, if you wish me to. 

I mean, are we going to be able to sit here and say that every single one of these schemes will go swimmingly, every single one will be on time and on budget and there will be no lessons learnt because we got it all right in advance? Answer: 'no'. And anybody who sits here and answers 'yes', I suspect you need to cross-examine them under further detail, because we know full well from experience that, with these things, there can be unforeseen interventions—for example, a pandemic—that can put the timescale and the budgetary consequence for that well off course. What I would say also is that, although it's an expression we use, I don't think there is such a thing as a shovel-ready project, because, inevitably—. I can't think of a single project under these schemes, or their predecessors, where there is literally a team of builders and JCBs parked in a lay-by waiting for a decision to be made whereupon they can instantly start. By 'shovel ready', I think it's more realistic to say that, once a scheme is approved, you can instantly go into the advanced business planning stages, or planning application regulatory hurdles, environmental considerations, rather than necessarily starting to dig a hole. And I think the idea that there is an ability to do that I think is just fantasy, frankly. But there are a number of the schemes that we've identified and we've had come in by way of bids from local authorities across Wales—I think there are a few that are reasonably under way now, if not in the planning stage, in the actual implementation stage. That's actually incredibly encouraging, given the tight timescales.

But my last point is that I really do have faith. I possibly have more faith in stakeholders and local authorities than I have in select committees and some of our colleagues in assessing what is possible and what isn't. And I have to say, of the 21 out of 22 local authorities that were successful in the first round of bidding on one or other of these schemes, we have received almost nothing but an enthusiastic reaction: 'When can we start? Where can we apply? What can we do? How can we access this money? How can we build, repair, upgrade, alter—?' whatever it is that they want to build or upgrade in the timescale. There has been, I think, an extraordinary level of optimism and enthusiasm, and I think we want to harness that. We will all learn some lessons from it, I have absolutely no doubt, but I don't recognise the Public Accounts Committee's slightly gloom and doom about a new scheme that has got many millions of pounds at its disposal. 

Okay. I gather that—. I understand that you're hinging this on the reception of new money coming forward, and I'm sure that they'd be very happy—any local authority or any organisation would—in this agenda to actually receive anything. If I just quote for you, the Business, Energy and Industrial Strategy Committee said that the funding available is disparate and lacking in any overall coherent strategic purpose or focus. Is it not true to say that, when you have got bids that are coming to you on a short-term basis that have been selected on a short-term basis, you are going to have a lack of cohesive strategic objectives? Because, quite frankly, I am in one of the most deprived areas of this nation of ours in Wales. They weren't able to participate, despite Objective 1, 2 and 3, in community renewal funding, and the shared prosperity fund later on. So, quite frankly, Rhondda Cynon Taf and Caerphilly have been left out of this. How would you defend—?

13:30

RCT—. I think RCT was the most successful local authority in round 1 of levelling up.

The community renewal fund I'm talking about, and shared prosperity fund. 

There is a much larger pot of money in levelling up than there was in community renewal. 

Well, let's just stick to my questioning to you, which is around the strategic focus in terms of building that levelling-up agenda that we all want. That is the BEIS select committee. 

Well, again, I think that underestimates—with all due respect to my colleagues, I think that underestimates the nous of local authorities in Wales. I keep finding this. I find it odd that there's always this resistance to local authorities being able to make some coherent strategic decisions, not only on part of their own region, but also in conjunction with neighbouring local authorities too. I saw my own two local authorities, Pembrokeshire and Carmarthenshire, instantly joining forces, in a way that I hadn't seen, really, under previous incarnations, and come up with some really innovative new schemes that joined the two authorities together, looked at things on a regional basis, accessed the money in a sensible way, ticked all the boxes about net zero, about job creation and job sustainability. And frankly, I think that we're doing our local authorities a disservice by suggesting that somehow they need to step aside and let the grown-ups in, i.e. Welsh Government or even UK Government. We don't subscribe to that view.  

Okay. I mean, there's been—. I'm not going to major on the point, but there's been no funding or decision-maker power that's been devolved to Welsh local authorities in this regard. I'm going to move on to my next question, if I may, Chair, because I'm conscious that I'm taking up time. Initially, the levelling-up fund was due to be an England-only fund, as you understand, and result in an £800 million consequential for devolved nations. Why did you change that approach, bearing in mind the conversation that we had earlier?

Well, given that we ended up getting 7 per cent of it—£121 million—which is well over the 5 per cent base mark, I'd have thought that it was a good thing we did, isn't it? 

Thank you. The levelling-up fund includes a specific role for MPs, who are expected, in regard to this fundamental question around virement of authority, to back a bid they see as a priority. What consideration was given, in the same vein, to involving Members of the Senedd in a similar way, and what do you see as the role of Members of the Senedd in these funds, bearing in mind that there is that engagement with English MPs on this matter that isn't reciprocal to Wales? 

Well, it's reciprocal to Wales insofar as 40 MPs who represent Welsh constituencies are part of the—[Inaudible.]—

—and by the way, who never were under any of the previous schemes. So, this is a new venture; involving people on the ground who are directly accountable to voters is something I think we should all celebrate. It is a UK-wide scheme, so I'm unsurprised nor am I concerned that it involves the UK Parliament in its current incarnation. As I say, that involves 40 Members of Parliament representing Welsh constituencies. But there is absolutely nothing to stop—I hope the evidence supports this—Senedd Members—indeed, anybody else, local councillors and others—from making their feelings, as I know they have, very strongly to local authorities as part of the bidding process. As I say, I think we've come a big step forward.

Yes, I'd echo that. Forgive me; I just wanted to go back, actually, to one of Ms Passmore's previous questions, because I detected an implication that perhaps local authorities, in her opinion, didn't want to be involved in shared prosperity fund projects. 

Because I just wanted to put on record that, actually, I've spoken to a lot of local authority leaders, including some Labour ones, and they all seem very keen to work with the UK Government. I'm not aware of any local authority leader—and I've spoken to many of them—any local authority leader in Wales that has ever said to me, 'We don't want to be directly involved in bidding for shared prosperity fund projects.' They all seem absolutely enthusiastic.

13:35

That pertains to my wider point, which is around the strategic co-ordination and the fact that there's no funding or devolved decision-making power around that. I've asked my questions, Chair.

Well, devolved to a local authority, perhaps.

That's the key point. That's actually the key point.

Devolution, I've always said, doesn't stop in Cardiff. Devolution, for us, should extend to the 22 local authorities. That's the true definition of devolution, and that's what we're doing.

Which we thought was Welsh Labour's policy as well. So, we're kind of trying to echo what the Senedd is trying to achieve.

There's a slight missing middle in there. Okay, Chair, we'll have to agree to disagree.

I have written extensively on the importance of devolution not ending in Cardiff and it going down to the local authorities, and Peter and I have talked about it on numerous occasions. But what I want to ask you about is city regions and growth deals. I'm very enthusiastic about the city regions and growth deals. I was very pleased with the Secretary of State saying about Pembrokeshire and Carmarthenshire working together. Pembrokeshire, Carmarthenshire, Swansea and Neath Port Talbot, despite different political leaderships, have worked very closely on the city deal, which is taking longer than any of us wanted, but is moving in the right direction. Are you committed to spending some of the levelling-up money into the growth deals and city regions, because you've got a bigger area and there's the capacity for doing more good in those bigger areas?

Do you want to go on the city deals?

It's not for me to make policy, Mr Hedges. What I would gently suggest is that, at the moment, the Cardiff capital region growth deal is going very well. The north Wales projects are now starting. I think it's probably widely known that the digital signal processing centre will be opening shortly—I don't think I'm giving anything away there—and others will be following. Swansea, as well—we saw the superb Swansea bay region. But what I'm getting to is that I don't think—I, personally, think—we'd be open to that suggestion. Obviously, I think there's some flexibility around how shared prosperity funding is going to work, which would enable local authorities to work within their growth deal areas to put in bids for projects that straddle local authority areas. I think there's an expectation, actually, that will happen. So, I think the answer is there's plenty of flexibility there, but I think just pouring it straight into growth deals, we'll have to see. We'll have to see how—. For example, the mid and west Wales growth deal is still in its infancy at the moment, and it doesn't appear that we're anywhere near to seeing the £15 million by the UKG being spent on projects yet. So, they're all at different stages, but I don't think we're against that suggestion at all.

Sorry, I didn't make myself clear. I put two things together without having the full stop in the middle, perhaps. What I meant was using those areas for levelling up. So, they wouldn't necessarily be part of the growth deal, but doing things that would benefit the whole area rather than just one local authority area.

Well, it's at two local authorities. Local authorities can already put in a joint bid, I believe, with other local authorities for a major levelling-up project. Whether they could work over the whole—what is it, it's 10 in south Wales—I think the answer is probably that isn't expected at the moment, but it would be expected for shared prosperity fund money, which will be following shortly. I don't think it's a bad idea. I don't think we have any political disagreement with your suggestion; it's just it's not happening at the moment.

No, and I think the one thing we're trying to be is reasonably flexible on this. For example, when we publish jointly with Welsh Government the prospectus for free ports—coming out soon, one hopes—that will show the degree of flexibility that we're prepared to inject into these policies, because it will be a different prospectus than the one launched in England, Scotland and Northern Ireland, and that is to reflect the input of Welsh Government and also the input of stakeholders as well.

So, the Department for Levelling Up, Housing and Communities—Michael Gove's department—and ourselves are very keen to not be too prescriptive about these things. We may well want to adapt and evolve the policies as we go forward. If there's strong representation from local authorities about wanting to pitch into these particular schemes on a wider basis, we're up for that. And, by the way, we're also up for it in terms of cross-border activity too. Because we've had a lot of—. For example, the Mersey Dee Alliance, we've had a lot of interest from local authorities who straddle, or whose economic area straddles, the border on how can they operate together, and I don't think we would want to preclude that either.

13:40

Thank you. The Welsh Government suggested that meaningful engagement around the shared prosperity fund only occurred in the two weeks before the prospectus was published. 

I neither know whether it's right or wrong, I'm just saying what they've said. 

I think, sometimes, the level of co-operation, particularly at official level, often goes back longer and is more meaningful than sometimes the press have us believe. And, for me, whether it was two weeks or three, or two months, I couldn't give you a direct answer here, and it will all be recorded.

I think the relationship has been okay. We have some fundamental disagreements on some of the ideology, I'm sure, but the idea that this—. We've been talking about SPF with Welsh Government for as long as I've been Secretary of State, sometimes through the medium of BBC Radio Wales, but, actually, it almost makes it sound like it was a surprise. And it definitely wasn't a surprise. And we've tried to incorporate—. I've got nothing against—. It's not a tribal difference this. 

In much the same way as what they asked us to ask you, we'll ask them; we'll do it the other way around. We know that if the shared prosperity has worked, the relative gross value added in Wales will go up. We can talk around it—there have been great projects, but the relative GVA is the bit you measure. If it goes up, you've done well; if it goes down, you've done badly; if it stays the same, you've made very little difference. But one of the things within that is that we've got some relatively poor areas in Wales. Not since the 1960s have we actually had a regional policy that has benefited those regions, and part of that was because the UK Government started moving big Government departments out, like into my constituency, where some of your constituents come to work—the Driver and Vehicle Licensing Agency. 

Yes. We've gone a little further on that, as you know, with what we've called Places for Growth, which is, at this stage, a large civil service hub in Central Square up the road, with capacity for 4,000 civil servants from different departments—in fact, every department. We've tried to get representation from every department, over time, of Government in there, particularly over things like levelling up or shared prosperity. Instead of Welsh Government or local authorities having to deal with what can sometimes feel like a rather distant entity in the form of DLUHC in Whitehall, those officials—they already are, in fact—are recruited in Wales for Wales, and based in Wales. And so that will, I hope, give people confidence that there is a better, if nothing else, geographical understanding. We want to replicate that in north Wales over time, because we're conscious that there is a very different economic ecosystem, and we don't want everything to be south-east Wales-centric. 

I think whether the measurement of success is purely if it goes up it's good, if it goes down, it's bad—I think, in a time of economic uncertainty at the moment, where the unknown influences of the war in Ukraine, and post-pandemic recovery are probably having an almost unheard of impact on economies, suppressing decline is actually also a success, we would argue. So, I don't want to be too precise about the measurements of success or failure. 

And the last thing is, and where we did have a disagreement with Welsh Government actually, was over the criteria of distribution. And the reason I raise that is that, under the Welsh Government proposal, there was, we felt, too much emphasis on south and south-east Wales, and not enough emphasis on mid Wales, rural areas or north Wales. And so we did hold our ground on that and we reached an uneasy truce, but we felt that levelling up was levelling up, and that that didn't mean pouring a vast proportion of the resource into one particular region. We wanted to recognise that there was hardship and deprivation in other parts of Wales too, and we wanted to recognise that. 

I think, broadly speaking, around 30 per cent of the formula was based on the Welsh Government's Welsh index of multiple deprivation. So, we did take account of what Welsh Government were saying. But based on knowledge of, for example, the local government funding formula, which does seem to favour certain areas over others, and doesn't take full account of poverty, I think it's right that we look to come forward with a slightly improved formula. 

If we had enough time, we could discuss the local government funding formula, but we've got nowhere near that amount of time.

13:45

It's a niche area, but I was actually involved, back in the early 2000s, in the discussions around the formula that is currently being used, and I'm quite well aware of some of the failings of that, and I certainly didn't support it at the time. But anyway, that's another matter.

I was on the other side of the table, representing Welsh local government, but—

Just on that point, are we saying, then, that—? I know that the Welsh Government were concerned they hadn't had a lot of influence over this, but they've put forward alterations or a formula or suggestions. Are we saying that, if we'd adopted their formula, many authorities wouldn't have the levelling-up benefits that the current allocation formula will have?

My understanding is that that is correct. I've got a whole list of figures here, which I don't think I'm going to be able to read out, in terms of an answer—[Interruption.] 

Yes, we can. From memory, having seen this before, I think large parts of north Wales would have lost out as a result, had we simply used Welsh Government formula. But perhaps my boss can—

We will share this, but, basically, what it shows is the distribution graph by local authority, according to Welsh Government's 70 IMD, 30 per capita—a different methodology to ours, which is 40 per capita, 30 community renewal fund, 30 IMD. And in some areas, for example the Vale of Glamorgan, Swansea bay, that's all negligible difference, negligible difference. In other areas, like Powys, it's a significant difference, and in north Wales, it's a significant difference. And indeed, my own area—to just show that this isn't all some massive stitch up—is slightly worse off under the UKG model than it would have been under the Welsh Government model. But a lot of them are actually pretty similar—in a lot of them, it doesn't make a lot of difference at all.

Another interesting one here, now that I've had a chance to have a look at it, is that Cardiff would have done much better using the Welsh Government formula than north Wales. And we think probably it's better that north Wales, which has been losing out for many reasons over the years, does better, and that's what the UK Government formula has ensured.

I think the census has just shown us which areas are doing well and which areas are doing badly. And I speak as someone from Swansea, whose population fell slightly—if I look west of Swansea, I know there's an awful lot of depopulation taking place. So, two points, really. One is: Secretary, you and I will probably both agree that more money into the south-west Wales area, to increase prosperity there, is important. And it's not just about Swansea, it's about the whole of the area—from the Preseli hills to the edge of Port Talbot.

I agree with the overarching point that you're making. I think the area, which we can have a much longer conversation about—and probably shouldn't do here—is the best way of achieving that. Clearly, long-term, sustainable, well-paid jobs is what drives our enthusiasm for these schemes. That's why we're keen, for a number of reasons, on the floating offshore wind potential of the Celtic sea, why we're pushing that as hard as we are. There are numerous other reasons too, around energy security and net zero, which are clearly important. But the trap we mustn't fall into, I believe, is creating a false economy in west Wales that isn't based, as I say, on sustainable, well-paid, skilled jobs. Because you're right—depopulation is what we want to avoid. The ways of making sure that we shore up that jobs market, create new opportunities, is absolutely mission critical to this.

Can I just come in briefly, just on a comment you made earlier about the hubs and the levelling up and creating 4,000 new jobs? How many of those jobs will be lost with the announcement from the Prime Minister that he's going to be cutting 91,000 civil service jobs?

By the way, I don't think I said it was 4,000 new jobs. If I implied that, I didn't mean to. It's an opportunity for 4,000 people to work in Cardiff rather than London. And so a number of those jobs will be filled by people who move, rather than people who have just come into the job market for the first time.

To answer your question about the civil service freeze, I think that, again, we probably need to be objective about this. Most of the reduction in civil service numbers will be achieved over a period of time as a result of voluntary redundancies and reassignments and also a slowdown of recruitment. The idea that there's going to be a whole lot of civil servants who are doing valuable work for the nation lined up and sacked, I think is—that is an exaggerated way of describing the situation.

What we do want to do, and I think most people seem to think this is sensible, whether it's a private business or a public body, is just to make sure that we don't allow ourselves to become too inflated in terms of capacity. And I can't remember—I think the figure was 91,000, but we have 91,000 more civil servants than we had four years ago, five years ago, something like that. So, it's quite a substantial increase. And, by the way, a lot of that might be entirely justifiable. So, this is more of a review of the situation—a slowing down, taking a new, fresh look at ways in which we can provide cost-effective government, rather than a slash-and-burn approach to people doing valuable jobs, but particularly, we would argue in Wales—

13:50

Going to Mike's comment about levelling up in an earlier iteration, in the 1960s, and moving civil service jobs, surely creating levelling up using civil service jobs does create some economic benefit in Wales.

Unquestionably, but what I—. I think what we don't want to end up with is outstations, Whitehall outstations, the idea that everything that matters is based in Whitehall, but then you can go and work in the DVLA in Swansea or HMRC in Cardiff. Actually, the purpose of the hubs is to provide a career path for people to join the civil service from university or from college, or wherever it might be, and then to work their way right through the whole system. You could go from the Wales Office to the Cabinet Office to the Ministry of Defence to the Home Office and never leave Central Square. And you can become a Permanent Secretary based in Cardiff rather than have to go and operate out of SW1. That's the difference, I think, between what Mike was saying around the DVLA, important though it is, and what we're talking about, the Places for Growth. This is about an opportunity to pursue a lifetime career in the civil service, in different departments at different levels, and we just think that's the next generation of DVLA and that, hopefully, will make it more attractive. And also, there are people in Wales who might have thought, 'I don't want to go and work in London. That's the last thing I want to do, so I'm not going to join the civil service. I'll go and do something else.' Actually, we're now providing an opportunity for people to pursue that career and live in their own country, hopefully.

Thank you. First of all, something I should have said at the very beginning: thank you both very much for coming along. I am very grateful. I might not agree with what you're saying and you might not agree with what I'm asking, but at least we're having a conversation, for which at least three of your predecessors were not available. So, thank you very much. Will you be prepared to come along and talk to us again as we start making our way through this, because I think that would be helpful as this should not be a one-off? This is something that we want to keep on doing—

We're really keen to do that. I have absolutely no—. In fact, I think it's hugely helpful to us, to be honest, to come here and—. Like you, we might not immediately give out any outward indications that we have learnt many lessons from your contributions, but privately in the car back home, we'll be saying, 'That was a good point.'

My final point is on universities. Again, I believe universities are great drivers of economic success. You look at some of the universities, not just Cambridge or Cornell in America or Heidelberg in Germany, but look at other universities like Warwick, like Bristol—universities that are comparable to Cardiff and Swansea. What support are you going to be giving? I'm not sure if it comes under you, but I'll ask it anyway, and you might want to write to us afterwards: in a post-Horizon Wales, how will Cardiff and Swansea—the two great research universities—and the others—Bangor, Aberystwyth, Glyndŵr, University of Wales Trinity Saint David et cetera—how will they benefit in terms of funding, because universities in some parts of the world are the real drivers of their economy?

13:55

I think we are absolutely in the same place as you are on your last point, and somebody once said to me that there is no economy that is successful without the role of universities and research and development. That is fundamental to a vibrant economy, and I think that we're in the same place on that. We're trying to make as much use as we can of the university sector in Wales in terms of—I hate the expression—stakeholder engagement, and certainly I think that they have been involved in a relatively informal way with some of the levelling-up bids with local authorities—quite a good building of relationships, probably based on already very good relationships. If you take Swansea as an example, I know its relationship with the city council and the wider local authority is pretty good. I was looking at a project on Monday of this week, which had absolute potential. I'm not sure I'm allowed to mention it, but all I can say is that the potential collaboration between Swansea and this new, potentially huge, project in the area could be absolutely fantastic and also add quite a lot of diversity to the Swansea offer.

On the question of funding, that is of course a devolved matter, but—

Oh, and Horizon. Yes, there is a Horizon point, and I may get corrected on this. I think there is some—

Yes, I think we might. It's all wrapped up with the Northern Ireland protocol, which is an area of some sensitivity.

I'm asking this because I want the answer, not because I want to try and embarrass you.

Yes. If you're happy for us to write to you—

I think the Government have guaranteed funding for anyone who's already been accepted onto a Horizon project. May I, at the risk of stoking some controversy, and whilst agreeing with everything Mr Hedges has said about the potential economic benefits that universities can bring, just gently also say, as a non-graduate of any university, there are some fantastic apprenticeship schemes going on with companies in Wales like BAE System, Airbus, General Electric, all of whom I've met? I would probably embarrass all of us if I said the sort of salaries that are being earned by those on the top apprenticeship schemes at Airbus, for example, which are considerably higher than what a graduate going out of university would get. So, you know, I would plug those. Those companies are superb, first-rate companies, and if I were an 18-year-old, I'd be looking very much at getting an apprenticeship with a company like that, as well as weighing up the advantages of university.

I agree with you entirely, and if we had a lot longer than we've got now—because I could use the hour and a half up quite happily on my own—there is also the growth of places like Aarhus and Mannheim where they have schools of entrepreneurship, run by the university. You don't have to be in the university, but you can go there and you can learn about entrepreneurship, which Swansea University dipped its toe into back in the 1980s and then pulled its toe out again.

Well, I think we're the only ministerial team that doesn't have a degree between us. [Laughter.]

That will be the headline tomorrow, won't it? [Laughter.]

I know we've taken your lead of 90 minutes, and we're very grateful. We only had you down for an hour, but seeing as we haven't come to your party colleague yet, then I'm going to come to Peter and beg your indulgence to stay a bit longer.

I'm in good company. I have no degree either, and I also agree with David about BAE. I went there myself the other day and met one of the chief people there, who'd come right the way through from apprenticeship through to—. He's probably in his late 50s and was now managing the whole of this—. And I think this just showed the potential of quality apprenticeships. 

I just want to reflect back slightly on some of the earlier conversations, because it was interesting, yesterday I spent some time with a local authority—one of the local authorities in my constituency—who wanted to share some of their thinking around shared prosperity fund projects, and as a local MS, they wanted to engage me in that process, and they were full of enthusiasm over the process, and what I was trying to ascertain from them as well was, where there were like-minded schemes across a region, whether there's an opportunity for a regional bid to be put in, in that regard, and apparently that was the case as well, so that made a lot of sense. So, acting as a region, be it—. It may not be the Cardiff capital region, for instance, but that same entity of local authorities. It looks like there is that regional opportunity to work as well as those individual schemes, which was really positive, I thought.

But anyway, only a couple of questions, if I can. It was just really to understand a little bit more how the Multiply programme will work in Wales and what role the UK Department for Education might have in it.

14:00

I have some figures here, Mr Fox, which I'll rapidly turn to, but basically the thinking behind it is that a lot of people are not getting level 2 mathematics. In order to drive forward economic growth, we need to increase mathematical skills. There's going to be £101 million allocated to Wales on that. I understand that the project will be taken forward in two ways. One is there's going to be an online platform that anyone will be able to access, and let's be honest, who couldn't benefit from a slight increase in their mathematical skills? I don't mind admitting that I'll be looking forward to having a crack at it myself. But there also will be actual live programmes and study groups being set up in all areas to support people who are perhaps finding real difficulties with that. So, that's basically how it's going to work.

And so the Department for Education will have some supporting role in that as well?

My understanding is that they've worked at an official level with the DAs to share policy development on Multiply, so I believe that there is a relationship going on at official level there.

Can I pick a point for clarification, if I may? So, to be clear, education being a devolved matter to Wales, this is going to be dealt with at UK level. And also, is that out of that £100 million—

—which is great. Is that coming out of the £585 million shared prosperity fund—[Inaudible.]?

In answer to your first question, the devolved administrations are going to be invited to participate in the UK-wide—

Not to date, but it's been set up, and they'll be invited to participate in the UK-wide ministerial forum and to work with strategic geographies on the development of the investment plan. So, basically, they'll be invited to work at official level with the—

Sorry, can I stop you there? Sorry, I don't quite understand. Obviously, we have devolved areas in Wales.

There is a feeling, and I think we all share it, that we need to improve mathematical skills, and I think the devolved administrations would agree with that, so I'm hoping that they will be able to be happy to co-operate, bringing forward—

I think at the moment, there's about—. I think the current commitment to adult numeracy is about £4 million, which is a significant uplift in terms of funding on the one hand. On the other hand, it is a UK-wide ambition to improve adult numeracy, and the Welsh Government will be part of the ministerial forum that takes this forward. And if this was just to become an argument about is it technically within or without the terms of the devolution settlement, that, for me, is losing sight of actually what we're attempting to achieve, and we're not attempting here to come up with some kind of complicated constitutional conundrum; we're actually trying to improve adult literacy levels, and I think it would be nice, if when we're sitting here talking about £100 million investment into this scheme, which we want to do jointly with Welsh Government, that it somehow didn't happen because of a constitutional nicety. I think that would be a pity. This is a nice problem to have—£100 million; that's up nearly £95 million on any previous funding package for this area. We have no problem at our end involving people from Welsh Government in the process; indeed, we'd like to.

But to be clear, you've not involved them so far, even though it's a devolved functionality. And you haven't answered my second part—sorry to interrupt you—which was out of the £585 million shared prosperity fund allocation, is the £100 million—which is wonderful, great—is that then deducted from that top slice?

It's an interesting—. When you say 'deducted', it almost makes it sound like that's somehow been taxed out of the system. When you look at the aims of Welsh Government and the aims of UK Government in terms of adult numeracy, and indeed some of the other areas we're talking about, by and large, they're pretty well the same; it's actually about improving people's life prospects. And we agreed—

Yes, but—quite. And improving people's life prospects, as David indicated, is often about improving their numeracy skills. So, we are in danger of having an argument about something that we agree on.

No, we don't disagree on the aims. My question was really simple, it was just a 'yes' or 'no', really. It's a devolved function—you've agreed that, I think. You've not participated so far in discussions on a devolved area for this Senedd, and I still don't quite understand if you're saying to me that that £100 million is included within the £585, or is it additional, so it should be £685 million?

14:05

My note says, 'The Department for Education has worked with the DAs to share policy development on Multiply.' So, either we're wrong or Welsh Government's wrong.

But, again, we might need to clarify that.

I'm not sure. I think it probably is, but I'll—

I think it is, but I will find out for certain.

[Inaudible.]—if you've got numbers, can you show us what they are and where they come from?

I think it is. I think the answer is—I think it is. 

We can supply you with lots of them.

Just on a bit of that and a bit of the shared prosperity fund. Who takes responsibility for the shared prosperity fund, for the success of it? Is it the UK Government?

It's a UK Government scheme run by the department of levelling up.

I suppose you could argue it has the same role it has in pretty well the rest of the whole spectrum of Government. It has responsibility, obviously, in areas that are devolved. We have a responsibility in areas that are reserved. There's always a little bit of an overlap in the middle, which seems to be the source of, sometimes, I think, rather unnecessary tension. But in my experience, Welsh Government has never been shy, nor has the Senedd in its wider incarnation, in expressing an opinion about the performance, or otherwise, of UK Government. So, imagine that will continue.

May I just also add, Mr Griffiths, that the UK shared prosperity fund prospectus includes a list of stakeholders who should be involved in discussions. Those stakeholders, of course, include the Senedd and Senedd officials.

I'm just thinking—. So, we know the 'who' and the 'how'. It's how, then, do we here make sure that, from a scrutiny point of view, we're giving it due regard and scrutinising it well? It's great to have you here. It's been more problematic to get other Members of UK Government to come and talk to us. Having that dialogue obviously helps, because, obviously, we're having a very informative discussion today.

Can I reply very cheekily? We're very happy to come here, and other departments, it's a matter up to them, but we're very happy to come here and argue our corner. We're very happy for Senedd Members, either in their constituency capacity or in Welsh Government capacity to raise concerns and to express views about whether our policies are beneficial for the population of Wales. I would always like to suggest a reciprocal arrangement where there are devolved areas. And I know when we've suggested in the past perhaps we could express a few views about one or two things perhaps going on within NHS Wales at the moment, that's met by a very stony stare by Members of Government who say, 'That's a devolved matter', and it's nothing to do with us. So, it takes two to tango. We are very happy. 

We will do out bit, but maybe when you get a Welsh Government Minister in front of you, you could persuade them to do—

Well, I do tend to ask what questions should we ask the others, so it would definitely be a question. So, you'll see from—

Well, I've only got one I think, which is—. Well, it's not a question, it's a statement, really, I suppose, which is: stop being quite so paranoid. We're trying to do the same thing here. We're trying to achieve the same outcomes. We're trying to improve people's lives. We're trying to get the most deprived areas in Wales more prosperous. We're trying to hit our net-zero targets. We're trying to create a fairer society. Actually, 99 per cent of the things we're all in our respective Parliaments trying to achieve are common to us both. So, instead of it just being one long and rather tedious political sort of like two dogs circling a bone, let's actually do some of these things together. You never know, we might find it works, and the public would love us.

May I suggest two, Mr Griffiths? One is to ask Ministers from the Welsh Government if they will be sitting on the UK-wide ministerial forum, which is going to be set up to support delivery of the shared prosperity fund. Because, after all, it's a bit difficult—. Well, it's a bit surprising to me that Ministers appear to be complaining that they're not involved in this when they're being invited to sit on a forum that is charged with establishing it. Because I suspect that time may run short and I won't get a chance to add this, I think that, going back to the crux of what this is all about, the key question that I think should be asked of a Welsh Government Minister is this: whether they accept that, over the course of the next spending review, there will be £337 million a year to spend on agriculture in Wales and £343 million to replace the structural funds, through the shared prosperity fund, because those are the two key figures. And we've maintained all along that there will be, and we've published those figures, and the Welsh Government are trying to, I think, or perhaps inadvertently are causing some confusion by suggesting that they're losing out on funding. Because they seem to be expecting to get that £343 million and £337 million and the tail-off funding on top, and that's not something that was ever suggested.

14:10

So, maybe if you have Vaughan Gething in front of you, you could ask him to possibly alter his policy where he says to local authorities that,

'Welsh government will not help deliver UK government programmes in Wales we consider to be flawed and will not deploy resources for that purpose.'

Actually, we think the correct answer would be to engage, to persuade, to lobby, to cajole and to co-operate and collaborate in making sure that, where there are differences, we can iron them out and achieve the same aim. So, rather than teddies out of the cot time, why not actually, 'Let's engage in a slightly more grown up way of resolving some of these differences'?

Can I just follow up, Chair, because I didn't understand the answer? And I've heard what you've just said. In regard, then, to the ability of this place to be able to effectively scrutinise UK Whitehall civil servants or Ministers in regard to determination around the levelling-up fund, because that is a distinctive shift away from this place and its previous ability to control the funding spend and allocation from Wales, in Wales, according to the priorities of the Welsh Government, can I just ask then—? I didn't get the response from the Chair, which was—. Not the deflection around Welsh Government Ministers being reciprocal. But you've been absolutely upfront and you've been here today and we've had our dialogue and we've had our disagreement—and it is a disagreement—however, we've had that opportunity, so, because you have been here today, of your choice, what enables us, as a Senedd, as an institution, to be able to do that more widely in this regard? Because I think that that's a fundamental issue, if you truly want that dialogue that you speak of.

Well, Ms Passmore, I don't think a select committee in Parliament can compel very easily a Welsh Government Minister to appear in—

Okay. I mean, obviously, Ms Passmore, you have the ability to call on UK Government Ministers to appear before this committee and we will come. You also have the ability to call on local authority leaders to appear before this committee—

—and they will come. And as you've demonstrated amply today, you have the ability to ask them any difficult question that you want, so what more can we do?

Can I add to that question? The areas that are devolved and the areas that are reserved are well-known and, by and large, pretty clear. In a sense, your question is: what can you do to scrutinise and influence Government policy in terms of the levelling-up agenda that we've been talking about, or shared prosperity? The same would surely apply to other reserved matters, whether it's the Ministry of Defence, crime, criminal policing, criminal justice, the Department for Work and Pensions—all of those other things. And I think that, in a sense, I may put this strongly, but if you're saying that there should be a more formal and binding means of intervention, that's basically detonating—that's blowing a hole in the devolution settlement. And that's what you always accuse us of doing.

No, I'm sorry, Chair, that's paraphrasing what I've just said, actually, with the greatest respect. What I'm saying is, in terms of European structural funding and in terms of the ability of Wales to determine for itself where that money goes, so, for instance, on a poverty-based model—

Sorry, if I could just finish, because you didn't understand, with respect, Secretary of State, what I said.

Which is that we could do that previously and now we can't, so it's not about the wider non-devolved functionalities.

But that's not because of an alteration to the devolution settlement, that's because of an alteration to the nation's view about remaining a member of the European Union. That's what's changed. The devolution settlement hasn't changed, but what happened was that 54 per cent, on average, of the residents of Wales decided, along with the rest of the UK, to leave the EU. The consequence of that was that there are now vast sums of money that are going to be administered within the UK rather than within the European Union—

14:15

And determined from Wales.

You make it sound like it was all administered purely by Welsh Government. Actually, hands were tied somewhat, actually, by the terms and conditions imposed by the EU.

Okay, we're not going to agree on that—

I think, to be fair to Peter, he was in the middle of asking questions and we've segued, so—.

I'm conscious we've gone over the time we said, as well. Let's give Peter his—.

I'm obviously a new Member to the Senedd, but as I understood it, I don't think the Senedd had too much influence on how EU funding was spent prior to—

—and we've probably got more influence now over the shared prosperity fund than we would have had before, but I don't know, I wasn't here.

Mr Fox, you made the point I was about to make, which is that, having sat here myself, I can't remember EU officials being summoned to any select committee of either the Senedd or the UK Government. They came occasionally, and my impression is that when they did come, they expected a red carpet rolled out for them and to be treated with a great deal more deference than they, frankly, deserved, and far more than we get or deserve or ask for.

We absolutely are, Ms Passmore, we are. And I can promise you, from the bottom of my heart, I quite actually enjoy these sorts of sessions, so I will always be angling to come if I can. I can absolutely assure you that it will be much, much easier to persuade a UK Government Minister in the Wales Office to come and give evidence at this select committee than it would have been to persuade a European Union official or a European Union politician to come and give evidence on the same issue.

Using the opportunity we have to influence things now, then, one of the things we're conscious of with the shared prosperity fund is that it currently requires any underspend to be returned annually, and I know the WLGA and the Welsh Government suggested that the ability to move funding between projects and financial years would be really beneficial. I wonder if there is any option for underspends to be treated more flexibly going forward, or is it going to be pretty well fixed?

I can read you the official position if you want me to. 

'In England, Scotland and Wales, we will consider withholding the next annual instalment until we have received credible plans setting out how the lead local authority will utilise underspends in the next year and/or appropriate milestones and spend have been achieved for the previous year.'

However, and there is always a 'however',

'No funding will be provided for activity after 31 March 2025 and we will expect underspends in the final year of the programme (2024/25) to be repaid to DLUHC...spending can also be backdated to 1 April 2022.'

Ah, I don't know. That's another thing to add to our follow-up.

Because, if, say, Peter, when he was leader of Monmouth, was building a road and you gave him £100 million for the road and he'd spent £70 million, but signed a contract for the other £30 million, it was in the accounts as having been spent as an accrual, but it hadn't actually gone out through the door.

Yes, it's a very good point. Can we come back to you on that?

Just a last point from me, I think. I just wondered how the UK Government is helping those organisations that previously received EU funding to help them transition under the new funding arrangements. I'm conscious that a number of those have uncertainty going forward, if they were on other previous schemes and things.

I think the short answer is that they would have—. When their contracts were put in place, they would have been promised the funding over a certain period of time, which wouldn't necessarily have been when we left the EU, but when the tail ran out. So, it will be for them, if they were—. Some of them might have been able to apply under the CRF, which I understand was used not so much for infrastructure as to pay for projects that might be seen as a forerunner to projects that may come in under the shared prosperity fund. So, some might have gone that route, but others will have to make their case to their lead local authorities, and I'm sure they'll be doing that.

And I think that's reflected, Peter, in the fact that the tail-off numbers actually go up, and that's to account for incomplete projects and all the lifespan of the project. It's interesting that, in Scotland, those figures on the tail-off is almost zero; actually, in Wales, the tail-off is fundamentally different because schemes were entered into, probably quite cleverly actually, towards the back end of the timescale, in order—. And that's why the tail-off is much more significant in Wales than it is in Scotland.

14:20

Thanks very much. That's all from me and I'll just really thank you for coming to see us.

Thank you very much. I've got one small question before we finish: what have been the key learnings from—we've had the two funds coming through—what have been the major learnings so that you've adapted your approach between the two, and are there ongoing learnings that you'll be taking on board?

On levelling up and shared prosperity?

Well, shared prosperity, obviously, this is the first time out, so—

On levelling up, on the upside, I think we surprised ourselves actually at how simple the process was. I think local authorities were grateful for the simplicity of being able to make applications, get them processed and turned around in a relatively short space of time. I think one of the things that we will—. I think one of the lessons that we learnt is that in one or two places, not to be named, those funds looked like they were being used as a sort of contingency budget for local authorities' building spend. And so, there was a tendency to bid for upgrades to the county hall, or whatever it might be, and that's not really the purpose of the fund. The purpose of the fund is job creation and numerous other objectives, but actually just being an extra pocket to dip the hand in probably isn't the right one. There is very limited evidence of that, by the way. 

And so, I think the second time around is going to be a more laser-like focus on job creation, net zero and locality than perhaps has been the case in round one. That’s off the top of my head. I don’t know if I’ve missed anything. 

I think it's probably—. I don’t want to whip up another storm, but I think that it’s fair to say that some local authorities found the timescales challenging and that’s something that I think has been noted.

Okay. Well, thank you very much.

Diolch yn fawr iawn i chi am fod yma y prynhawn yma. Mae wedi bod yn hynod o ddifyr a hynod o ddiddorol eich cael chi yma ac rŷn ni'n falch o gael y cyfle i siarad efo chi, a gobeithio gwnewch chi ddod yn ôl a'n bod ni ddim wedi rhoi gormod o fraw i chi y tro yma. Ond, ie, diolch yn fawr iawn. Fe awn ni i sesiwn breifat rŵan.

Thank you very much for attending this afternoon. It has been very interesting to have you here today and I am very pleased to have the opportunity to speak with you, and I hope that you will be able to return and that we haven't scared you too much this time. Thank you very much. We'll go into private session now.

Diolch i chi hefyd.

Thank you to you too.

Daeth rhan gyhoeddus y cyfarfod i ben am 14:23.

The public part of the meeting ended at 14:23.