Cynulliad Cenedlaethol Cymru

On the papers to note, we'll note the letter that we've had, and we've had another letter as well. That was a late paper, but we'll note that on the record next time. The two letters are about petitions. I'd like to write back to the Petitions Committee to say that we've noted the letters and to highlight the areas where those items can be raised in our priorities debate and in the first supplementary budget when that comes in front of us. So, we'll do that if Members are agreed. Okay.

Moving on to our first substantial item this morning, which is evidence session No. 8 on fiscal inter-governmental relations. Welcome, Cabinet Secretary, to the meeting. Could you introduce yourself and ask your officials to introduce themselves as well, please?

Of course. I'm Rebecca Evans, Cabinet Secretary for Finance, Constitution and Cabinet Office. I'll ask officials to introduce themselves.

Good morning. I'm Sarah Govier, head of inter-governmental relations within the Welsh Treasury.

I'm Julian Revell, head of fiscal analysis in the Welsh Treasury.

Croeso cynnes—a warm welcome. We've got a lot of questions, but we're very grateful to you for the written evidence that you've already provided. It's been very, very useful. If we don't happen to get through all the questions that we have, we may write to you with some other questions at a later date, but we'll crack on and try and get through as much as we can.

I'd like to start by looking at the inter-governmental relations structures and principles and the Finance: Interministerial Standing Committee and the collaboration between the devolved Governments. When giving evidence to the House of Lords Constitution Committee you mentioned that the inter-governmental relations or the IGR structures can be important and useful, but they have not yet demonstrated everything that they could be. Could you elaborate on this and how effective the principles for collaborative working are in underpinning the operation of inter-governmental relations between the Welsh Government and the Treasury?

Yes. So, I think that the inter-governmental relations structures themselves definitely have the protentional to be very useful in terms of enabling those cross-Government discussions and so forth, but, as of yet, they probably haven't had the opportunity to fully show what they can do. If you take the heads of Government and prime ministerial meeting, for example, that's only ever met once, and never as originally intended, because, at that point, the Northern Ireland executive wasn't sitting. So, they certainly haven't had that kind of regular rhythm of meetings that had been anticipated. But, hopefully, that will change in the near future.

Then you have, underneath that, the two top-tier or first-tier structures, one of which is the Finance: Interministerial Standing Committee, and then there's the other inter-ministerial group that looks at cross-cutting issues other than finance. I think, of all of those groups, the Finance: Interministerial Standing Committee has been the most successful in the sense that we have met regularly as intended, although the cast list, obviously, changes very frequently—it will anyway, because you've got four different Governments involved, but the constant churn, I think, in UK Government hasn't given it the kind of stability that you would envisage. There are parts of it that I think have been really good—for example, the fact that we have a shared secretariat, we jointly agree the agenda for that meeting, and also, critically, the meeting is rotated around the United Kingdom, and we rotate the chair along with that. And, I think, taking the Chief Secretary to the Treasury out of the Treasury for meetings, actually, is really important, because we get the chance then to have bilaterals with the Chief Secretary, but also you have a bit of downtime in between meetings and you can have a bit more of an informal discussion, which I think is important in terms of establishing relationships, but then also understanding where you might have shared areas of interest and where you can work on common ground as well. So, as a structure, I think that that has worked better than others, but I think it has yet to really fulfil its potential. And then, beyond that, you have a number of subject committees as well, and I understand that they're variable, I think, in terms of the impact that they have.

You talked about the Heads of Devolved Governments Council. What does the engagement that you've had with the Westminster Government on that, or is that not really functioning that well, or not meeting that regularly—? Is it beholden on the Prime Minister to actually steer that and put some weight behind it to make sure that it actually happens? Any thoughts about—? We can't hide away from the fact that there's an election tomorrow, so it's more about the aspiration of what you'd like from the next Prime Minister, whoever that might be, to take a grip of this and actually push it forward. 

Yes, I think those meetings could be really important and impactful in future, but, as with the whole of the inter-governmental relations structures, it really depends on energy and effort being put in by all parties, and a real commitment to using those structures to take forward areas of common interest, or to have those difficult discussions that you need to have sometimes across Government as well. But, as I say, the structures, I think, are pretty sound. The principles that are supposed to run through all of our engagement, I think, are sound, in the sense that they're very much focused on building trust, effective communication, sharing information, respecting confidentiality, all of those kinds of principles about resolving disputes, or, ideally, avoiding coming to the point of having a dispute, and then maintaining those constructive relationships. So, those principles, I think, are very sound and they should run through all of our engagement. But, to what extent they've been given effect yet is probably not where we would wish it to be.

And you talked about the rotating chair—not as in spinning around—but changing the chair of the FISC. You've chaired one of those sessions—what was your experience of doing that and, then, the experiences of the Scottish Government and the Treasury being able to do that? How did that work, and why did you say that it is quite useful to be able to do that? What's the benefit and your personal experience of actually doing it?

I think it really shows how far we have come since I came into post. So, back in 2018 when I came into post, the finance Ministers quadrilateral, as it was at the point, hadn't met for a year. So, the first meeting I attended was chaired by Liz Truss at that point, and I took a paper to that meeting, and it did set out proposed terms of reference, and that included the shared secretariat, the rotating chair. As it happened, we were hosting that meeting in Cardiff in any case, so we had started along that road. But those terms of reference, then, really became the bedrock for the system that we have at the moment. And I do think that it does, when you have that kind of rotating chair,  give more parity of esteem to the discussions. And, certainly, when we have the agreed agenda, which we agree together, through officials in the first instance, and then as Ministers we'll agree that agenda, that's different, because, when I first started, the agenda was set by Treasury Ministers. 

So, I think that we've definitely come quite a long way in terms of the way in which we have those discussions and the tone of those discussions. And, as I say, having those meetings outside of Treasury is important as well, because you can sometimes find other things to do. So, when we chaired most recently in Cardiff, we had a more in-depth discussion on net zero, because that was, and is, a shared interest across Governments. And then, after that, I was able to take the Ministers from Northern Ireland and Scotland to visit our net-zero school in the Vale of Glamorgan. Unfortunately, the CST wasn't able to join us on that, but, again, it was more time that we could spend together, building those relationships and getting into a bit more of a deep discussion about net zero. Those things are really important, whereas as it was, at meetings in Treasury, you've got your slot, you're in for your meeting and you're out again, and sometimes things occur mid meeting that cut those meetings short. Liz Truss resigned midway through one of our FISC meetings, so that meeting only lasted about 20 minutes. I think, when you're out of Westminster, you have a bit more space for discussions, which is really healthy.

And I suppose a bit more focusing on the things that are on the agenda and being able to take that time. And, remind me, are the terms of reference and the agendas published?

I think the terms of reference are published, and we also publish a communiqué after each of the FISC meetings, which is quite high level, because it sets out who attended, what the broad issues on the agenda were, and then we don't tend to go into detail on what other people said at those meetings because of those principles of confidentiality. But I think it is accepted in those meetings that we will come back and tell our Parliaments what representations we were making on behalf of, in my case, Wales. So, I think it's fair to be able to do that in those meetings.

One of my colleagues might come into this later, but with the scrutiny that this committee gives to those meetings—and we get that communiqué—it's hard sometimes to put the meat on the bone from a piece of paper without the context. So, how do you see that developing over time, for us to be able to understand more about and to scrutinise what's being said by you in those meetings, and the decisions that are being made, especially if, as these structures develop over time, there are more disputes or if there is more working through things together, and how do we test that, just to feed into that process? Any ideas on how we could do that better?

I think that we do try, ahead of some FISC meetings, to give a clear indication to the Senedd and others as to what we will be saying in those meetings. So, for example, if there is a FISC meeting ahead of an autumn statement, for example, then we often provide a press notice ahead of that, saying, 'At the FISC today, these are the points I'll be making. These are our concerns. These are the things that we'll be asking the UK Government to do at the next fiscal event'—those kinds of things. So, I think that that's all healthy in terms of us being able to reassure the Senedd as to the things that we're pushing for in those particular meetings. Sometimes we do that jointly with our colleagues in Scotland and Northern Ireland because, very often, we have issues of shared interest to pursue at those meetings.

Okay. Sarah, did you want to come in on that?

Yes. We provide the Finance Committee with quite an in-depth indication of what will be discussed at the FISC meetings and then report back afterwards. Unfortunately, because there are difficulties sometimes around the timing of the FISC meetings, those letters can be later to the Senedd Finance Committee than we would like. I think if we could get those meetings in the diary for you in advance, we could get that information to you quicker, and then that, I think, would create some space for you to be able to engage a bit more.

Excellent, okay. Thank you.

It's worth saying as well that we have built into the process a regular review of the terms of reference of the FISC as well, and it was reviewed over the course of last summer, and there were some changes made to the terms of reference as a result of that, and that piece of work is undertaken on a joint basis across Governments.

Thank you. You mentioned a revolving door at the Treasury with regard to changes to Chief Secretaries. How does that affect the cultural aspect within the Treasury of how they deal with devolved Governments? Some of the evidence that we've received seems to indicate that the Treasury looks at devolved Governments as other Government departments rather than Parliaments and Governments in their own right. Any thoughts around your experience of that, and do you think a more stable relationship with a Chief Secretary would help in that regard?

I think, in terms of stable relationships, it definitely would help to have people who were in post for a longer period of time. So, just to build up understanding, really, of the issues that are facing us here in Wales and to be able to progress things, so that we can discuss something at a bilateral meeting and then, by the next bilateral meeting, you'd expect to see some progress, rather than talking to a different person and raising the same issues over again. So, that has been challenging, just not being able to make progress on issues.

The other point I think you were making was about being treated as just another department. That is— 

That parity of esteem, really, between Governments, rather than as a—. I know we talked last autumn around switches from capital to revenue and that you'd have to ask the Treasury to be able to do it, and that you potentially could be dealt with as any other department would be, and it's that relationship. It doesn't seem to have that parity of esteem between two Governments, effectively. 

On the one hand, we're treated as just another department, because the UK Government I don't think appreciates the responsibilities that we have, the autonomy that we have, the scrutiny that we have, the fact that we have to report to the Senedd, we've got a protocol with the Finance Committee in respect of the budget, and so on. I don't think all of that is well understood or respected always by UK Government. And you see that, I think, through the timing of fiscal events, and so on, and the fact that we have to develop our budget in such short order, for example. So, I think those things suggest that the UK Government just treats us like another department and doesn't factor in our extra responsibilities and the extra level of scrutiny that we get. There are Whitehall departments with budgets much bigger than ours that have a much smaller level of scrutiny, a much smaller level of public interest, and they don't have media focused on scrutiny as well. Scrutiny is very important and we welcome it, but I don't think the UK Government understands the level of scrutiny and responsibility that we have to be clear about our decisions. 

But then, I suppose, even worse than that there are cases where we're treated as less than UK Government departments, and that capital to revenue switch is a perfect example of that, because that would be a tool that would help us manage pressures or opportunities within the financial year, as happens in other parts of Government—in UK departments. That doesn't happen to us. So we, for the first time last year, asked for a capital to revenue switch and we weren't provided with that. What we have instead is the result of capital to revenue switches that take place in Whitehall departments and we get that at supplementary estimates at the end of the year. We don't get anything else. We don't get that discussion. So, I think that's something that we need to pursue with a new UK Government, definitely.

So, in a way, giving you more autonomy to manage your own budgets effectively. 

Yes, because we are very much at the tail end of the process when we finally get our figures. So, last year, I think that there were—. The capital to revenue switch, I think it was in health and in transport, and both of those then came out through the supplementary estimates, so we had a small switch at the end. But we'd been making those arguments that we should be able to have that switch to manage our budget. The Chief Secretary to the Treasury at the time was of the view that, were he to agree that, then he would have to sit down with us and our books and try to find out other places where we could make those changes to manage the budget, and so on. But clearly that's not appropriate, so we need to find a better way to address that, I think.

Peter, and then I'll bring Mike in afterwards.

Thank you. As you said earlier, we've got an election tomorrow and it's highly likely that things might change, I expect. I won't say too much more.

In Monmouth?

I'm hoping not there. And, obviously, I recognise that there would have been a lot of work with any incoming Government, planning and working towards what they might want to do, so that they hit the ground running—I know that there are certain things that happen. How have you been engaged with the potential new incumbents of No. 10? Have they been speaking to you and have you been able to start laying some of these deficits that we've had within FISC arrangements? Are there pledges to strengthen those? Are we seeing those early seeds of putting things right if they've been wrong?

Well, without taking anything for granted, Chair, in terms of what might happen in the election tomorrow, I was pleased to see the commitment within the Labour manifesto, which relates to updating the fiscal framework, and I think that is really important in terms of giving us the tools that we need to better manage our budget. And although the discussions that I've had have been political, I can confirm that I've had good discussions with Darren Jones, the Shadow Chief Secretary to the Treasury. He was in Carmarthen recently, so I did a visit to BT [correction: Openreach] with him and also with the candidate there, to talk about infrastructure investment and so on. So, that was very good, and I've had other discussions with him at other points and also with Keir Starmer and Rachel Reeves as well. So, they are very aware of the challenges that we have, but also our specific requests in terms of the fiscal framework and so on.

That's really important. It's a perfect opportunity then, put it like that—

To have a reset.

Yes.

Mike, we'll come on to some questions from you.

Perhaps just at a future date we could discuss capital and revenue, and the moves, and capital maintenance and how revenue can support capital and capital can support revenue. I don't think we're going to have time for that today, but I think it is something that is worth further discussion.

You mentioned in your written evidence that there's been a reluctance from Chief Secretaries to schedule Finance: Interministerial Standing Committee meetings for the year ahead, with meetings confirmed a couple of weeks before the proposed date. What impact does that have on the Welsh Government?

It is really frustrating because those FISC meetings are really important in terms of being able to set out our particular concerns, our asks, to try to make some progress on those things. But it has been the case, when there's been churn in the UK Government, that meetings have been cancelled at late notice and then, of course, it's another month, six weeks, before it gets back in the diary again. And also, it has been the case that CSTs haven't confirmed until the last minute as well, so, all the other Governments are holding the time in their diary, potentially making plans to travel and so on, but then it comes in very late that the meeting is or isn't going on.

Do you meet—? If the CST isn't there, would you meet anyway?

We have regular meetings on a trilateral basis in any case. So, around every eight weeks, I meet with the Ministers from Scotland and Northern Ireland on that trilateral basis, again to talk about how we can best work together to influence the UK Government, and also to share knowledge and learning on the things that are happening in our countries and Governments as well. So, those relationships are really, really important to me and they will continue to be, whatever happens in terms of changes with the UK Government.

And I think that's one thing that this committee has found useful is our relationships with our equivalents in Scotland and now in Northern Ireland as well, so, working side by side with them on a tripartite basis is quite useful. And something that we might want to explore is how the scrutiny bit works for us as a group of three committees and you as three Ministers. That might be something that's worth looking at in the future to strengthen those discussions.

Yes, I will say—. Just to say as well that when we talked at the start about those principles for inter-governmental relations, about establishing trust, confidentiality and good communication, actually, those meetings that we have on a trilateral basis are very open. We're very open about the pressures that we have, the choices that we're considering making and then, I think, that openness does help, because we all understand that we are all very much in the same place on many of these things, and then we are able to make that stronger case together. So, it definitely does prove that when you have that more trusting relationship, it does help to strengthen things.

And that's very much across party as well—

Yes, absolutely.

—with different Governments in different places. Sorry, Mike.

I very much welcome that discussion with the other devolved administrations, and hopefully, when we get the regional mayors sorted out, they can also become part of that discussion. The question I've got, though, is: isn't there a danger that the Treasury will see it as everybody ganging up on them?

I hope not, because we also have those bilateral relationships with Treasury as well. So, there are things where you would expect all devolved Governments to have a particular interest in, for example, all of us—and the UK Government as well—will be feeling the pressure in terms of public services, so that often takes up quite an important part of the meeting, talking about those pressures. And then we'll all have the interest in what the forecasts are and being able to talk about what we expect to happen. So, there a lot of things that we'd have shared interests in. But usually around those FISC meetings, we also have bilateral meetings with the Chief Secretary to the Treasury. So, that's where I get to talk about coal-tip safety, for example; HS2 consequentials; all of the things that are really important specifically to us that we wouldn't necessarily expect other Governments to want to work on as well. So, it is important, I think, that we show solidarity and unity, but do so in a way that engages UK Government, rather than makes them stand-offish.

Evidence that we've received to this inquiry notes that the UK is the exception when it comes to the absence of an explicit needs-based element in devolved funding. What dialogue have you had with the Treasury regarding an explicit needs-based funding mechanism, and how do you envisage this mechanism working?

So, we have through our bilateral meetings, and also I've mentioned them in the FISC meetings as well, the work that was done in 'Reforming our Union', so that is the way in which we would envisage that kind of needs-based approach being taken forward in future. But that would of course require things to be agreed on a four-nations basis, so that, I think, is a longer term ambition, because there is so much politics and so much to talk about in between there. I've also talked at the FISC about the Independent Commission on the Constitutional Future of Wales, which came to similar conclusions as well. So, I would say that colleagues are aware of our interest and our views on this, but I wouldn't say that it's an active work stream, or that others necessarily agree with our particular approach to that at this point.

Not delving into my crystal ball too much about what might or might not happen tomorrow, but if you look at the polls and with a potentially very large majority for the next incoming Government, is it an opportunity to actually advance some of that work and to be able to draw people across the UK to understand and to remake some of that funding model, because I think everyone here knows that Barnett doesn't work? It works relatively well, but it is a 1970s—. It's crude, it's not nuanced, it doesn't—. It's a blunt instrument that is subject to Treasury, and it's therefore inherently unfair in the way that it works. Is there an opportunity now, with an incoming Government, to reshape that, and to make it fairer and to have those big discussions across the UK to make things better?

I think, critically, those discussions would have to be—or any kind of work stream would have to be—on a four-nations basis. It absolutely couldn't be a Treasury-led exercise, and obviously we wouldn't accept anything that might result in less funding for Wales, for example. So, I think it would be an incredibly big exercise, an incredibly technical exercise, but even before we get to that point, I think it's the kind of bilateral discussions that we have to have with other parts of the UK.

So, I know that officials have been briefing some of their counterparts on the constitutional commission's work, for example, because not all parties will be aware of that work. So, we are at the moment raising awareness, really, about these potential approaches, rather than having any substantive discussions, I think it's fair to say.

I would just make the comment that Barnett is an awful lot better than if we just had our population share.

Definitely.

Always be wary of what you wish for. You noted in your written evidence that the timing of UK fiscal events can cause the Welsh Government challenges, which could be mitigated by the UK Government setting dates for its fiscal events well in advance. You must be pleased, as a Minister, that we've got a general election now, not in October, because that would have pushed everything back a long way. Could you expand on the challenges you face? How would setting dates in advance help you?

Before the general election was called, we were working through all the possible scenarios that we could find ourselves in this year, and some of them were potentially not even being able to finalise a budget in this financial year. We looked at every possible thing that could happen. But it just shows the way in which we have to react. I suppose one of the key challenges for us is when there's an autumn budget it does really curtail the time that's available for us to make the budget, but also for committees to scrutinise it.

With the last budget, for example, we had three weeks and four days in which to craft that budget. That's not any time at all, really, and we have to also publish, quite rightly, in the Welsh language, so that takes around a week as well, when you consider the volume that we publish. Essentially, you've got less than three weeks to formulate the budget once you finally know your figures. That is a really tough ask, especially when you think of all the other things that we publish as well—the budget improvement plan, the strategic integrated impact assessment, the chief economist's report, the tax reports, the narrative. Sometimes, we do a children's document or an easy-read document. That's an awful lot to do within three weeks, and, obviously, we want to do it to the best quality that we can, we want to respond to committees' requests for further information and greater levels of information, different information. So it is difficult to do that in that time, and then, also, to give committees the time they need to scrutinise. So, that's the main problem for us, simply one of time.

Then, also, not knowing if we are planning on a one-year or a three-year budget. There have been circumstances in the past where chief secretaries have said, 'Right, we're going to have a three-year spending review now.' So, then, we're in three-year spending review mode, but then all you get, actually, is a one-year spending round. Those kinds of things are difficult for us as well.

Could we have your commitment that, if the budget is sooner than you expected it to be, you'd bring forward your budget so that we'd have that time to scrutinise? Because that's something that we're always discussing. It's just making sure that we're on the same page—that if you're able to do it sooner than you think, then you would do that and not delay.

Standing Orders, as you know, require us to write to the Business Committee and yourselves ahead of the summer. I suppose that might have been a relic from the day when we had spring budgets. We always write with our best guess as to what might happen and provide some dates then, but we always say in those letters that if we are in a position to bring things forward, then we would look to do that.

But it's your intention, if it comes sooner, that we'd have those budgets sooner.

Yes, we'll always try and do things as quickly as we can.

It's not just us, of course, who'll want to have it, it's lots of people outside there who want to have it in order to talk to both you and us. So, the longer we have, the more we can engage with the public and interested bodies.

And also local government and others, the third sector. They tell us, 'If we don't know what things are looking like before Christmas, then we are going to have to start sending out redundancy notices.' That's absolutely not the place that we would want to be in.

The 1 January redundancy notices because there's no certainty over whether funding will continue or not for organisations that are running with limited reserves is something that we all want to avoid, don't we?

My final question—and it's awfully complicated—is around is that a Barnett consequential or is that not a Barnett consequential. HS2 and Crossrail are two examples of things that look very similar to those of us who haven't got the expertise of the Treasury, but the Treasury decide one is and one isn't. There are lots of other things where there's a question around whether something produces a consequential. The Scottish Government noted that the UK Government should detail its workings on funding allocations linked to devolved areas. Would you support that so that we actually know what is and what isn't? Because they do, and we've had criticism of you for exactly the same thing; you give the final answer without giving the workings out. The Chair is fed up of me saying, 'Show your workings'. I think it is important that the Treasury show their workings on this so that we can say, 'Well, that's fair', 'That's not fair', or 'That's worth having an argument about'. At the moment, you just get a final figure and it's, 'Take it or leave it'.

Shall I perhaps bring in Julian on the information that we get and when we get it, and particularly, for example, the transparency tables and so on?

At the same time, on the day of a fiscal event, we'll get a set of tables from the Treasury setting out the consequentials for Wales, and there'll be a set of calculations there, as well, to show how that's arrived at. But what that does is it just, effectively, applies the rules that are set out in the statement of funding policy. We'll get the same thing on the block grant adjustment side—so, the thing that reduces our block grant because of the devolved taxes. Again, they'll send us a detailed set of calculations as to how they've arrived at those numbers.

We then get an opportunity to talk to them about it, usually on the same day, if we've got any technical questions that we want to raise with them. So, in that sense, they do share quite a lot of information with us, but what they're doing, effectively, is just applying the rules as they're set out, so there's not usually much in the way of a surprise there. There are occasionally things in there that we need to follow up because we can't quite understand what rule they've applied, but generally, it's reasonably clear.

And then, in terms of what they put in the public domain, its a fairly recent innovation that the Treasury now publishes a set of tables that they call the block grant transparency report, I think, which they do on an annual basis. They last did that last July, so we'd expect them to be doing another one of those fairly soon, I suppose, which again sets out, for each fiscal event, the changes in the block grants for the devolved Governments and the block grant adjustments. It sets those out, again, in a reasonable amount of detail.

That's kind of after the event, in many ways.

That's very much after the event, yes. 

Just going back to the fiscal event day, when you get those tables, is there any challenge involved in that, as in, you go, 'I don't think you've got that right'? Or is it, 'This is it' and there's no pushback whatsoever?

There is the opportunity to challenge. Often, on the day, it's difficult, because there's just not been enough time to look through it in detail—

Of course. But once you've had time to digest it.

There have been changes in the past. A few years ago, after a lot of to-ing and fro-ing in relation to the way that business rates affect the Barnett formula, in the end there was a concession and we did get a bit of extra funding as a result of following up on that. But that took us weeks to do. 

So, there's no easy mechanism for you to be able to challenge that. I'm sure you're working—. You said it was a challenge and it took a long time. 

It did take a long time, mainly because it was complicated, and so it took a long time for all of us to reach the same view on it. To be fair, at official level, we have good lines of communication with the Treasury.

You've told us a lot of things there. Can I just ask you a question on something we're all interested in, which is HS2? HS2 has a multiplier of nought. Everybody in this room, possibly with the exception of you, doesn't believe that it should have a multiplier of nought, and we've had political agreement that we shouldn't have a multiplier of nought. The Minister has been with us, every political party has been with us, but the multiplier of times nought stayed. What can we do to try to get that altered?

The rule that the Treasury is applying is that it's saying that it's a rail infrastructure project, and, for the most part, rail infrastructure isn't devolved in Wales, hence it attracts a zero comparability factor for Wales. The more common view here is, 'Well, that's a very subjective viewpoint; what you have here is a very large transport infrastructure project that only affects England, and all of the other countries also benefit from funding related to it, so why shouldn't Wales?' That's a very good point of view.

It's a case where they're taking a very strict interpretation of the rules set out in the statement of funding policy, and, in this case, I think in judging whether a large transport infrastructure project ought to attract consequentials or not, you ought to look at the wider picture. So, you could argue that Wales is facing particular economic challenges, and it seems particularly iniquitous for Wales not to benefit from it.

You used the words 'transport infrastructure project' twice—see, I do pay attention. If it were a transport infrastructure project, not a rail infrastructure project, Wales would get a Barnett consequential, wouldn't it?

If it were a road infrastructure project, or if it were deemed to be a local transport infrastructure project, then, yes, that's the rule that's set out.

There are those of us—I'll finish on this—in this room who believe that HS2 is a local infrastructure project, and as it's got smaller and smaller in its benefits, then, certainly, large parts of England are also excluded. People in Cornwall, people in East Anglia and people in North Yorkshire are not sitting there and saying, 'This HS2 is a wonderful thing, aren't we going to benefit?' It's a local, regional—basically, it's almost stopped at Birmingham to London now, so it's just a local project, but the Treasury treats it differently. I think the argument I would have, and I'll ask whether the Minister has put it, is that it is a transport project. If we treat it just as a transport project, we should have our transport share; if it's treated as a local railway project, we should have our share, which would be higher than that of a transport project. But we ought to be getting something.

Yes, and we absolutely always put this case to them. Sadly, in the end, they are the arbiters of it.

And you've never appealed it.

That's part of that challenge, really, about not having that independent arbiter as well. But one thing that we would want is a review of the Network Rail processes underpinning project investment decisions so that there is greater transparency. We think that that should be undertaken ahead of the next UK spending review, so that's something that we would want to pursue with a new Government. 

I think part of the issue that the Minister from Scotland was making as well was about in-year announcements and not being able to understand where they came from—you know, are they from existing funds, is it new money and so on. I think quite a good example of that is the additional £500 million for the household support fund in England, which has been announced for 2024-25. At the time of the announcement, we didn't know whether we would receive any consequential in any case. That information only became available after the event. We were told that money would be transferred at the UK Government's main estimates, but now we've been told that the money will be transferred at supplementary estimates next year with no reason for that. So, those are some of the challenges that we have. 

So, changing the goalposts all of the time means that you can't plan. 

Yes, there's no way of knowing how much of that is going to be new money. There have been other examples as well where we've been told that there would be additional funding; for example, the £600 million boost for councils in England. We were told that the Barnett formula would apply in the usual way. That would have meant an additional £35 million consequential for Wales, but, in the event, only £500 million was new money, so the consequential then was confirmed as £25 million, so that's less than the original that we would have expected. There have been a number—many, over the years—of examples where not only have we not known if consequential funding will arise as a result of it, but then the figures change as you go through the year, so you only get that clarity at the very end, unfortunately.

Before I bring Peter in, just because you've touched on disputes and that element, FISC does have a way of trying to resolve disputes—has that been engaged with at all in these discussions around HS2 and other aspects that you've been laying out just then? Is there a mechanism there? You talked about an independent arbiter—who might that be? Is that creating something new or is there a body out there that could potentially do that?

Well, we haven't yet raised a formal dispute, so in that sense the process itself hasn't been tested. That's partly because of the lack of engagement by the UK Government on some of these issues and the lack of consistent presence in the Treasury to have these discussions with. So, in that sense, it hasn't fully been tested, but it certainly exists. Again, the point, really, is about the aim being dispute avoidance in the first instance, rather than disputes, which can be rather lengthy as well. So, it does exist. It is more streamlined on the finance side as well. I don't know, Sarah, if you've got any other observations on that.

Yes. So, we always try to resolve a dispute, really, and look at that pragmatic inter-governmental discussion. There are certain steps that we have to go through that are part of the process to demonstrate that we've gone to every effort to make that pragmatic resolution.

Is that at official level, then?

And ministerial level, so both levels. It has been challenging when there's change in personnel, because you almost go back a few stages because you need to try again. So, if there's a change in Minister, you try again, and a different personality might take a different point of view. So, we've often, over recent years, been caught up in that a little bit.

The other thing to mention as well is that, in terms of the independent aspect of this, that is brand-new, that didn't exist in the previous dispute arrangements, and it's seen as a benefit of these new arrangements. The way that that would work is that those Governments that are party to the dispute would consider collectively who might be a good body or individual to go to to consider this particular issue to be able to give that independent aspect into it, and they would agree who that would be.

Would that be a King's Counsel or a judge, or the Office for Budget Responsibility—

It could be anyone or anything that—

—or an auditor, or whoever it might be?

Yes, it could be anyone. I think you'd need to consider as well how much experience and knowledge they need to have of the fiscal arrangements within the UK and the UK funding framework, or how much you really feel that they don't need that and are completely separate from it. So, those are the considerations that would need to happen.

And that means a buy-in from all parties that that person or organization is—and binding on all sides, then, whatever that decision is.

So, it's not binding, it is information that is then considered and then the Ministers have to come to an agreement in that situation. If not, then that's kind of the end of the matter, it is acknowledged. So, it's not a perfect system, but it's far, far better than what used to exist previously. Previously, there was the JMC process, the joint ministerial council. That rarely met, so if you were taking forward a dispute through that you'd have to wait to get that organised, you'd have to rely on HMT recognising that there was a dispute in the first place, so it would be for them to agree if there was a dispute, and then it would be for them to decide how that dispute was resolved. Whereas now it's a very different process and it is far improved.

But it's still underpinned by goodwill, rather than by any rules base.

There's a large element of goodwill in there, yes.

Thank you. Sorry, Peter, I'll bring you in now.

Thanks, Chair. I'll take us back a step. We were starting to talk about the frustrations of not knowing if money coming forward was new money, or if it was dealt with through efficiencies. And I just wondered if you felt there was any justification for the Treasury to be perhaps vague in the way it's doing things? Is there good reason, perhaps, why they could have taken that effect, or is it, I don't know, just this disrespect for our system, or what?

I do have some sympathy with Treasury Ministers, in the sense that they will need to get all of the figures from Whitehall departments before, for example through the supplementary estimate processes, they're able to provide us with our final figures. So, I do understand that, but that means that the tools that we have are even more important, so those fiscal flexibilities about being able to manage the budget better, the points about the Wales reserve losing its value every year, and the same for our borrowing powers; the point about that capital-to-revenue switch being a useful tool for us. So, I think all of those things are important, to manage that kind of uncertainty, and then also the example that we had in COVID with the Barnett guarantee, I thought that was really useful, because then we had that certainty that we had a figure below which our budget won't fall, so we could plan on that basis, even though there were challenges there, of course, because every now and again without notice you'd have a large injection of funding. But even so, I think that something like that, if there is a large amount of money that the UK Government's talking about, for example public sector pay, if there's an intention—. We had those 10 months where we didn't know what our public sector pay consequential was going to be. If the UK Government had been able to say to us, 'Well, it won't be less than such and such', that would have helped a lot in terms of being able to plan. And then, of course, the year-end issues as well, which we've made slight progress on. So, any funding that has come through the very end of the financial year, we've been able to carry over 10 per cent. If it falls, then we carry over 10 per cent as a reduction from next year's budget as well. So, that's been helpful, but even in the last financial year, I think we had close to £0.25 billion right at the end of the financial year, so that's a huge chunk of our reserve in any case, and it did mean that we had to spend significant funding right at the end of the year as well, which is not the position that we want to be in. So, whilst I do have sympathy with Treasury to a degree, there are things they can do to help us manage.

So, would it be an opportunity now, then, to get a protocol put in place that you—? We talked earlier that it might be the right time to put in a protocol so that announcements can be made in more of a timely manner. Is there some sort of consideration to that in, perhaps, your early conversations?

So, one thing I'd really like to pursue is the point about late funding. So, anything that comes through very late in the financial year, we should be able to carry that into the next year without this kind of—. At the moment it's 10 per cent of the reserve. Well, we should be able to carry anything, really, over that's provided very late in the financial year, because that makes sense for budget management. So, that's something that I would really want to pursue. We have been able to in the past. So, I think it was in 2020-21 that we had several £100 million right at the end of the financial year, and we were able to carry that over. But when we are able to do it, it's kind of an ad hoc basis of agreeing with the Chief Secretary to the Treasury, rather than having it happen automatically.

All you're asking for is the same powers that every local authority in England and Wales actually have of moving money into and out of reserves, isn't it?

Yes, we're asking, actually—. And the borrowing point as well. Local authorities have that prudential borrowing. That's something that we would, ultimately, like to see. In the first instance, I think even just increasing the limits in line with inflation since the figures were originally set would be definite progress. 

What would be the difference between what is set currently? Have you calculated what it should be if it had gone up in line with inflation?

Yes, so it's lost 23 per cent of its value since—. So, both the Wales reserve and our borrowing powers have lost 23 per cent of their value since they were originally set.

We talked quite a bit about that capital resource switch, and I suppose that is a little bit different to local government. We couldn't ask in local government for capital to be put into revenue. We could put revenue into capital, but we couldn't do it that other way around. So, it was quite strange for me to hear the Senedd or the Government asking to swap capital to resource. But how important was that lever to enable you to mitigate some of the challenges you've got, or is it a bit of a last-minute sticking plaster to find a way through it? 

Last year we made our first ever request for that switch, but it was denied by Treasury, so it's not something that we've been able to do. All we get is what comes out of the agreements that Treasury has made with Whitehall departments. So, for example, in the main estimates last year, a £139 million capital-to-resource switch was agreed for Department for Transport in respect of Crossrail, and £280 million for the Department for Environment, Food and Rural Affairs in respect of floods and farming. So, we had what came out of that as a result. So, it shows that Treasury is able to have those discussions with individual Whitehall departments but won't have it with us. 

Are there criteria that they apply, then, which sort of triggers it where it's considered feasible to do it and perhaps we're not making the right message? What were the reasons for them not allowing it?

We didn't really get to the bottom of that, but I think it's partly about the relationship between Treasury and Whitehall departments and us as a Government. So, quite understandably Treasury will want to sit down with the Minister and officials will discuss between departments in the UK Government to explore, ‘Well, are there other ways that you could fund this? Could you move money from x to y?’ and that kind of thing. But it wouldn't be appropriate for the CST to sit down with us and say, ‘Well, can you move money from there to there?’ You know, it's a different relationship.

It circumvents this committee as well in the scrutiny we do.

Definitely.

It's an example of how the inter-governmental relations aren't working, then. So, if we were more of a department and interacted in a department way—and I'm not advocating that—we might be considered differently. It's just that they're talking to themselves and, ‘Oh, by the way, we've got to talk to the Wales Government as well.’ So, it demonstrates again, I think, this breakdown in inter-governmental relationships that don't give due consideration to a perfectly legitimate request from our perspective. So, I think that's a key message, really.

And to be fair, I'm grateful to the Welsh Conservatives on this, because I know that you've said in the Senedd that you would support that capital-to-revenue switch as well, just to put that on record.

It would be better if there was a way to be able to fund the Senedd where you don't have to revert to that capital-revenue switch, because capital is really important to drive change, which creates revenue benefits in the future anyway. It's a shame you've got to use it to just service recurring costs.

I'll move on, but I won't move on to my next question, because I think we've touched on HS2 and Crossrail quite a lot. I'll just move on to my last question. That was about: HM Treasury is able to allocate funds across the UK from its central reserve without triggering Barnett consequentials for devolved nations. What are your views on this in terms of transparency? Should a more formal process be implemented to ensure the Treasury provides credible evidence for using central reserves, particularly when it results in circumventing the Barnett formula?

I might ask officials to come in on this point as well. Generally speaking, we would get consequentials when reserve funding is provided to UK Government departments in areas that are devolved. I think that's largely because we're facing the same pressures in any case. But you're right that, at the moment, it is a matter of discretion for UK Government, and that level of discretion should be removed, and it should be automatic that, if funding is provided for areas where we have responsibility, then that consequential comes to us. Similarly, claims by devolved Governments. So, were Scotland to make a claim in an area where we have responsibility then, again, that should trigger a consequential funding allocation for us as well. But perhaps, I don't know, in terms of the practicalities of it, I'll ask officials to come in. 

Yes. I agree with that. It's not obvious why additional funding for comparable departments in the UK Government should be treated differently, like in a spending review, when we would definitely get consequentials, rather than in-year in a special circumstance—why wouldn't we still just get consequentials from any increases in devolved areas. So, I don't think there's any need for the Treasury to have discretion on this funding. I think it should be an automatic part of the system that reserved claims in a devolved area automatically attract consequentials. 

I suppose you could understand why a Government would want to tax its departments to make efficiencies, and to drive better outcomes from within its budget before it considered giving new money. I suppose we'd do that here, wouldn't we? We'd expect our departments to utilise their money. But what it doesn't look like you're getting is a clear rationale of why that might have happened. If they explained it better, we would at least understand it and we wouldn't have so many questions.  

The Treasury's first call for any department asking it for additional money would be to try and get that department to find savings elsewhere in its budget. So, it only gets to be a reserved claim at the point that the Treasury has accepted that they do need additional funding over and above their existing budget. And it's at that point that it seems right that we should also get the consequential funding. 

Yes, I see that, yes. Thank you, Chair. 

Thank you. I've got one final—. We've just ticked over half past. I've got time for one more question and then we'll probably write to you with some others. So, I hope you'll indulge me for a second. You mentioned in your written evidence that your experience seeking devolved powers for a vacant land tax makes it clear that the process for devolving new tax powers is not fit for purpose. What consideration have you given to using the dispute resolution process to potentially break that impasse? What are your views on the UK Government's willingness to devolve the competence for a new Scottish building safety levy, given your experience of vacant land tax? 

Well, it's certainly on my list of things that I think would make a good dispute. I think that it will be important to try and engage a new UK Government on this particular issue. We were making some progress up until around February 2019. I think that's the point at which I had a meeting with the UK Government Minister responsible at the time and, actually, our meeting went very well. We were at the point in the process where the next step would be for the UK Government to write around to departments, because there's a clear process set out. But then, inexplicably, and we still don't have a reason for it, the UK Government decided that they wouldn't do that, and it was requiring ever more information, and this went back and forth for, literally, years. 

So, I had a meeting with the current Financial Secretary to the Treasury last November to talk about it. He said that he was open to further discussions, and I said 'Well, UK Government has been saying to us now you need more information—we've given you all the information that is required and more, so what more do you need from us?' But that was November, and they still can't tell us what more they need from us. 

So, I think that part of the challenge—and I think it really is borne out by the experience of Scotland—is that the UK Government is happy to devolve when it agrees with the policy area, when it mirrors what the UK Government wants to do, because the devolution of powers in respect of the Scottish building levy, from an outside perspective, looked to have gone very smoothly and very quickly indeed. Compare that to our experience, it really does feel that it just depends on if it's something the UK Government agrees with and wants to do. 

So, it being a Labour policy, there's a good chance it'll happen in the next year or so. 

Well, I'm looking forward to a more positive hearing on this. And also we've done so much work over the years. And indeed, actually, it's less about the policy itself at this point, the vacant land tax—

It's proving the mechanism. 

Yes. We chose that as a particular one because it's not controversial, it's relatively small, it's geographically defined. It was the ideal tax to 'take the test around the track' I think Mark Drakeford used to say, when he was responsible for this. But, unfortunately, things haven't made progress. But let's see if we can—

Using that analogy, it's crashed about halfway through, hasn't it, so hopefully we'll get it back on the track.

Or stalled.

Or stalled—yes, it's stalled. There we are. Thank you so much for your time this morning. We've got a few other questions, but we will write to you with those, but we've covered an awful lot of ground this morning, and appreciate your time in engaging with this inquiry. And I hope it'll be helpful for you in your work in engaging with a new Government, in trying to build on some of those mechanisms that we've talked about this morning, so diolch yn fawr iawn. We'll have a short break now until a quarter to. Thank you.

Great. Diolch yn fawr.

Diolch.

Croeso nôl—welcome back. We'll now go to our fourth item. We've had a change of Ministers, so we have the Minister for Social Care here. Dawn, would you like to introduce yourself and your officials for me, please? 

Indeed, yes. Thank you. Thank you, Chair. So, I'm Dawn Bowden. I'm the Minister for Social Care, and to my left—.

Alistair Davey. I'm deputy director, enabling people, social services and integration, Welsh Government.

Thank you. On my right—.

Bore da. Anthony Jordan. I am the head of programme and legislative implementation within the social services directorate, and I am Bill facilitator for this Bill.

Fantastic. Thank you very much. Well, croeso this morning.

Diolch.

And thanks for making time to come and meet us. We've now been joined by Rhianon Passmore as well. Croeso, Rhianon. We've got quite a lot of ground to cover, so I'd like start. Obviously, there will be a transcript for you after the session to check for accuracy. I'd like to explore the background to the Bill and what alternative options were considered, and views on the Competition and Market Authority's conclusions about proposals of eliminating profit. In its 2022 market study into children's social care, the Competition and Markets Authority said eliminating profit is not necessary to deliver a well-functioning placements market for children's residential homes, and it did not recommend the Welsh Government limit or ban profit making in foster care services. Given this, how have you arrived at the proposal to eliminate profit?

Okay, thank you for that question. So, a relatively short question, but a lot in that, in terms of how we've arrived at where we are. So, I think it's important to start by saying that the choice to eliminate profit has to be seen in the much wider context of the broader transformation of our vision for children's services in Wales, and that's a vision, really, that is aiming to fundamentally change the way in which we provide services to children and their families. So, it's all part of having a locally based service, and that the welfare of the young person, really, is at the heart of everything that we're trying to do. As part of that transformation, what we're looking at is—. We want to see fewer children taken into care, we want services to be providing the right support for families at the right time, helping them to stay together—whenever that is possible, that is the overall objective—and then, when children are taken into care, we want them to be looked after as close to home as possible, and the right support for their needs wrapped around them at that point. And then, of course, the final aspect of all that is, when they're ready to leave care, that they're supported with a plan for the future to lead independent lives. What we don't want is just leaving care and then left to their own devices and all of the difficulties that can arise with that.

Now, what we see is that the market for the care of looked-after children really hasn't been functioning effectively for some considerable time, and we don't believe that it is meeting the needs of many children. It's a highly dysfunctional market and, quite frankly, it's unsustainable. We've seen spending on children's service triple since 2016—the care fees and so on. So, what the CMA report did highlight was that point I was just making, that we do have a highly fragmented and complex and dysfunctional market. That means that local authorities really are exposed and find it very hard to plan for their own residential and foster care.

In the CMA summary about Wales, which I think is important to note, they said:

'Local authorities must often take whatever placement is available, even when it is not fully appropriate for the needs of the child. This blunts the ability...to shape the market to provide for their true needs.'

So, I think that's important, because we can take some of the things that CMA said out of context, but I think that is an important point to note. So, effectively, what we see is a lack of placements of the right kind in the right places, meaning that children are not consistently getting access to the care and accommodation that meets their needs. And they're being placed in establishments far away from their communities, which is making it much more difficult for them to remain grounded in those communities, of course.

The other factor that I think is really important to all of this, and it will be important as you come on to look at the costs of this in a moment, is that the largest private providers are making materially higher profits, up to 22 per cent and more, and they're charging materially higher prices as well than would be expected if the market was functioning properly, and it's not. So, many of those for-profit providers operating across Wales are also carrying significant levels of debt. And that creates a significant risk, actually, of orderly—disorderly, sorry—disorderly failure of these large and highly leveraged firms, which would see the disruption of placements of children in care. So, we've reached the stage where we believe that radical reform is necessary, and we have to ensure that we have sustainable and stable placements in which young people can be looked after securely, but with a sense of belonging, and with their best interests at the heart of what we're trying to do. And when we considered the impact of all of these changes, both on providers' businesses and on children—and primarily on children—we believe that what we are proposing is justified, it's proportionate, and it can be achieved in a sustainable way. And, as I've said, they are key to transforming children's services and, ultimately, improving the outcome for those children and young people. 

And what I would say, finally, Chair—and I think that it's very important to note this—is that our commitment is in part a response to what children and young people have told us about how strongly opposed they are to be treated as commodities in a market by privately owned organisations. I know we're short on time, but I could talk to you for a long time about some of the conversations I've had with care-experienced young people, and the impact that that has on them as they're passed around as commodities and actually put up for sale by some of these private providers moving them from one placement to another. So, I hope, Chair, that that briefly encapsulates the reasons why we've got to where we are, but that's, in essence, the background of why we've moved to the point that we're at now. 

Thank you for that. That's very useful. So, how did you arrive at eliminating profit, because that's the—? Having looked at all that dysfunction, all of that—and I take on board what you're saying there—eliminating profit, how did you get to that? How do you get from that to eliminating profit?

So, everything I've just said is what led us to that point, really. We saw that we had a dysfunctional market. We saw that there is a growing evidence base as to why that market is dysfunctional. We have something like, in Wales—I believe I'm right, Alistair, in saying this—about 80 per cent of children's residential provision in the private sector at the moment. And the key to all of this was that what that means is that the private sector, really, can dictate the cost of placements and at the same time extract significant profits. And if we want to remodel and reshape and repurpose looked-after children's services, we need to find a way of ensuring that any profit that is extracted from that is reinvested back into children's services. And the only way that we can do that, we concluded, was to legislate for taking profit out of the provision of those services, so that the cost would still be the same—almost certainly the cost would still be the same—but that the profit that is made would be reinvested back into the way in which our services are delivered.

So, you're not eliminating profit; you're just reusing profit into reinvestment. 

Yes. 

So, it's a—

Yes, and that is a distinct and subtle difference, and I take the point you're making. So, what we are talking about is eliminating profit for the purposes of shareholders. We're not talking about necessarily—. We would still expect, even if it was a local authority provision, or if it was a third sector provision, that the income generated would be in excess of the costs. But those profits in excess of expenditure would be reinvested into the services that we're providing.

Okay. I know that Mike and Peter want to come in. I'll bring Mike in. 

In England, in terms of schools, when they privatised a large chunk of the school system, they eliminated profit. But there are easy ways around it, aren't there? You charge professional fees, you charge management fees, you charge for your payroll, you charge for your human resources provision, which can be substantially higher because you don't have to market test them; you provide them internally. So, whilst company X is making no money—I'll carry on the English exampe—on its schools, the money it's pumping into the parent company from its professional fees, management fees and service fees actually inflates the profit of the company as a whole.

Sure. You're absolutely right, and that is one of the things that we looked at in terms of the regulations that we would be introducing as part of this Bill, to ensure that that doesn't happen and that these organisations can't find other ways of masking the way in which they profit. Do you want to say something about that, Alistair?

Yes. I think we know from Scotland, with their examples with foster care, that those not-for-profit trading arms started to take money out as management fees. So, I think we were very carefully looking at that as part of our consultation as well. I think we have to bear in mind that what we've currently got is a market, and I think that's a really important distinction, because we have providers, and we've spoken to our colleagues in England as well about providers buying cheap properties wherever they want. They've got a plethora of them in Morecambe at the moment, in the north of England. We know that there are places in Wales as well—in Swansea, it can happen in Neath Port Talbot, and in Powys—where providers are coming in and setting up cheap premises, taking children from England as well, as well as from Wales, and we've got about 25 per cent of our children out of county because of that. And I know England are equally worried about children from Kent being in Powys. So, whilst we're looking at this, there are broader issues that England and Scotland are looking at as well about concerns around profiteering.

Thank you. Peter.

Yes. It's a really interesting area and one I've been quite close to in my past role, and the needs of the young people have to be paramount, and providing their care and support as near to home as possible is absolutely crucial. There will always be a need for complex needs to be accommodated in different ways, I suppose. What I was slightly anxious about is that, while I agree with a lot of the principles about people who are really capitalising on vulnerable young people, I do recognise also that there are a lot of good providers who are absolutely fundamental to the offer that is needed at the moment. I'm just a little anxious about the transitional arrangements, because you're going to need a mix of private as well to continue. Are the messages of this Bill going to be actually turning off the taps of a lot of care provision in local authorities, making it even harder in the interim until we have such care homes that we've constructed in the local authority? Wouldn't it have been a better model to incentivise providers to work in a better way in partnership with the Government?

That's very much, Peter, what we're aiming to do as part of this programme. We're very clear we are going to be taking profit out of the system. We will not be having for-profit providers as part of the normal provision for children's looked-after services. That will be in various forms. You will have seen from the Bill that we've got the four models that determine or define, if you like, what a not-for-profit provider would look like. But we are very clear about the transition process. There will be time for providers that want to stay in the system to transition to not-for-profit organisations, and we will work very closely with them to enable that to happen. Where we already have arrangements with for-profit providers and a child is there and contracted and settled, there will be no immediate move to close that down. And the Bill will be very clear that the provision of placements for children in for-profit providers will still be allowed where Ministers make a decision to allow that to happen, and that could be in some of the circumstances that you're talking about where there is a particularly specialised or complex need that could only be provided by a particular type of accommodation that we wouldn't otherwise be able to place. So, the Bill allows provision for that, but fundamentally what we are talking about is, with what we are doing in the wider provision of children's looked-after services, that the overriding principle will be that those providers will not be in the market for making profit, but we understand that there will be a place, on occasion, where placements in private providers will be necessary. I don't know if there's anything you want to add to that.

Yes, just to say, Minister, that we know that organisations need to have surplus as part of liquidity for operating. And, obviously, since day one, we've had work streams with the not-for-profits and the for-profits about looking at that transition. From the conversations we've had to date, we're aware that in the fostering area, where we've got about 25 per cent independent fostering agencies, many of those are considering moving over. I think the issue for us at the moment in working with the for-profits—. From the last survey we had, about 18 per cent of them were saying that they were considering moving over, but we're about to have the conversations, now that we've laid everything out in the Bill, with the larger organisations as well—those conversations about transition and how they will do that. 

I think probably always, from day one, one of the issues has been about assets, because many of them—and we recognise this; we've had some very heartfelt conversations with some of these providers—we're aware, have invested their own money in the asset, in the business, and they can see it as their pension, going forward. So, part of the conversations we've been having—we're not going to go down the road of compensation—is are there other options where that property could be bought out by a not-for-profit or by a local authority if that organisation doesn't want to continue in its current form. So, I think there are some conversations there that we would continue to have, because we're very keen to work with those providers. They've voiced their views in consultation. I know it's very emotive, because many of them did not think we should be eliminating profit, so some of those conversations were quite difficult. But, I think now, like any change curve, we're now into some more constructive conversations about how we manage that.

Yes, and I think it's important to say, just to re-emphasise what Alistair is saying, that, with the for-profit providers, we have been in consultation with them throughout every step of this process, involving them. They're part of the elimination programme board as well. We haven't seen a mass exodus from the market, even though they know this is coming. So, clearly, they are prepared to be sat around the table talking to us about how we can achieve the objectives that we're trying to achieve.

Going back to something you said earlier about the larger businesses potentially being highly leveraged, and you're talking about assets and assets might have large mortgages against them, and that element, by going down this path, what does that transition look like? Does it mean that these businesses would need to, if they're a limited company or whatever they might be, close down and reopen as a not-for-profit and restructure? How does that work when it comes to their business debt, their mortgage debt, their leverage, whatever mechanisms? What sort of discussions have you had around that, and how do you keep the good providers that you want to transition into the new model? How do you work with them and is there a cost to Welsh Government associated with that?

Well, certainly, as I just said in response to Peter, we are working with all of the for-profit providers with a view to persuading as many of them as possible to transition into not-for-profit organisations, not-for-profit providers. But, Alistair, is there something that you want to say about how that is working, particularly for the larger organisations, I think it's a fair point, where we've got them mortgaged and so on and so forth?

That's right. I think that, from day one, we've recognised that there's a wide spectrum of providers, from the very big players who are both in children's and adult services, and they may decide that they want to repurpose those services. They may wish to look at some of the models that have taken place elsewhere, say in Scotland, about setting up a not-for-profit arm. Obviously, we'd want to scrutinise that with CIW and look at the fit-and-proper test around how that was being organised. Obviously, some of those larger organisations would have the money in terms of converting into those models. I think where we're at at the moment is ongoing conversations with the smaller organisations about some of the legal and transitional costs. They would say themselves, about the word 'transition', that it's not really a transition; it's closing one thing down and starting something else up. I think that's true, and I think these are some of the conversations that we're talking to them about. I think, probably in the regulatory impact assessment, we've included some of the costs because we're aware that they may increase their costs if they're going to decommission and leave, or if they're going to set up, re-establish and transition into a not-for-profit. So, we're aware of some of these costs. These are ongoing conversations that we're having now that the Bill has been introduced. We're setting up revised work streams under the eliminating profit board, with local authorities but also with the for-profits, about how we get through some of this.

Having worked, before entering politics, for profit-making, shareholding organisations, and for a non-profit and a mutual organisation, I know the cultures are very different. By transitioning or closing down and starting again, do you risk moving the one culture that isn't necessarily the culture that you want into a non-profit and creating a non-profit that would try and find every which way they can to game the system?

I would hope not, because I would hope that what we are setting out very clearly is that we are moving to a very different model and that wouldn't sit with what we're trying to achieve. We're very clear: we've set out the four models that we would be looking for not-for-profit providers to follow, and that would not sit with the kind of culture that you're talking about in some of these larger for-profit organisations. 

We know there are a lot of smaller for-profit providers out there. They probably could transition very well into the type of model that we're looking for. For some of these smaller, family-run businesses, it would be much easier, because they would have a different type of approach and culture, I suspect. But we're very clear about what we're trying to achieve and what the model will look like. It'll be for those for-profit providers to fit with our model rather than the other way round.

Mike.

In elderly care, you've had the example of companies selling all their properties and then renting them back. So, the capital came in, which is now sitting nicely in their bank, and therefore they are making little or no profit, but they've actually got fairly large sums of money earning interest or being reinvested somewhere else. Are you sure that's not going to happen?

I'm not sure that we can guarantee that that wouldn't happen, but what we—. Sorry, go on.

Some discussions that we've had are around some of them saying, 'Can we lease back a property?' The issue there is whether that is profit by another name. I think it is. From conversations with Ministers, we agree that that is profit by another name. It's like fees. So, it's something that we're very mindful of, and, obviously, with our regulator, Care Inspectorate Wales, and the work that we do as we go through this now and develop it, it's something that we'll be very watchful of. I think we need to be flexible, working with organisations. I think we need to listen to what they have to say, what they want to do, and I think we have to consider that in the round. But obviously, there is a policy intent around profit.

I'd like to move on to talk about the financial implications of the Bill. The RIA states that the overall key guiding principle for the economic assessment is proportionality. What does this mean in practical terms and how has this been applied in calculating the financial implications of the Bill?

Thank you for that. In creating the RIA, what we were looking at was the proportionality of the two big cost drivers in this provision—so, firstly, the proportion of for-profit providers that would convert to not-for-profit business models and all the contingent costs that go with that; and secondly, the capital costs of purchasing and developing the children's home. Detailed consideration of those variables was needed to help to understand the cost implications.

What all of that did is it resulted in us developing three scenarios that are set out in the RIA in respect of the likely conversion rates. To seek to narrow that down to a single set of costings in advance of variables being known would have probably been disproportionate, I guess, to the effort as well as the potential of providing not an accurate picture of what we were doing. So, when we're clearer about the nature and the size of local authorities' sufficiency plans, based on the proportion of providers willing to operate under the new arrangements, we'll be able to revisit all of those cost assumptions. So, I'm just setting that out as the background to that.

But what we have identified is that, in terms of where we are seeking to go with this and what we're trying to achieve, we believe that the balance is proportional for the outcomes, at the end of the day. We've had to look at all of them—we've had to look at what that is going to mean to the providers, and that is what I was just setting out there, about their capital costs and their other costs, and what it means to the outcome for children and young people. When we analyse all of that and look at that together, we come up with a proportionality of the measures that we're taking, and that's, basically, what we set out to do and why we ended up with the legislation framed in the way that it is.

Thank you. The RIA says that it attempts, and you've reiterated it there,

'to strike a balance between the level of detail, the effort required to capture new data, and the range of potential outcomes'

and you explained that to us then. To what extent do you think that the RIA achieves that, while complying with best practice and this committee's observations about the level of information that should be included about the costs of legislation?

I think that the RIA is, by necessity, a complex document, isn't it? But, ultimately, what it does is it reflects the expected substantial impact of the legislation, so that's what it has set out to do. I think it's probably important to say that with new legislation—. You know, we're moving into uncharted territory with this particular legislation, so there is a degree of uncertainty, clearly, around some of the things. But I'm confident that the approach that we've taken to modelling the financial implications arising from all of the things that we've set out to do is in line with best practice.

What provider intentions are saying is that—. Sorry, let me rewind. What we're now beginning to find is that we don't really have a pattern yet emerging of how many organisations are going to move into the sector, so the scope to, potentially, update the RIA in future is around the likelihood of potential scenarios developing through continued engagement with the sector. I think what I'm saying is that we have a particularly complex process. We don't know what all of the costs are going to be, we don't know the number of organisations that are going to leave the sector, so it does mean that we've got to, probably, revisit the RIA as we're going through this and update as we're going along. I don't know, Alistair or Anthony, whether there's anything you want to add to that. 

I would just say, Minister, that we know that this is groundbreaking and we know that this will evolve as we go through. There are lots of variables there around the number of children in care, the number of providers that will convert, the cost of capital and all manner of things—and revenue—as we go through. So, this is something that we're working through, particularly when we get the intentions of providers. Obviously, we're working closely with local authorities to have their strategic plans, going forward.

I think that one of the issues is the step up, now, for local authorities into that space around commissioning and forecasting. We're aware that this is, probably, the biggest change and transformation in children's services in 40 years, and we're trying to change that around in five or six years. We know that that's a cultural and leadership issue—to make sure that we get the right expertise—but also for local authorities to be working in a regional space and a national space about what we best need across Wales, so we will be working in a supportive way with them on that.

If I could just say something also in relation to continuing healthcare and direct payments, I think that the situation is quite similar there. We know that taking direct payments for continuing healthcare will be an individual choice. It's very hard to predict what choice individuals will make in that situation. Whilst we did consider options, for example, around trying to survey, almost building up from an individual basis, what that cost might aggregate to, and then project against that what the overall cost might be once you've allowed for individual choice, that's a very complex and, possibly, spuriously accurate exercise. So, that's why, again, on the CHC and direct payments side, we've engaged with those who are currently involved in delivering direct payments for social care to understand the comparatives there. We've engaged with bodies in the NHS that are currently looking at costs of CHC and we've used that engagement to inform the range of costs that we've put in the RIA. So, we think that's again an example of taking an approach that's proportionate and also aligned with the requirements in Standing Orders and the expectations of the committee.

We've looked a lot at the policy aspects during this, but this is the Finance Committee, so it would be remiss of us not to look at the finances. You've talked a lot about complexity of modelling and you've obviously come up with numbers. How confident are you of those, and how have you, as the Minister in charge, made sure that the accuracy and the completeness of the figures that you've got in the RIA are the best that they can be currently?

I will ask officials to respond to you on that, because obviously they've been closely engaged with the discussions with the Association of Directors of Social Services Cymru and other organisations, partners and stakeholders. I think, Alistair, if I can ask you to explain a bit more about that.

Certainly, Minister. We went to ADSSC because they're embedded within social care. We work well with them. We work very closely with Sally Ann Jenkins, who's the director of social services in Newport but also the lead for children for ADSSC. We asked them to assess the costs and savings, and the benefits and disbenefits, over that 10-year period from 2025 to 2035, using the figures from 2022-23. We asked them to look at it in terms of the impact on providers and the third sector, but also knock-on impacts on social care and on adult care. We asked them to look at two options. The first was a 'do nothing, business as usual' option, the second was to look at the proposed legislation to eliminate profit from care.

We worked very closely with them. We've had a number of meetings, because obviously we have had checkpoints where we've been refining, we've been challenging between ourselves the assumptions, the data. We've tried to have thought-provoking debates as part of that, looking at the cost for the Welsh Government, for CIW and for others. We've asked them to review all of the published data out there. It hasn't always been easy around some of the commercially sensitive data that private providers have. So, when we say accurate, we haven't had access to all full information, but I think we have to accept that as part of the work that we're doing.

I think we've got a model that's a logic model based on a systemic view of the costs and the benefits of what we're doing here, and that's quite visual. You'll have seen that with the various options, a, b and c, depending on conversion rates of 50, 25 and 10 [correction: 50, 25 and 0]. We've also asked them to work very closely with 4Cs to look at market oversight reports and to try and triangulate some of that information.

I think, yes, there are some degrees of uncertainty over some of the numbers, because we've had to look at a variety of options. As I've previously said, we've got issues around the number of children in care, we've got issues about the numbers that may convert. So, we've had to work on a range of options there and model those scenarios. I think our commitment has been to continue that work. Particularly now that we've laid the Bill, we can talk to providers about that intention and obviously work with local authorities.

Finally, we're aware that local authorities are in different places. We know that, for example, Carmarthenshire can probably quite quickly cross the line, whereas in Cardiff, with over 1,000 children in care, that is going to be much more of a difficult challenge. There is a variety of providers, but we've also got a variety of different situations that our local authorities are in. We've got as much certainty as we can here at the moment, but obviously we want to refine this as we go forward.

So, Minister, you're happy that it's as accurate as it can be, given those complexities.

Yes. And to be clear, obviously, officials are out doing this work on the ground, but I meet with them on a weekly basis. This is all reported back to me and we explore this. I'm satisfied at this stage that what we've presented is as accurate as it can be. But, inevitably, things can change with something as complex as this. The commitment I would give to the committee is that, if things do change, we would obviously alert you to that and make sure that you were aware of that, so that you could consider that too.

I'm going to go over to Rhianon. I think she's got some questions around some of the inconsistencies in the data that we've already had. Rhianon, over to you.

Thank you very much, Minister, and for spelling out the transformational difference that this could make. However, as has been stated, this is very much an iterative process, and this is the Finance Committee. So, firstly, before I talk about some of those figures, can you just very briefly talk me through how you've spoken or engaged with the private providers during this process to be able to assess not just the cost and benefits, but if, for instance, there was a full-scale pull-out of the market in terms of the cost involved in this Bill? Just briefly, if you may.

Yes, we've talked about the private providers being part of the elimination board, so they have been involved from the outset, and we've had discussions with them about the process that we're moving towards. I don't know, is it—? Anthony, did you want to pick this up, or Alistair?

Shall I pick up on that one, Minister? We've been working with them since day one, both the not-for-profits and the for-profits. Previously, I think Peter Sandiford was the chief exec, and now we work with Jen Robbins there. We've got a wide variety of providers on the work stream group, and we've been working with them for almost three years now. I think they've kept the faith as well, because they know, during that process—and they probably have fed back—there were times when we've had to pull back, because we've been out to consultation, and we were developing policy instructions, then we were laying the Bill. But we've worked with them throughout. We had a big workshop with them last November, where they were putting out some of their thoughts and options, which we've considered, and we'll further consider, maybe, in the future. So, I would say that we've had ongoing dialogue there. Obviously, we've got our market intelligence reports. We work closely with the 4Cs. And we've reiterated to them throughout that we want them to look at transition. We want to work with them on that. I think that we've enjoyed maybe some bumpy conversations at times, but, actually, they're still there talking to us, and we want to continue those conversations, to listen to what they have to say, to see how we can support them to transition or convert.

Okay, thank you very much. In terms of the ranges that we've had mentioned, the RIA summary suggests the total cost of the Bill ranges from £394.5 million to £495.7 million, and then, in terms of the summary as set out, it mentions £429.8 million to £455.7 million, and there are also other different inconsistent ranges for the values of cost and benefits in the tables that are included. So, it's just a very simple question: can there be some sort of explanation as to those inconsistencies?

I hope there can be. Anthony.

Thank you. If I've got the figures right, I think you are referring to the figures that we've set out in the RIA summary as £429.8 million and £455.7 million. You were referring previously to, I think, figures that had been reached by addition, which were £394 million and £495 million—

Yes, £394.5 million to £495.7 million.

Right, thank you. Sorry, if you'll excuse me, I'm just going to refer myself to the RIA summary. I think the discrepancy there—because we have, obviously, reviewed the RIA summary tables in advance of coming to this committee, so we think it does all add up—might come because of the way in which the scenarios that we've projected for the exit of private providers from the market in terms of the eliminating profit proposals, how they are reflected and influence the figures that are set out in the minimum and maximum ranges.

By that I mean, whilst the natural thing might be to say, 'You take the minimum figures that constitute each part of the RIA summary—so, the administrative costs, the compliance costs and the other costs and so on—and add them up, and that's your minimum range, and then you take the maximum costs and add them up and that's your maximum', it's a bit more complicated than that.

Do you want to write to us to just go through that in a bit more detail? It's just so we get a fuller understanding. I think that would be the simplest way forward with it. Okay, thank you.

Sorry, Rhianon. That's the best part of £80 million between the bottom and the top, so I'd rather not just write. I'd like to try and get an answer.

Yes, I think the actual discrepancy that we're talking about is £30 to £40 million, if I’m correct. 

Sorry, yes, on both—I've added the two together.

So, where that comes from, I think, is—and please bear with me; it's quite complicated to hold in my head and then try and explain—we have projected two scenarios for providers transiting across into becoming not-for-profit. Sorry, we've projected three, but based on our assessment of likelihood, we have focused our assessment on two of those, which we think are the more likely ones. We think somewhere between those scenarios is probably what will actually play out. Those scenarios are scenario B, which is the more optimistic of the two, which is that 25 per cent of for-profit providers transition and 75 per cent do not; and then scenario C, which is the most pessimistic, is no providers transition, so 100 per cent leave.

So, where that takes us is into assumptions about provider behaviour as they gear up to leave the sector, and our assumption of that behaviour is that providers who are leaving the sector will seek to increase the fees they charge to maximise the amount of otherwise lost profit that they can recoup during the period in which they're allowed to continue existing. And this is the bit where it gets particularly complicated. We are working on the basis that there will be more aggregate lost profit under the more favourable scenario, because there will be a lower number of providers raising their fees to recoup, because there will be 25 per cent of providers who don't need to do that because they're finding ways of existing in the new ecosystem, if I can call it that. So, the way that plays through into the figures is, if scenario B eventuates, then for the most part, the figures that you see in the RIA summary will be at the lower end of the range, but for lost profit they will be at the higher end. So, that has informed our aggregate summary of what the overall lower end estimate is, and then it flips the other way, so if all providers exit, then we would calculate the lower end of lost profit, because they'll be raising their costs. So, essentially that’s where I think it covers it, but it might be helpful for us to write anyway.

I think it is, but I wanted to understand, and obviously, when you have two sets of figures that don't add up within one document, it gives—

I think, Chair, probably what it would be worth us doing is just to go through all of those figures again. We can liaise with your officials on that, and if there are discrepancies we'll clarify what those are and how that has come about.

Okay. Peter, did you want to come in, or has that answered your question?

I got lost in that a tad. [Laughter.] There are some significant discrepancies, and I think we do need clarity around that. However, I know that RIAs always have a significant variance. 

I'm going to ask a typical local government leader's question now, and I'll just put that in on their behalf. So, the benefits, there's a significant range of benefits, and it comes to—. Well, I don't know what the net figure is; it would be significant. Local government leaders will be asking, 'That's great and we will provide a service closer to home, better for the child, which is the fundamental bit, but, ultimately, who picks up the tab?' Does the local government settlement get reduced by the efficiencies and benefits that have been driven through this? So, will they ultimately pick it up, or is this going to be a net recurring cost to the Welsh Government that will keep that going? I'm asking on behalf of leaders because they'll ask that.

Yes, and you can be assured that local government leaders have been fully involved in these discussions. We wouldn't have it any other way, and they wouldn't allow us to have it another way, so I'm very clear about that. But, Alistair, do you want to talk about the discussions that we've been having with those local authority leaders, and how this is going to pan out in terms of the division of finance?

Certainly, Minister. I think from day 1 we've been having conversations, and there's a big difference between savings and reinvestment and surplus, and what we've said from day 1, what Government have said is that this isn't about money that we are taking out; this is about money that you can use to reinvest in the quality of your services and also to redirect to your prevention and intervention. So, this isn't about any money coming out; this is about the money being better used and not coming out as profit. That's probably the bottom line, and obviously the conversations we're having with local authorities now about how we fund that, we might want to talk about that in more detail as we go through.

We'll come on to that in a minute. I wanted to bring Mike in and then come back to Rhianon. We cut across her and I want her to have half her questions as well. 

One comment. I think the range is very useful. It's far better than when you initially did it as a Government, where you just picked a spot halfway between the highest and lowest and we had that figure. I think having a range brings more certainty into it. With the Additional Learning Needs and Education Tribunal (Wales) Bill, the costs changed dramatically between Stage 1 and Stage 2. If this happens, will you come back to us if there's been a dramatic change, and can we continue that discussion? We did it with the ALN Bill, so it's not setting a precedent, but I think it was very useful when the figures went up.

I think absolutely, Mike, we would want to do that, because as I said in answer to an earlier question, this is a new and groundbreaking piece of legislation. A lot of the costs associated with this are uncertain and will become clearer as we move along. So, if they do change dramatically then, absolutely, we will bring that back to you.

And we appreciate that things change and that they are complex, so the more detail, and as—. Mike's catchphrase in this committee is, 'Show your workings', so there we are.  

Of course.

I'll bring Rhianon back in now. Thank you. 

Thank you, and just briefly, in terms of when you explained around the difference in terms of aggregate and the RIA summary figures, which you're going to write to us about so that we've got full clarity on what's presented in the summary, you said that there was a possibility or a probability, or your belief would be from your conversations, perhaps, that providers who were exiting the market—and, obviously, we don't know if it's going to be all of them, some of them, or whatever—would increase their fees to recoup their losses, potentially, for the future. Is there no way of mitigating that? That's just a simple question because, obviously, it's clear what they would be doing, so is there no way of controlling that in terms of them not putting this out there?

It's an interesting point; it actually gets to the nub of what the problem is here, in that the private sector can basically determine whatever fees they want to charge, because that's where the bulk of the provision is. Eighty per cent of our providers are for-profit providers. That means that the ball is very much in their court with the determination of fees, and that is part of the problem that we're facing here, isn't it? 

Absolutely, and it's not a given. We've spoken to some providers who said they think that's what they will do, so I think local authorities think that's what might happen as well. So, part of that is working with these providers to look at transition, to look at conversion, to look at those good working relationships as we go forward over that timeline. But, yes, it will be difficult. Obviously, we've got the 4Cs, we've got that consortium and we've got price packages. We would try to work with local authorities, but it would depend on the sufficiency pressures they were under with some of those placements. But that is something that, obviously, as the Minister is saying, we're trying to address through this policy, because it leads us into that.

Yes, absolutely, I agree, but—. Yes. Okay, fine. So, I'll move on, then. In terms of the Children's Homes Association, who have talked about the other financial costs—they say social and human—of eliminating profit as being dangerously underestimated. They also say that some key costs have not been included or underestimated. Is there a response to that?

Well, I'm certainly very much aware of the concerns of private providers in that, and we've seen some of the responses that you've had, from evidence given to the committee. Some of the areas highlighted have been considered in the RIA costings, and I think we've gone through that in a bit of detail. The start-up costs prior to a new children's home opening have been considered, including the need for full staff teams; transition costs for providers choosing to move to a not-for-profit model also factored into the calculations, in the form of increased fees, to offset additional costs, so what we were just exploring; and also factored in to transition costs are increased fees to local authorities' use of costs associated with decommissioning by private providers. So, all of that has been incorporated into the RIA, but, again, I'll ask officials to talk a little bit more about how that has been addressed.

Is there anything you want to add on that, Anthony?

I think it's fairly straightforward in terms of what we've included in that, isn't it?

Yes. I think it's also worth just mentioning, in case the committee isn't aware—as you are aware, we worked with the Association of Directors of Social Services Cymru in order to generate a lot of the figures underpinning this, given their position within the sector and their relationship with both commissioners and providers. Their report is actually in the public domain, as a way of interrogating some of the further assumptions, if that's helpful to know.

I suspect the other figure that they may well have spoken to you about is compensation, which obviously does not figure, because that is something that Welsh Government is not considering.

Okay, good. So, other than capital costs for new residential homes, the RIA is silent on the assumptions and does not set out the calculations for the costs and benefits of the proposal to eliminate profit. So, do you consider that that is sufficiently transparent for our scrutiny, and other scrutiny purposes, and if so, why?

Okay. Do you want that one?

Well, I think our approach in developing the RIA was to try and provide our best estimate of cost savings and other impacts, to comply with the requirements of Standing Orders, which we think we have done, and to assess that in terms of both pursuing the legislative changes and the status quo option. As I alluded to briefly before, we did also work with ADSSC, to make sure that the underpinning information was available in the public domain. But I think, if the Minister's content, that's obviously a point that we can look at again, as we consider how we revise the explanatory memorandum and RIA for Stage 2, if that would be a helpful point.

Okay, thank you. And finally, you say that you would not expect the number of children in the care system, and the balance of provision across fostering and residential care, to remain constant over this appraisal period. Why does the RIA assume, then, that they will remain constant?

Okay. So, I think it probably is important to say that the assessment of the costs and benefits was grounded in the assumption that the overall shape of placement provision, i.e. that's the number of looked-after children and the balance provision across fostering and residential care, would remain constant across both options. But that was because, under the circumstances, it wasn't considered proportionate to undertake an exercise that was going to be so sophisticated and complex, to take account of all those variables, on an approach that was based on a shifting pattern of provision. So, that would involve a great deal of analysis of issues that go way beyond what is set out in this Bill, so we didn't consider that to be proportional. So, those would include things like societal factors, leadership culture—the point you were raising earlier, Chair—the role of for-profit providers in the future market. However, what we do explain in the RIA is our wider transformation agenda, as I set out right at the beginning, is to encourage the sector to reduce the number of children that come into care and move away from the reliance on residential placements and towards other means of meeting children's needs. So, that was, in essence, how we arrived at that.

Thank you very much. Thanks, Chair.

So, just looking at the figures, from 2014 to 2023, children in care—. The figure in 2014 was 5,745; in 2023, 7,210, yet you've modelled on a constant.

Yes.

That doesn't compute somehow.

Because what I was trying to explain was—

Even if you just did a straight line and—

Yes, well, because we don't know—we don't know the impact of this. What I said right at the outset is we have a programme of transformation policies for children's services that we hope will aim to deliver fewer children into care. So, we haven't modelled it against that specifically. As I said to you, to enable us to do that would have been such a complex and disproportionate process that it wasn't appropriate for the purposes of what we were presenting to you today. So, the best way to do that was to present a kind of constant, and then that would be adjusted and amended as we go along.

I'm trying to think—sorry, Minister. Probably it's been around 7,200 the last year or two, and I think obviously we've had to deal with the post-COVID situation with some more children coming into care. We've also seen an increase—

So, is it an assumption, then, that that is the sort of peak, or is it still growing? These are the sort of questions, because, obviously, if it still grows, then your costs are going to grow.

Of course.

I think it's difficult ground. Are we on a slight plateau at the moment? Maybe, and I think we've had an increase in the number of children seeking sanctuary, so we've had probably an extra 100 or 200 children coming in as unaccompanied asylum-seeking children; we've got about 1,000 children who are placed at home with their parents, and we've put a lot of money out to discharge those orders, so those are numbers that we expect to come down; we have over 1,000—I think 1,200 or 1,300 children—placed in kinship care. So, there's something there; there are numbers within numbers here, and I think a lot of the work that we're doing here is predicated on the wider transformation, work that we're doing around the national practice framework, parental advocacy, support around early help. We've seen some really good examples of that recently, haven't we, Minister, particularly about newborns coming into care, to reduce those numbers over time. And, actually, the whole purpose of this as well, as we were saying around reinvestment, is to have that money going into those services that will either allow reunification, have better models of care so that children can be closer to home and then go home earlier, but also to reduce the number of children coming into care. So, we're modelling averages within this, I think, as we go through that period. 

All right. Okay. Fair enough. Thank you. I'll come to you now, Peter.

Just on that theme, then, I understand there's a bigger piece of work going on behind that absolutely then affects the RIA you're having to present to us. It won't be this committee, but who does scrutinise and understand how those initiatives are going to make such a significant difference on the number of children who will end up in the care system? Where are we going to learn and understand how those things are working?

Well, I am scrutinised as the Minister on the delivery of policy areas in my portfolio. I had a session with the committee just last week or the week before last where I was called in to talk about areas right the way across my portfolio and the transformation of children's services was a significant element of that. So, yes, I'm scrutinised through the policy committee on those things.

Yes. And I'm thinking of the finance of it all because it fundamentally flows out to what we consider here, so the committee is drilling down and understanding the financials as well.

Of course.

Would they feed into the Bill?

It tends to feed into budget setting and that aspect.

Yes. So, I guess the point of this is there's always budget scrutiny, isn't there, at the beginning of the year.

And it's the post-implementation reviews—

Sure.

—of Bills.

Yes, because it's—

So, the wider—sorry, Peter—scrutiny of policy is more directed at the outcomes rather than the finances of it.

Yes, yes.

So, I understand what you're saying.

No, I recognise—

I think one other piece of work that this committee is hoping to do is the cost of legislation, and something that we're keen to try and do is to look at what you said in your RIA, and after a Bill becomes an Act, does it match?

Does it marry up?

So, that's something for the future work.

They weren't my proper questions anyway. [Laughter.]

Okay.

Just to bear in mind, I think we're actually out of time, but if you've got a few more minutes, then, obviously, Mike and Peter have got a few questions if we could go over.

Can we do mine in writing?

We can do, yes.

Sorry, can I just say, yes, I've got a few more minutes, and then I will have to go, unfortunately, but if there's anything that we don't cover today, I'm clearly happy to get you a written response.

Yes, we'll write to you with anything that we don't cover, it's just that it's been quite fascinating going through this. 

Yes, I understand.

I've got one nice, easy one for you, anyway, I'm sure. I know you've estimated that the cost of developing each of these new residential homes is going to be around £700,000. However, this is disputed, I think, by the Welsh Local Government Association, who recognise that this is going to cost more like £1 million, I understand, certainly for some local authorities. How have you arrived at your £700,000 and why is that so far adrift from what others are saying?  

Okay, Alistair.

I'm certainly happy to pick that one up. From my recollection, the £700,000 is made up from—. The average price of a four-bedroomed home in Wales, I think, is £360,000. Don't ask me which year. We'll stick with that one. We're generally, I think, working with ADSSC. We've used a multiplier of 2, so that would factor in things around adaptations and fire suppressants et cetera. However, we're aware that property prices vary across Wales, and it could be much more expensive in Cardiff than Carmarthen, for example. Building costs—if you get a builder these days, it can vary considerably as well, in terms of the amount of adaptations. So, I don't think we would dispute that there's an average, but it could cost much more. And I think that's a figure that we'd want to work and review with local authorities as we went through.

Could you ask No. 11?

No. 11? Okay, yes. So, moving on, how have you calculated the profit that providers are expected to lose as a result of the proposals, reflecting the broad spectrum of businesses and the nature of those businesses in the market? And why is there so little information provided about the estimates in the RIA and the separate report by the Association of Directors of Social Services Cymru?

Okay, Anthony.

Yes, certainly. So, I may, if I may, suggest that we might write to you with some more information on this, just to supplement what I’ll say now. Essentially—I've touched on this slightly earlier—we, through our colleagues in ADSSC, looked at what we thought was a reasonable estimate of likely lost profit over the period of 10 years, aggregated across the whole sector, so not breaking down specifically into different models. And then we took that figure and then we adjusted it to reflect that consideration that we've discussed before about some providers who are exiting, applying a cost multiplier, if you like, in order to deliver the recoupment. So, that's the way in which we went about dealing with that particular one. I could probably give you the detail of how, very specifically, in writing, if that would be helpful.

Yes.

Thank you. And, finally, Mike, would you mind asking question 13?

Happy to. You intend to implement the continuing healthcare direct payment provisions in spring 2026 and the RIA notes the movement from social care to CHC direct payments is likely to take some time, involving a good deal of preparation and set-up. However, the RIA suggests people will start to transfer in 2025-26, with the related costs of the direct payment packages to local health boards and related cost reductions for local authorities shown for that year. How do these stack up?

Okay. So, it's anticipated that the hub to support administering the direct payments is going to be set up during the financial year of 2025-26 and that the first direct payments for CHC will probably begin in the following year. The cost estimates have been made on the basis of the first CHC payments being made in the last quarter of 2025-26 and that individuals who are moving over would do so gradually in the course of around two years, rather than all at one time. From engagement with bodies that we've had in the NHS in England, we understand that there's been a gradual increase in the uptake of direct payments via their personal health budgets. So, that's really our assumption in terms of how that will be introduced in the timescale. 

I was just going to say, on this, we know of kinship and you talked about kinship earlier. There's an awful lot of grandparents, for reasons to do with family breakdowns, and often drugs, who have ended up looking after their grandchildren—willingly, I might add. But also it's fallen upon aunts and uncles, and great-aunts and uncles, to take it on. Now, the current system is that it's discretionary on local authorities whether they provide any funding at all when it's kinship looking after. I can see an argument for not providing it where a grandparent is providing it, whereas, for a great-aunt or uncle, or even an aunt and uncle—who may also have children and be in financial difficulties, who are pleased to look after the child who's a relative, stopping them going into the care system—it's causing them huge personal financial pressures. Are you going to be looking at trying to increase the payment to those—not grandparents—who are aunts, uncles, great-aunts and uncles, who are kinship carers who are facing the cost of a child without any support?

It's certainly our ambition, Mike, to ensure that kinship carers are treated the same as registered foster carers. They still have to go through the process in the same way that foster carers do, but they're not currently in receipt of those payments. So, that is something that we're very much looking at at the moment.

Okay. I'll just finish with this, and this is more a policy position, there's an awful lot of unofficial kinship carers in the system, which you know as the Member for Merthyr Tydfil and Rhymney, as I know as the Member for Swansea East.

Yes, absolutely. And we know that a lot of these are informal, unofficial arrangements. The ones that we deal with are those kinship carers that go through the system and are registered as kinship carers, and they have the same registration process that they go through as registered foster carers. But, as you quite rightly pointed out, Mike, at the moment, they're not in receipt of any allowances, and that's one of the areas that we're looking at at the moment.

Well, thank you very much for your time this morning. Sorry we've run over, but it just shows how—

It's a big area, yes—it is. 

—complex and wide-ranging these proposals are. And we will write to you with a number of questions, if we can, to clarify some of these things.

Indeed, yes.

And, obviously, thank you for offering to write to us on the other aspects that we've talked about this morning.

The RIA, yes.

Therefore, under Standing Order 17.42(vi), I propose that we resolve to exclude the public from the remainder of this meeting and the start of the meeting on 18 July. Thank you.