Cynulliad Cenedlaethol Cymru

Diolch, Cadeirydd. I sit on the transition board in Port Talbot, which is relevant to the first evidence session.

Okay. Thank you very much indeed for that.

Thank you, Chair. I have with me today Nancy Edwards, who is the relationship manager for steel and aluminium at the Department for Business and Trade; Kate Starkey, deputy director of policy at the Wales Office; and online, we have Rob Parsons, the senior relationship manager for steel and aluminium at the Department for Business and Trade.  

Thank you for that. And Cabinet Secretary.

Thank you. Rebecca Evans, Cabinet Secretary for Economy, Energy and Planning. I'll just ask officials to introduce themselves.

Aine Gawthorpe, deputy director for industrial transformation and foundational economy.

Kate Hearnden, head of industry decarbonisation, energy and steel within the industrial transformation division. 

Emma Edworthy, deputy director for employability.

Thank you very much indeed for those introductions. Perhaps I can kick off this session with a few questions to you, Secretary of State. The previous UK Government put together a deal that provided £500 million towards the cost of a £1.2 billion electric arc furnace in order to save 5,000 jobs. In opposition, you described this as a reckless deal and accused the previous UK Government of paying £0.5 billion to make nearly 3,000 people unemployed. However, the deal you are now claiming as your own involves paying £0.5 billion towards the cost of a £1.2 billion electric arc furnace, but nearly 3,000 people will still lose their jobs. Isn't this the exact same deal that the previous UK Government put together, which you previously condemned, because we're talking about the same amount of money, and the same number of people losing their jobs?

No, it's not. There is a demonstrable difference between the deal that was reached by the previous Conservative Government and the deal that the new Labour Government have reached. In just under 10 weeks, we have secured a better deal that secures the future of steel making at Port Talbot, we are laying the groundwork for future investment, and we achieved improved terms and conditions and protections for the entire workforce without additional cost to the taxpayer.

And just to take you through the differences that I have referred to: better terms and protections for the whole workforce—we secured a job-retention commitment of 5,000 jobs from Tata. There is a grant repayment or a clawback—Tata is obligated to stick to that figure, and, if they don't, there is a clawback of £40,000 per role, if it is not achieved. That is a 25 per cent increase on the figure that was negotiated by the previous Conservative Government, which was £30,000. Most importantly, there are no immediate compulsory redundancies. Everyone who is at risk in the future of compulsory redundancy is entitled to join the 12-month retraining scheme, which comes with a salary. So, they get a year's extra employment with a salary and retraining. That retraining is on full pay for one month, then £27,000 per annum per employee for 11 months, and Tata has agreed to fully fund those costs. And steelworkers will be able to choose from recognised qualifications to develop what we think are sought-after skills that will be in high demand in the local economy, both now and long into the future. 

Tata also expects that at least 500 new jobs will be created during the construction of the electric arc furnace, and they will tap into the local labour market, wherever possible, to achieve reaching that target. Working with Tata and with the unions—. I mentioned the improved terms for those at risk of redundancy. So, the steel unions and Tata have worked with us. Tata have offered the best-ever voluntary redundancy package they have ever offered to people in the UK, and they will be paid, if people take up voluntary redundancy and are accepted for it, 2.8 weeks of earnings for each year of service up to a maximum of 25 years. There's also a minimum redundancy payment of £15,000 pro rata, and a retention payment of £5,000 for employees who will eventually leave the business because of the closure of the blast furnaces. So, to prove the success of that, over 2,000 people have expressed an interest in voluntary redundancy on those terms.

The final part of the deal is that Tata is releasing 385 acres of their site for sale and transfer. This is really valuable real estate, which will help bring in more companies to the site, and more employers, not just from the steel sector, but from a whole host of other industries too. So, I hope that that illustrates the very significant differences between the deal that we negotiated, within the very short window that was available to us, in comparison with the actions of the previous Government. 

Thank you for that. Before I ask my next question, I know Luke Fletcher would like to come in on this very specific issue. Luke.

Diolch, Cadeirydd. I'm really grateful for your time this morning, Secretary of State. I'm really interested in this clawback clause within the deal, and just for information, more than anything else, how exactly would that be enforced, and how would it work?

Well, it forms part of the deal that has been reached with Tata; it's a contractual obligation. So, if they do not have 5,000 jobs at the end of this, if they do not have those jobs in place, for every job below 5,000, £40,000 will be clawed back from Tata to the Government in relation to the funding that's being provided.

Just for the sake of saying that they didn't abide by that contract, and say now the electric arc furnace didn't go ahead, how exactly then do you ensure that they stick to that clawback clause element of it?

Well, they're legally obliged to, so there would be financial sanctions, which are within the contract, if they don't do that. And what we do know, obviously, is that the electric arc furnace contractor, an agreement has been signed. I know there was some scepticism and some concern within the community at Port Talbot that the electric arc furnace contract wouldn't be signed. That has now happened, and the contractor is in place, and the application for planning has gone in. So there's been good progress made over the last few months.

Great, thank you. 

Now, Secretary of State, in the past you've made repeated claims that the defence industry will be affected by the events at Port Talbot, despite the fact that very little steel produced at the plant goes to the defence industry. Now, in March this year you specifically said that, and I quote:

‘We’re surrendering our sovereign capability to build the Royal Navy ships we need to keep our shores safe and our shipbuilding industry strong at a time when the world is getting more dangerous.’

Can you confirm whether you still hold the view that the UK is surrendering its sovereign capability because of the closure of the blast furnaces at Port Talbot?

Well, what I would say is the demand for green steel is increasing. We know that because Tata tell us that, and if Tata don't transition to the electric arc furnace they're going to lose more money and more customers. And EAF steel can be used in construction, automotive, household appliances, heavy vehicles, packaging and much, much more. High-quality steel, including for defence programmes such as the Royal Navy's dreadnought-class submarines, is already being made by UK electric arc furnace producers, so there is a route into the defence industry.

And as far as the deal is concerned, what efforts did the UK Government make in negotiations with Tata to keep one of the blast furnaces open through a transition period? And how did you come to a conclusion that the agreed deal was the best option?

Well, it will be a matter of public record that we spent a lot of time discussing both with Tata and with unions prior to the general election in July about trying to keep the blast furnaces open. Every effort was made with Tata to persuade them to do that. We specifically asked them on numerous occasions not to make any irreversible decisions before the election, and it's a matter of record that there were delays in the dates that the blast furnaces did actually close. But, by the time we got to the election, you will recall that, actually, on polling day itself, Tata was due to close both blast furnaces, and that would have been catastrophic. So, there was an extension then to the end of September.

It is a commercial decision, ultimately, for Tata. They've made it very clear that losing £1 million a day was not a position that they could sustain. It was not a position that their board and their shareholders were likely to agree to continue. So, every effort was made. Ideally, we would have seen the multi-union plan introduced, but Tata's decision in the end was one to close the last furnace on 30 September.

And how confident are you that Tata will be able to use steel from the new electric arc furnace at Port Talbot to continue making all of the high-value products at its downstream sites, for example, those used in the automotive sector?

We're very confident, and this steel not only protects the future of steel making in Port Talbot, it lays the foundations for future investment. We are going to need more steel in the future, not less, particularly in relation to this Government's mission to grow the economy and to achieve clean power by 2030. We have tremendous opportunities in Wales in terms of renewable energy, and steel is going to play a significant role in that.

Okay, thank you. I'll now bring back Luke Fletcher. Luke.

Diolch, Cadeirydd. This is more broadly to the witnesses we have before us today, and it's in relation to supporting the workforce. So, we have a number of these training schemes now that are up and running. They've been there to not just support those who are employed directly by Tata, but those in the supply chain as well. How many workers have accessed these initiatives so far?

Well, as of yesterday, 56 people had been awarded ReAct+ training grants, and 15 of those were direct employees of Tata. Information on how many of those affected workers have found new jobs yet isn't available, but we are going to collect that as part of our destination work in due course, following working with those individuals through ReAct+. Of course, the service is there continually for new entrants into it. To date, 92 Tata employees have contacted Neath Port Talbot's employability service for support. Under the fund, it's Neath Port Talbot that will be responsible for monitoring the programme outputs and the outcomes, but they will be providing quarterly reports to the transition board. And since 30 September, over 800 people have attended the community support centre in Aberavon shopping centre, seeking advice and guidance. Now, some of those will be seeking advice and guidance on employment support, but others will be looking for financial advice and mental health support, and other things as well. We are starting to see, I think, an uptick in the number of people who are accessing the various schemes, but they'll be remaining there for the long term.

So, I assume then that, if the data isn't there for how many people have got new jobs, the same would be true for, then, data around the salaries that these workers have gone on to.

We don't have that level of information yet, because it is still very early days, and the numbers of people affected are quite small. But, as I say, we will be looking, through ReAct+ especially, at the destinations of those workers. Perhaps the team might have more information as to the level of information that we and Neath Port Talbot might be collecting.

I'd be particularly interested in when we can expect to see some of that data.

I think a lot of those, the 56 that the Cabinet Secretary has talked about, are on programme. So, until they are off programme, we won't know where they've gone, if that makes sense. So, we are happy to follow up as and when people move off programme and, hopefully, into employment, when those figures become available.

So, that's 56 people that we're aware of, then, on the schemes that we can account for. Is that figure quite low? When we've looked at 2,500 people losing their jobs, why is that figure at 56?

Well, I think we have a number of programmes that were preparing before redundancy. So, there was the personal learning account programme, which has now moved over to Medr. About 800 in Tata and the supply chain accessed the PLA programme in the last academic year, and we've got another 44 that have started since this academic year. We've also had the Wales Union Learning Fund programme, which sits with Welsh Government. So, that is again the pre-redundancy phase, and about 440 I think have accessed that. So, there are other programmes that have been used by the current employees before they've received their redundancy notices.

So, how many were you expecting to access these schemes that the Government put forward?

I think we didn't—. We prepare for a number of scenarios, and the budget is there for a number of scenarios. But, at the moment, because we've got a number of programmes, from Welsh Government and through the transition board, there are quite a few programmes in place, so, until the numbers become clearer, then it will be hard to see what the demand will be.

I'm conscious this might stray into some of the work of the transition board—and, of course, I declared an interest, and I know there are other colleagues who want to ask questions around this—but we are aware, of course, that 50 or so businesses have already pledged support to find new employment for steelworkers. Are you aware of how many workers have been able to access that support through businesses specifically? I know you haven't got the figures around the schemes that are there in place, but are we at least aware of how many workers have accessed the support directly through businesses who've pledged support?

We don't collect the figures for that either, but I'm sure that we'll want to update the transition board in due course, again when things have moved forward and we have more information. As you say, 50 different employers have been able to commit to looking to support Tata workers. I was in Germany just last week and was able to speak to WEPA and managed to talk to their Bridgend manager. And even in Germany they were aware of the situation in Tata and talking about the support that they've been able to give in that company to a number of new employees; I think it was three that they'd taken on from Tata in just that one factory. So, as you say, there are 50 businesses already signed up to this. We are still, I think, at quite an early stage in this process, so it is a case of being there for the long haul, working with local businesses to identify opportunities for affected workers.

I really think we need to stress the importance of ensuring that data is available and up to date on this. I think we're all aware in this room of what's happened throughout history when there's been an abrupt end to an industry, in the same way as has happened here. If that data is not available, then how are we able to then ensure that we see a just transition happen in the long term? All of us here want to make sure that this is a success, as much as you can quantify it as a success, but if we haven't got the data, as a very basic element of this, then how do we ensure that we don't fall into the same trap that we fell into when the coal mines closed down?

We are working closely with partners to identify opportunities for the sharing of data, so that we can understand the impact of the interventions that we're putting in place, but also the support of the wider business community, and also working with partners to ensure that we are able to monitor and evaluate the impact of the support that is in place, and, as I said earlier, the destinations of people who have received that support.

Well, we'd welcome that data when it's available to look at. Just one final question from me, Chair: we have seen a number of reports in the media, we've received, as local Members, a number of complaints from individuals around the timeliness of the redundancy process and the way in which Tata have been handling redundancies. What sort of conversations are you having with Tata at the moment, in terms of those redundancies, and ensuring then, of course, that they're keeping their end of the bargain by making sure that these redundancies are timely and that workers are kept fully in the loop about what's happening?

So, I was able to visit Tata recently and met with both the management and unions, and, really, I think Welsh Government has been very clear with Tata that there has to be transparency and fairness for the workforce. I do understand that some people's individual circumstances put them in a difficult position, in the sense that they might already have found further employment that they can move on to, but in a way that means that they're not eligible for some of the redundancy support available. There are a number of unfortunate circumstances like that that people have found themselves in.

I also know that it is a challenge because some of the assets aren't scheduled to come off-line until March 2025. So, as you said about timelines and so on, it does mean that people working on those assets aren't able to leave the business yet, and I know that is a cause of particular frustration for some of the workforce as well. But just to emphasise, really, that the discussions that we have, both with the management and the unions, are ongoing, and we do raise these concerns that the workforce are raising with us. And as a local Member with constituents who are also working at Tata, I do hear individual stories as well.

Diolch, Luke. I'll now bring in Hefin David. Hefin.

Diolch. I'm just waiting on a microphone. There we are. Can I ask a general question about the transition board? Perhaps I could ask the Secretary of State, as I understand you were at the last board meeting. We've heard from people who were there that attendance was fairly sparse, and at the preceding meeting, Neath Port Talbot Council didn't attend either. Have you got any general concerns about the approach to engagement with the board?

Sorry, was that directed at me on this?

Yes, because you were at the last board meeting, I understand, and I was just wondering what your experience of the board is.

The board is well attended. There were some absentees from the last board, and I would say—just as a follow-up to the question that Mr Fletcher asked about data—data is provided every month to the transition board members, and obviously Mr Fletcher has that, as a transition board member, and had sent apologies for the last meeting. But, generally, it is well attended, and certainly Neath Port Talbot Council have been at every single meeting of the transition board.

Okay. I was just asking you a question from things we'd heard from people who'd attended the board, but I'm happy to keep that record correct. Regarding the announcement of the £13 million that has been allocated from the board for funding for business support, can you tell us when you expect those funds to be up and running, and what impact do you expect them to have on creating and safeguarding jobs?

Well, there are a number of funds up and running. I mean, obviously, to start with, the fund of £80 million was initially announced last October by the then Secretary of State in the previous Conservative Government. Between October 2023 and the general election in July 2024, not a single penny of that £80 million went out of the door to help steelworkers, the supply chain or the wider community. And I was surprised at that, to be honest, because obviously there had been a big fanfare around the announcement and there had been lots of references to it in the Chamber, in Parliament, and in the media. But then after the general election in July, we took office and obviously there was a thorough review from the Treasury, and I was horrified to discover that, actually, the £80 million had not been funded; it was an unfunded spending commitment from the previous Government. Now, you can imagine how I felt; I wouldn't have felt half as bad as the people in Port Talbot who had been told that there was £80 million on the table to help them through this severe economic shock. I have worked hard—very hard—to make sure that that £80 million has now been confirmed through the budget, and Chancellor Rachel Reeves confirmed that on 30 October.

In July, I was able, ahead of the spending review and ahead of the budget, to secure the first tranche of money from that fund, which was £13.5 million. That went into two funds. So, a supply chain transition fund, because at that point, in July, we were already aware that hundreds of people in the supply chain were already losing their jobs because of the uncertainty around what was happening at the steelworks, because of the likely closure of the blast furnaces. The economic position was very uncertain and businesses were being affected by that, so we were very keen to get money out into that area, to help both businesses and people working in the supply chain. So, there was a supply chain fund announced in the summer, and a skills fund announced as well, and both of those were specifically targeted at businesses in the supply chain who had Tata Steel as their primary customer, and also advice, support, training and grants to those in the supply chain who were losing their jobs as a result of that uncertainty.

So, that was the first tranche of money, and obviously this month I have announced a further—last week, I think; yes, last week—£13 million, and this is split into three funds. There's a start-up fund, so that is for Tata Steel employees facing redundancy, but also their immediate families can apply for start-up grants.FootnoteLink These are up to £10,000 per individual and they can set up any business, obviously going through a due diligence and a process with the application, but up to £10,000 per individual. There's a business growth fund. That's for local firms who are not in the supply chain, so less than 50 per cent reliant on Tata as well. Sorry: not in the supply chain, those that are less than 50 per cent reliant. And there are grants available from between £25,001 up to £250,000. And then there's a resilience fund for existing businesses that need some help to bridge the gap over the next few months or so, but need to diversify because of the transition to clean steel, and those grants are £2,500 to £25,000. So, in total, £26.5 million available.

The first two funds I mentioned are running, operationalised, and we are already seeing people applying. The funds I announced last week, obviously they will have to now be operationalised, but we're learning, from the first tranche of funding, about tweaks to the system, making sure that we can get this publicised as effectively as possible, maximise the number of applications, and ensure that the money goes out as quickly as possible.

Well, thank you for that incredibly comprehensive answer. You've answered several of my questions at once there.

Sorry. [Laughter.]

Regarding the £13 million, what is the procedure for staff to apply for that?

So, it's application through an e-mail address, so you can register an interest with the e-mail address, which I'm just looking for, so that I can tell you about it and it goes on the record. So, it's tsukqueries@npt.gov.uk. So, anybody can register an interest; they can put in an application. There will help and support with the application, and then they'll go through the process and the grants will be determined.

That's very helpful. And with regard to the supply chain fund, do you know how many firms have applied?

So, we've got a number of firms that have applied—dozens at the moment. It's kind of fluid day to day, obviously, because people will express an interest, they'll go through the process, and they might decide, 'Actually, now's not the right time', they want to wait for a bit, or this fund is not particularly for them, or they go through and they move forward with their application. We've got 26 firms going through the Business Wales diagnostic review process, and another 11 have gone through Neath Port Talbot’s economic development team. And because we're at an early stage, we're expecting that demand to increase and, as I say, we're looking at the funds all the time, so that we're making sure that the eligibility criteria is effective, the process is effective, and making tweaks where necessary. What I would say to the committee is, obviously, we've got to ensure that this money is spent properly, that we get value for money, that there's proper due diligence, but ultimately the objective is to make sure that we support every single worker and the wider supply chain and community affected by this transition, through that £80 million.

Okay, and I'd like to ask the Cabinet Secretary, because you've mentioned Business Wales: what is the Welsh Government's role in supporting this and ensuring that the funds are allocated appropriately?

So, we provide support through Business Wales and, as the Secretary of State has just mentioned, we have instigated 26 business diagnostics. So, the Business Wales team are involved in that. And, actually, of the 37 supply chain businesses just referred to in the previous answer, they represent a combined workforce of 2,102, of whom 1,579 are working on Tata contracts. So, that's quite a significant intervention, and, of course, that fund remains open for further expressions of interest as well.

Are you happy—? I asked the same question of the Secretary of State. Are you happy with the method by which firms can apply and the ability of firms to apply for it?

Yes, I think that the support that we've put in place is very straightforward in terms of being able to apply for it. We would, potentially, have expected more supply chain businesses at this point to have made an application, so we'll continue to promote it, but it just might mean that some of the supply chains are actually more resilient than we'd anticipated. But, of course, we'll continue to promote the fund.

Okay. And there's nothing else you want to say on the previous answers from the Secretary of State? Nothing you'd like to add. Okay.

So, can I come back to the £80 million contribution that you say the previous Government didn't allocate? Was that announced in the House of Commons?

The original announcement was made in the House of Commons, and was then repeated at various debates and oral question sessions during that period. And, as I say, I couldn't understand why money hadn't gone out to help people prior to the election. Obviously, we now know why.

I should explain, for the record, how it was that we discovered it was unfunded. There were three mechanisms that the previous Government had that they agreed would fund it. All of them, I would say, invalidated by the economic mismanagement and the overall £22 billion black hole that we discovered on taking office. But in relation to this fund specifically, there were three pots it could have come from. So, there were underspends, which had already been overspent. And there was a capital to revenue switch, but both of those had been overspent against both budgets. And then there were reserves, which, obviously, are for genuine emergencies, and those had been spent three times over in the first three months of this year. So, that was where the money could have come from, where it could have been, and it wasn't there. That's why we had to work very hard in the lead up to the spending review and the budget on 30 October to make sure that we could fund that £80 million in full. I was determined to do that, and we achieved that.

So, it's really one for Westminster, but I do think it's an important question. Given that the announcement was made and the money wasn't then allocated, isn't that a case of the House of Commons being misled in that case?

Well, I think it's for my former colleagues who made those announcements in the Chamber to justify what they said and why they said it. My main concern is to make sure that that £80 million is there, which it now is, and to make sure that we get it out to people to help them in the most effective way possible, so that we see the purpose of the transition board and its objectives delivered, to support those immediately affected by the transition, to create the wider regeneration of Port Talbot, and to support the whole steel-making community, not just at Port Talbot, but at downstream sites as well, from the way in which steel has been made in the past to how it will be made in the future. And, as I say, with two of this Government's overriding missions, economic growth and clean power by 2030, I believe there are significant opportunities for people in Port Talbot, and across the south Wales region, to play a big role in that.

So, I’m going to come to my last question, which I address to both you, Secretary of State, and you, Cabinet Secretary. When will we see, then, further announcements regarding the fund, and when can we expect to see additional allocations being made?

Shall I go first on that one?

Yes, sure.

We have got a number of priorities for allocating the remainder of the funding. I will look at evidence in business cases for the remainder of that fund. But I would say, at this point, it’s likely to be invested in more skills and business support, but also in regeneration projects. The transition board is meeting monthly. It will allocate funds once we receive the evidence from the business cases, but, obviously, as we have said, in 12 weeks, £26.5 million has been agreed to go out, compared with, in the previous nine months, absolutely nothing.

Okay. Cabinet Secretary, would you like to add anything to that?

I’ll just concur that the immediate priority has definitely been around support for the workforce and the supply chain. But thoughts will now move towards the regeneration work that needs to be undertaken. And I know that the transition board has commissioned the production of a local economic action plan—that was commissioned from KPMG—and that does set out a series of proposals that could potentially be taken forward in order to provide regeneration activity for the medium to longer term. And, of course, there’s the transition board’s regeneration work stream, and that’s going to be absolutely instrumental in moving projects forward as well.

I think we’re all confident that there is a really bright future available for the area. We’ve got all the exciting work around free ports, the potential of floating offshore wind, the Baglan bay potential developments and so on. So, the regeneration work that will come next, I think, is going to be absolutely critical, and the involvement of the transition board in that will be important.

Okay. Diolch, Cadeirydd. 

Diolch, Hefin. Before I bring in Samuel Kurtz, could I just press you further, Secretary of State, regarding this unfunding claim? Now, before you took office, my understanding is that the transition board decided to proceed with an economic assessment, which, of course, costs money—an assessment that all representatives of the transition board agreed was the right way to proceed. Therefore, isn’t it disingenuous to claim that no money was spent, because money was spent on this economic assessment?

If you recall my answer, Chair, I said no money went out of the door to help communities and people affected by the transition, and that is accurate. A LEAP, a local economic action plan, was commissioned, but not a single penny left the transition board and went directly to support anybody affected by this transition.

But my point, therefore, is that money was allocated for that economic assessment, so some money had been allocated, therefore, Secretary of State.

Eighty million pounds had not been allocated. I’ve explained to you where those funds could have come from. They were not there. It was an unfunded spending commitment.

But some money had been spent on the economic assessment—you do accept that?

I accept that an economic assessment had been undertaken, and, presumably, there was a fee paid for that. But I would reiterate my point, which is that not a single penny went out of the door to help anybody in the local community affected by this transition.

Okay. I'll now bring in Samuel Kurtz. Sam. 

Thank you. I’m not sure whether the Secretary of State or the Cabinet Secretary would be best placed to answer this, but when did that LEAP conclude?

That was concluded in April. 

That was concluded in April. Okay, thank you. Secretary of State, I’ll stay with you for a moment, if I may. Just looking at the future and upcoming developments especially around arc, I’m just wondering whether you’re confident that the electric arc furnace will be completed on time, by the end of 2027, and whether you’ve got any concerns around planning, grid capacity or anything like that, to ensure the project runs to time.

From the update at the transition board last week, Tata are very confident that they will be able to do this on time. Neath Port Talbot County Borough Council are very confident that the planning will be able to go through on time in relation to Tata’s timescale. And so I am reassured by the significant progress that’s been made over the last few months in relation to both of those things. As I said, the contractor for the arc furnace has been agreed and the contract signed, and the planning application has gone in.

Thank you. Cabinet Secretary, given the scale of this application, my understanding is that there's one member of Neath Port Talbot's planning team dedicated to just this role as well. Has any assessment been made of the impact of losing an officer within that planning department in Neath Port Talbot?

Well, in the last couple of weeks, I've made a series of announcements in terms of how we're looking to bolster and support local planning teams, including potentially looking at dedicated support for those authorities that will see the greatest impact on their planning services, and Neath Port Talbot clearly is one of those areas that is facing a lot of pressure on those teams. We're also exploring how local authorities can better work on a regional basis to access some of those specialist planning services and working through Net Zero Industry Wales also to explore ways in which the industry itself could put—when I say 'the industry', in this case I'm referring to the renewables industry, thinking about the wider piece of work that will go on—funding into a secure pot, which can then go again to supporting the planning teams to try to make sure that these projects are moved forward in a timely fashion. So, there's lots happening in the planning space to speed up those applications, but we are aware of the particular pressures in Neath Port Talbot, and are looking to work with them. 

So, given the importance, the national significance of the application to construct an electric arc furnace, has Welsh Government provided any additional support so far to Neath Port Talbot in terms of finance?

Not as of today, but discussions are under way in terms of what additional support might be required and if there are different ways of working, for example, in that regional approach as well.

Okay. Thank you. And then, Cabinet Secretary—no, sorry, Secretary of State for Wales, forgive me. In a previous answer, you mentioned the 500 jobs created by the construction of the electric arc furnace, and you mentioned a priority for the local labour market. I was just wondering if there were any guarantees of using the Tata workforce displaced by the closure specifically, or whether it was a wider workforce that would be targeted in that construction phase.

Well, certainly, we have assurances from Tata. Again, this was discussed at the transition board last week. There's a big emphasis on ensuring that, wherever there are jobs available, we try to draw from the local labour market, which would include, obviously, people displaced as a result of the transition in the first place. So, I'm—

So, it would include but not be exclusive to.

So, we expect that 500 new jobs will be created during the construction of the arc furnace and, as I said, that will tap into the local labour market wherever possible. Tata are running a job-matching process—

Sorry, Secretary of State. Can I just ask for your definition of 'local labour market', then, please?

Well, within the local area.

Okay. So, it's not just Tata displaced workers, it's those not connected to the Tata site as well. 

Well, you would want to recruit from the Port Talbot area. So, we are concerned to make sure that, where there is recruitment taking place, people locally, essentially, are recruited wherever possible—

But no prioritisation for the Tata workforce.

So, Tata are running a job-matching process, and I understand that Tata will offer new roles to staff affected, wherever it is possible to do so. So, clearly, in a situation like this, you are going to go first to people who are at risk, and then out into the wider labour market if you can't find the people with the skills that you need, or if you're not able to get them up to that level of skill in time. 

Okay. Thank you. And then, just finally from me, Tata have confirmed that, potentially, another 300 roles, once all works have been completed, could be impacted. I'm just wondering whether you've had any specific engagement with Tata on these potential implications, especially in relation to downstream sites, such as Llanwern.

So, obviously, I've been talking to Tata throughout and to the unions as well. Tata had previously announced and then reiterated earlier this year, in January, the number of roles that could be affected during the transition process. Most of those are expected to be in Port Talbot, obviously, but up to 300 job losses could occur at Llanwern in two to three years' time. Some of the operations at Llanwern will effectively move to Port Talbot, following the upgrading of facilities, but, of course, as to the actual numbers, it's very difficult to determine what those will be in three years' time. They could be lower, as a result of the job-matching process that I referred to earlier, which is taking place. But anybody affected by the changes will have the same protections under the deal, for example under this deal that we have negotiated with Tata and with the steel unions, negotiating directly with them as well—that very generous voluntary redundancy package, and that will be available to workers at Llanwern, if they are in that situation. So, they will get the same protections even if it happens in two to three years' time.

Okay, thank you. Thank you for that clarification. Just coming back to the 500 jobs for the creation of the electric arc furnace, has any assessment been made of how many of those will be lost once the project is completed in 2027, if it goes to plan?

I'm not aware of an assessment at the moment, but I will check and if there's any information on that specific question, I'll write to the committee. 

Okay, thank you, I'd appreciate that. Thank you, Chair.

Thank you very much indeed. Before I bring in Mick Antoniw, I think Luke Fletcher would just like to come in on this. Luke.

Yes, sorry, Chair, very briefly. I'm just wondering—and this is an open question, by the way—what assessment has been made of the grid in Port Talbot and the effects that an electric arc furnace might have on that grid infrastructure. Because one of the things that we've heard a bit about is the potential risks that the grid itself wouldn't be able to facilitate the electric arc furnace. So, I'm just wondering if an assessment has been made on that front. As you can imagine, that's caused a bit of concern locally.

[Inaudible.]—they've been in conversations with the National Grid in relation to the connection to the grid that will be required to support an electric arc furnace. They have written assurance and we understand that that grid connection will be in place by 2027 in order to support that. So, that assessment has been made and the conversations have been happening between Tata and the National Grid to ensure that that will be in place.

And I believe that Rob Parsons would like to come in on this very issue.

I didn't have anything else to add to the answer given. Thank you.

Okay. Thank you very much indeed. I'll now bring in Mick Antoniw. Mick.

Secretary of State, thank you for your evidence so far. I'd like to just ask a few questions really about where we're heading into the future, but in order to do so, we need to understand a little bit more about the past, particularly in terms of issues around energy, for example. Having only very recently, I suppose, taken the responsibility, i.e. after the general election, the issue of Port Talbot and its future has been debated for, really, the past decade, and one of the issues I recall from that period was the issue of energy costs and competitive energy costs between what Tata was having to pay in the UK as opposed to in other parts of the world. We are where we are, but what would you understand as being some of the main opportunities that had been missed, really, I suppose, over the past five to 10 years on the macro-economic level that I suppose has ultimately led to the demise of core steel-making capacity within Port Talbot?

Thank you for the question. I may come to officials to help me on some of the more technical aspects, if needed, but just to say that, obviously, electricity prices being 50 per cent higher in the UK than in Europe has been a very significant issue for energy-intensive industries like steel, and we know that that played a large part in the performance in terms of the economic performance of Port Talbot and the loss-making of £1 million per day. But we, as a Government, see a bright future ahead for steel in the UK. We have a long-term vision that will deliver for the UK, especially in places like Port Talbot, and I am determined that Port Talbot will be at the forefront of our steel industry in the future. 

We're considering the case for further reforms to improve the affordability of electricity for industrial users. So, you talked about the past—we can't do anything about the past, but we can do things about the future. We've been clear that we need a fair and competitive landscape for steel—that's why we've taken action on industrial energy prices, it's why we supported the extension of the UK steel safeguard until the end of June 2026, and we announced in September plans to develop a sector-wide steel strategy that's going to set out this Government's long-term vision for a thriving steel sector in the UK. But, essentially, our focus here is to make sure that we protected Port Talbot as a site for steel making in the future, and we will be helping thousands of people through this transition, not just direct employees, but people in the supply chain, people in the wider community as I’ve set out, and we will have a steel strategy published in the spring to set out that vision for how Welsh steel and UK steel will play such an important part in our industrial strategy in the future.

Thank you for that. Of course, the energy issue is one that the steel industry and UK Steel and others, and Tata, are still raising as an issue, particularly as we’re no longer part of the European Union. There is a rather privileged position in respect of Europe with regard to energy prices and compatibility, but also the issue in terms of carbon emissions, the carbon border adjustment mechanism, and there seems to be quite a lot of pressure coming from the steel interest to have a system of mutual recognition and also greater compatibility in prices. Is that something that you think is going to feature as part of those discussions and plans for the future of the steel industry?

Certainly. I would just say, as a starting point, the transition from the way steel was made in the past to how it’s now going to be made in the future at Port Talbot will reduce the UK’s carbon emissions by 1.5 per cent, and, in Wales, our emissions will reduce by 22 per cent, because, obviously, the steelworks was the largest emitter in the whole of the country.

We support the introduction of a UK carbon border adjustment mechanism, CBAM, to mitigate the risk of carbon leakage. We’ve launched a consultation seeking views on proposals for the design and the administration of a UK CBAM. That closed on 13 June 2024. Officials are currently reviewing the responses, but there will be a UK CBAM introduced on 1 January 2027, and that date has been driven by the need to move quickly to address the carbon leakage risk, but also, at the same time, providing sufficient time for the industry to respond. So, that’s going to happen, but there will be full consultation with industry throughout the design and implementation phases so that we’ve got a consistent approach to carbon leakage mitigation.

Thank you for that. Looking forward again, and, again, we have to understand some of the past, and you made a comment very early on that you’ve made in the past, and it’s one I hold fairly strongly to, and that is that, in terms of sovereign capability, the ability to produce core steel in this uncertain and rather volatile world, and, I suppose, one where we are not at the moment part of the European Union, obviously, has implications for national security and so on. But, looking ahead to a potential further investment, I understand the UK Government has indicated that there is a further £2.5 billion and that the UK Government, Tata and the steel industry generally is looking at, or Tata has agreed to evaluate, the potential for new investment in steel, and would also consider the case for a direct reduced iron plant. I wonder if you could perhaps explore a little more about your thoughts about where you would want to see the steel industry in the future, and how investment of this scale could actually contribute to, perhaps, a reconstruction of a viable twenty-first century steel industry in the UK.

Certainly. So, as I mentioned, we are undertaking our steel strategy work at the moment, which will be published in the spring. We have committed £2.5 billion to support UK steel working. We are doing a review and looking seriously at the options for primary steel making, with a review of the viability of DRI, and that is part of that overall piece of work. Ideally, we want it to happen here, DRI, but all investment decisions will, obviously, have to be evidence based, because we know that the steel industry needs long-term jobs. This is about a sustainable future rather than short-term subsidies. And what I would say is, obviously, the UK has one of the largest supplies of scrap metal in the world, so steel companies like Tata transitioning to a electric arc furnaces will make the UK less reliant on imports from other countries and enable us to achieve that more circular economy. Rob Parsons had his hand up on the screen, that I could see, and I don't know whether he wanted to add to my answer.

I would just reiterate the point that the Secretary of State's made that, obviously, there are several policy interventions—the electricity supercharger, the carbon border adjustment mechanism, the steel safeguard renewal. What we're seeing and what Ministers have given us a steer to do is to look at these measures in the round and reflect on where we are with primary steel making. That's why it's so important that we take the time to address these quite complicated interrelationships in a steel strategy that will be published in the new year, to look at how these things work together to make sure that the steel industry is in the best place to go forward this decade and beyond, really.

Sorry, Mick, time is moving on, so I'm very keen to bring Hannah Blythyn in. She's got a few questions she would like to ask, as well, so if we can leave it there, Mick, I'm sure you'll understand. Thank you very much, and I can now bring in Hannah Blythyn.

Thank you, Chair. Just to pick up, actually, on some of the questions Mick was asking there to the Secretary of State around broader UK Government support for the steel industry, the focus, quite rightly, in the here and now is on the situation and circumstances at Port Talbot. But, clearly, as I think Mick referenced, what's happened there should serve as a lesson when it comes to proactively sustaining the steel sector, moving forward. So, can I just ask what strategy and plans there are within the UK Government to futureproof the Welsh steel sector, and also make sure that innovative downstream sites—we've heard Llanwern referenced, but Shotton as well—don't get left behind?

Thanks, Ms Blythyn. Absolutely, you'd expect me to have Shotton right in my mind, having had a local connection to it. As I say, we're going to need more steel, not less, to deliver on our economic growth mission, to deliver on our clean power by 2030 mission, and we want to make sure that we have the best possible environment in which to make steel and sell steel. So, some of the work that I've talked about in relation to the forthcoming steel strategy, where we'll be working closely with industry, with trade unions, with the workforce to develop that and publish it in the spring, and certainly the investment that we have agreed in terms of the £2.5 billion and the ongoing discussions that we're having in terms of future investment, private investment, are to revitalise the steel industry, because it is a foundation industry for this country and particularly important in terms of the Welsh economy.

You've referenced the upcoming steel strategy and the involvement of trade unions, so can I ask how trade unions and business will be proactively involved in the development of that strategy?

We'll be working with them, discussing with them. As you've seen from my evidence today, both prior to the election and since the election, we have had a very close working relationship both with Tata and with the steel unions. I've met with the steel unions almost every month since we took office, sometimes several times a month, and most recently as last week, to make sure that they are feeding in their views. Obviously, I'm working closely with the Secretary of State for the Department for Business and Trade, who is leading on the steel strategy, together with Minister Sarah Jones, the Minister for steel.

Thank you. Just one final, quick question to the Cabinet Secretary, if I may, just on her reflections on a similar question on the role for Welsh Government as part of developing that broader UK strategy to make sure Welsh steel is central to that, as well.

I think, since we've had the new UK Government, there has genuinely been a reset in relationships, and we'll see that as we move forward through the development of the steel strategy. The Welsh Government and the views that we represent here will absolutely have to be a critical part of those conversations that the UK Government will be wanting to have. But I also see the steel strategy being an important part of the wider work of the industrial strategy, as well, and, again, that's an important part where Wales has an awful lot to offer. When you look at the priority areas through the industrial strategy, just like steel, they're areas where Wales excels or where Wales has a really strong interest—for example, our creative industries, aerospace, and so on. So, I think that the work that we've been doing with the UK Government with our reset of relationships will bode well for the development of the steel strategy.

Thank you.

Thank you, Hannah. I'm afraid time has beaten us, so our session has come to an end. There were some questions we didn't get to, so we will probably write to you, asking those questions, in due course. But thank you to the Secretary of State and to the Cabinet Secretary, and their officials, for being with us this morning. Your evidence will be very important to us as a committee in scrutinising this matter, going forward. A copy of today's transcript will be sent to you in due course, so if there are any issues with that, please let us know. But, once again, thank you very much indeed for being with us today.

Thank you, Chair.

We'll now take a short break to prepare for the next session.

I’m Sally Bridgeland. I’m the new chair of the Development Bank of Wales. My heritage, if you want a word or three, is in the pensions and investment industry, including also chairing one of the local government pension pools.

Bore da. Good morning, everybody. Giles Thorley, chief executive of the Development Bank of Wales. I’ve been here for eight and a half years.

Good morning, everyone. David Staziker, chief financial officer.

Good morning, everybody. I’m Rhian Elston. I’m the investment director for Wales.

Thank you very much indeed for those introductions. Perhaps I can just kick off the session with a few questions. Perhaps you could set out the bank’s greatest achievements of 2023-24, along with any areas that presented significant challenge to you as a bank.

Yes. Thank you very much. I’ll just give you a brief introduction on the year, and then ask my colleagues Mrs Elston and David Staziker to give you more detail.

Yes.

So, it was an okay year; I don’t think it was exceptional. We exceeded our plan by a small amount. We made 491 investments to 430 businesses, with a total impact of just over £175 million, of which £125 million was direct investing and £50 million was leverage and loans from other parties. The average deal size was £255,000, and I think that tells a story about where the market is. We are a gap finance provider, there is a significant gap in the market, and that gap is increasing for very small and micro businesses. There were 282 microloans to businesses, at an average of £28,900. Over half of our investments are microloans. There was £22 million in management buy-outs, £8.5 million to 31 companies in the tech sector, £38 million to the property sector, and £12.2 million in the year as equity investments. That was slightly behind plan, but, as my colleague Rhian will say, we're progressing very strongly on the overall five to seven-year programme on equity investment. And there were 119 angel deals. I'm going to pass on to Rhian, and she can give you a bit more detail.

Perhaps if I pick up on that equity point to begin with, Chair. It was a lower year for equity investment, compared to the previous year. What I would say is equity investment is quite lumpy, you do see peaks and troughs, they're larger deals, so that can have quite a big influence on a particular year, and that's really evidenced by this year. So, the amount of equity investment we've made in the year to date is already ahead of what we did for the full year in 2023-24. So, with some of the larger deals, it does just depend when they fall in the financial year that can have quite a marked difference.

The co-investment number was down—so, that's the amount of private sector that's coming alongside the deals that we do. And, really, what I would point to there is the market, and the private sector's appetite for investment. I'm sure it won't be a surprise for you to hear that the banks are relatively low on their appetite for lending to businesses, so we just saw less private sector investment alongside the deals that we did. But also equity has quite a big impact on private sector leverage.

Was there any particular reason for that, in your view—that reduction?

I think there are two things on the private sector leverage. There's a general sentiment in the market that banks' appetite is reserved in certain areas particularly. With smaller deals, it's been there for a long time, but there are certain sectors that they are more nervous about. The bigger impact is equity. Equity attracts a higher proportion of private sector leverage, so in a year where we have a lower amount of equity, what flows with that is a lower amount of private sector leverage. And the year before, we had a particularly large deal that brought about £30 million of private sector leverage with it, so really gave us a bumper year then. What I would say on equity last year is the UK market was down. If you looked at the number of deals that were being done on a UK level, they were down about 20 per cent, I think, on number, and about 50 per cent on the pounds invested in equity. So, it was not unexpected with what the wider market was doing.

The only thing I'd add to what Giles talked about in terms of highlights for last year was the final investment for the Wales Business Fund. We were pleased with how much that fund has grown over its life. It went from a £136 million fund to finishing at £216 million, and we took some additional money from the Welsh European Funding Office in the year, which we had to deliver by December, so it was a big effort from the team to make sure that we didn't lose that money to Wales, and we fully invested that Welsh money in businesses, which, of course, will come back and allow us to reinvest going forward. So, that was a particular highlight of the year overall—that we fully invested that fund.

Thanks for that. I'll now bring in Luke Fletcher. 

Diolch, Gadeirydd. I'm grateful for your presence here this morning, and I'm particularly grateful to be able to meet you, Sally, in your new role in the DBW. If I can just stick with the headline results side of stuff for a moment. Just looking at page 41 of the annual report, I'm just wondering if you can explain to me how the first graph, investment value by stage of business, reflects the priorities of the bank. I'm particularly interested just in terms of the investments made in residential property as opposed to business succession—there's an £11 million difference there. I just wanted a bit of clarity in terms of does that reflect the priorities of the bank, or is it a matter of things building up over time from previous investments.

It's very much market driven. We have completely discrete funds that are targeting and supporting the residential house builders, and funds that target business succession, for example the Wales management succession fund. The Wales management succession fund is an interesting fund for two reasons. Firstly, it's the first fund where we attracted a third-party investor, so Clwyd Pension Fund is a co-investor in that fund. But it's specifically targeting the purchase of businesses from the founder or from the owner and bringing in a new management team. So they're very long-term deals, they take a long time to gestate. But we had a reasonably good year on that front.

The rationale for the residential house builders is completely different. We identified five years ago that residential house builders in Wales, the smaller house builders that build in local communities, had been lost to the commercial lending market, so can't get commercial lending at all for the construction phase of the development. So we developed the first Wales property fund almost seven years ago. We've invested almost £300 million in the property market in Wales to build houses for the Welsh community. The residential house building number is lower than previous years, and that's primarily because of sentiment in the housing market, what with the interest rate spike last year. These are sustainable developments of 10 to 20 houses, so it's very much driven by the willingness of the developer to take the risk, and also the ability to sell those houses.

The reason I ask this, of course, is I think it's fair to assume that the remit of a development bank is to address some of the business problems we have within Wales, and we have identified succession planning over the years as a key problem within the Welsh economy. I constantly refer back to companies like Rachel's Dairy as an example of a business that was viable, providing a lot of wealth locally, that ultimately shut down. And that's why, when you look at that sort of difference in investment, it's a bit concerning from that perspective.

And just to add on this point, the second graph, number of investments by stage of business, shows that investment within business succession is actually more than residential property, but then the average value of those investments is massively different. The average value in residential property investment is £1.6 million, as opposed to the £0.4 million in business succession. So it's just trying to understand what the priorities of the development bank are.

The answer is both. There are a number of things. I'll give you the macro context and then I'll pass on to Rhian to talk to you about management succession deals. Firstly, just a quick one on Rachel's Dairy. With Rachel's Dairy, the business got sold to a multinational dairy company who then closed the operations. It was a very successful Welsh business. We would very much like to avoid that, but that business would have probably been well outside the scope, in size terms, of what we would have been able to assist anyway. 

Why would that be, sorry?

The maximum investment we can make in a management succession fund is £5 million, so it really wouldn't have made a difference in that specific circumstance.

The second thing to factor in is that the type of investment is completely different. The residential house builder loans have an average life of less than 18 months. They are short-term construction funding, and as the property is sold, they're refinanced and the proceeds are then used to repay the loan. We then use that loan again to make further loans in that space, discretely. Whereas with the management succession businesses, we could hold that investment for five to 10 years. And at that point I'd probably pass on to Rhian, who actually does these deals directly.

I think the most important point is that just because we're doing more of one thing, it doesn't mean we're doing less of the other thing. We're looking at those particular opportunities distinctly and separately in the way that we think about the money.

That was probably a point I was going to build on just to give you some reassurance on that. The delivery of both of these types of investment is done quite independently in the bank. We have a dedicated team looking at the property investment, we have a dedicated team looking at the management succession side, which is a far bigger team if you look across all of that activity. So it is not because we are constrained internally. We've got people that are very focused on supporting succession deals. The number that we deliver is really market driven. It's the opportunity that is out there. Like you, I would love to see us doing more succession deals. It is not about us being distracted, it is about the market opportunity that's there. These deals take quite a long time, I'm sure you know, to come to fruition. We actually completed on a management succession deal last night that has been in discussion for three years. It takes a long time to get to that point.

The only other thing I'd say on the residential property side is to remember that we are still supporting Welsh businesses. So, although the outputs on that are very much about building homes, we are still supporting a Welsh SME, and that Welsh SME is growing and employing, like the succession companies. Lewis Homes, a business that we've backed from the Valleys numerous times, has grown substantially because they've been able to access the funding through our property loans. So, I think, sometimes, we get very focused on building houses and we miss the fact that the property funds are actually still creating very good growing and employing businesses in Wales.

So, it's a matter of, essentially, how long these investments take, and how long it takes for them to mature. And I would imagine, based on what you've just said there, Giles, that there is a case then for increasing the amount that the development bank can invest in some of those succession products.

It's more about the demand. We've got the funding available. Sorry, Giles, to cut across you.

No, no, I totally agree.

A lot of this is about making sure the conversation is had in the business, so that they are thinking way ahead of the game that they need to start preparing for that succession event, and whether that's to the existing management team or a new management team coming in. So, I don't think there's concern at our end that we don't have the funding available—we do. 

[Inaudible.]—there's more market competition in there, because those are the deals that the larger funders want to go and do, because they're more profitable, effectively. So, there's no gap to fill, if you like, in general.

I take the point on that front. But, of course, then it's concerning that a multinational can come in and buy a Welsh business and shut it down, when, really, the development bank should be able to step in. Obviously, there's a need for the assessment to be made on your side, but I do find it slightly concerning that, for example, in the case of Rachel's Dairy, you would have been limited in whether or not you could have intervened because of that limitation on the amount you can invest. So, there surely is a case then that needs to be made for that limit to be increased.

I think what is often more the case is trying to get to the business earlier in that succession planning. Because I think, to Dave's point, there is funding avaliable—if it's not us, there are other private sector investors that would have looked at a deal of that size. I don't know the ins and outs of that particular case, but, often, it's because not enough investment is put into the up-and-coming management team so that they're a credible other source for that company to sell to. When the seller's going to market, you have trade, which will often pay a bigger premium; you need to have a credible internal offering from the management team. I don't know what the case was here, but that, for me, is where more effort needs to be put, to make sure the incoming management team are ready for that opportunity.

I think that's an important point, around getting to these businesses early. We talk about the co-operatisation, worker buy-outs, management buy-outs, as an example of retaining some of these businesses within Wales. However, it's unfair then to turn to a workforce or management and dump a company on them if they haven't had the educational side of how you run a business.

I suppose the follow-on question around the succession fund or the planning around business succession is where is the role of co-operatives and management buy-out included in that as far as the development bank is concerned. What is the role of the development bank to go out to these businesses and perhaps float that as an option? We know the Government has the ambition of increasing the size of the co-operative sector.

We've funded employee ownership trusts—so, a transition to the employees. Tregroes Waffles was an example of that, which we funded. But that was as much down to an extraordinarily altruistic Dutch guy who created the business as it was to our ability to support it. The only thing I should reiterate about management succession is that management succession is the transition point; 40 per cent of the businesses that we financed in the last year were businesses that were existing customers. So, obviously, you should factor in all the ongoing business support we provide before a transition happens in management. One of our directors is a real vanguard and advocate, and she sits on the board of two employee ownership trusts. So, it is an area of focus for us. There are relatively few, unfortunately, but that's partly because of the complexity, partly because, generally, there's a sweet spot in terms of the size of business where it works. If it's too big, it makes it very much more difficult, because, essentially, the management are buying the business over a 10-year span and the seller is selling it over 10 years.

Do you feel adequately supported with what you have already to facilitate those sorts of buy-outs?

Yes. I think we've got—. As my colleague said, we have the wherewithal, we have the resources, to do the transactions; it's really about the market. But we have a responsibility to market that capability, and that's what we do. And we use particularly the management succession deals as good case studies, and there are a number in the book. It is also worth saying that we're actually, next year, in the process of negotiating and setting up the replacement management succession fund, because it's got one year left to run.

Great. Just—

Just very—. I'm conscious of time. I'm conscious of time, obviously.

Okay. All right. I'll try and be as brief as possible. Just looking back to the annual report—page 15, the chief financial officer's report specifically—he opens the report saying:

'Our financial statements have become increasingly difficult to understand in recent years.'

That's not a great start, is it, let's be honest. What are the barriers to simplifying this report? I think there's a fair case to make that, given that a part of the development bank's funding comes from Welsh Government, reasonably, people should be able to understand and easily engage with this report. I mean, if he's saying that, what hope do the rest of us have?

He's here, so he can answer for himself.

Well, that's the explanation for why we've done this. Historically, this was never there, so you really didn't understand any of the movements that were going on in the profit and loss account, so it's there and, hopefully, it does explain. We've changed the format of it again this year to give a summary on the first page. We've narrowed it down to real movements just coming down to two points in the year, so, hopefully, you've understood why we've moved from a loss to a profit this year.

I'm particularly keen to see how we simplify it, essentially.

Well, we have narrowed it down to two items, and we've explained what those two items are.

Of course, but you've still said it's increasingly difficult to understand it.

It is. That's why we've done the report.

So, that's an admission that it's not simplified enough for people to understand, surely.

So, the reality is we have to comply with international accounting standards and accounting standards. Those are designed to compare entities with each other, so that their shareholders can understand how one is doing compared to another. Unfortunately—well, fortunately—this is a unique organisation, it's got an interesting ownership structure, it's got a combination of fund management, where you've got the ups and downs of markets, and an operating profitable business, and you're trying to include all of that in a way that is actually understood by a different kind of shareholder. So, that's the challenge we've got.

In the private sector, you'd end up having different kinds of accounting measures and different ways of trying to make the relevant pieces come to light. So, what we've tried to do this year is, by including some of those charts and focusing on some of the metrics that we think are really important, to try and draw those out. But, to a certain extent, the volume of pages at the back is unavoidable, because we have to account in a certain way. I'm an actuary; I blame the accountants.

I would just recommend the table on page 16. That is our effort to try and simplify the flows. The biggest challenge is that we tend to invest in businesses that are illiquid, that we have a limited number of businesses that are stock exchange listed, but not many, and therefore the valuation of those businesses is an art not a science. But that valuation has to be done every year, and that changes, and it's that fluctuation in the valuation that has the most material impact on the results.

Don't get me wrong, I don't envy the challenge. I just want to make that clear.

You're very welcome. We have an audit and risk committee next week, if you'd like to come and observe.

It's on my list.

Lovely. I'm conscious—. The Chair's already told me off for time, so I'll hand back.

Thank you, Luke. I'll now bring in Hefin David. Hefin.

Can I turn to staff remuneration and the fact that the number of staff in the Development Bank of Wales has doubled since 2017? It's often a positive sign. If the level of funds managed by the development bank increases further, are you likely to need more staff? Is it to you, Rhian, I'm asking this question?

So, do you want to start?

Or Giles.

I'll start, and then—. Yes.

Okay. So, if you need more staff, are you going to be able to deliver it, and how are you going to go about that?

It's a good question. Interestingly, in the last year, the head count has stabilised. In fact, it's down 1 per cent lower than last year. So, we have 279 colleagues, 269 full-time equivalents. We've grown the business as we've taken on more responsibilities from the Welsh Government and as a consequence of the changes in the funding structure from EU funds to Welsh and British Business Bank funds. But we're also very focused on making sure that we provide an efficient organisation. So, the way I describe it internally is best-in-class operations with a human face. What I mean by that is, behind the scenes, we want to be as efficient and we want to benchmark ourselves against a competitive business, or businesses in the same financial services sector, but equally we also believe that there is significant value in having people on the ground in Carmarthenshire or in Conwy or in Torfaen so that they are actually going out and visiting businesses, and that those businesses have somebody who they can talk to personally.

I always remember a report from Will Hutton for the Work Foundation some years ago that talked about the pay differential between private and public sector organisations, with 20:1 between the highest and lowest paid being a target figure in order to fish in the same pool for talent. Do you find that that is a challenge, and do you know what your pay differential is?

Yes, and, yes, it is a challenge, but we have, in terms of—. I'll give the background. If we go on to specific conversations about the remuneration of the people here, I'll pass to the chair, because I think it's only reasonable that we don't talk about our own pay.

Just a general figure about the differential.

A general figure: so, I think the pay differential is just over five, so much lower than—

But is that to the average pay, or to the lowest paid?

I think that's to the average pay. I'll get you the number in a minute. It's in the figures here. All our pay and benefits are externally benchmarked. They're benchmarked on a rolling basis, on a three-year cycle. So, every part of the business is benchmarked tri-annually. We work within a pay protocol that is agreed with the Welsh Government, which is relatively strict and prescribed. I think we are able to pay—. We generally pay slightly less than the private sector, but we pride ourselves with the quality of the environment that we work in, the flexibility we offer to people, and, actually, the vast majority of people really see that they're making an impact in Wales. That was reflected in the Great Places to Work survey that we did recently, and 88 per cent of our employees at DBW say it's a great place to work, which is 54 per cent in a typical UK company. So, it's really focused on high-calibre people who really want to work with us, and, in that, we find the people. I'm very confident that we can continue to do that and grow as we need to, if we're asked to do other things.

So—. Go on.

The only thing I was going to add is we're very good at growing our own, and we've invested a lot of time into that, because what we've found is it is easier in the market to bring people in that are less experienced and then provide the training. It's a huge training ground to be part of a development bank, so we provide that structured support to bring them through the organisation in that way.

Okay. Just one more question, and then Hannah wants to come in. The labour pool—. Just to understand the make-up of the labour market, are you targeting exactly the same part of the labour market, do you think, as the private sector, or would you say that you've actually got a different set of employees?

I think it varies. I mean, we do bring people across that have maybe worked in a high street bank before, people with private equity experience, accountants, but we also bring people in that might have a technical background and have not done investing before, and we bring in people who are more graduates, back to that training them through the organisation again. So, I think we're more open in terms of what different expertise they can bring to join the organisation.

Hannah.

Diolch. Thank you. Yes, thanks. I think it was interesting, Giles, your reflections there on priding yourselves on the environment to work in and also around the results of the Great Places to Work survey. I think, Rhian, you were saying around growing the workforce and training and upskilling is really, really important in terms of, obviously, retaining people and that competitiveness, but actually contributing to that environment that people want to work in. So, I just wanted to ask if the development bank recognises trade unions. 

We haven't got—. There's no restriction on recognising trade unions. We don't have any trade union members at the moment; we have had in the past. We had an NUJ member, a member of a journalist trade union, previously in the communications team. So, it's not a restriction in the organisation.

Would you wholeheartedly welcome the recognition of trade unions?

I have no problem with trade unions. I've run businesses with very large trade union memberships. It's no problem for me at all.

Okay. It's always a good question to ask.

I'm not going to shirk from it.

Can I ask what was the average pay increase for Development Bank of Wales staff below director level between 2023 and 2024?

I haven't got it below director level, but, overall, it was 3.2 per cent. The lowest pay band increased by 5 per cent, to £24,550. The overall increase in the wage bill was 2.6 per cent, because some people were not eligible for a pay rise because they'd just started mid year et cetera.

Okay. And with regard to the annual remuneration note, I don't know whether you—. Yes, I will push this. I think you've partially gone there, but I'll perhaps push it a bit further. The annual remuneration for the highest paid director increased by 20 per cent between 2023 and 2024, from £217,000 to £260,000. How did you design that scale, that change? And was it in relation to performance?

Almost all in performance. So, there are three elements to the performance pay. There's, obviously, salary, and there's a pay rise. The cost-of-living pay rise was 3.2 per cent. Then there is an annual incentive, and, in fact, in 2023-24, that was slightly lower—I think that was 12 per cent of salary. And then there is what's called a deferred incentive scheme or DIS. That pays on performance. This is an important component that was introduced post the financial crisis, to pay people on a deferred basis, once it's clear that their actions have not been reckless or onerous and stuff. So, the first significant payout of the DIS was in 2023-24, which is where the majority of this—[Inaudible.] But that accounts to no more than 2.9 per cent of gross salaries, and it's capped at a maximum of 5 per cent of the total compensation pool.

Diolch.

Okay. Thank you, Hefin. I'll now bring in Samuel Kurtz.

Can I just say, I will come back to you on the pay note? I'm just struggling—. It's in here somewhere, but I've got too many papers.

Yes, that would be very useful.

You just need a couple more post-it notes on the pages.

I've got plenty, but yes. [Laughter.]

Yes, that will be very useful for us as a committee. Thank you. I'll now bring in Samuel Kurtz. Sam.

Diolch, Cadeirydd. Thank you. Good morning, panel. Just coming back to the answer you gave to Hefin just slightly earlier, was a cost-of-living pay rise afforded to all staff within the Development Bank of Wales?

Yes, except for people who may have joined—. So, there's a cut-off point. If people join after—. I think it was the beginning of January, until the end—. The pay is to the financial year, to the end of March. So, I think, if people join after the end of January, they're not eligible for the cost-of-living pay rise for that year. That's the only difference.

Is it right that someone earning over £200,000 should get a cost-of-living pay rise?

Well, as we said earlier, the pay rise—or the pay—is benchmarked, and, at 3.2 per cent, it was actually lower than the Welsh Government's pay rise. We took a decision on that across the board, and there a number of occasions where the senior management team have taken a lower pay rise to fund a higher pay rise elsewhere in the organisation.

Okay. Moving on to talk about reviews and reclassification, I'm just wondering about your understanding of the latest position regarding the reclassification of the DBW as 'central Government', and whether there's been a lack of resolution there and what DBW’s thoughts are on this.

Do you want me to take that?

Yes, go ahead, David.

Hi, Sam. There's a joint working group that's been set up that's meeting regularly now between DBW and Welsh Government officials, working through the reprofile challenges. It's working well and making progress. The next meeting's at the end of this month, and, at the moment, we're focusing on the interim solution this year, in terms of how we're going to fit into budgets. I suspect that the long-term solution, we won't see progress on that until 2025-26.

Interestingly, in line with new UK Government budgeting policy to recognise investment assets, there's been a new financial transaction control framework document issued by His Majesty’s Treasury on the same day as the budget. I don't know if the committee's had a chance to see that yet; it may be worth a view. And that framework sets out the future management of financial transactions capital, of which DBW has been a major recipient, on a more commercial basis, which is going to be principally managed by designated public financial institutions, with more robust balance sheets than they probably currently have, with sufficient equity to absorb potential losses. It basically reflects what DBW already does. This document notes that HMT is going to consult with the devolved Governments on the impact of the framework, on what impact that will have on their approach to financial transactions capital. And the initial conversation we've had with Welsh Government colleagues suggests that there's unlikely to be a change to the Welsh financial transactions approach. So, we're going to keep in touch with other public financial institutions that are either designated or not—so, people like the Scottish investment bank, British Business Bank, the National Wealth Fund—to understand the impact of the framework on what they’re doing, particularly on budgeting and financing, to make sure Wales is not missing out on a budgeting or funding advantage by not being a designated private finance initiative.

Okay, thank you. You’ve mentioned that there are sort of regular meetings with Welsh Government at the moment.

Monthly.

So, I’m just wondering whether, within those discussions, a review of DBW for 2025-26 has been discussed at all, off the back of the recommendations.

Do you mean the project—? Sorry, I—

So, just undertaking a review of DWB for 2025-26, further to recommendation 12 of our report. 

So, at the moment, I understand Welsh Government are scoping out a project assessment review. So, they’ve responded back to you and said that, as I understand it, tailored reviews are not something they’re taking forward across the whole of Welsh Government. So, they’re talking about a project assessment review, and the scope of that is still to be agreed with us, as far as I’m aware. Giles?

They haven’t approached us yet in terms of plans, but per their response to the Economy, Trade and Rural Affairs Committee, that’s all we’ve been notified of as well.

Okay, that's helpful. And, David, you mentioned there the British Business Bank and the Scottish Investment Bank. I’m just wondering if you could elaborate a little bit more on what conversations you’re having with them with regard to the situation at present.

Okay. So, fortunately, through our networks, we’ve been able to hold reasonable contact at board level with the various other public financial institutions, just to understand how they’re dealing with both financing and the budgeting impacts of it, which are all a challenge for the financial institutions, as we’re seeing in our budget renegotiations at the moment.

So, you may not be surprised to hear that there is a difference in the way that all these institutions budget, and it’s not consistent. And, I think, one of my hopes for this framework is that we become a bit more consistent, so that everyone is budgeted for in the same consistent way. So, I won’t bore you with the detail of the budget, but it’s quite complex, and some of them—. There is a lack of consistency across all of them, and it would be good to work out what is the most favourable approach across all the PFIs to try and help Wales.

Okay, fabulous. And a final question from me. Former economy Minister, Jeremy Miles, speaking to the Welsh Affairs Select Committee, had asked DBW to

'reflect on whether any recent experience causes it to look again at its diligence processes.'

I’m just wondering if any review had been conducted following Jeremy Miles’s comments to the Welsh Affairs Select Committee, and, if so, what the conclusions were.

Yes, indeed. It's very comprehensive, so I'll pass on to Mrs Elston because she's got the details. 

Thank you. 

So, I guess the first thing I’d say is that our approach to customer due diligence is constantly evolving. It’s a continuous process where we look to understand whether we’re compliant with what we need to do from a regulatory perspective and how we can improve. So, to give you an idea, we’re confident that we’re compliant with the regulations. We comply with the money laundering regulations. We take into consideration the joint money laundering committee guidance. So, what we do at the moment is right, and that’s been verified by our auditors.

So, at the moment, our approach to customer due diligence is quite detailed. We will look to understand the customer that’s applying, the directors, any authorised signatories, any beneficial owners, predominantly through credit reference agencies, but that will also give you more information around group structures, people of significant control, for example. We’ll also look at identification of the individuals that are applying, and we do that through a new system, which is called Credas, which just makes it much more automated, and that also allows us to track for sanctions and politically exposed people—all of those different areas that we need to look at. We also have to consider the source of funds, where money is coming in alongside us, and whether that company is trading with any high-risk businesses. So, it’s quite a detailed and complex various different customer due diligence that we carry out at the moment.

The other bit then is what we look at which might cause reputational damage to the bank, which is where you’d be looking at things such as adverse media. So, Credas, which I mentioned earlier, has a system that allows us to screen adverse media, and it will look at criminal convictions, and it would look at law enforcement activity that has gone on. It is limited to certain crimes, so it will look at financial and fraud crimes. So, we supplement that, and that’s one of the areas that we’ve improved on, which is being far more prescriptive with the team as to what internet searches we carry out, to fully understand what else might be out there around adverse media, so that we can understand the customer in more detail.

I think, going forward, we're about to go out to tender for our credit referencing agency, and the first look of that is that the market continues to move on. So, I'm hopeful that we'll be able to, again, take another step in this area, not so much in terms of the searches we do, because I think that's very comprehensive; I think, for me, the next step will be how we do it. It's quite an inefficient process at the minute, where you're plugging data into various different sources. I'd like to see that come together, so that we can do that much more efficiently as an organisation, but still get the same level of detail back to us.

Thank you. And then, Credas; since when has DBW operated with Credas or using Credas?

I don't know exactly, but Credas has been in for a few years. So, we've had that—

A few years.

Yes. I'd have to come to you, Sam, with the exact detail, but that's—. The more recent change has been supplementing the Credas adverse media searches with what we do ourselves, so that it's not just focusing on that financial crime and fraud, it's doing a wider review of what else might be out there.

Okay. Thank you. Thank you, Chair. 

Thank you, Sam. I'll now bring in Hannah Blythyn. Hannah.

Thanks, Chair. Just to pick up on what Sam started there around due diligence and the work you said you'd been doing around being more prescriptive when looking at searches around adverse media. Is that one of the main areas of learning that you've picked up? And are there any other areas of the due diligence process that you think might need to be improved or strengthened?

So, we were always doing the adverse media searches, I think what we've done is that we've been more prescriptive about how they're done. So, I think we've been more certain with our colleagues around, 'This is how you do it. This is the information we're asking you to check.' So, it's not a marked step-change, it's a gradual improvement of what we were doing already.

I think the interesting thing for me now will be what we get by going out to the market to formally tender again, and understand whether there are various different areas that we can improve on again, although my gut feeling at the moment is that that will be more about doing it more efficiently, rather than big areas of diligence that we might be missing. Another thing that we look at is, if it's a company, like a care home, we would be looking to understand whether they are compliant with the regulators, then, and reading the reports on that side.  

It's a continual area of evolution. It doesn't stay still, Hannah. 

So, that due diligence may vary depending on the nature of the organisation and the business—

Definitely. You're right. 

—in terms of the things that you would look into. And then, I guess, from the things that have occurred, you then add that to it to learn for the future. 

Absolutely. 

Just to pick up on the things that you were saying about proper process, I think you talked about institutional reputation too. Proper process is also important for the individual, the organisation or the businesses who are perhaps applying for funding, may not have been successful, but want to know that they've been treated fairly and understand, perhaps, why they haven't been successful, why they haven't got support and then what they might need to change in the future, potentially. Or, if they've previously had support and haven't got it now. So, I think, if you can just outline any work that you've done in that area to give people assurance that that process is the same for everybody and that they'll be treated fairly. And, likewise, do you have any way, a feedback mechanism, of looking at it, for people who haven't been successful and may have complained about how they've been treated?

Do you want me to go on that? So, if a company is unsuccessful in applying for funding, yes, we want to ensure that colleagues are giving good feedback there around why and areas that they might be able to improve on. Feedback when we say 'no' to a company has to be done in writing, usually supplemented with a phone call first, but at least they've got something to follow up in writing so that they understand why. The most helpful thing we can do there is to try to refer them to the wider support parties that we've got. So, very often it'll be, perhaps, back to the likes of Business Wales, if they're able to support, if it's more around business planning and perhaps getting themselves more investment ready, it could be back to colleagues there, or perhaps another source of funding. Sometimes we may say 'no' because we're not the appropriate type of funding for them at that particular time, so you might be referring them back to the private sector. If it's a working capital need, it might be better suited to the private sector market there. So, that is a big part of what we instil and the training that we do with our colleagues, to make sure that we give that additional support back to companies that haven't been supported. 

In terms of gaining feedback, we carry out surveys of companies that have been successful with funding from us. So, we get that customer survey back, and also portfolio companies. Some of those portfolio companies may have applied again and been unsuccessful, but we continue to ask them for feedback. More generally, we have a very open process to allow people to complain to us. It can be done via the website. I think, from the last committee, we set up a slightly different system, which allowed for anonymous complaints to come through to general council. So, that was an addition—a useful addition—that we've added to our process more recently. What we also pick up quite a lot is just being out and about in the market. So, myself and certainly colleagues in the investment team, we do a lot of regional dinners when we're bringing together various different stakeholders, working with other support organisations out there, to really understand what more the development bank could be doing and if we're missing any gaps or more feedback that we could give.

But please be assured that this is an area of focus for the board as well. We want to make sure that things are not only transparent and fair, but that we can evidence that—that we’ve got the right controls, the right processes. And, as Rhian has said, doing that in an efficient way is a real priority for us.

Obviously, it's about that accountability too, isn't it?

Exactly.

To give you an idea of context, I think our complaint rate for 1,000 applications was 2.8, and if you compare that against the high street banks, it’s more like 5. So, it’s fewer, I feel, and it’s down to 1.59 from a 1,000-portfolio company, so that’s some context.

Okay. Thank you, Hannah. I'll now bring in Mick Antoniw. Mick. Sorry, Mick, you're on mute.

Just a few questions with regard to the importance of net zero in terms of the investment strategy and economic strategy. You previously said that net zero is the single largest economic mission in Wales. I wonder if you could perhaps expand upon that: what exactly you mean by that and how is that reflected in, I suppose, the percentage of loans and investments that you made, say, in the last financial year to support that objective.

Okay, I'll just talk about the context and then my colleague, Rhian, can talk about the details of the individual loans. 

So, the point that we’ve made on a number of occasions is that this is a transition and we think that finance can be an important part of that transition. I think, at this stage, we’re in the carrot phase, so that we’re providing support to encourage businesses to transition. And at some point over the next few years, it will move more to stick and businesses won’t get funding unless they have shown significant plans to transition. But this little bank in Wales is probably at the forefront of almost any financial services institution, certainly in the UK, and from our experience, many other organisations in the world, because we are at the vanguard of trying new things.

Project Perseus is an interesting example of that. So, project Perseus is an innovation that was developed to provide green loans to organisations that will share their data from their smart meters. We sit on the steering committee of project Perseus, and in fact, subject to approval this week, we will be the trial bank in the UK to do the first project Perseus loan. And, in fact, that has been pioneered with a company called Blendini Motorsport, who are going to introduce a solar photovoltaic installation on their building, and is supported by Sage Accounting as well, to link all three components: so, the accounting software, the banking services—the loan—and also the data from the electricity supply.

We’re also working on an SME transition plan pilot in Luke’s favourite fund, which is the management succession fund, because we’ve actually identified four company transition plans within that, and again, my colleague can give a little bit more detail on that, and we’re actually working on a transition plan with that with the support of Clwyd pension fund.

We’re doing some scoping financial work for the Welsh carbon budget 3 of 2026-30. We’re looking at creating a model to fund the Trydan Gwyrdd Cymru windfarm project up to 2040 and the Ynys Môn solar park, and we’re working on another series of engagements, one that I’m particularly interested in, which is providing an agricultural fund relating to natural capital. And there are four or five other projects, but specifically on the actual loans that we’ve done in the last year, I’ll pass on to Rhian.

Thanks, Giles. I think, just to quickly pick up on the transition plan, that will be a really interesting trial for us to carry out with a small subset of our portfolio. So, that's where we're working with them, with some external consultants, to develop their own transition plans. The idea behind that then is we will track how successful that has been with the implementation of the plans. They will be able to access our green loans business scheme if they’ve got projects that need further investment, so that’ll be really interesting to see how that rolls forward and how we can take it through to the rest of the portfolio.

To give you an idea of the level of activity there, we’ve got three schemes that are dedicated to this space. So, we’ve got the green business loans scheme that I’ve already mentioned. That’s where we’re providing patient capital on lower interest rates to allow SMEs to transition to net zero. We’ve supported 27 businesses there with projects. I think there’s much more to be done there, so we’re keen to get that message out to companies to encourage them to go down that route. We also have the green homes incentive, which is focused on our property funds, and that, again, is an incentive for builders to build better quality greener homes where we offer a reduction in fees depending on the greener quality of the companies. That’s supported about 28 different projects. The more recent one, then, is Green Homes Wales, and that’s quite different. That is where we’re looking to try and support home owners with the mammoth challenge of trying to retrofit the many homes across Wales that we also need to do to take us on the journey for net zero. That’s an incredibly exciting pilot; lots of interest, as you might imagine. We had about 2,000 expressions of interest and we’ve got about 200 applications that we’re taking forward. And back to Giles’s point, it's attracting an incredible amount of interest from outside of Wales, so I was listening in to my colleague’s call with the UK Government on this particular scheme just last week, and they’re very interested in what we are doing. So, we are definitely leading the way there with that pilot to see what impact we can actually have in this important area. And we have an existing fund, the local energy fund, which is about supporting community groups develop their own renewable projects. So, it's quite a breadth of different offering, and certainly more for us to go at in that space.

And I think that the link with what UK Government are doing and the overall transition finance, the plans that are being developed there in terms of sector-by-sector plans and financing and where finance can play the right kinds of roles, that’s something that I’m trying to keep well-tuned into, so that I can understand how best the finance that we can provide at a local level can leverage and complement what’s happening at the broader level, the institutional level.

You’ve rightly identified—and thank you for that; that’s very interesting and, in many ways, quite exciting—as you mentioned also, of course, the partnership and the function of the Welsh Government to take the lead in creating a clear centralised support to help home owners, businesses and so on in their net-zero journey, and you’ve also in written evidence said that the Welsh Government should prioritise the development of a coherent net-zero investment strategy. Are you satisfied that that strategy is being created, is being developed, and with sufficient priority, and what discussions have you had with the Welsh Government to ensure that happens and to ensure that both you and the Welsh Government are working in that same direction?

Well, it is happening. It’s very much part of our ongoing strategy. As with all organisations that are funded by the public sector, there is a finite amount of resource, so we’re constantly bidding for resource to progress these projects, but the projects that Rhian mentioned were three of those identified when we actually pitched our green finance strategy two years ago, and they’ve come to fruition, and we intend to progress on the others.

Okay. Thank you.

Thank you, Mick. Our session has, therefore, come to an end. Thank you for being with us today. Your evidence, obviously, will be very important to us as a committee in scrutinising the bank, going forward. A copy of today's transcript will be sent to you in due course. If there are any issues with that, then please let us know. But, once again, thank you for being with us today.

Thank you.

Thank you.

Thank you.

Thank you.