Cynulliad Cenedlaethol Cymru

I think David might like to come in on this point.

Okay, yes, so I agree with what Guto was saying there. I think that, if you look at the public finance forecast, it's inherent—they're not stated explicitly, the assumptions underlying them—but inherent in the forecast in the Conservatives' manifesto is that, beyond 2020, once you take account of the increases for the NHS and what's been announced for the next several years for schools, all other areas of day-to-day spending would effectively be frozen in real terms, if you wanted that to be consistent with what they've said on taxation and what they've said on the forecast deficit in the Conservative manifesto.

So, I think that what that means is that you can think of 2019 to some extent, and certainly 2020, as a little bit of a lull in the storm in terms of the budget pressures that Government can be facing, given the current plans. So, for the NHS and schools, there is potentially sufficient money there going forward for the Welsh Government to also increase those areas of spending. But beyond that, if the UK Government sticks to its current plans, there is little of anything else for other service areas. And, of course, with rising demands and the rising costs of things like social care and local government, that can mean further retrenchments in services, if the Welsh Government wanted to match the UK Government, so to speak, and channel the money that it does get to health and schools. So, I think that begs the question about how those plans could change, or will they change? And I think there, there are a few issues that I kind of mentioned.

I think that, if you look over the last five years or so, plans have always been topped up. So, I think it's probably unlikely that they'll stick with a real-terms freeze outside of schools and health; I think they will find additional money. But, actually, they've sort of boxed themselves in a little bit with these pledges on tax—a tax triple lock—and, of course, messaging around cutting taxes. So, does that mean also that they will look to borrow more? But they're already pushing against the limits of their fiscal rules. So, I think there's a bit of, you know—. I'd expect there to be more money, but that is going to require a change in strategy, either on tax or borrowing, from the Government. So, that's one area where things could change.

Another area where things could change is: what happens if there's another economic slowdown or downturn, and that affects the public finances? So, we'd expect that if there was a hard Brexit, we would expect it to have a negative effect on the economy in the short and in the longer term. You might see an increase in spending in the short run, as part of a fiscal stimulus, but in the long run that would mean that further tightening would be required again.

So, I think the question in terms of whether this is sustainable, these kinds of increases that we're seeing, well, yes, but only if we see higher borrowing, which I think actually is risky given that the Conservatives are already planning to borrow about 3 per cent of GDP, when you add in their extra investment spending, or if we see tax rises. And they've hemmed themselves in there. So, if they happen, they will have to be in more roundabout ways than increasing one of the three big, main taxes.

Okay, yes—the lull in the storm. Okay. Thank you. Alun, did you want to pick up on any of that?

Yes, I've enjoyed listening to the analysis actually. Your analysis fits very well into the analysis of the Office for Budget Responsibility and the work of the Government's chief economist. There is a consistency across your different views, and it does also resonate with the sorts of conversations that I think are beginning to happen here. But you say that you think that money will be found to add to that. The quantum of money that could be found is going to be quite limited though, isn't it, in real terms? Boris Johnson seems to find a money tree every time he opens a front door. And I'm sure there's going to be more money found for Northern Ireland now, in the next few weeks. But there must, at some point, be a point at which unfunded funding decisions, if you like, have to stop. Otherwise, the country will not be able to sustain the level of public expenditure.

Right. I agree with that. I think one of the potential risks we face, looking ahead, is, if you look again back over the last several years, what we've again seen is that when public finance figures come in stronger than expected, the Government doesn't bank that, it spends that. But then, when they come in worse than expected, it loosens the purse strings to absorb the shock, and that can lead to a bit of a ratcheting-up effect, where, when the times are good, you spend the extra money, but when the times are bad, you just go with the flow and you kind of ratchet things up. So, I think there is a potential risk of that happening, if it continues.

I think that the other risk for the longer term is—maybe there are two factors: one is, you're right that if you have fiscal rules that are saying that you must not borrow to fund day-to-day spending, and yet you want us to increase day-to-day spending substantially more than is currently pencilled in, you're going to need fairly substantial tax rises, which there hasn't seemed to be an appetite for. I think there is a risk, if you're selling the idea that you can have good public services, increased quality public services, and you can keep tax low, that you risk potentially distorting the public debate and the public understanding about what is feasible, looking ahead.

Of course, it's not only about issues about increasing public service standards that we need to think about, going forwards, in terms of the need to raise more money; even just to stand still on public service quality, given demographic change and given rises in the costs that you often see in services that are quite labour intensive, we'd expect to have to spend more just to stand still. I think there's a risk that that message is just hidden, and the longer we leave it to get that message across to people, the harder it is and the bigger the change we ultimately do need further down the line in terms of tax, and the harder it becomes to make those changes.

Okay. I absolutely agree with you. I think we've infantilised the debate in some ways around some of these areas. 

So, what does that mean for us? Let's bring that home to Wales. We saw a budget published last month, which, in some ways, echoes Theresa May's words, 'Austerity is over', and I think you've played on that in the title of your analysis. I read it as a very traditional Welsh Government budget, in that everybody gets a little uplift and nobody's disappointed—there are no favourites in the family. And it could have been published a decade ago, in some ways, in terms of the lack of emphasis on reform, the emphasis on just a little bit more across spending areas. So, how do you think the analysis that you've given, both yesterday in your written work and this morning, is going to impact on future Welsh budgets?

Well, I'll defer to Guto on some of the aspects of his report and Cian's report yesterday. In terms of what I think this constrained world, a world where—. Let's imagine we are in a world where the UK Government decides that it isn't going to increase taxation or isn't going to borrow more to fund extra spending, it is going to effectively freeze spending outside the NHS. If we're in that world, that would mean the Welsh Government would have difficult decisions to make. Does it, like the UK Government, give the bulk or all of the increases to schools and hospitals, given the rising pressures there and the salience of those to voters, or does it again try to say, 'Look, we're actually taking a somewhat different approach. We think that areas like social care or other areas also are priorities' and put some money there? I think that's one question. Another question is: does the Welsh Government use its powers to raise additional tax revenues? It can raise revenues through income tax, although less than you'd raise at the UK level. So, if the UK Government was to increase it by 1 per cent, income tax, Wales's share of the money to the block grant would be bigger than if Wales was to do 1 per cent itself, given that Wales has a smaller tax base, but it could still increase taxes if it wanted to.

Alternatively, it could seek to change the way the state works. I think the Welsh Government does have an ambition, if you like, to become a state that's more focused on prevention and early intervention. I think that is often easier said than done, and I wouldn't necessarily bank on that delivering huge savings. So, when I talk to people in local government, which I do a bit more than national government, they often say that service transition can lead to improvements in services and you can do things better, but it doesn't necessarily save you much money. So, I think the Welsh Government, if it was in that world, would have to really think seriously, 'How much do we want to raise taxes ourselves?' versus making those difficult decisions about how to prioritise services, while obviously trying to improve quality and, where it can, make efficiencies. 

Can I just add one point there? If there's no action on increasing taxes at a UK level and then the Welsh Government doesn't use its income tax powers either, given that health and schools are going to be a priority area for the Government, that leaves local authorities, then, in the situation where they either don't provide the same amount of services or they increase council tax. So, if we want the same level of public services across all the different areas, there will be an increase in tax and we can do that indirectly through council tax, but I think probably a more progressive way would be to introduce an income tax rise across Wales at a Welsh Government level, even if that is sub-optimal and it would be better if that happened at a UK level. I think that should be a key part of the debate over the next year.

Okay. Michael, do you want to come in, because we've covered a lot of ground there and I'm conscious that you probably have something to add? We've glossed over Brexit a little bit as well, haven't we? I'd be interested, particularly, in what impact you feel that will have.

The big thing that we haven't really talked about yet but we'll have to talk about is the fact that, if you take account of the demography of Wales, the overall reductions in spending are still below the 2010 level. So, Guto and Cian have done an age-adjusted analysis on a per capita basis. So, although, in one sense, you can say that the language of austerity has slipped away and that's not where the political discourse currently is, we're still way behind where we might have expected to be in terms of an age-adjusted approach that picks up the costs of an ageing society and the other demographic patterns we have. 

The kinds of issues that David and Guto have been talking about in terms of the choices about future taxation are actually deeper than I think is commonly recognised. Even if you look at the NHS budget, and I'm sure Mike will have some comments about the NHS budget, even if you look at that, where the Welsh Government and UK Government have been accelerating spending over the last few years, we're still spending way below the levels of increase that we were seeing 15 and 20 years ago.

So, on one level, the raw numbers are better than they were, but if you actually look at the underlying pressures on the system, there are still some very significant challenges, and the debate about taxation is going to flow out of that.

Okay. Fine. Rhun.

Are you pointing at me or to Michael?

Did you want to come in?

Yes. So, what I would say is that I am not surprised that both the Welsh Government and the UK Government have prioritised health spending, given it's a clear priority for large parts of the population and given the rising pressures you see in demographics, but actually not just in demographics. It's an area where you'll often see costs rising above inflation because of new treatments, additional people with long-term issues that have become treatable, and rising labour costs. So, I'm not surprised that it's increasing. And you look back—it was increasing during the 2000s as well. It's been increasing over a long time.

I'd mention two or three points about whether this is sustainable or not. I think the first is actually—this 2.8 per cent increase that we're seeing in the current year is actually a little bit below what the Health Foundation thought that the NHS needed each year. They thought it needed 3.2 per cent each year because of rising costs and rising demand. So, there's a question about: if this became long term—the amount to the NHS is going up—actually, would that be enough to keep pace with those rising costs and pressures? I think, related to that is, given what I said about what the overall Welsh Government's budget is likely to be, if the UK Government doesn't change its plans, what the plans would imply is that, if you wanted to have increases of this sort of scale in the NHS and increase school spending, basically there's no more money for other service areas. So, I think the issue then becomes what is sustainability for other service areas in that context?

The third point then, is—if we do see these long-term increases in health spending, and as Guto says, you might expect a rich society to allocate more to health given it's an important issue and it's an issue that does tend to have rising costs—we need to pay for that. And, actually, are we levelling with people and are people going to accept those rising costs? If not, we do need to think about what the role of the state is, in health and in other areas, because at some point you can't square a circle. 

Thank you.

Michael.

The other issue we haven't talked about in terms of health is you have a quantum and there's also the value you get out of the quantum. So, one of the big challenges, as everybody's recognised, is how you shift the balance of health provision away from acute and secondary, very expensive provision to primary and community and integration with social care and so on. These are well-tried and well-trodden paths. I think one of the big challenges is you've had the Welsh Government's NHS transformation fund, and you've got the integrated care fund—you've got a number of funding streams that are about trying to shift the balance and the way that health and social care are delivered; and the danger is, as David was saying earlier, that they deliver better quality of service but they don't actually release resource. And the big challenge is: how do you manage those programmes in such a way that you're freeing up resource to go into either better services within the sector or moving across to other areas? And that's still something where I think, in terms of the kind of reform agenda that you were talking about earlier, there's still—we've been trying to do this stuff for a long time, but it's still not very clear to what extent it's actually helping us to shift resource and address sustainability from that angle. 

To the Wales Governance Centre—you say in your report that the provision of the local government settlement revenue in capital is a significant turning point, yet you then say that it falls short of the estimate required to maintain service delivery in 2020-21. How do you reconcile those two statements?

So, the Welsh Local Government Association, prior to the publication of the draft budget, had said that they required £254 million extra next year to keep things level and to meet demand. So, obviously, we saw in the budget £184 million to it, in the general grants and the redistributed non-domestic rates. But, actually, when you add on top of that the assumed council tax increase for next year, a council tax increase of around 4.5 per cent would raise around £70 million, so that would then get you to that £254 million mark that was quoted by the WLGA. Of course, that also still means that council tax is rising by twice the rate of inflation again this year. 

So, just to clarify, the gap in those numbers seems relatively small. Are you saying that, broadly, now service delivery should be able to be maintained given the settlement?

Yes, to maintain demand, I think we can still expect that. Obviously it's down to local authorities, but I would expect that education and social care will continue to eat up the share of the local authority budgets across Wales, given that the demand pressures are most acutely felt there. 

And do you think there is scope for efficiency savings within local government in Wales, in light of how much more severe the cuts in local government spending in England have been since 2010 by comparison?

It's absolutely true that the cuts have been more substantial in England. Of course, the responsibilities of local government in Wales are slightly different—we've got education under our control as well, and obviously that's one of the areas where the demand pressures are most acute. I know the Wales Centre for Public Policy published a report looking at how local authorities have responded to austerity in terms of making efficiency savings. My guess is, now we're reaching 10 years of austerity, I think there's scope for making those savings become—you know, they become smaller, I would imagine.

And finally from me, we're debating later today our committee's report on capital spending by the Government in Wales, and one thing the Welsh Government keeps emphasising to us is that it allows prudential borrowing by local government. If there are pressures, including on the capital side for local government, why don't we see more use by local government of these prudential borrowing powers that Welsh Government says they have?

Yes, one thing I'd like to point out is, I think in November—. So, local governments borrow through the public works loan board, I believe, and they get quite competitive interest rates that way. There was an increase in that interest rate back in November, and I don't know whether that might have an impact on local authorities' decisions on whether to borrow in the future—possibly, because it would make borrowing slightly more expensive.

I certainly know that in England there's been quite a steady increase in the use of the public works loan board and that is partly to invest in commercial property and issues like that, and that is one of the reasons why they increased this interest rate. I must say, I'm not sure if we've seen the same increase in the use of borrowing powers by councils within Wales. But where much of the pressures are coming in terms of councils' funding is not so much on the capital investment side—I'm sure that there are things that they would like to spend money on in terms of capital investment—but I think where a lot of the pressures are is on those areas of services like, for example, social care, which is often not particularly capital intensive, but there's a resource side, and local government can't borrow for resource purposes.

So, I think, whilst borrowing powers clearly can be beneficial for councils in terms of investing in local infrastructure, local facilities and local economies, I'm not sure if they would make a substantial difference in terms of addressing the real spending pressure points that local government could be facing. If they invest to improve the quality of facilities, that may improve the quality of the service, but, again, I'm not sure how easily that would translate into reductions in service cost always. Although, of course, there will be instances where it could do.

Mike.

Can I just say that it depends on whether you would describe the closure of a library as an efficiency saving or as a loss of a service? It does come down to your view on that. I'm going to talk about the tax base and raising money. In Wales people do not get paid very well compared with not just England, but other large parts of the world. Surely, one of the aims has to be to build a tax base by getting people paid better by generating higher paid jobs. I mean, we could be talking about the same people earning the same amount of money and taking more tax out of them—shouldn't we be trying to get people paid more so that we get a higher tax return?

Well, there's certainly a case, especially with the reduction in the working-age population that we're facing in Wales. The issue of how you grow the economy and grow productivity and earnings is critical, and that's presumably why the Welsh Government has published a set of proposals about trying to strengthen the future tax base. We're not economic development specialists, but the fact is that unless the economy has grown, the long-term impact on the Welsh rate of income tax is going to be quite significant.

Yes. If I can just take that on a slight detour—two points on it. One is that if you look at post-war Britain, the major increases in public expenditure have come from gross income tax. The other thing is new taxes. I know that the Welsh Government have been nervous about introducing a tax that exists throughout almost the whole of the world—the tourism tax—but there are taxes, some are behavioural taxes that can save on expenditure, and the other ones are taxes that are pretty normal around the rest of the world, which Britain has never brought in—a tourism tax is a classic example. Aren't there those opportunities as well?

There are, and as I understand it, there are some discussions going on about the feasibility of introducing a tourism tax in Wales.

Yes, it's one of those that have been highlighted for further research.

And vacant land tax I think is also one. But, yes, it's important to explore all the possibilities and particularly because there's a limit—and we'll probably go on to this later—to how much further it's feasible to increase council tax, which has gone through very significant increases over the last 10 years.

But it's still substantially less than in England.

The increase in council tax?

No, the absolute—the band D property in Bristol, for example, is substantially higher than it is in Swansea.

Yes, exactly.

Yes, but as a share of disposable income in Wales, it's probably roughly similar by now—because we get paid less, obviously, a higher share of our earnings goes towards paying council tax in Wales.

Yes. And then also, band A is—in Blaenau Gwent, band A is the median tax.

David wants to come in.

I was going to make a couple of points, if I may. The first is on these issues about the potential new taxes being considered—for example, the tourism tax and the vacant land tax. On those, both taxes will raise some money and they may also tackle some other issues. I don't think they're going to be game changers in the revenue-raising capability of the Welsh Government. We looked at a tourism tax in England as part of our work on local government finance, and if you had £1 per night, which is the typical amount that gets talked about, that would raise about £400 million across all of England. So, within Wales, the—[Inaudible.]—might be a bit higher, but I wouldn't expect to raise much more than maybe £30 million or so, which is a decent amount of money for particular areas, but it's not really going to solve these financial issues. So, I'm not saying, 'Don't consider it', I'm saying it's not the fiscal lever that will really tackle spending pressures.

On this kind of issue about tax base, I think there was a report—I think it was Guto, and was that with Cian as well, and Ed? We looked at the risks and opportunities with the Welsh tax base. I think that is a really good report. I think it does a really good job of identifying what the risks and potential opportunities are. And then the next step is to think about strategies for growing those. That is the more difficult thing to do. Every Government is trying to boost the economy, to upskill the workforce, to attract new business, to invest in infrastructure, et cetera, and it's a very difficult task. So, my suggestion there would be that, whilst I think there should definitely be a focus, especially on the issue of productivity and pay and what it is that is actually holding back productivity and pay—is it about connection, is it about skills? Working that out and getting the strategy there is very important. I wouldn't rest a fiscal strategy on, necessarily, significantly boosting that. I think it would be quite risky if the Welsh Government said, 'We are not going to think about how we can improve the quality and efficiency of public services and think about tax rises et cetera. We're just going to rely on growing the tax base.' It's good if you can do it, but it's not certain.

Okay, thank you. We're going to have to move on to Rhianon, and then David will have some questions.

Thank you. And very, very briefly, if the Chair will allow me—with regard to the UK Government's current issue with regard to not wanting to tax, and their current position in terms of a fair amount of borrowing, and the issue of Brexit, if I may, in terms of that looming reality that we're all coming up to, what do you feel in terms of the answers there are? Because we're currently in a stagnated economy, let's be absolutely honest—we need more money—do you believe that the Government is going to step down a road of quantitative easing, or which levers do you think are going to be introduced? Very, very briefly, because I've got a question, then, about preventative spend. Do you think that's a possibility or is it just an unknown?

I think it's highly likely for there to be a fiscal stimulus if we had a hard Brexit, or another factor that led to a significant slow-down in the economy. I think that would take the form, potentially, of temporary tax cuts, like the temporary value added tax cut we had in the big downturn in 2009-10, and increases in capital and, potentially, benefits spending. The areas that we have are called higher fiscal multipliers—areas that translate more into growth. The short-term impact there will be more money for the Welsh Government to spend, especially on capital spending. I think in the longer term, though, the expectation for most economists, including myself and colleagues at IFS, is that a hard Brexit would lead to a smaller economy, because of weaker trade links. That would mean we had less tax revenue—you would need more tax rises or more spending cuts in the longer term, unless you're going to borrow more. That's where I think the challenge would come.

Okay, thank you. I snuck that one in—but it's also very, very important in terms of our longer term lens, and we can't ignore it either. Prevention has been, obviously, as you know, a key theme of Government strategy. In terms of its application within the draft budget, how successful do you think preventative work has been sown into that? And you've touched upon it earlier.

Prevention covers a huge and sometimes quite hard to categorise set of activities, and there are obviously some impacts on preventative spend within the Welsh budget, in terms of early years provision, childcare and so on, which could all be seen as having a preventative dimension. The move, I think, to try and align the budget with the future generations stuff is all part of trying to sharpen up the thinking about how these things all connect with each other.

The big challenge is actually how successful the prevention activity is and how it translates into changes in service demand. And I think that's much harder to get a grip on.

Obviously, that's a longer term application of how that's implemented and rolled out, assuming that those policies are effective, and they sound effective on the surface and we'll evaluate that. But in terms of the actual questioning, do you feel that there's been enough of a preventative—albeit this is slightly more policy—element within the draft budget?

We really haven't done an analysis on the preventative spend in that sense. All you can say is that the direction of travel is fairly clear, it's whether the direction of travel is big enough, and I don't—

We'll come back to that.

Okay. We're going to have to move on to David, then—David.

Yes, thank you, Chair. [Inaudible.]—David Phillips said on this, and it strikes me as the right approach, but that's just my view as a layperson. The majority of spending is on trying to get people into the workforce and then there are schemes, then, that try to improve the basic skills to intermediate skills of those who are already in employment. So, for instance, £40 million is spent on Job Support Wales to support around 16,000 people to gain employment—that's £2,500 a year per person, or whatever. I mean, is that reasonable expenditure? On the face of it, increasing economic activity by those means would seem to be a way of increasing our economic capacity. Or, should we be looking at those figures and saying, 'Well, how many of those 16,000 do get into and sustain employment?'

One thing I will say, I've not done any—I've not looked at those policies; I've not looked at any official evaluations to look at their effectiveness or their cost effectiveness, so I wouldn't want to make a judgment on whether these policies are an efficient and effective use of money specifically.

There are a couple of points I might make there. The first is, I think Guto—the report that the Wales Governance Centre did looking at the tax base suggested that increases in employment, per se, tend not to lead to as big an increase in tax revenues as increases in the earnings of those in work. That's because of the high personal allowance; you get someone into work and a large part of it is not taxed. So, if the Welsh Government was purely focused on growing the Welsh economy to grow the tax base, then conditional on being able to find policies that it thinks could work, a better investment would be to invest in policies that help those in work to upskill, increase their wages and increase productivity. Because that's not the only thing that the Welsh Government is trying to do with these policies; it is potentially also trying to improve people's quality of life and improve well-being. There's a question there about, 'Does employment, then, for example—is getting people into work part of—? Does it have benefits beyond just the impact on the economy and on tax revenues?

I probably haven't answered your question exactly, because I don't know the answer here about whether this particular programme is an effective use of public money, but I think you'd want to consider several factors. What is the effect on, for example, the tax base and therefore the potential to generate revenue? But also these wider objectives you might have about people's dignity and quality of life and other things and how this policy is speaking to that.

Yes. Our economic health can't just be measured on what comes to the Welsh Government, obviously. I mean, we're part of the UK economy, and for the citizens, it's a very complicated calculation—their economic welfare. But I do think it's quite important for us to ask if economic activity's increased throughout the UK economy. Are we approaching optimum, or should we still be increasing? Because it does seem to me that probably the biggest drag you have in an economy is a lower number than is optimum of people who are in work.

In terms of the—. If you look at the statistics, where the Welsh economy increasingly lags behind the UK economy is less so in terms of the employment rate, especially once you control for the age structure of the Welsh population, it's increasingly in terms of the productivity in earnings levels. So, that means that if you were to close the prosperity gap with the rest of the UK, it really has to be on earnings and productivity where that comes. Now, that doesn't necessarily mean that that's where the Welsh Government should take action. Where the Welsh Government should take action is where it can have impact, and potentially, it can have more of an impact on, say, employment; if it's easier to get people into employment, it's harder, then, to get them to progress. Conversely, if that isn't the case, then investing in the productivity side of things would make more sense.

So, yes, I guess what I'm saying here is that the fundamental thing that the Welsh Government would need to do if it wanted to significantly improve economic performance would be on the productivity side. But when it comes to working on its policies, I think it does then need to evaluate on a case-by-case basis, 'What are the ones that have the most impact on the economy, but also on wider welfare measures?' I think one thing that I would recommend doing there is potentially being a bit more innovative in terms of trying new things. Try new policies, try them in a way that we can evaluate them effectively to see whether they're having an impact and learn from that approach. There's a chance to do a lot more policy evaluation, I think. And devolved government, where different parts of the UK are doing different things, gives us an opportunity to do that and learn from people across the whole of the UK. 

Yes, well, building redundancy into Government spending is always one hell of a challenge. [Laughter.]

Let me ask a balanced question on infrastructure, particularly transport. It's heavily directed to rail, less so to bus, and we've heard from the Bevan Foundation, for instance, that if you're looking at those trying to access the job market, those in poorer areas, they generally have the worst rail connectivity and it won't necessarily get better under current plans, or not very quickly, whereas bus transport offers many more advantages. So, is the balance right there in terms of a budget that should be sustainable and weighted on equality grounds to those who are not in employment?

And we'll have to be very, very succinct, I'm afraid. We were late starting today. Who wants to take that first?

I'll have a quick stab at it. I mean, again, I do not know enough about the economic geography of Wales to make very clear statements on this. Again, what you would need to look at is you would need to look at individual communities to see what are the links that are most important to those. So, for example, in some areas with higher levels of poverty, so parts of the Rhymney valley, the Cynon valley, the Rhondda valley, there are actually pretty good train links that, you know, could be improved into Cardiff, and I think that's been one of the elements of the metro scheme. I think, in other areas, actually, large parts of suburban Cardiff, in the west and in the east, you have non-existent rail networks and bus links there could be very important. So, I think it sort of has to be on a case-by-case basis, but it is notable that, certainly in England, and it's probably the case in Wales as well, one of the areas that has been cut back a lot is subsidies for bus operators, and that might be something that you might want to look into if you're considering ways of boosting connectivity, especially for more peripheral areas that are not connected up to the network. 

In the long term, anything that improves access to work and connectivity is going to be a good thing, alongside an emphasis on skills, the redevelopment of skills. Those are going to be traditionally the two areas where you'd say that the emphasis has to be. And the challenge with buses is trying to find a means of making them sufficiently useful and well used. There is still always the difficult thing of seeing buses rattling around that are largely empty. So, maybe what you're saying is that there needs to be quite a serious rethink about how bus services can be optimised. 

Welcome back to the Finance Committee, and can I welcome our final panel for evidence on the draft budget this year? Welcome, particularly, to Rebecca Evans, the Minister for Finance and Trefnydd; to Andrew Jeffreys, who is director of the Welsh Treasury; and Matt Wellington, head of budget delivery for the Welsh Government. We have a lot to cover in our allocated time, but clearly we have sufficient time, hopefully, to do all of that. So, I'll kick off, if I may. I wanted particularly just to start with the ministerial direction relating to the NHS pension tax proposal for 2019-20. It doesn't provide an indication of expected cost, and I was just wondering what estimates the Welsh Government might have regarding the potential level of additional expenditure around that.

So, the costs will be directly dependent on the additional annual pension tax charges that senior clinicians will incur as a result of the amount of work that they undertake over the course of the winter period. So, we can't put a precise figure on it for that reason, but we will be consulting with auditors on the appropriate kind of level of disclosure that we will need in our financial accounts for this year. We understand that the figure could be up to £20 million. That's our best estimate, but it will depend, obviously, on the uptake.

Okay. And are you expecting any consequential funding from the UK Government, given that, obviously, there are similar moves afoot there?

The initial advice is that the funding is being absorbed in the Department of Health and Social Care budget in the UK Government, so we're not—

Okay, so it'll have to come from existing budgets. Is that then, as far as you're concerned, going to come from central money that you have as a Government or are you expecting health boards, for example, to absorb some of that cost?

We've confirmed to the NHS organisations that Welsh Government will provide that funding. But when it will fall will obviously depend on the decisions that clinicians take in terms of their retirement dates and so on.

Mark wants to come in on that.

On this pensions point, I just wonder what you think is the distinction between Welsh Government and UK Government in this context, because the problem exists because, if the consultant does an extra session or two for which they're paid a modest amount, that can lead to a very high—perhaps several times the cost usually of that session—impact to their pensions. Is it cost-effective and sensible for Welsh Government to be paying, say, possibly in some circumstances, five or 10 times the usual cost of those extra sessions to pay that tax, when for the UK Government it's a circular transaction between the Department of Health and Social Care and the Treasury, but for us it's actually a transfer of resources from Wales to the UK Government in that tax, and is it cost-effective?

Yes, and this is a situation, obviously, that we would prefer not to be in, but we felt that we needed obviously to take action in Wales, because we don't want clinicians to be at a disadvantage, but more importantly, we need to keep those clinicians actively engaged within our own NHS in Wales. So, that's the reason why we've taken what's quite an extraordinary decision, outside the kind of things that we would want to see normally through the 'Managing Welsh Public Money' document and so on, which sets out the way in which we would normally approach matters. So, this is extraordinary and we would hope that it is resolved very quickly in the UK Government.

But I think you make a good point. This is, basically, in theory it would be Welsh Government money paying income tax costs that will be going directly to the Treasury. I think the Minister intends to write to the Chief Secretary about this and it's not a very good solution from any perspective really, to the problem.

You mentioned it's something that you hope the UK Government will resolve fairly quickly. If it's not, if there is a delay or if something changes, then are you committed to this expenditure for next year and beyond as well?

Our intention currently is that this arrangement wouldn't go any further than April 2020. Clearly, we hope within that time there will be a satisfactory resolution at UK level, but obviously we'll have to keep things under review during that period.

Yes, so there's no commitment beyond that at this point, but obviously that's something you'll have to look at at the time.

That's right, yes.

Okay, thank you. Alun.

You confirmed when you appeared before the committee before Christmas, Minister, that in real terms, you're going to be cutting support for bus services, and that's going to have a real impact on some of the poorest people and most fragile communities in this country. Have you had time over the last few weeks to reconsider this budget line?

So, as we discussed in the budget debate, this is one of the ways in which we support the bus industry here in Wales. But it is an example of the difficult decisions that Ministers have had to take across Government. So, you'll still see right throughout the budget areas where there is a flat settlement, which, you're right, does represent a real-terms cut, but it is also a feature of the ambitions and trying to balance them across the transport portfolio. So, you'll be aware of the ambitious plans for rail at the moment, a lot of investment is going in there, so it is a question really of having some difficult decisions to make across Government.

Obviously we keep all of this under review, and should there be additional funding coming forth, we'll obviously be considering where that might best be deployed as a result of a potential UK Government budget, although, I have to say, if there is additional funding, our current expectation is that it'll probably be capital rather than revenue, so I don't want to raise too many hopes.

But a budget is also a reflection of a Government's values, isn't it? And the values, reading this budget, would suggest that the Government is less concerned about the sorts of transport that some of the most vulnerable people in this country actually use. I completely agree with the Government's priorities in terms of rail. I've got no issue with rail expenditure at all, but that doesn't help somebody getting from Cwm to Rassau to start work at seven o'clock in the morning. That doesn't help somebody who wants to access education or training opportunities in my constituency. It doesn't help a pensioner in Trefil get to town in Tredegar. That is not going to help. The loss of bus services has had an absolute impact on some of the poorest and most vulnerable people I represent, and it's very difficult then for a Government to stand up and say, 'We're committed to not only the issues around public transport and climate, the wider, bigger issues, but also the issues around access to services, access to work, and ensuring that that access is equable', because unless we do fund services such as bus services, then we're not being equable in our approach to the expenditure of money and we're not—I don't think—basing these decisions on our values.

So, the bus services support grant does still stand at £25 million this year, and that's not an insignificant sum of money, but alongside that, of course, local authorities are able to invest in local bus services themselves and local authorities have had what they describe as an exceptionally good settlement for this year. So, should it be a local priority, then local authorities are obviously able to add to the subsidy that's provided to specific routes that they think are important locally.

But I completely take the point about the importance of the bus industry and the need to do more to support routes, which is one of the reasons why the transport Minister's so keen to look at demand-responsive routes, and I know that there are some trials going on there that might better serve the kind of constituents in the circumstances you've described in terms of being able to get to work for their early shifts and so on.

And I think all of those are very good initiatives and I have no criticism to make of any of those initiatives, but I don't think the Welsh Government washing its hands—if you don't mind me saying—saying, 'Local government can fund this if needed' is the correct approach. I don't think it reflects the values of Welsh Labour, quite honestly, and I think we need to look again at that. So, I would be grateful, Minister—. I can see that you've answered the question as fully as you're going to, but I think many of us on all sides of the Chamber would want you to look again at this before you bring the final budget back for agreement.

But moving on from that, in terms of the performance of the fiscal framework, I think probably the last 12 or 18 months have been pretty chaotic because the UK Government doesn't seem to understand how it's running its own finances at the moment. But that's obviously going to have an impact on Welsh Government and on the Welsh Government's decisions. We know the date of the UK budget now, which is, shall we say, inconvenient for us here in Cardiff and appearing more so in Scotland. So, within this rather chaotic environment, could you explain to us how you're monitoring the performance of the fiscal framework? And when it is due for review, what sort of changes are you going to be suggesting? 

So, the fiscal framework, as we discussed last time in committee, we feel has worked generally well, but there will be an opportunity to review it as part of the comprehensive spending review that will be taking place later this year. In terms of the things that we would like to see potentially improved or strengthened within the fiscal framework, one of which would be our ability to increase the annual draw-downs from the cash reserve and also the overall size of that, I think, could be improved as well in order to give Welsh Government more flexibility to manage its budgets over a number of years. I think that would be useful.

In terms of borrowing, an increase to our aggregate borrowing limit would be useful, and, again, an increase or removal of those annual caps that we are subject to at the moment. Our concern is more with the statement of funding policy rather than the fiscal framework, although we see obvious improvements that could be undertaken there, and that's one—. The problems, really, with the statement of funding policy relate to the way in which the UK Government has applied it. So, those issues are really about the way a Government makes a decision that has a financial impact on other Governments within the UK; the Government taking the decision that should fund those other Governments as a result. The teachers' pension issue is a good example of that. So, those are the kinds of issues that we really do need to resolve.

We're trying to more formalise the finance Ministers' quadrilateral meetings. At the moment, they're on a very ad hoc basis, we don't have a really strong terms of reference for that. So, we've drafted some terms of reference that we're now agreeing amongst the nations. I want to see those meetings more frequent, with more opportunities to decide things collectively, rather than opportunities just to bid in for the kind of things that you want to see. So, those relationships, I think, need to mature, and we are making some progress on that. It's also an opportunity, within that finance Ministers' quadrilateral, to look at the statement of funding policy, which we are reviewing, to try to strengthen that, as well.

There's arguably a general root to a lot of the problems that we see, and it's the excessive amounts of discretion that the Treasury and the UK Government have in the system. That's kind of what the problem with Scotland has been about, to an extent. The Treasury can arbitrarily decide to have these fiscal events on a different pattern than they'd previously been having without any regard to the impact that has on devolved administrations. Similarly, in the statement of funding policy, it gives the Treasury a lot of scope to do things that aren't obviously within the rules as they're generally understood.

I think a lot of our challenge to Treasury about how all of this system works is that some elements of the rules look sensible, but if there's that level of discretion it, in a way, renders the whole system problematic, because you've got things happening in there that are not properly provided for in the rules. So, I think a more strictly rule-governed system would suit everybody. Certainly, it would suit us a lot better, and that's also what we're pushing for in the discussions.

We've set out how that might look in two documents that have been published. The first is the 'Reforming our Union: Shared Governance in the UK' document, and then the second would be the 'Reforming UK funding and fiscal arrangements' document. So, both of those set out a system that we think would work well.

Another example of the arbitrary allocation of funding, or the arbitrary way in which the UK Government operates, of course, is the additional funding that they provide to Northern Ireland. Now, we don't begrudge a penny of that money to Northern Ireland, but we certainly would want to see our fair share as well.

I think taming the Treasury beast is something that you'd have the support of all sides of this committee in pursuing. The documents you've referred to, I think, are excellent documents and they have received widespread support from different parts of the Chamber here, and I would certainly wish you the very best of luck in achieving that.

We have the review of the fiscal framework itself, which you've discussed, and you've outlined where you'd want to see changes. But we also now, of course, have tax devolution. We've seen the forecasting models that have been published and we've had some useful conversations in this committee on those models and what they're telling us about the future.

But in terms of where you are today, can I ask you a couple of questions? First of all, do you believe the models are performing well? How are you reviewing them? How are you monitoring them? Secondly, a number of witnesses told us last week about the relative lack of Wales-level data, GDP and the rest of it, and the lag between data being published and the need to use that data. Is there any way in which Welsh Government can address some of those issues so we have a much richer data environment on which to base some of the decisions we are discussing this morning?

So, in terms of the GDP data, the Office for National Statistics is now publishing that on a quarterly basis in relation to all of the UK regions, which we really welcome. But they've also been clear that, at the moment, it's an experimental set of data. So, it's limited, really, in the use that it can provide. And obviously, it's data that looks back rather than forecasts as well. But, as that data set and the way in which it's developed moves forward, I think that there will be opportunities for the OBR to take interest in that and possibly explore as to whether or not it would be a useful set of data. But, at the moment, it is only experimental.

In terms of the tax forecasting for this year, we now have a full year of outturn information for both LDT and LTT, and that's been used now as an evaluation of our 2018 tax forecast; and you'll find that in annex 1 of the Welsh tax policy that was published alongside the budget. So, that's been really useful in terms of helping us understand the models that we had. The underlying models for land transaction tax and landfill disposals tax will continue to be maintained by the Welsh Government, as we've discussed before, and any changes in the underlying assumptions or the methodology will be agreed with the OBR. We're, as you know, in constant discussion with the OBR. There were some specific discussions about that over the course of the summer, which I know officials were involved in.

We continue with our internal quality assurance of the models, and I think we're satisfied with the way in which those models are working. There have been some practical changes in the models. So, one, for example, would be that the LDT model is now calibrated to outturn, because we have that information, and that means now that it uses the most recent available data and it minimises the chance of year-end revisions, which is obviously a good thing. And again, LTT models now use the latest outturn data, but they also use information on house prices across Wales, which we get from the Welsh Revenue Authority, and that captures the differences in transactions across Wales, making that a more useful set of data as well. So, as things are moving on and as the data that is available to us increases and improves, I think that we will see those models continue to perform well. I don't know if you've got any further observations, Andrew.

No.

Mark, you wanted to come in on that.

Minister, are you arguing for raising the annual borrowing cap of £150 million and the aggregate borrowing stock of £1 billion? In which case, I think you'd need broad support for that because they're relatively low levels currently. Or are you arguing that there shouldn't be any limit at all? And if so, in a world where US states have to have balanced budgets and France and Germany have limits set by the European Union, is it realistic or sensible to be saying to UK Government, 'You've no locus here at all and we should just be able to borrow whatever we want on the UK balance sheet and mind your own business'? Is that a sensible approach?

No, the approach we're taking at the moment is trying to open up those discussions through the comprehensive spending review. So, I've already written to the Chancellor outlining that this will be an area that we want to explore. And again, I think we've looked at this in committee before: that we wouldn't want to put an actual figure on the overall amount that we would want to borrow, looking ahead. But we could look through the WIIP to see what our programmes are for the forthcoming year, so that would give us a better starting point for the negotiations. But, at the moment, we're just simply asking for an increase in the aggregate and then more flexibility to draw down over years. But we haven't put a precise figure on where we would want that limit to be set yet. But obviously, committee will take a view and we'd be keen to understand that.

I'm sure, yes. Mike.

Surely, the most important thing is the cost of the borrowing? We've had interest rates at 15 per cent, which some of us lived through, as opposed to what Welsh Government pay now, about 2.5 per cent. There's a big difference. Surely, it's the cost to the borrower that matters? That would need to be capped; not the amount you can borrow, but the amount you can spend to service that borrowing.

That's an excellent point from Mike, yes.

Okay, thank you. David next.

Can I just add, long term, if you do get this more flexibility, do you accept the borrower has a responsibility, that you would always have to have responsibility for serving that debt? Because many decentralised systems—Germany, indeed, are getting into all sorts of trouble with their sub-states who, at some point, are saying, 'Well, we've picked up so much debt that we need a bailout.' I mean, it's a really dangerous principle if it gets out of control, I suppose.

We would only borrow that which we would be able to service through repayments. So, we would expect the same of ourselves, I think, as we expect of local authorities, in terms of having a clear plan to repay that debt and to see that recognised in the revenue plans of a local authority.

So, there would be a natural balance in your approach, in terms of what you're going to ask for flexibility from the Treasury.

Yes.

And it's worth noting, the Welsh Government's stock of borrowing is microscopic. 

It is small, I realise that; but the principle could take off, couldn't it?

Yes.

Okay, thank you. Rhun. 

Diolch yn fawr iawn. Can I look at just a couple of areas that could affect the tax take through Welsh rates of income tax? There has been a significant and welcome cut in coding errors across the scans that have taken place last year. I think there was another scan in December. Do you have an update for us on where we're at with coding errors and hopefully a further reduction? 

The latest update that I have is that the scan has been undertaken and it does show a small, I think, this time, decrease in the number of coding errors, but we haven't had those figures because they're currently being confirmed. But, as soon as we do have something, I'll be able to give you some more information.

Fine, but it couldn't be as big a decrease as last time, because of the sheer scale. Okay, you'll let us know. 

Yes. And just to add that that doesn't have any impact on our revenue take. This is about identifying individuals because it's the proper thing to do, so that individuals understand that they are paying those Welsh rates of income tax.

Well, it does have an effect on take if you can't identify people. 

Not in the first year; but, yes, in the longer term. One of the things we're talking to HMRC about at the moment on that is what's an acceptable error rate. You would probably expect it to be higher than zero, and I think in the Scottish context it's running at roughly 1 per cent a year. You might expect the error rate in Wales to be a little bit higher because of the greater degree of movement between Wales and England in particular. The numbers that we're looking at at the moment are way, way too high, but there probably is a level at which you shouldn't expect it to get much below, and that might be something that committee might want to come back to.

And is it the case that, a year from now, you would expect it to have settled down?

Yes, I think so, to have got to that business-as-usual error rate, I suppose. 

Okay. Another factor will be the terms and nature of our departure from the European Union. Could you give us your up-to-date assessment of how Brexit is likely to impact?

Yes. Alongside the budget, we published the chief economist's report, which set out some of those ranges of factors relating to leaving the EU and the different ways in which we might leave the EU, and what the impact might be on the Welsh tax base and on our fiscal prospects. We've published a number of these pieces of information over a period, and it is our intention to provide an updated document in the coming weeks, ahead of the leaving date, so that Members have the latest information from the chief economist and his analysis of the situation.

I think, despite the fact that we've got a published withdrawal Bill and there's a political declaration in existence, we still don't know yet what the future trading relationship might be with the rest of the EU. And because the political declaration itself isn't binding, the real intentions of the UK Government, I think, are yet to be understood. So, changes could emerge over the course of the next year, through the negotiation period, so there is a lot that we don't know at the moment.

The present indication is that the UK Government's intention is to pursue a limited free trade agreement, and that would have a reduction on real-terms incomes of up to 6 per cent per annum in the longer run. In today's terms, that's around £1,300 per head in Wales. So, that does give us an idea of that. And of course that then will have knock-on implications for tax revenues and so on.

Given that we're in the first year and that we have a number of safeguards in the first year now, and, moving forward to the next financial year, are there contingencies in place in this budget to deal with that, or don't you have to build in too many contingencies at this point?

Well, the contingency in this budget is £100 million, and that's our contingency fund going into the next year, but in terms of—

But do you count that as contingency in the case of fluctuations in tax revenue as well?

Yes, this is the general contingency fund. It's relatively small, when you look at the size of the Welsh budget. So, were we to find ourselves in a 'no deal' situation, then our position is as it has always been—that the results and the impacts of that would be so severe that we would require further funding from the UK Government. Our analysis also, though, is that, were we to find ourselves in a 'no deal' situation at the end of the year, although there will be some immediate impacts, actually, the greater impacts would be felt in the next financial year, so we'd need to be considering that as well. 

Okay. If I could move on to comments made by the Future Generations Commissioner for Wales about the budget improvement plan, she has suggested a number of ways that the budget improvement plan could be strengthened. Can I ask for your comments on some of the things she said? First of all, raising the level of ambition and vision. I would expect you to say that you have already a high level of ambition and vision, as much as I would disagree with that, but on enabling stakeholders to hold spending outcomes to account and track how transformational the change is, what are your thoughts on that?

Well, we worked with the future generations commissioner and her office on the budget improvement plan, because this is something that I know committee recommended. The future generations commissioner also has been very keen that we adopt her journey checker, which is what this particular document represents. It's a first go at a budget improvement plan, and I think it has been generally warmly received and welcomed, at least by stakeholders, but it is work in progress, because every time we publish it, it will take that five-year horizon and be a rolling programme of improvements, demonstrating how we are embedding the Act into the work that we do. In the spirit of collaboration that the Act requires, we're really keen to work with stakeholders to understand how they would wish to see the plan improve for future years. So we'll continue those discussions with the future generations commissioner but also wider stakeholders—BAGE, the budget advisory group on equality, and others. 

Okay. And on your thoughts about the need to further embed key elements of the Well-being of Future Generations (Wales) Act 2015, there is still a feeling that, perhaps, the budget isn't delivering for future generations as strongly as it could. There's talk of being guided by the future generations Act when, actually, Acts shouldn't guide; they should compel Governments to act. So, what's your response to the need, in the commissioner's view, to further embed key elements of the Act?

I think that's very fair—that we do need to continue to further embed the Act in what we do. We've been clear that it's an iterative process and we always want to make improvements in this area, which is why we work closely with the future generations commissioner. I had a number of meetings with her over the course of the year. I know that the team are in regular contact with her office as well, in terms of embedding the Act.

What I have done is published the evidence that colleagues have given to their own subject committees. I've published that on our Welsh Government page, and that's over 300 pages of evidence from Welsh Ministers in terms of how they have set their budget for this year, and much of that relates to the way in which we're embedding the Act. We're looking at the preventative agenda and our new focus on decarbonisation. So, I think, in the interests of transparency, it's important that all of that information is collated so that people can understand the breadth of work, because the budget improvement plan is a short document and can only capture so much of the work that's going on. 

If I might add to that as well, one of the points of discussion we have with the commissioner's office is this idea of a journey, and this is what we hope that we've captured in the budget improvement plan—that it's showing the journey we've been on as well as the journey we're hoping to go on. And within that, we always place a lot of importance on the five ways of working, and hopefully you'll see that within the budget improvement plan—some of the actions we have done and we, hopefully, will continue to do. Looking at those five ways of working is a really important way that we set budgets in the future.

Alun wants to pick up, and then we'll come to David. 

There's a real mismatch, I'm thinking, between your evidence this week and the evidence we received last week. We received evidence from the future generations commissioner's office last week; we received evidence from the Bevan Foundation, and from others. And none of them seemed to be reflecting the sort of evidence that you're giving this morning. I thought that the future generations commissioner's office was pretty brutal, actually, in its assessment of this budget, in terms of its approach, and in terms of what it was achieving. What it seemed to say was 'We've got the rhetoric here, and then you've got the reality, which is different.' And I didn't feel—and perhaps others will correct me here—I didn't feel that we were receiving evidence that the Government was succeeding. The evidence I felt we were receiving was that the Government was treading water, and that the Government was saying one thing, but doing another. I didn't get the impression that the evidence—. And this is in terms of poverty, it's in terms of decarbonisation, it's in terms of general approaches and in terms of prevention. I don't remember any of those witnesses saying that the Government was succeeding in the way that you're suggesting this morning. 

Well, I don't think that's a fair criticism. So, if you look right across the budget, you'll see—

It's what they were saying. 

Well, we've worked very closely with the future generations commissioner, and, actually, her team have been broadly positive about the approach we've taken through the budget improvement plan, particularly. So, obviously, there's a mismatch in what we're hearing as well.

But one of the things that we are committed to doing, through the budget improvement plan, is reviewing the process that we've undertaken this year. So, for the first time, we looked at the budget through the lens of those eight cross-cutting priority areas, and those are the areas where we believe that investment at an early point will obviously have preventative impacts and have better outcomes for people in the longer term. And the commissioner, I know, is very pleased with that approach, with those eight cross-cutting areas. 

Well, can I quote you what the commissioner said?

Yes, please.

Can I quote you what the commissioner said?

'...no evidence of systemic or transformational change. There appears to be a disconnect between policy commitments...and budget allocations. The declaration of a climate emergency doesn't appear to be reflected in discussions about budget processes and allocations...There appears to be no evidence that Welsh Government has a clear process to classify or assess what they're currently spending on decarbonisation...There is no consistent approach to undertaking carbon impact assessments.'

And I could read on. So, it doesn't feel to me that she's being very positive in that assessment. 

Well, the future generations commissioner has also said, and this is a quote:

'There is a lot to be positive about in terms of the focus in the budget on nature and decarbonisation. We can clearly see a positive shift in political commitment and Government priorities with an extra £140 million towards electric vehicle infrastructure, active travel, nature-based solutions and a continuation of the Housing Innovation Programme which is now showing a greater focus on decarbonisation.'

And she goes on to say,

'I estimate that direct investment in decarbonising actions has increased by around 28%'

But she's also saying that you're not assessing what impacts your decisions on climate change, or your investments on climate change are having.

As you know, we've decided that we'll be looking further at demonstrating—

It would be useful—sorry. It would be useful if we could source what you've just quoted on the record. 

Yes, because, I think, it's quite clear in evidence that some of the parties that we've mentioned have actually said that you're moving in the right direction, so, in that sense, it is positive, but they seem to be baby steps, and not the sort of transformational shift that the narrative suggests is happening, whereas the reality maybe is a little bit more modest. David, you've been very patient—

So, just for the record— 

Yes, sure—go on.

—the quotes I've just given were directly from an article that was published on the Institute of Welsh Affairs website by the future generations commissioner, on 9 January. 

Thank you for that clarity. David. 

I think, sometimes, the technical description of all this is how you build in redundancy, and all Governments find this difficult—how you identify the effectiveness of programmes and then cut them and move to others, or you cut them because they no longer meet a strategic or social objective, such as what we're looking at with the future generations Act and the need to reshape the budget. So, is the budget improvement process going to improve how the Welsh Government uses the principle of redundancy so that you can show that activity within the budget is meaningful, i.e. there are winners and losers. And I know this is difficult, and you'll get criticised obviously, probably by the likes of me sometimes, for your decisions, but all Governments face this problem I think—are we improving the efficiency overall of our budget process by taking on this important principle and using it actively as a tool to ensure that we get the maximum out of the Welsh pound?

Yes, and that's exactly what it's about really in terms of making sure that we get the maximum out of the Welsh pound, which is why we're trying to have a greater focus on prevention particularly and that, as we've discussed recently in committee, is a very difficult thing to do, because inevitably, you still have acute spend that must be serviced, so the NHS, social care—lots of acute spend is needed there. That's not something that we can just cut away, because it still exists, but at the same time invest in preventative measures, which could take decades to actually come through and give us a financial benefit.

Okay, just before we leave this as well, you mentioned that the budget improvement plan is your journey checker, in effect. You've suggested that it's the commissioner's journey checker, but it isn't, is it, because you came up with your own version? I'm just interested in understanding why you felt that the commissioner's proposed journey checker wasn't the one that you chose to utilise.

We developed this through a series of meetings that were undertaken with the commission's staff, but I'll ask Matt to say a bit more about the development of it.

Of course, Minister. So, I think we were trying to embed the principles of the journey checker approach. I think that a particular factor or factors that we took on board was that we felt that we wanted to be able to show the timeline, if you like, the time aspect of the nature of the change that we're attempting.

There's this important nuance where, sometimes you approach the more evolutionary change now, sometimes, you need to build up to that change through learning. So, we have to try a few things before you can build up to that change through learning. So, we have to try a few things before you can build up to that more revolutionary change. So, I think that's why we went for this more linear approach. I think we focused it on the processes, because it was very helpful for us to reflect back on the things we'd perhaps done that, as I think I might have mentioned in the previous committee, we perhaps hadn't—because it's machinery-type stuff—publicised as well as perhaps we could have done in terms of some of the things we've tried and some of things that we attempted in the past. I think that that's where we decided to show the journey we'd been on as well. That was an important factor for us—to be able to do that. So, I hope what we've done is we've embedded the sprit and the principles of the journey checker, but it had to be in a way that we could also be able to deliver that and embed it to actually deliver the change that the commissioner is hopefully seeking. 

Okay, thank you.

There is a slight difference of views, I think, about the purpose of the improvement plan. So, for us, it sets out how we seek to improve the process of the budget, whereas I think the commissioner would prefer to see the budget improvement plan as a place where decisions are taken. So, we think that there's a difference between the budget and the budget process and budgeting, which obviously takes place in departments and can take place outside of the formal budget process. So, I think it is fair to say that there's a difference of view as to how the plan might be used.

I think that a very important reflection was about, as the Minister said, this point, the distinction between the budget and budgeting, and the budget is obviously an annual event that we're here today discussing, but there's a lot that happens outside of that event. But obviously, the timelines of the budget event can drive certain things, but there are lots of things that have to continue happening, and some of that more systemic cultural change has to carry on over a number of years, sometimes outside of those processes. This was, again, hopefully a way to be more open and transparent about those things that we have been trying and that we continue to try over a number of years. For example, the plan contains an example of distributional impact analysis, which we have been in discussions with the Equality and Human Rights Commission about, which is a new thing we're trying that perhaps we wouldn't have otherwise necessarily felt that people would have wanted to know about, but that we've now contained in the plan. 

Okay, thank you. Mark.

So, you're distinguishing between the budget process and budgeting. Surely, the key budgeting decisions are made through the budget process and agreed by this Assembly. I'm struggling slightly to understand this conceptual difference that you're now emphasising, and whether it's appropriate for that budgeting to be emphasised outside the budget process that is agreed by elected AMs. 

I think perhaps the first thing to say is this isn't just about the budget, about tax; it's about a range of interactions between the various processes that interact with money. So, this plan tries to capture all of those things. The distinction between the budget is that budget plans are set, but there are then many decisions taken after the plans are set within the draft budget, for example, and the final budget, and then how those moneys are then spent. So, for example, where a procurement exercise is undertaken, there'll be decisions taken around how any moneys are then procured and then spent after that.

So, it's reflecting that there are decisions taken by Ministers and officials and local authorities. There are lots of decision points that flow outside of that budget process. So, it's just trying to reflect that there are those important relationships, and some of the impacts, for example, particularly when you get closer to delivery for people, happen outside of the setting of a budget. 

Okay. Can I ask then, Minister, how able will an individual be to assess and analyse what you're doing in preventative spend and the shift you described, at least in ambition, as to where Welsh Government should be going by reading the budget documentation? How clear are you being on this now, do you think?

This is one of the reasons why I decided to publish all of the evidence from Ministers in one place, because I think that the things that make the budget real to people are not when you're talking about hundreds of millions of pounds or billions of pounds, but it's actually when you're talking about individual programmes that will impact on the lives of people. So, right through all of that evidence, the colleagues across Government have identified ways in which the decisions they have taken will impact on the lives of people in Wales.

An example, in early years and education, for example, is £3.5 million additional funding for Flying Start to help reach an additional 3,500 children across Wales, and that's in addition to the £134.4 million continued funding for the children and communities grant, and that's where we find the funding for Families First and Flying Start. Those are real, family-focused programmes providing early intervention services to families and children across Wales. And we can put that number on the fact that an extra 3,500 children and families can benefit from that.

So, that I think is a really good example that brings to life decisions that are being taken by colleagues and that will be of interest to people beyond this committee. But, as I say, those 300 pages of evidence from colleagues set out example after example of ways in which they're taking decisions that will have an impact on people's lives in a really clear and understandable kind of way.  

I wonder if what you say illustrates the mismatch that Alun described, in that throughout this process, at least as far as I've seen, you've been good at giving examples to, as you state, evidence an approach. But I just wonder whether a series of examples is sufficient to show that things are being done in a different way. And I wonder perhaps, to draw down to a different area, just last year, I think you developed, as far as I'm aware, a definition of what Welsh Government considered to be preventative spend. And I wonder if there's a trade-off between keeping that definition the same so people can assess and hold Welsh Government to account for what its total preventative spending is, and that when you first start measuring something like that and saying it's important, the process of measuring it, is that leading to Ministers and officials coming to you and actually saying, 'Well, we're doing this preventative work in this other area, but it's not counting towards that definition.' Is that process helping you in improving your focus on prevention in Welsh Government?  

I think the agreement of the definition of prevention, which we agreed with the Future Generations Commissioner for Wales last year, has been really helpful in terms of focusing the mind on the different ways in which we can invest at different points and have different outcomes. But we've agonised a lot about how best to demonstrate preventative spend, because some of it isn't linear, so just because you increase the amount of spend on particular preventative intervention, it doesn't mean that necessarily the outcomes will increase in the same way as a result of that spend. That's partly because some individuals will require less spend to achieve the same outcomes.

Some of the things that are done in a preventative sense are about how we do things rather than how much we spend on things. So, an example would be the Welsh Revenue Authority. I'm sure it doesn't think of itself as a preventative service doing preventative work, but actually its approach to collecting taxes is so different in many ways from HMRC, in the sense of supporting people to get things right the first time. They're preventing problems coming down the road. I don't think any of us would think Welsh Revenue Authority as one of our first ports of call about a preventative approach, but it's certainly there at the heart of what's done.

When you look at the advice of the older person's commissioner, for example, lots of the things that are suggested that could support people who are older in a preventative way are things that are low or no cost. So, one thing that she points to is the removal of rugs and mats in older people's homes, because they are one of the key reasons for trips and falls, which go on to lead to hospital admissions and all of the other issues that surround that as well. But, again, that's a low or no cost intervention that we can't demonstrate through a budget. It's something that is a 'How?' rather than a 'How much?' So, we do spend quite a lot of time trying to consider how best to present that preventative information in a way that is useful.

How close is the link between that prevention agenda and your consideration of capital versus revenue? Is there not greater scope for Welsh Government, and indeed facilitating local government and other public bodies, to be investing, when capital and borrowing limits are relatively unconstrained compared to revenue, in an effective and productive way that will reduce costs in later years?

Yes, and this is one of the considerations. You'll see additional funding for Cardiff in terms of dealing with its particular air pollution issues, and we know that the additional funding that will be looking to replace hackney carriages and private-hire vehicles could save around 3,000 tonnes of carbon. So, there are particular examples, particularly on the capital side, where you can give more concrete demonstrations as to what carbon can be saved, and then obviously the benefit that that provides to people's health and so on. So, there are areas where it can be done, but there are other areas where the margins of error and the behavioural impacts that would need to happen are so hard to predict that, actually, what you provide might end up being meaningless.

You were saying in your response to Alun earlier that there's more chance of seeing movement on the capital side than the revenue side, when you mentioned bus industry requirements. I see, in terms of electric buses or a change in terms of engines in private-hire vehicles, the carbon impact of that, potentially. But, looking at, say, bus services in Blaenau Gwent, is there anything Welsh Government can genuinely do on the capital front? For instance, if Welsh Government buys some modern buses—perhaps not electric, but emitting a lot less than older buses—and actually provides the capital for those bus services, will that be effective? Or is there such a greater requirement for revenue and subsidy because of having those new buses, even if you don't take account of the cost of them, the operation of the buses costs more than the revenue, such that that isn't a lever which is helpful or available in this scenario?

When we take those capital decisions, we always have to be mindful of the revenue implications and build that into the decisions that we take. I know that Ken Skates has written to committee on the query that you had about electric vehicles. And I think that, if you haven't already received that, you will shortly. 

I think there are a number of areas where capital investment can really help with preventing future costs or preventing future adverse outcomes. But, just in the public transport space, which is a good example, I think, every journey on public transport requires subsidy—well, maybe not every one—in general, the expansion of public transport requires additional revenue funding as well as capital investment in the infrastructure that you need to provide that. So, I think capital can only get you so far. It can improve the energy efficiency of your buildings, for example, which is obviously part of the future costs, but most costs to public services are staff costs—revenue costs like that—so I think capital investment can only get you so far.

I should point out all private transport is heavily subsidised as well, if you look at effective budgeting on the costs of the road, the pollution effects and so on.

In externality, yes, definitely.

All buses are not subsidised. A large number of buses run on commercial routes.

Yes, that's true—I'm just talking on average.

Can I just say, on average—I'm just talking about Swansea—the vast majority of routes in Swansea are commercial? The Minister can confirm that.

I suppose we could get into a long discussion about buses, but you see some areas then over-serviced, if you like, as compared to other areas, which are very much more in need of those services because of those dynamics as well. It goes into a different area of work, but the Bill that Ken Skates is developing in terms of future regulation of bus services, or deregulation of bus services, is important in this area—but perhaps for another day.

Sure.

The implication of that, if relatively few bus services currently are getting revenue subsidy, yet all these bus services as part of that budgeting are paying for their capital costs, whether through depreciation of the buses or otherwise—. Are you saying that if Welsh Government supplies— essentially, with capital that is near free, relative to the revenue constraints—significant investment in buses that might cost £50,000 or £100,000 for electric, and those are suddenly available for a bus service provider to provide services that, if they're not having to pay for the depreciation of that capital, they're unable to put on useful additional services that our constituents are calling out for because the cost of the bus driver is always going to be greater than the fares that they're getting? Is that really, really true?

I'm sure that if we bought lots and lots of buses for lots of bus operators it'd make a big difference to their costs, yes, there's no doubt about that.

And that they could put on more services, for which the marginal revenue for them would be greater than the marginal cost of largely employing the bus drivers for it.

Potentially.

Could we look into that issue more, particularly in light of the request that Alun put in before, in terms of, from draft budget to final budget, where we'll be in terms of bus subsidy and support?

I'll certainly be drawing Ken Skates's attention to the discussion we've had today, and again to the concerns that Alun raised, twice in committee but also in the Chamber as well.

Thank you.

[Inaudible.]—is a key issue. But I do think there is an issue. 

Okay, right. We'll move on to Mike next. Thank you.

We've talked a lot about decarbonisation. I've only got one thing I would to add to it. I'm glad the Minister reads the IWA—I'm sure she read my article as well on decarbonisation of housing.

We've all read your article, Mike.

Thank you, I was just giving it a plug. [Laughter.] But that does actually need money. I know you say that direct public spending is only one of the levers, but in certain areas like that it is the major lever, isn't it?

I spoke to the local government committee on behalf of the local government and housing Minister last week. There was a great interest there in terms of decarbonisation and housing. I made the point that the Minister, certainly in the next financial year, is really keen to ensure that the Welsh housing quality standards are completed. That needs to be completed next year; so that's her focus now. But, beyond that, she's considering where investment might go in terms of decarbonisation and the retrofitting of homes. This is a huge piece of work. The Minister has published recently a piece of research that was undertaken in terms of retrofitting, and is exploring what might be possible there. I'm keen to support her with that work.

So, as the Welsh housing quality standards piece of work comes to an end, there's certainly an opportunity, I think, to look forward. And, of course, there's £108 million in that particular budget for next year. So, this is obviously a key area of priority, not least because the UK Committee on Climate Change has identified housing, and heating of homes particularly, as an area where we should be concentrating our efforts.

If I move on to the Bevan Foundation—

Sorry, before we move on, can I just come back to this point about the overall carbon impact of the budget? It was mentioned to us last week that whilst there are initiatives, some in other departments and other particular projects that are outlined in the budget, of course, we don't have that assessment, do we, of what the carbon impact is? It was suggested that, given that there are four or five major road-building schemes, actually, the carbon footprint might even be bigger as a result of this budget. What would you say to that?

There are several issues with developing a carbon budget, and this is one of the reasons why, actually, you don't see Governments developing carbon impacts of their budgets. You see, the work in Scotland, which does what I think you describe in terms of that it will carbon-impact the work that's being undertaken, so the road-building, but what it wouldn't do would be to carbon-impact the implications of that road over a period of time. So, we're looking to see what they're doing in Scotland to see what might be useful for us here in Wales, looking at other areas that are doing innovative things with their budget processes as well. But, overall, we haven't carbon-impacted the whole budget because we just don't think we have the detail that we need to be able to give something truly meaningful, whereas we know we need to do more and improve the way we provide information. So, I have already met with Lesley Griffiths particularly to talk about doing that and providing it. When we do have as much information as possible, then we want to be transparent with that.

So, can we expect something different next time, then, in terms of that kind of information? What do you think we can expect?

So, there are areas where I think we need—as you'll see in the budget improvement plan—to improve what we do. So, one is about prevention and being able to demonstrate what we're doing and the other area is in terms of the carbon impact assessment. I know the Future Generations Commissioner for Wales is starting to undertake a piece of work on this, and officials have had, I think, some early discussion on that as well. But I'm keen, where we can provide more detailed information about the impact of plans, then I'm keen that we do that, but in a meaningful way, because we've explored before that so much depends on—in the capital area particularly—what humans do with what's there.

Okay, thank you. Mike. 

Moving on to the Bevan Foundation, on the positive side, they welcomed the initiatives to address the new measures to tackle particular problems, but on the negative side, it had reservations on how the draft budget addresses the root causes of poverty. How do you respond to this?

So, you'll see, again, across the budget, ways in which Ministers are seeking to tackle poverty. If you look at all of the interventions in this field, you'll see over £1 billion of the Welsh Government's budget is involved in work that directly tackles poverty. The First Minister's really keen in terms of ensuring or seeking ways to put money back into people's pockets, to make sure that they have more funds available to them. So, there's a range of measures in which we're doing that. The council tax reduction scheme is one really good example of that. The additional funding that we're providing for the pupil development grant access scheme, opening that up to families in more years of school—again, that's just putting money back into pockets. So, we know that some families would be over £2,000 better off as a result of a combination of interventions, which is really, really important.

But poverty's caused by effectively two things: income and expenditure. And we have people with very low incomes. The Welsh Government hasn't committed—as I would like them to—to the real living wage for the whole of Wales and the whole of the public sector in Wales. And the Welsh Government-funded public sector, because you may well say you've done it, as the Welsh Government, but the Welsh Government-funded sector is substantially larger.

And the other thing is in terms of expenditure. I mean, we have people who are poor who pay more for heating their homes than the people who aren't. We had some tremendous work done by Communities First, which, unfortunately, due to the decision of a previous First Minister, was ended, which actually got people together in order to work to get cheaper energy. Are there any plans to do anything along those lines of collective work, which Communities First did in my constituency, of getting people to move on to a cheaper way of getting heating, for example?

I'll certainly, Chair, if you don't mind, explore that particular issue with the relevant Minister in terms of what we're doing to prevent people in low-income households falling victim, really, to things that are just generally more expensive in that way. So, I'll take that away, Chair, if you don't mind, and explore that with my colleagues.

Okay, thanks.

Okay, thank you. Rhianon.

Thank you, and I just perhaps very briefly would add that my recollection of last week's evidence was rather different to Alun's. There was a recognition, from what I heard, in terms of the Bevan Foundation and from the future generations commissioner's office, that there were preventative measures within the draft budget. It was more around the transformation and cultural change, but we'll leave that there.

It's in the transcript.

How do you respond, then, to the views that the committee has heard that the strategic integrated impact assessments and more of a broad-brush approach are not necessarily adequately evidenced in the impact of changes in Welsh Government allocations within the budget?

I think, through the strategic impact assessment, we've tried to demonstrate the complexities of people's lives. So, one person might fall into a range of protected characteristics. They might have challenges with housing, with mental health, with early years provision and so on across those various eight priority areas that we've identified. So, I think that the budget improvement plan, again, going back to that, seeks to demonstrate ways in which we can improve this in future. But there isn't, I don't think, one single way of doing this. So, we've done something different with the strategic impact assessment this year, as compared to last year and, again, we're going to review everything that we've done this year to try and take on board comments the committee will make, the comments of the Bevan Foundation, the future generations commissioner, and the budget advisory equalities group—

I'm going to be moving on to that, if I may, in a second. With regard to the decarbonisation impact assessments, around the whole ambit of equality measures in terms of the impact assessments, do you feel that there is scope—and I take your answer on board in terms of future working—for actually anticipating positive and negative implications of budget allocations, or is it just too early to state? Because that's what is being asked for.

I think—if I can just reflect on the earlier point first before answering that point, I think the approach we've taken we've evolved over a number of years now for the approach we take for the SIIAs. The one about integration—that's just what the future generations Act encourages us to do, to take an integrated approach. So, we've tried to evolve our approach to this to the approach we have now to try to have a better assessment across the range of potential impacts. We're just trying to bring everything together.

I accept that, but if I can interject: in terms of where phase 2 of the gender equality report moves to, there is now discussion that in terms of the importance of assisting preventatively around poverty—we all know that women are the most disadvantaged group in terms of poverty. Across all of the data, we know that, and that is potentially being lost. So, with regard to that broad-brush approach losing some of the impact, how do you balance the tension between what the future generations commission's office would like to see and that wider point about losing some of the impact within that?

I think these are things for us to explore with the budget advisory equalities group, BAGE, and—

I'm not sure I like that name. [Laughter.]

No. [Laughter.] We had a good meeting with that group, myself and the Minister with responsibility for equalities, but I think that we, and the group, recognise that, actually, there's a different future for that group. It's not, I don't think, giving the kind of challenge—and I think that we would recognise this as well—that we would require for the budget-setting process. So, again, we're looking at what they're doing in Scotland on this particular issue with EBAG—the equality budget advisory group. I don't know if they'll adopt that acronym either. [Laughter.] But they've actually taken a different approach with their advisory group, which is more economist-led. So, they have that level of deeper analysis rather than more of a collection of important lobbying organisations and representative organisations. It's a different approach, and I think we can benefit from that. I'm due to meet the economist who advises EBAG shortly to explore what we could potentially do—

Because there is recognition of where we're at, and it's in a different place from where it was in terms of gender equality impact assessments, on the budgets and how that drives budgets as we move forward, and the outcomes of that. But there is criticism within that report in terms of we've only got a pilot—and I say 'only'—in terms of its allocation. When will that pilot be reporting in terms of how we can then inform and mainstream these issues across the budget?

So, that's a two-year pilot, which is looking at gender budgeting within the context of the personal learning account, and those learning accounts are to support people who are at the lower end of the career progression ladder within their field of work, or wanting to get into the field of work. But those areas where we're looking are ones where, generally, traditionally, women haven't been well represented, so we're seeing what we can do differently there.

We've been advised by officials in Iceland—and spoken with an academic in Iceland—who have led the work that has gone on there over recent years. They've been keen to impress on us that that actually was a seven-year piece of work in order to get to the point where Iceland is now in terms of gender budgeting. We can learn from what they've done more quickly, because they've blazed the trail. But I know Matt's been involved in that work. 

Yes, and it's been very helpful for us to engage with—we had an exchange with all of the Nordic nations as well as Iceland, and we got some really key reflections, I think. The reason we're taking forward a gender-budgeting pilot is because we're trying to look, to use an analogy, at different tools in the toolkit for how you might understand impacts, and one thing that particularly stuck with us is the way that gender-budgeting approaches can help you understand unintended impacts of decisions you have taken. So, this is where, when you talked about an intersectional approach—this is why within the budget improvement plan there is a stream that looks at these kinds of gender budgeting-type approaches, and some of the way those approaches can have more meaningful impacts is again at different levels and layers of budget decisions. So, some of those are looking at, in this case, a programme, a pilot, a particular area, and also, in working with the Icelandic academic, we were trying to then build into the evaluation of this particular piece of work early emerging evidence to try to help to make sure we're not waiting for two years to be able to find out what it's doing. We're also already in discussions with other parts of Welsh Government about how we might take this forward. So, we've taken a lot on board from what Iceland have done, and this is why, within the budget improvement plan, there are a lot of different things within that strand of assessing impacts and understanding impacts, because we're trying to reflect and recognise that there are a range of different things you can do at different levels of this—the budget versus the wider budgeting processes. So, we're trying to look at how you use those different tools and when you might use them.

And there's a bit of a tension here between the specific and the general, because what we're trying to do with the strategic integrated impact assessment is look across an enormous range of different programmes and policies, and I think one of the challenges we get back when we do this kind of work is it's all a bit broad brush, and it's often in the more specific impact assessment on particular policies when you're looking at a particular dimension like gender that you get the real beneficial results. 

I accept fully the importance of having a pilot in order to base the evidence, but some of the things that are going to probably come out of this pilot are already very well evidenced, in terms of the foundational economy being low-paid work, a lack of vertical progression in terms of career—first of all a living wage, and then that progression. A lot of this stuff is already out there, so we can do a very useful project, I'm sure, but I think in terms of the phase 2 report that has come out from Chwarae Teg, they're very clear that this should be about mainstreaming and not a strand approach. So, I accept—and I may be diverting slightly, but in terms of the whole poverty agenda, in terms of what we're doing around that, I think the evidence is actually already out there, and I would like to see that continuing to be strengthened as we move forward.

If I may just come in on that point, one of the discussions, the many discussions, we had with Chwarae Teg and the WCPP who supported that work was around that this isn't solely about the budget. It's also about some of the wider impact assessment work and the policy changes, and also the cultural changes and the 'how'—the point the Minister made earlier about how you do things as well. So, that's why one of the recommendations we're looking at is about how you take forward that kind of training and how you help people understand the importance of this and change how they do things as well. This is what Sweden helped us understand about how you mainstream. That point about mainstreaming is really important, and it's how you embed those sorts of approaches as well, and that's why we're looking at how we change the training around you do this as well. 

Okay. We'll move on to David, and I'll come back to Rhianon, to questions about economic growth, in a minute. But David first. 

Minister, I apologise in advance that my hard cop routine may be even sufficient to match that of Alun Davies, but I want to start with a quotation as well, and it's from the Welsh Infrastructure Alliance, just before the infrastructure investment commission published its first annual report. I think it said—the alliance—

'as a Welsh Infrastructure Alliance we campaigned extensively for the Commission to be established. It's been operating for the last 12 months but let's be clear, it's not doing what we expected it to do and little progress seems to have been made in its first year, to the great frustration of those who work in the infrastructure sector.'

Was that fair? Are things now in a better place? Or do you challenge that perception?

Well, the commission published its first annual report in November, so I think that was a milestone moment for the commission and it will be looking forward to the 'State of the Nation' report in 2021, but that piece of work—I don't think that we need to be waiting that long to see the benefits that the commission can give, because we'll be working very closely on the development of the next Wales infrastructure investment plan, and that's something that we're starting to develop at the moment, with a view to publishing that in due course. But I think that the local government Minister, who's responsible for this, has answered some questions in the Chamber on it, and I know that she's keen that it does look across perhaps at wider areas as well. Looking at housing, for example, is something that could be included in that.

But, in terms of an assessment of the work so far, obviously now they've set out their first plan. I don't think that the construction industry needs to be waiting either for this kind of work. So, I think we've been consistent in providing an outlook for opportunities. We produced the revised WIIP [correction: revised WIIP pipeline] just a couple of months ago as well, setting out several billion pounds of potential spend as well. So, there are other documents and there are other things happening. I met with representatives of the construction industry recently, and we were keen to talk about the infrastructure, but also the skills element of it and various other things that Welsh Government needs to be doing to put the industry on the firmest footing. But we will take the criticism seriously.

I don't know if, Matt, you want to add anything about the capital plans or—? No. Okay.

Okay. Well, it's pleasing to hear that you accept some of that criticism and want to respond to it. I suppose the first step is actually quite an important step as well in confidence building, so we would hope that the sector feels that this initiative is going to be a successful one and one that they'll want to themselves invest their time and efforts in.

Civil engineers, I think, have been fairly critical as well, given the record in the recent past. I know it's easy to read a list, but there are some significant things that, if I can be kind, have been sub-optimum. A couple of years ago, the Economy, Infrastructure and Skills Committee criticised the £221 million spend on uncompetitive enterprise zones; £144 million has been, in effect, wasted on the M4 relief road, which was the major infrastructure project probably for the whole of Wales, but certainly for the south Wales economy, of the previous Government for nearly a decade—that has gone. A £51 million overspend on the A465 Heads of the Valleys road. Will a more strategic approach ensure that some of these—? There are others; I won't read them all, because some of them are not of that scale, and, obviously, with large projects over several years, you don't expect them to come in bang on budget necessarily, but these are very substantial shifts. But something like the M4, could that ever happen again in a proper, strategic infrastructural approach, with the commission working and everything, and your improved budget process that we've heard about? Or could that fiasco—? And I think it is a fiasco, it has to be said, whatever your view is on the M4 relief road. To have had it as a major objective for 10 years and then a volte-face just because a new First Minister is elected is no way to run an economy or a country, is it? 

I think the decision now on the M4 has been made. I think that there would be an argument that money invested in that is still being used in terms of being able to inform the commission and their potential ideas for a way forward. So, I wouldn't suggest that every penny of that has been wasted money, certainly. 

I'll ask Andrew perhaps to say something about how we monitor spend on those large infrastructure projects over years to try and ensure that we do maintain what actually is a very good record in terms of—

My question is, really: will your strategic approach and these reforms with the investment commission reduce the risk of such fiascoes? 

I think the M4 was probably unique in terms of the level of questions that it threw up, if you like, because of all of the environmental impacts, and so on, and the scale of that project and the seriousness of what it would mean for both sides should it go ahead and should it not go ahead. So, I think that that was probably unique in many ways. But again, looking ahead, we've got the commission but also the Wales infrastructure investment plan that does set out serious projects that we would envisage being able to take forward. 

I think we wouldn't want to try and pretend you're ever going to get a perfect system; I think taking a more strategic approach with the national infrastructure commission, with the Wales infrastructure investment plan, with the national development framework, with very active monitoring and management of projects through their development cycle, and that can be very, very long. Projects can take many, many years to get from an idea through to a finished building or road, or whatever the infrastructure is. It's a complex area of business and there are always going to be challenges and difficulties, as projects sometimes overspend. As the Minister said, I think the Welsh Government has got a reasonably good record on delivering projects close to budget or within budget. That doesn't mean that there isn't the odd one that jumps out.

So, yes, I think we are making progress in this area, but it is very complex and challenging. I think some of the challenges are how long it takes to deliver infrastructure. A large road project, for example, has a very elongated planning process that often means that you start developing a project and you're only actually starting to build it four or five years after you've decided you're going to do it. Lots of things can change in that kind of period. So, yes, it's a complex area of business and it's impossible to get it perfect, I think. 

So, there won't be a material difference in the strategic approach in reducing some of these relative risks, or will there be? 

I think you can mitigate and reduce the kinds of risks that you're talking about, but not eliminate them altogether. 

Okay. I should say for the purpose of balance that the civil engineers have criticised the UK Government and some of their investment infrastructure decisions in Wales as well, like the lagoon and Wylfa, so I'm not being precious in making these points. It's important, I think, for the taxpayer and, indeed, the prosperity and well-being of our whole economy.

Can I just turn to skills, which I think is a really important lever? I notice you're facing up to the challenges of automation, and I just wonder, as I read it your skills programmes at the moment are weighted more on the getting people into the workforce, which strikes me as the right approach, less so on in-work and then making people more productive. And I just wonder: how is this getting people into the labour market approach particularly affected by the fact that automation is reducing a lot of the jobs that those people presumably would have been accessing? How are you balancing this, looking towards the future and at the strategic necessity to make these sorts of assessments, and what's going to be most effective in the critical area, I think, of getting people that can be to be economically active?  

We recognise the serious challenges, but also the opportunities that are presented by automation. And the First Minister, in his First Minister's manifesto, set out some actions that he would want to take forward in this particular field. And that's one of the reasons why the Deputy Minister for Economy and Transport and I are jointly chairing now a group that specifically looks at AI and a data-driven economy to explore those challenges and those opportunities.

One of the things that the group is currently looking at, of course, is our response to the Brown review, and the Brown review sets out the challenges, I think, very clearly for us, and it sets out some suggested ways forward. So, we're considering those recommendations and how we might best respond to those. So, that's a piece of work that is going on at the moment.

I think our universities have a really important part to play in this agenda, so looking at automation, just to reflect on our most recent meeting this week, looking at the impact of potential automation in the agriculture field, for example. We've got some real specialist work going on here in Wales, so the Institute of Biological, Environmental and Rural Sciences, for example, and I know Bangor University is doing some great work in this area as well. So, we need to tap in really to the skills and expertise that we already have here.

It's also important to look at the work that we're doing in terms of our commitment to apprenticeships. So, in the budget, we're allocating an additional £9 million to maintain the profile of spend between EU funding and our own funding to deliver that commitment of 100,000 all-age apprenticeships, and it's important that those apprenticeships are providing people with jobs that are going to be—you can't futureproof anything nowadays, but in those fields that are modern and able to adapt.

We've got the international strategy, which sets out areas where we are particularly excited about what's happening here in Wales. Cyber security is one of them. So, although that's a particular part of the digital data agenda, what it really sends out as a message is that we're experts here in cyber security, but, actually, our wider digital offer is really important as well. So, it's about setting us up really on the world stage, as Eluned wants to do, as an area where investment in these particular areas can reap dividends because we put the effort into the skills and the support that lies behind that as well. So, these are key areas, absolutely, for us at the moment. 

You've kind of told me that automation is important, and the various changes that are taking place, and how we're analysing them and using universities and that, and that's a perfectly solid answer, but really my question is: how is this likely to affect the basic skills programmes you're running and the in-to-work skills, which often overlap? Because a lot of the jobs those programmes are preparing people for are not going to be there. 

Yes, I suppose this goes to the work that the education Minister is doing with curriculum reform, looking at how we can ensure that young people coming out of school now are able to undertake the jobs that we probably can't even imagine will exist by the time that they leave school. Children are learning about coding in school, and all kinds of things that would baffle many of us, I think, nowadays as well. So, I'm happy, if it's helpful, to provide a written, more detailed update of the work that other colleagues are doing on this particular agenda, if that's helpful to committee.

Okay. 

Okay. That would be useful, thank you. Rhianon. 

Thank you, Chair. In regard to the extent that the policies identified in the budget are contributing to business growth, and more inclusive economic growth, and the promoting of the regional strengths in our economy, how can you highlight that to this committee?

So, Ken Skates is really focused on a regional approach to economic development, and I know that he's been able to say something on that in the Chamber recently, but he's keen to further develop his approach there. Part of that is through the economy futures fund. So, in June, we announced the first tranche of that package, worth £85 million, and that capital investment included £10 million for the economy futures fund. So, that's one of the areas, I think, where Ken Skates is keen to explore that more regional approach, recognising that the challenges in different parts of Wales will be different, and recognising that people's sense of place as well is very important to them and there are economic opportunities attached to that as well. Some of the funding that we've been providing in this area also has come through the work we're doing to prepare for an exit from the EU. So, the £7.5 million business resilience scheme to support businesses to adapt to a post-Brexit existence is really important.

It's very difficult to separate sometimes spend in terms of what's allocated within the budget for business growth in an 'ordinary' economic term or year or Assembly term. So, how would you pinpoint what's in there now for everyday business support and Welsh GDP growth? Obviously, it's very welcome what we're doing around Brexit and that support package and absolutely necessary and needed for confidence, but is there anything that you can highlight around the wider support for businesses within the budget, because we've talked a lot about poverty and the foundational economy growth?

So, the Minister touched on the economy futures fund—so there is additional funding in the budget for that. There's a specific chunk or so for small and medium-sized enterprises in the budget to support a range of projects across Wales. Some of this is in the form of loan funding; some of it is in the form of grant funding. There's the Advanced Manufacturing Research Centre Wales, which is a significant intervention, which has just come in in the budget—additional funding for the Development Bank for Wales as well, which is worth noting.

Okay. Thank you for that.

And for a fuller list, obviously, the evidence that Ken Skates has given, which we've recently published with all of the rest of the draft budget information, will have a full list of the spend within his department.

Thank you. In regard to the economic action plan, I believe that, in the last budget, there was a lack of transparency in being able to understand where that investment was. How would you highlight that in this draft budget in terms of follow-through for the investment for the economic action plan?

So, the new regional approach that Ken Skates is taking to economic development is very much the way in which he sees the programme moving forward. I know that he's been able to support around 300 businesses across Wales through the economic action plan. I think around half of those are SMEs, but also we have some high-value manufacturing particularly being well represented in there as well. He wants now to explore how we can use that economic contract across in other areas of Government. So, for example, it's included, or the pillars within it are included, in the remit letter for Transport for Wales, for example, and also the remit letter for the national museum and the national library, so he's seeing, and working with colleagues across Government to explore, how we can embed the principles and the asks and the requirements of that in other relationships that we have with bodies beyond business.

Thank you. You've also already highlighted the Government support around the higher skills level growth around—for instance, cyber security you've mentioned. In regard to going back to the foundational sectors in terms of accommodation, hospitality, health and social care sectors, how does the draft budget address the endemic issues that I mentioned previously around low pay and poor working conditions within this?

So, the Deputy Minister for Economy and Transport is currently developing an enabling plan for the foundational economy and that will encapsulate what goes beyond just the foundational sectors of care, tourism, retail and food, which are identified in the economic action plan, so will be a wider approach to the foundational economy. The foundational economy fund is £4.5 million and it supports 52 projects, but that is across 2019-20 and 2020-21, but you will see it reflected in the budget. 

We're also supporting the Bevan Foundation with nearly £100,000 of funding from the foundational economy challenge fund to work in partnership with the Wales Trades Union Congress to support stakeholders, assisting them in increasing the prevalence of fair work in the foundational economy sector through innovative partnership working as well. 

Thank you. And you've mentioned earlier education and skills and what the education portfolio will be dealing with around that. But, going back to my point on vertical career progression and those who are in low pay being invariably more likely to suffer poor working conditions, in terms of that, within that fund of allocation within those sectors that we've been discussing, is there anything specifically within that that the draft budget highlights in regard to that work with education and universities, so that we're actually growing a far bigger bridge between those who may, for instance, be working in a creche to actually growing into a teaching assistant or a teacher or whatever in terms of where that future could lie?

I think there are a number of areas where you'll see support for that kind of work. So, we've got an additional £3 million allocated to support the skills development of key automotive and aerospace manufacturers and that's about upskilling the existing workforce to ensure that they're able to cater to the demands of future needs within that particular sector. But we're also allocating more than £40 million to Job Support Wales in 2020-21 to deliver a new approach for employability and skills support from April 2020, and that will support around 16,000 people a year to meet what the individual needs to gain employment, whatever barriers they might currently have at the moment.      

Okay. Specifically, if I may, Chair—. And I recognise the importance of all those different elements, but what I'm very interested in, in terms of this draft budget, is if there is anything in particular that will be growing those who are already in employment to be able to progress in their careers in order to combat low wages at the very bottom of those sectors. Because we all know that many people stay in those levels at the bottom and don't have an option or an opportunity or an ability to actually reach out to anything that will grow that skills level and therefore access higher pay. 

Well, within the draft budget as well we're allocating £9.1 million for Working Wales and that will provide one national access point so that people can receive qualified careers advisers' advice, which will ensure that they're able to access the right support at the right time. So, that will reflect on that individual's particular circumstances then in terms of wanting to progress through their chosen career path or potentially move to something different. 

Okay. 

Okay. Thank you, Rhianon. I'd just like to ask just a straightforward question around agricultural funding, and whether you have an update on the position or where we are in terms of agricultural funding after 31 December this year, and whether you're confident or not that you have sufficient time, and indeed sufficient funding, to be able to deal with what could be a whole host of scenarios that could arise in that time. 

Okay. So, yes, there was an announcement by the UK Government of funding for the basic payments scheme in 2020-21, which is not covered under the withdrawal agreement. Obviously other elements of European funding will continue into the next financial year if we leave the EU at the end of the month under the withdrawal agreement. But that particular chunk is not covered, and so, yes, the UK Government's confirmed that it will be providing funding at the level expected—about £240 million, I think, a year—next year, which was already reflected in the draft budget, but that confirms that that money is being provided, but it will come from the UK Government rather than from the EU, as traditional.  

My understanding was that the 15 per cent being modulated wasn't included, or is there ambiguity around that still? 

So, the way that—. This is a very complicated system, but the way that the pillar transfer works is that that money is then—traditionally anyway—available in the following financial year, and obviously we don't have a budget set for that year yet and the UK Government hasn't given assurances. 

No, so you can't tell us that money is there at the moment. 

They haven't said it won't be available, but they haven't said it will be available, and we're in discussion about that. 

Sure, okay. Fine. Mark. 

Can I ask you if you welcome the financial support just announced by UK Government for Flybe? And are they right to prioritise regional connectivity by air over any climate change objectives? 

This, I think, takes us back to the debates we've had about the importance of air passenger duty and our desire—collective desire, I think, actually—to have it devolved to Wales so that we could make those decisions locally. I haven't had time, because I've been preparing for committee all morning, to reflect fully on announcements, but, obviously, we'll take a close interest, particularly because of the importance of Flybe to Cardiff Airport.

Okay. There we are. Well, unless Members wish to pursue anything further, can I thank you, Minister and your officials, for your attendance this morning? And I'm sure you'll be looking forward to seeing our report on the draft budget and the whole host of recommendations that I'm sure that we'll be coming up with. And if you would be so kind as to accept them all, as you have done, of course, for our capital funding report, which we're debating this afternoon, that would be great. But, obviously, that will remain to be seen. So, diolch yn fawr iawn for your attendance.

We'll now move into private session. So, I propose, in accordance with Standing Order 17.42(vi), that the committee resolves to exclude the public from the remainder of this meeting and for the whole of the next meeting on 23 January 2020. Are Members content? Diolch yn fawr. We'll move into private session.