National Assembly for Wales

As I've explained to the committee previously, the restrictions on the use of financial transaction capital do make it an unwieldy instrument. Nevertheless, we have continued to use significant sums of that sort of capital for housing purposes, for business support purposes and in the field of transport. That's where the bulk of that money has been found to be useable.

We are always on the lookout, however, in the way that the Chair asked, for innovative ways of using it. So, in this supplementary budget, you will see the first tranche of money that we are using for credit unions in Wales. It's a small amount of money, but it is very useful for them and for individual credit unions in the transition they're having to make in the rules that are newly being applied to them in terms of capital-to-loans ratios. It's probably the difference between them being able to carry on trading or not. And then we have the stalled sites fund, which I've mentioned in this committee before. That's £30 million of financial transaction capital and £10 million of conventional capital. And that's to allow local authorities and others to bring sites that would otherwise not be marketable into a condition where they can be put to beneficial use.

We want to use financial transaction capital in that more innovative way and that inevitably means that we will have some higher risk uses of that money, but it is built into it, given that it's an 80 per cent repayment and the flexibility over repayment periods. It's always a tension for Governments. As you know, we're often advised to take more risks, but the minute you take a risk that goes wrong—[Laughter.]—it's a slightly friendless place to be then. But my view is that—and I've said this to my Cabinet colleagues as well—we have to lean on the boundaries of financial transaction capital and be prepared to do things that we know have an element of risk in them, both to get the capital used, to get it used successfully, but also to live within the spirit of the scheme, which does have some appetite for risk built into it.

Okay. Mike Hedges.

I know there's a serious danger with discussing health of drifting either to something that comes under the Public Accounts Committee or to something that comes under the health committee, but I'll do my best to avoid that. Whether I succeed or not, you'll probably let me know, Chair. But two questions. The first one is: we know that £27 million of additional funding for Hywel Dda health board was found, and we know that's been found from inside the main expenditure group of the Cabinet Secretary for health. So, as far as you're concerned, as the finance Secretary, it doesn't matter because it's already been allocated, but is there any reason why the Cabinet Secretary for Health and Social Services cannot allocate some of his underspends to social services, rather than allocating them to health, because that seems to be what's happened up to now? It's all gone to health. Any reason why social service cannot have any of it?

Well, those, indeed, Chair, are decisions for the Cabinet Secretary for Health and Social Services. Mike Hedges is quite right to say that the £27 million for Hywel Dda was money already in the MEG of that Cabinet Secretary, so there's no impact on the supplementary budget here. We've been over this ground before, Chair, so I'm not going to dwell on it for long, but you know that the first supplementary budget, particularly, is a relatively modest tidying-up exercise. Mike referred to the £27 million that went to Hywel Dda; in total, right across the whole of the Welsh Government, this supplementary budget allocates £15.4 million in revenue, over and above what the committee knew about at the final budget back in December. So, it's very modest in that way. It does report MEG-to-MEG transfers, it does report intra-MEG transfers, and, in that sense, it is for the Cabinet Secretary for Health and Social Services, and he could take decisions of the sort that Mike has suggested.

The other question is: we know that health boards, especially Hywel Dda and Betsi Cadwaladr—but they're not unique in this, in that most health boards have consistently overspent, but, again, that has no impact on you, because all that's been covered by money in the budget of the Cabinet Secretary for Health and Social Services—? If I say anything that's wrong, by the way, will you correct me? But are you expecting that, whatever overspends occur this year, following this supplementary budget, the Cabinet Secretary for Health and Social Services will live within the budget he's been set?

Well, first of all to confirm that Mike Hedges was completely correct in the first thing that he said. My job is to make sure that all my Cabinet colleagues have the resources they need to discharge their responsibilities. It is then for them to manage, within that global sum, and how they do that is for them, rather than for me to determine. I am encouraged by the progress that has been made in the health MEG to be able to live within the means that are made available to it at the start of a financial year. I know that it is the ambition of the Cabinet Secretary concerned to be able to do just that, but, of course, I remain open with all my Cabinet colleagues over the financial year to hear from them when pressures arise that they were not anticipating. Health remains a key priority for the Welsh Government, so I will continue to do that. I meet the Cabinet Secretary every month to look at the state of pressures within the health field, so I'm not ruling out the possibility that, if need arises, I would respond to it, as I would with any other Cabinet Secretary. But I know that the Cabinet Secretary for Health and Social Services starts this year with the ambition of living within the means available to him.

Whilst I know the answer to this question, I'd like you to put it on the record. There's been a lot of talk of an extra £20 billion for health in England and the subsequent funding—between £1 billion and £1.2 billion—for health in Wales. Is that in this budget, and is it not in the budget because you've not had it?

Well, it is not in this budget, Chair, and certainly no cheque has arrived in the post from—

You have checked, have you? 

Every day. [Laughter.] What we have, as Members here will know—we have, from the Treasury, a gross figure for each of the coming years that sets out what the consequential for Wales would be of sums of money being allocated in England. We now know for sure that that figure will have to account for pay pressures. So, the money that we were promised in addition has now been subsumed into that figure. So, that's many tens of millions less than the headline figure every year to begin with. The Treasury tells us that they are absolutely unable to give us a net figure, and that they will not be able to do that until the autumn budget, at the earliest, and possibly even until the spending review at the start of next year. You could not be a responsible finance Minister and start spending the gross figure when you know perfectly well that that is likely to be reduced by reductions elsewhere in other budgets in order to come to the headline figure that the Prime Minister used. So, I am, at the moment, holding that money. I will release money for the pay settlement this year, as we have guaranteed that we would, and then I intend to discuss with Cabinet colleagues later in the budget-making process, when we have clarity on how much of that money actually is real new money and is coming to Wales. And finally, Chair, just to respond to an earlier point that Mike Hedges made, I have had a preliminary discussion with the health Minister, and with Huw Irranca-Davies, and we have reconfirmed the principle that this Government has stuck to for the last Assembly term, and this one: that if we do get extra money, we invest in the system in the round, and that is social care as well as health services.

Thank you.

Just to follow up on one point—the £27 million for Hywel Dda. I do declare an interest in what Hywel Dda gets up to. It is, I know, already allocated as a sort of inter-allocation, but it was very much pitched or announced as an allocation to deal with structural deficit within the health board. Would you expect that to be reflected in ongoing budgets, therefore?

I think that is the plan of the Cabinet Secretary. He helped to set up the zero-based budgeting review that was done in Hywel Dda. The aim of that zero-based budgeting exercise was to try to identify those pressures that are under the direct control of the health board and that they therefore have to be able to get a grip of, and those sums of money that are beyond their control. The £27 million is a reflection of the sums of money that the zero-based budgeting review concluded that were not amenable to actions by the health board itself. I think having recognised those, as we did previously in the case of Powys, we've continued to recognise those year after year, and my understanding is that's what the health Secretary intends to do in this case.

Okay. Thank you for that clarity. Also, on the capital side—because you've talked about this supplementary budget only being around £15 million in revenue—but there's nearly £50 million allocated for clinical priorities on the capital side. That's quite a reasonable sum of money. What is the process by which that will be spent now? And is there a link with the wider planning process in terms of something that we'll return to when we come to the full budget, possibly—the three-year fiscal planning cycle, supposedly, of the health boards? Are you expecting to see more robust planning in the use of this money?

Well, I think the capital planning system in the health service is quite robust already, and has been laid down over a number of years. So, it has a three-phase process. It begins with the health boards themselves and their production of the integrated medium-term plans. So, they look to see what their capital needs and their capital priorities are. Those are then reflected in the IMTPs. They come in to the Minister here. So, that's the first stage. Of course, remember that 25 per cent of all the capital in the health service is in the hands of the health boards themselves in discretionary capital, and we've increased the percentage of discretionary capital in recent years too. But 75 per cent is allocated by the health Cabinet Secretary, and so when the bids come in from the health boards and trusts, the second phase is for him, with advice from the infrastructure investment board that he has, which has people from outside the Welsh Government on it—they prioritise within the capital programme budget that they have. If there are things that they cannot accommodate within the budget that they have, then you're into the third phase of it, where, alongside every other Cabinet Secretary, the Cabinet Secretary for health is able to put proposals to me for any additional capital that I'm able to make available. I set out criteria that cover the whole of the Government, and in this budget you can see that, of the additional capital that I was able to make available, nearly £50 million of that went to the health service. But it's that three-phase process that leads to the allocations you see in the supplementary budget.

So, in effect, what we're seeing in the allocations here, they were the top of the list, if you like—the waiting list, if I can use that term—ready for capital and could only be released when you were sure that you had the extra capital available. Is that correct? 

They are the top of the list in the health department, but they were competing with the top of the list in every other department, and of the global sum that I had available, £50 million was allocated to the health department for the purposes that you see: neonatal services in Carmarthen and Swansea and so on.

Okay. Thank you for that explanation. Jane Hutt.

I'm going to turn to rail funding now, just to see, in terms of the supplementary budget, whether the £24.8 million payments that will be made this year to the UK Government by the Welsh Government—whether they're in this supplementary budget, and also whether you know, or whether the Cabinet Secretary for Economy and Transport, obviously, can identify, when we're going to have transitional and future funding agreements published.

Thank you, Jane. So, rail access charges are fiendishly complicated, but this is my understanding of it—that we are coming to the end of one set of arrangements with the Department for Transport and will be entering into a new regime with them in the near future, but that we have to have a transitional arrangement in this year and next year that costs us, as you said, £24.8 million in this year and £71.8 million in the next financial year. Thereafter, this whole business will be rebased, and we are hopeful that the charges will be much, much less going into the new period. I intend to assist the Cabinet Secretary for Economy and Transport with that £24.8 million this year, and I will find it from reserves. However, because there are final discussions going on between ourselves and the department, I haven't put it through in this first supplementary budget. I do intend to reflect it in the second supplementary budget later in the year.

Thank you.

Just on that, it strikes me from the written statement that the Cabinet Secretary for transport and infrastructure made that it's very complex, as you say, these access charges, but it's almost like a mini fiscal framework. There's got to be an exchange of information, there's got to be co-understanding, potentially—some way of resolving disputes as well. Will you be assisting—not only assisting him in making the money available, but is that a role that you're playing in terms of trying to make sure that that's aligned with other relationships you have with Westminster departments, particularly the Treasury?

My officials do play a part in those discussions and, in the detailed negotiations, were quite heavily involved, because the Treasury also played a part in these negotiations, and the Department for Transport. I'm hopeful that we are towards the very end now of nailing down the very last set of details. We are keen to publish the agreement that we will have reached with the Department for Transport. So, the bulk of it was fleshed out in the statement that Ken Skates made, but as soon as we are able to, I know that he is keen to go on and publish the final detail of it.

Okay. Thank you. The committee might want to have a look at that when we look at the next supplementary budget, possibly, when it might all be available. Neil Hamilton, then, please. 

Diolch, Cadeirydd. I'd like to ask about the £25 million that's going to be transferred from the reserve to general capital for economy and transport. Three big items there: £10 million for active travel routes, £9 million for fast broadband and £5 million for Tech Valleys. The last of the three, I fully understand why that's there, because that's consequential to the announcement in the summer about the Circuit of Wales. But can you tell us a little about how the prioritisation took place for these three items, in particular the active travel routes £10 million and the £9 million for the fast broadband? What are the alternatives that we could have spent the money on?

Thank you for the question. Members will know that those three allocations form part of a midway review of the Welsh infrastructure investment plan. So, the process for the plan was this—we are just over halfway through the plan that Jane originally published. I thought hard about whether we should publish a new 10-year plan, but given that we have a spending review on our doorstep, I decided that this probably wasn't the right moment to do that, and what we should do is look for a refresh of the existing plan. So, the process, essentially, was this: that I wrote out to all my Cabinet colleagues asking them to re-examine their top capital priorities and to refresh the list that was already available to me to make sure that I had the best insight into the things that were most pressing for them. I then said in that letter that I would then prioritise the bids that came in against three key criteria.

First of all, any proposals for further spending had to be aligned to the top priorities in 'Prosperity for All'. That's the Government's driving document; I wasn't going to be funding things that didn't fit in with that. Secondly—and this is a theme that I've rehearsed with the committee over a couple of years now—I said to Cabinet colleagues that I would place a priority on capital investments that led to revenue savings. The biggest pressure of all on our budget is on revenue, and if colleagues could use capital to reduce their revenue pressures, I would obviously put some priority on that. And thirdly, and probably not featuring quite so much in previous discussions, I said to them that I would put a particular priority on proposals that contributed to our decarbonisation agenda.

In the priorities that you see for economy and transport, they represented the top priorities that the Cabinet Secretary put to me, and all three of them are particularly strongly aligned with the decarbonisation agenda of the Government. So, the £10 million for active travel, which is, of course, £10 million this year, £20 million next year and £30 million the year after that—so, it is a rising profile—that is particularly to connect residential areas with key employment and educational sites, so that people are able to get from where they live to where they work or where they study without needing to take their car. That's a very big push for us, so I was very keen indeed to help with that and to invest in that.

As far as the next generation broadband is concerned, which is the second one, again, if people can work from home and they can do more things without having to travel to meetings and so on, then there's a strong decarbonisation advantage there, as well as all the other things we know about how, in rural Wales particularly, businesses rely on a better service than they have had so far. And the Tech Valleys proposal is a focus on new low-carbon technologies to be developed at the Ebbw Vale site. So, the strong carbon reduction alignment is the thing that got those particular proposals over the line in competition with all the other thing that we could have spent the money on. 

That's a very clear explanation. Thank you very much. 

Perhaps following on from that point—Mike Hedges. 

I want to talk about student loans, which is a matter that I've raised before—I see Jane Hutt, who's used to having me asking her questions on it, smiling. I know it doesn't cost us any money out of revenue. Can I just say that people who want lots of extra things devolved need to be careful about what they wish for, because this seems to have grown, annually, by relatively large amounts? And although it doesn't affect what the Welsh Government has allocated to it, and spending, it does affect the Westminster Government's total budget, and consequently this loan can have an effect on overall Government expenditure and our 5 or 6 per cent of it. I don't think you'll be able to give the numbers now, but if you could give us a paper on how it's grown over the last five years. And also perhaps, the other question I think that you probably can answer now, is: it is a serious drain on the Treasury, and at what stage do you think that drain on the Treasury is going to start having an effect on expenditure in every other area?

Well, Chair, to separate out two points there, Mike is quite right that, in the domestic Welsh context, we have never failed to get from the Treasury the cover that we need in order to be able to run the student loan book here in Wales. But I am aware of some of the reports to which I think he is referring. So, there was a House of Lords report into all of this very recently that did raise concerns about the level of bad debt in the student loan book in England, which raised concerns about classification issues there too, and the Office for National Statistics is now also involved in doing some work around—

Oh, joy.

Yes, indeed. And Eurostat are also likely to be involved in classification issues in relation to the student loan book. My understanding is that, as a result partly of those two things, the Prime Minister in the United Kingdom has announced a review of post-18 funding issues, which is due to report next year, and the student loan book will undoubtedly feature in that review.

We are less exposed in Wales, because we have a different student support system, which is more generous in terms of the grants we give, rather than the loans that have to be repaid. Nevertheless, we have to make an assessment of the cover we have to provide against non-repayment. Matt is going to help me here if I get these figures wrong, but, from memory, we make a 35 per cent provision against non-repayment; England's is hovering between 45 and 50 per cent. So, that is a very significant difference in the cover that is needed. So, we are in a healthier place, partly because of the structure of the system that we have. But the points that Mike Hedges makes are serious ones. We follow the debate, because the way in which it is finally resolved could end up having an impact on us.

Are you happy with that?

I'm happy with that. I know I've probably bored you, as much as everybody else, raising this on an annual basis, but I do feel very concerned about it. If anywhere else had a 50 per cent failure rate of repayment, it would be a crisis. Under student loans, it seems to be accepted. And although the actions taken by the Welsh Government, and supported by the Assembly, have made matters less bad in Wales, I'll put my cards on the table: I think it's fundamentally wrong that we run a loans system, and students aren't given grants, like you and I got when we were in university.

Just a final question from me, if I may. When you were replying to Mr Hamilton around the capital allocations, you did talk quite a bit around the decarbonisation agendas, if you like, as a premium, almost, I took it, as the thing that pushed things over the line. Are you doing that across-Government? Is that an approach that we are likely to see more of, and is that something that's feeding in, particularly for carbon budgeting, which of course you're obliged to do next year, I think, off the top of my head, under the Environment (Wales) Act 2016?

Yes, Chair, you're right: we gave a commitment last year that we would aim to align the carbon budgeting cycle with the budget cycle here, and a lot of work has gone on to do that, and I will be reporting on that, as will my colleague Lesley Griffiths, in the autumn, as to what we have done there. And in the approach that we are taking to the impact of the Well-being of Future Generations Act (Wales) 2015 on our budget process for next year, we've agreed with the commissioner that decarbonisation will be one of the key themes that she will look at in the way that we make our spending decisions. So, I do expect to be able to report to you in the autumn further on the way that the decarbonisation agenda is making a difference to the way we allocate funding. 

Okay. In which case, I think we'll conclude there. 

On my right is Tim Render, environment and rural affairs director, and on my left is Tony Clark, head of finance.

Thank you. We've obviously been working very hard to engage with the UK Government since we had the vote back in 2016. I have quadrilateral meetings with the UK Government's Department for Food, Environment and Rural Affairs Minister, and obviously Scotland and Northern Ireland, where finance is now a standing item, because, clearly, it's very important. We're hoping that the Chief Secretary to the Treasury will come to our next meeting—we've invited her several times—and I think it's very important that we are engaged in those discussions. Obviously, Mark Drakeford leads for us in this area—I know you're scrutinising him next—and my officials obviously work very closely with Mark's. But we're all doing our best to ensure that we hold the UK Government to their word that Wales would not lose a penny if we left the EU.

So, in relation to where we are, I know that Mark is going to be publishing a paper—I think it's next month—regarding the proposals as to how we believe the UK's funding and fiscal arrangements need to change, because that's very clear, once we leave the EU. And the paper will have three key priorities: one is that we shouldn't lose a penny of the funding; secondly, that we must have continued access to important European partnerships and networks that bring wider benefits from participation, over and above the funding received; and the third is that we obviously need a new fiscal agreement for the UK, to replace the Barnett formula, but I'm sure Mark will have more to say about that.

So, we meet bilaterally. We also have, as I say, the devolved administrations meetings, and obviously officials also meet. I think it's fair to say—and Mark will probably say more about this to you—that the meetings and the discussions with the Treasury, at the moment, are looking more short term, but obviously, for me, agriculture is a very long-term sector, so I'm trying to ensure that we work on a much longer term.

And, obviously, the sector as a whole has been, some would say reliant, but it's certainly been in a funding relationship on multi-year programmes—on seven-year programmes in particular—and not really based on the way the UK Government tends to fund, which is at most three years in comprehensive spending reviews, with regular reviews and elections that change priorities and change spending plans. That's a very different world to the European world that we're in. Although you're going to consult on the detail of your policy intent over the summer, as I understand it, on what you should be using any public money for in terms of public goods and outcomes, there's still a core question as to how this will all be delivered at the UK and strategic levels. There have been suggestions, for example, that other structural funds should form part of, if you like, the block grant for Wales—that's been one suggestion—but I would think, from what you've said in the past and what the First Minister said also, that you don't want agriculture support simply to be part of the block grant; you want to keep that discreet and in a different funding relationship. Is that correct and can you say if we've got anywhere at all along the discussions with UK Government about how that might work?

You're right—we are consulting. I'll be publishing a Green Paper well before the Royal Welsh Show—so, in early July—and that will obviously form part of the discussions around the consultation. We're going to have a very long—I'm going to do a plug now for the consultation—consultation of at least 16 weeks, because obviously it's over the summer and then you've got harvest, so I think it's really important that we have that long consultation. The summer shows will have huge stakeholder engagement, because it's very important that we get all of those views and, obviously, finance is part of that.

You will have heard me and the First Minister both say that any funding that comes for agriculture from the UK Government in the short term will be ring-fenced. Post 2021, when we've got a new Welsh Government, obviously I can't make that commitment for that. Maybe you'd like to make that recommendation as a committee. I'm sure that I and my predecessors would very much appreciate that, and the agricultural sector. But I think it's very important that we do have some clarity for our land managers, for our farmers and for the businesses, because it is such a long-term sector, and, as you say, they're used to multi-year programmes—they're not used to one-year or three-year even—so that will be part of the discussions. I would say that discussions with the UK Government are still in early stages. I wouldn't say that we've got a huge amount of clarity around that.

So, I don't suppose discussions around any sums of money would have even begun yet because I'm sure that the UK Government would say, 'You'll have to wait at least until the budget in the autumn', but are you having discussions around frameworks—around the actual infrastructure to deliver such a programme, because you've talked in the past about the need for this to be on a four-nations basis and for it to be an agreed programme, if you like. Are there any indications that such a thing can be in place? We are due to leave next year.

Yes, I know. Yes, there have been a lot of discussions about frameworks, particularly at official level. I'll ask Tim to say a bit more. Funnily enough, I've just come from a meeting with the British Veterinary Association, and animal health and welfare is a framework that's worked for a long time and is being used as best practice. So, I think the framework discussions are going well. You will have heard me say previously that there are lots of deep dives going on and, again, I think agriculture was first, because we were seen as an area where that sort of work had been undertaken. So, I don't know if you want to say a bit more about frameworks, Tim.

Shall I just add a little bit? There are some elements that will be about the legislation and particularly detailed conversations going on at the moment around the agriculture Bill that DEFRA are working on, because that probably will give effect to some of those legislative bits of frameworks, but actually a lot of what frameworks are about are about how you work collectively to come to either a common position or a different position that is understood and recognised and that any of the implications for other parts of the UK are understood. A lot of that is building on the way we're already working. So, for instance, in animal health, there's a lot of joint working at all levels and a lot of this is just making it a little bit more formal: being clear on the responsibilities and being clear that, actually, that decision making needs to be by four Ministers from four parts of the UK, and that you have a dispute-resolution process if there is a difference that causes problems for one part of the UK. So, we're starting in animal health and fisheries, which are the areas where that slightly more informal way of working is very, very well established as examples of how you make that that bit more formal, and then use that as a model to take into other areas where there hasn't been as much of that joint working in the past.

And do you see this emerging—? Because this is quite vital, I'm sure you'd agree, for successful delivery of future funding when we leave the European Union, do you see this emerging from the officials working together in that way and building the scaffolding, if you like, or do you see the need for a more political coming-together at some stage that does it from the top down? It seems to me that, at the moment, we've seen evidence of different bits being done in different areas, but there's no overall picture emerging at all of how this might look.

You do need the political element—of course you do. I suppose the quadrilateral meetings is where—. There's a huge amount of work done by officials. The deep dives—. I was looking at one deep dive the other day—animal health and welfare. All the chief veterinary officers were there, and their teams, and I just remember thinking to myself, 'Two days of these highly paid people coming together, and the kind of cost of Brexit that we don't see.' Do you know what I mean? But I do think you need that political discussion, and we do have that. I have bilaterals. I think I've probably got a bilateral with Michael Gove next week ahead of, or after, the quadrilateral, which is very important, and, I think, also the aspect of governance. I think it's really important that we get the governance right because, if we don't, as Tim was saying about disputes, how do you solve disputes? Going back to what the First Minister, I think, has put forward since day one about having this council of Ministers, it's very important. So, I think, while the officials are, of course, doing the hard graft at the moment, as Ministers it's vital that we're kept informed and we're part of the process.

Tim mentioned the agricultural Bill of the UK Government now. They have been very reluctant, I think, to share parts of the Bill. I'm starting to think now it's because it's not ready; I think it's not so much that they don't want to share. We have started to see clauses coming through. It's on a highly confidential basis and, of course, we will adhere to that confidentiality, but it's really vital that we see them so that we know exactly where we can fit in, where we can have provisions in the agri Bill, where we'll need our own Bill. So, it's about getting the balance, I think, between the officials and the politics.

And what's your best political take of the overall quantum that might be available for agricultural support in the new UK framework? We've had evidence, for example, from Professor David Bell, who comes to mind, saying that his best take is that the UK Government will be seeking to reduce over a period of time the amount of support that goes into agriculture. They're certainly interested in reducing, or even completely stopping, direct payments, as it seems to me. That's definitely been floated. The evidence that we've had from different quarters suggests that that might be used as a way of reducing the overall quantum and, in turn, no matter what the proportion, whether it's Barnettised or not, you would expect the quantum for Wales to be similarly reduced, which, again, goes against your earlier point around not a penny less. I know you have your red line in that sense, but, politically, do you actually see that that can be realised if there are changes in the way that agriculture payments are made in England and, as a consequence, no matter how the consequences are worked out, we will get less here in Wales?

No, I don't see why you would link spending in England to our spending. That's a matter for us. I think even Michael Gove would have said that. So, no, I don't agree with that at all. What we've always said is that we need a fair budget, then we decide how we pay that, and that will be part of the consultation. I have been very clear that it has to be different, and I think most of the sector would be in agreement with that. We're a net beneficiary of EU funding, and, when we withdraw from the EU, that money must not be taken away from our communities. We've made that very clear. We've made it very clear it shouldn't be Barnettised because, again, I think there's about 4 per cent difference from Barnettisation. So, the funding arrangements for when we leave the EU must be aligned to our devolved responsibilities. So, we've made that very clear. But that would be absolutely a matter for us. Agriculture has been devolved for nearly 20 years, and so, no, sorry, I don't agree with that link.

Okay. Mike Hedges.

On the Barnettising question, I can understand why you wouldn't want it to be Barnettised for us to get to 5 per cent of the amount coming into Wales—Wales's share approximately, of Britain. Why don't you want to see it reset at its current level and then moved forward by the Barnett formula, as opposed to having it outside the Barnett formula and relying on the vagaries of what they do in England? And if they've reduced it by 20 per cent in England, then the likelihood is that they will not treat us differently. 

I go back to my previous answer to the Chair, that I don't see the link between those, because it's a matter for us how we spend it. So, at the moment, we get 10 per cent, and if we had Barnett, we would get 6 per cent. So—

Sorry, I don't think I've made myself clear yet again on this. You can reset the Barnett formula, so you reset us at what is the current 10 per cent, and then you take it forward from there rather than leaving it to whether there is a 50 per cent cut in the amount of money spent by Westminster. That 50 per cent cut, if we are just getting it outside the Barnett formula, would be likely to be affecting us. 

Well, I think probably that question is better aimed at Mark than me, but my—

I suspect it will be. [Laughter.]

Yes, I'm sure it will be. [Laughter.] I'm sure Mike will remember it word for word. 

It will be aimed at him.

If I move on to the next question and something that you've alluded to earlier, Wales and England are different in terms of agriculture, if only because of topography and size of farms. As a broad-brush view, Wales has lots of small farms and marginal land. England, especially the east of England, has lots of very large farms, which are on very good agricultural land. So, how is this going to be reflected in the UK-wide agricultural support framework, so that the differences are identified?

You're right about the topography and the difference. You only have to look at our upland farms. I know we've got a debate next week on upland farming, and, certainly, I think that part of the agricultural sector is very concerned. So, we've got to make sure that we've got powers in place in order to have our own support schemes. I think we've made it very clear to the DEFRA that it's important that the UK agriculture Bill doesn't place undue restrictions on devolved administrations. Again, we are engaging with them on the UK agriculture Bill, but we've all said—and Scotland the same, and clearly the political situation in Northern Ireland is slightly different—and we've all made it very clear that we will all have our own Bills, as I've said. I don't think they'll wildly differ, but it's important that we have that. 

I go back to the quadrilateral meetings. I think they've been very important to make sure that we're getting that message out. And it's enabled us—what we've been able to do in those quadrilateral meetings is discuss, you know, your operational readiness, your common frameworks, funding, and that's part of looking at the difference with our farms and, as you say, the size of our farms, for instance, going forward. So, officials also have a sub-group that looks at devolution issues in relation specifically to the UK agriculture Bill. But, it's very important, because policy has diverged anyway over the last nearly 20 years. So, I think that's very much accepted. 

Policy has diverged basically because of topography, and if you had a similar policy, then it would change the landscape of Wales overwhelmingly. Do you see that as a worry, that if we get treated funding-wise the same as England, then the topography would not change, but the make-up of farming within Wales and its effect on things, including the Welsh language, would be substantial?

Absolutely. The Welsh language is a really interesting point, particularly in relation to communities. Colleagues will know that I went out to New Zealand in April, because their subsidies stopped overnight, and the one thing that struck me—. And it was interesting, when you talked to the different generations—I went to a farm that is now run by two sons, but I met the father, who is now retired, and, obviously, he'd lived through the stopping of subsidy in 1984, and he said how painful it was and how they lost that sense of community—and we've got the language as well, so you can imagine the double impact it would have on our communities—because small farms became large farms, and farms went bankrupt. So, it was a really good lesson to learn. But he did say, even after all the pain, and it took about 10, 12 years to get over that, they wouldn't go back. And then, when you spoke to the sons, they were just like, 'Well, why would you want subsidy?' They were completely different, the two generations. But I think it was a very good point to make about that community, and, obviously, with the Welsh language, that's even more of a concern.

In your written evidence, you note that agricultural funding from 2022 onwards is expected to feature in the UK Government's 2019 spending review. What are you doing to ensure that you convey a full understanding of Wales's funding requirements to the UK Government? And I would guess one of the biggest problems is actually getting them to understand how Wales is different; it's not just the west of Britain.

Again, I go back to earlier answers on how hard we have worked to engage, both at ministerial and official level. So, we're working on our recurrent funding position regarding the future requirements of our current EU funding envelope. We're working through all the baselines—I think there was an annex in the evidence paper. So, we're working through all those at the moment. And any funding that we would reasonably expect to receive from the EU, we now expect to be replaced by the UK Government. We've made it very clear—and I know Mark certainly has—that there'll be no top-slicing, there should be no new conditions. I mentioned about the paper that Mark's bringing forward, about how we're saying that we need to have access to those European partnerships that we've had before. So, I make sure that my officials are fully engaged with Mark's officials; obviously, he then is leading this for us in his quadrilateral meetings with his counterparts. And I know there is also a future funding sub-group. Do you sit on that?

Yes.

So, Tim sits on the future funding sub-group, to make sure our views are heard there.

Okay, thank you.

Just on that, though we have CAP as of seven years, there would have been a review of CAP during the period that we're talking about. That will still happen, of course, but we won't be part of it. But when you have to make some kind of negotiation around what the expected payments would have been—because all we know is what we have today to the end of the current CAP period; we can't predict what would have happened after that—how influential do you think the reformed CAP, or the discussions around CAP, should be on the UK discussions? Would it be completely irrelevant or is there some relevance to the fact that our biggest market, still, will be going through a period of reforming its own payments, and should that influence, in your view, how we do it here?

I think there should be some relevance. You're quite right that the EU-27 will be having those discussions, and I would think there would be some relevance. I think I'd go back to what I'm saying about governance—it's about making sure we've got the correct governance in so that we can have those conversations. I don't know if that's something that's been discussed at officials—we certainly haven't.

It's beginning to feature in the conversations with the Treasury. Obviously, they would look and say, 'Well, the budget would have been smaller if we had stayed in the EU'—that will become part of the narrative of the negotiation on the total sum of money post 2022.

Because, historically, CAP has been declining as a proportion of the overall Commission budget.

Absolutely. In terms of what that new CAP looks like, in terms of how it supports farmers, I don't think that is relevant to the conversation we have in the UK about what we spend the money on. What we're saying is that we can spend that much more effectively to provide a more economically resilient industry, and deliver more public goods for the taxpayer. So, we are saying we should be able to do this better than would be under the new CAP.

And you'll be describing that in the Green Paper.

Yes, that's part of the much-awaited document, absolutely. I think one of my main concerns is, post 2022, it's just a black hole at the moment, whereas it wouldn't have been a black hole even if it had been renegotiated. So, I think that's my biggest concern, that we just have absolutely no idea. So, you know, ring fencing nothing is not going to help our farming sector and our land managers. So, getting some clarity around that is very important for me.

Okay. Jane Hutt, please.

Yes. This moves on to the point about the UK guarantee—the UK Government guarantee—on agricultural support. From your evidence paper, you clearly identify that it doesn't cover expenditure on technical assistance. That might include spending on those intermediate bodies that actually might not have or have not yet committed to a specific project. So, how are you going to ensure that you do safeguard sufficient funding to those areas to ensure that that money isn't lost?

This is an area of real concern; it is a really big hole in the budget, because the latest guidance we've had from the UK Government is that technical assistance won't be, or may not be, included in the guarantee and that some funds then, as you say, committed to intermediate bodies may be excluded.

The guarantee only comes into effect in the case of a 'no deal' scenario, so I know that discussions regarding the guarantee are still ongoing. The details of the rural development plan elements included can't be confirmed until those discussions are complete. So, we're having to look at some options with the aim of ensuring that we do get that balance between the commitment of funds, the ongoing management of the programme, the need to ensure a smooth transition to post-Brexit land management, and, of course, further rural development support. So, operational readiness is one of the main areas that we have discussions on, probably on a daily basis, but, at the moment, it's a big hole in the budget.

Yes. Obviously, we want to avoid the 'no deal' scenario—

Absolutely.

—but you are clearly working in terms of preparation on all fronts and all levels. We've already mentioned the changes ahead to farmers. So, the European Commission has already indicated that they're going to be proposing that direct payments to farmers will moderately reduce under its multi-annual financial framework from 2021. So, have you been able to, again, going back to Mike's point, discuss these issues, in terms of impact on Wales, with the UK Government in relation to its guarantee?

Yes. So, funding guarantees at the moment relate to, obviously, current funding levels. So, we are monitoring developments with the EU-27, but there's no direct link between, as I say, their next CAP and our future funding or policy. So, we haven't got much clarity around that at the moment.

Thank you.

Nick, are you okay? 

Fine, Chair. I'm okay. Are you okay yourself? [Laughter.]

Well, I thought you might have other things on your mind, but—

I don't know what you're talking about. 

—you're very welcome to ask your questions.

No, I'm always happy to question the Cabinet Secretary on these issues. Some of this might have been covered. Your Brexit round-table sub-group published a report that analysed different trade and funding scenarios on the agricultural sectors. What impact has this work had on informing your view?

A huge impact, I think. You will have heard me say many times that I think one of the best things we did was set up that ministerial stakeholder round-table group, bringing everybody together, nobody working in silos. We meet six-weekly—monthly/six-weekly. We met last week, and they brought forward that paper. It was pretty scary, I think. But I don't think there were any huge shocks. I think, because we'd done so much work previously, what came out of it was very robust and it really helped look at the different scenarios.

So, what the paper brought forward was five different scenarios. Some of them showed that—the sheep sector, for instance, would be affected badly in all scenarios. Some showed that the red meat sector would thrive in another scenario. Seafood is an area that—again, great concern. So, I think it's been extremely helpful in bringing forward the Green Paper, and you did miss this: I mentioned that the Green Paper would be launched next month, well ahead of the Royal Welsh Show, and then we're going to have a long, at least 16 weeks, consultation. But I think the group has been very helpful. This paper—they owned it and they brought it to the group and told me and my officials that this is what they had brought forward in relation to the scenarios, but it was quite sobering in parts. I'm sure you've all read it, but, if you haven't, I would really urge you to do so.

So many things happen in the run up to the Royal Welsh Show, don't they? That's always the key point of the Assembly diary.

Well, it's just a really good time. That's when everybody's together and you can consult. I'm going to be made available; the officials are going to be made available. Every day, we'll be having engagement. Then, obviously, you have a series of summer shows and that's when everybody comes together, and I think it's just a really good opportunity. So, we were very keen to get the paper out before the summer shows.

How will the £3 million you've allocated to agriculture and fisheries from the EU transition fund help to drive change?

Okay. So, you'll be aware the First Minister announced the £50 million to help sectors and businesses prepare for Brexit. Again, I pay tribute to officials because I've done really well out of the first tranche. I've had four schemes come forward. So, I've got the red meat benchmarking project, and the reason I was so keen to do that was because we'd had some EU funding the year before, I think it was the conditional aid funding, and we had done some benchmarking within the dairy sector. I think about 70 per cent of farmers had engaged with that and, again, when they looked at their businesses, when they did that benchmarking, it's about preparing them for Brexit. Even if we didn't have Brexit, I think farming and land management would have to change in certain ways. So, one of the projects—I think I've had £2 million for that—is going to be around red meat benchmarking and we'll work with about 2,000 farmers so they can look at how resilient their business is and what they need to change in order to make it more sustainable. 

We've also had some funding for fisheries and import substitution. So, the fisheries management scheme I think again is very important. We'll no longer be bound to the common fisheries policy, obviously, so we need to make sure that sector is aware of that. There are going to be differences in probably licensing, in registering vessels—

You're going to have a lot of freedom, really—like in fisheries, for instance—to construct policy. You've obviously then got to be regulatorily compatible, I assume, for the market, but, still, you can construct this as you want.

Yes, that's the opportunity—you know, you look at the challenges, but that is an opportunity. I came into portfolio the month before Brexit, so I've only known this kind of world, but when I've spoken to—

I can't remember before Brexit. Was there anything before Brexit? It seems—

What did we talk about before Brexit?

—we've been talking about it for years. [Laughter.]

Certainly, when you talk to the fisheries sector, I can see why they would vote leave. I can't with the agriculture sector, but I do have some sympathy with the fisheries sector.

We're not re-running the referendum, I can assure you. [Laughter.]

No, no. But, in fairness, I could see their argument on the fisheries side.

Evidence we took—I think it was last week—said that, in constructing the new agricultural support, rather than simply having a subsidy within the CAP framework for farmers, you could actually have a wider rural support grant that farmers would tap into, but that it could be quite different. Is that something that you're looking at?

Well, that could be—that's part of the consultation.

I can tell by your smile that I might be on to something.

Well, I think we've made it very clear that—you know, you will have heard me talk about economic activity, you will have heard me talk about funding for public goods, and farmers and land managers will be able to apply for both pots of funding. We are going to have to do things differently; I don't think that's any secret. I think the one thing that we all need to remember is, when those farm businesses get their subsidy—or I prefer the word 'support'—they don't hang on to it; that goes back out into the rural communities. That pays for the—. I was on a farm on Monday where the contractors had been gathering hay—I can't think of the word; silaging—silaging at the weekend and employing local people to come and help them. So, they don't hang on to that money; that money goes back out into the communities. 

That's right. People often see Government support as, 'Oh, they're getting that', but that money then goes—

It goes straight back out. 

—to support other companies in the area, doesn't it?

Of course. And we go back—I'm not sure if you were in when we were just talking about communities and Welsh language and how important it is that we don't lose that, post Brexit, within the agricultural sector.

Good stuff, yes.

Back to Jane, I think.

Yes, okay. Well, this sort of moves us on. You've already mentioned the Welsh Government's approach to land management support, so perhaps you could just say something about your five principles and how you're going to use those to meet Welsh needs. You've already commented on red meat benchmarking and fisheries, et cetera, but this is also looking at whether there's a better model in terms of assessing needs at a more local level.

So, in May, I set out the five principles, which I think again people were very happy with. I think the sector recognised that it's really important that—any schemes we have, it's important that all parts of Wales are able to access those schemes. I've mentioned economic activities and public goods. It's very important that people can access funding for both of those. The five principles about keeping land managers on the land: food production—food production is very important and I think that's probably where we might be slightly different in Wales compared with other countries. Public goods: you know, farmers and land managers are already providing those public goods—that wonderful soil, air quality, water—so, it's just making sure that they are able to access funding in relation to that. I mentioned that they'll all be able to benefit from the new schemes and that we really do have a very resilient agricultural sector. I think, going back to the transition fund and the funding we've got around the benchmarking, we really need to help them, because they're so busy that, sometimes—. We had a presentation last week at the stakeholder group around budgeting and the person who presented it—I can only believe what he was saying—said that he went onto some farms that didn't even have a proper budget plan. I find that hard to believe, but it's really important that people have that. How can they plan for the future if they don't do those basic things? Hopefully, in the readiness that we've done with them, I think we've done a great deal over the past two years to prepare them for Brexit and that will certainly continue, and with the funding we've got from the EU transition fund we'll be able to step that work up. 

Quite a lot of stakeholders have indicated their support for the multi-year financial frameworks and obviously this is something that they'd like to keep for future policy arrangements. So, will you be calling for that kind of support in the future?

Yes, because it's such a long-term sector, agriculture, that they need that clarity. So, that again will be part of the consultation. 

Yes, I think we also had quite a lot of evidence about bureaucracy—Terry Marsden, of course, gave us quite clear evidence about post-CAP opportunities. So, how do you think you can reduce bureaucracy in terms of administration?  

I think bureaucracy is very important and we need to make it as efficient as possible, but I will say, and again a plug for my RDP team, they are the best ones in the UK. We're always ahead of the game. It's great to go the Oxford Farming Conference in January and we've paid the most on 1 December. I'm very proud of that team. As of, I think it was yesterday, Tony, we've paid, I think, 99.76 per cent of the subsidies; they have gone to the farm, gone into the bank accounts. That's 15,000 farmers that have had that subsidy in, so I think we've got an enviable track record in Wales. We've got that basis to build on. It's not just about making those prompt payments though; it's about being compliant. We're always compliant. I think we're held up as best practice, and we are among the best in Europe, so we've got that to build on. But, of course, can we do it less bureaucratically? Can we do it more efficiently? Of course we can, so that's what I will be looking to do. 

Just one item there: in order to deliver a new system like that, will you need further legislative powers, or do you have sufficient already?

I think we've got sufficient already. 

That's a problem in England, I know, I just wondered whether—

We will need new legislative powers, but a lot of them are just the classic European Union (Withdrawal) Bill rolling over from being EU to being UK, Wales, England powers. I think, possibly through the UK agriculture Bill, we will need new powers to do new things. So, you can roll over and continue doing what we have been doing, but we want to change that and we will need new legislative powers to have that greater flexibility. That's a conversation that we're having around the UK agriculture Bill and around a Welsh agriculture Bill in due course. 

Okay. If we turn to Neil Hamilton then please. 

Thank you, Chairman. Well, there's a happy coincidence of view between us on the architecture of the transition in agriculture and other devolved areas within your field of responsibility, in particular that every penny that Brussels spends currently within Wales on devolved areas should come to us now, and I've supported the Welsh Government 100 per cent in its policy in that respect. I do appreciate the broad-minded practical approach that you've brought to this period of uncertainty, which I think has unfortunately been exacerbated and lengthened by the failure on the part of the UK Government to take decisions at an early enough stage to give the Welsh Government greater clarity as to what financial arrangements will be in place for you to make your own strategic decisions within Wales.

What you said a moment ago in answer to Nick Ramsay about fisheries, I think, exemplifies your approach here. You do see the opportunities, and that gives you the freedom to have, to a great extent within the JMC framework, a certain freedom and flexibility that you don't have currently under the Brussels regime. Fisheries is a small element in the budget, of course, at the moment, and I'd just like to explore one area of that, which is the maritime fisheries fund. It's £1.9 million; it's a real tiddler in terms of Welsh Government budget, let alone UK Government.

Your written evidence highlights the uncertainty that surrounds the UK Government guarantee, and I would like to explore the impact of this upon the delivery of the fund in Wales and the extent of the Government in London's guarantee. Can you tell us what you currently understand to be the position on how the guarantee will operate, and what extra assurances you're seeking to provide the certainty that the Welsh fishing sector needs in this area?

Well, discussions are ongoing in relation to that, but we anticipate that the guarantee will cover the EU funding element of all current EMFF projects approved before the end of the transition period. As I say, those discussions are ongoing, but that's certainly my view.

Good. Your paper also says that officials are currently working on a future fisheries policy programme, but obviously this again depends upon future UK Government funding being maintained at current levels. What level of administrative devolution will you be seeking for the programme, and will the Welsh Government be able to cover the costs if you're unable to secure similar levels of funding from the UK Government?

You make a very good point around uncertainty and lack of clarity, but we are really pushing on this, and when you scrutinise Mark, I'm sure he'll have more to say about that. So, we've got the future fisheries policy programme. That's looking to maintain the current level of administrative devolution. We've got very strong links on control and enforcement with other UK administrations. I think we need to look at the functions that are currently carried out within a very limited budget. We need to look at upgrading technical systems to be able to manage fishing effort post EU exit. We have to have it in a much more co-ordinated fashion, I think. I know additional resources are going to be required to do a great deal of the work that we need to do—scientific research, for instance. I'm always asking my fisheries officials if we can do scientific research, and clearly the cost is significant. We don't know what the level of funding will be, so that's an area we will have to look at. We won't be able to deliver what I think is probably quite limited at the moment business support to the sector. I would like to see more of that, but we just don't have the certainty around the funding. I think it should be increased, so, you know, you ask me, 'Will the Welsh Government be able to support it?' and that's obviously a conversation for me to have with the Cabinet Secretary for Finance, going forward.

What's the timescale now? We know we've got nine months left before, legally, we leave the EU—in form, anyway. We should be in a position to say that, by 29 March next year, we will have all these various ingredients in place. Do you think that we will actually meet that timetable?

I'd like to say 'yes', but to be honest, I haven't seen the level of information coming from the UK Government that I think we need to meet. So, I mentioned at the beginning of the meeting—I don't think you were here—about how it took a long time for us to be able to get finance as a standing item on our quadrilateral meetings. It is now, because Fergus Ewing and I have really pushed for that. It must be since Christmas that we've been trying to get the Chief Secretary to the Treasury to come to one of our quadrilaterals. In fairness to Michael Gove, he keeps inviting her, but she has never been. We're very hopeful that she will come next week to the London meeting, because I think it's important that we have those face-to-face discussions with her to show how important it is for our strategies, for our policies, that we have the clarity around the funding. Am I confident we'll get it? No, I'm not.

You can't be. Okay. Well, disappointing to hear that, but I do understand.

Just on the fisheries part, because as you've intimated with answering Neil Hamilton, really that hasn't been a strong funding stream in Wales—

No.

—but it's one of the areas where I would agree with you, and it's the only bit where I would agree with Mr Hamilton: I can understand why, under the common fisheries policy, people felt the way they did because it didn't seem to work. I have to accept that. But, if we want to achieve more now in sustainable fisheries off Wales, then we will need more policy interventions to achieve that. That, in turn, assumes more finance. So, how do you see that replacing the current limited finances that we have in this area? It's probably one of the areas where, actually, leaving the EU, we'll probably need to spend more. That doesn't necessarily come as part of a UK agreement; that's a consequence of a particular political decision. So, how are you able to prepare for that in particular?

That is an absolutely fair point. So, when I came into post, just within the department, the fisheries team wasn't a big team, so we've beefed that up, we're looking at more legal capacity for them because we've really been focusing on agriculture and land management policy and now we're starting to focus—. I think, probably, it's fair to say that in the last two to three months we've started to work in relation to the fisheries policy a bit more significantly. So, we are going to have to look at funding. I mentioned research in my answer to Neil Hamilton. We're looking at more legal capacity at the moment, beefing up that team, again. But, yes, you're right: I think it's been quite a small part of the budget. Interestingly, because fisheries council in December is one area where we've had a really good framework—it works really well when we go because, obviously, the UK Government lead, but I've always felt very much a part of the discussions with George Eustice and my counterparts—it is an area where we are going to have to have focus and more resources. That's, as you say, a matter for me. That's a discussion I have with officials and I'm going to have to make some quite tough decisions around fisheries.

But that's definitely in the hands of the Welsh Government, that.

It's definitely in the hands of the Welsh Government, and it's on the radar. And I think we have done preparedness work, if you like, by beefing up the team from—. That started two years ago, really, straight after the vote.

Okay. I think that does conclude our questions to you. 

Thank you very much.

Thank you very much. Diolch yn fawr iawn. There will be a transcript just to check for veracity and any missing words. So, thank you. Can I suggest to the committee, because we're expecting the next Minister in 10 minutes, that we can take a very short break now? But please come back before 10 minutes because if he's here a bit early, we can crack on a bit earlier, and that will suit everyone. Diolch yn fawr. Thank you.

Well, Chair, look, I think we have been very clear from the beginning of this debate—and we are in exactly the same position as the Government in Scotland on it. The way I put it to the Chief Secretary to the Treasury, the couple of times I've discussed it with her, is to say, you know, 'The Treasury's a very busy place, hands-full with all sorts of desperately difficult problems over Brexit, here's one I can solve for you. So, here's something you don't need to worry about after that. Just put the money in the baseline.' That's the way to do it, because the money that we get, and Scotland gets—it has a rules base behind it. We get it because we qualify according to a set of criteria that are published and objective and we all get to see, and it is needs based. So, those needs will not have gone away the other side of Brexit. This is the quantum that has been identified to assist us in meeting those needs during this round. A simple way to solve this is simply to put it into our baseline. There is then a different set of debates—which the Institute for Fiscal Studies paper, as I am sure you will have seen, rehearses—about how that sum is to be kept up to date beyond that.

But as a starting point, forget all those complexities that you've just outlined, Chair, whether this is to be a bidding system, or a challenge system, or a Barnett system—all of those are unacceptable to us. All of those have a real risk that Wales would do badly out of them, and our needs, therefore, would no longer be properly recognised. So, don't worry about all those complexities—do it the straightforward way. That's our preferred option, and it's the option that the Scottish Government equally advocate.

Yes, and as I said, Chair, the principle that I operate all the time is that money that comes into the block grant is not hypothecated; it is for Ministers to decide and it is for Welsh priorities and so on. But because of the importance of giving confidence to the sector, if the money that we have had for these purposes in the past comes to us through the block grant, they would not just see it disappear at the margins for other purposes. We have said already that we would commit to using that money for the same regional economic development purposes and that we were committed, not just over one year, but over a multi-annual period, and that we would seek to replicate, but within the new flexibilities that we would have, a similar basic approach to the one that we've had over the last 20 years.

Moving on from that, I'll just paraphrase, and you can tell me if I've got it right: the key is that, in the first year, we get exactly the same money as we previously got, and how we take it from there is something that we need to discuss.

Yes.

That's something I've been saying continually to different people. What are the dangers of other scenarios coming through: us getting our population share or us getting our population share plus—a calculation of how much we should get due to certain topographies et cetera—and the dangers also of English regions, especially those that never got any cohesion funds thinking, 'Ah, there's money there; we haven't had any in Berkshire before. Why can't we apply for it?'

I think those are exactly the dangers, Chair. It's why I always have to say how hostile the Welsh Government is to the idea of a shared prosperity fund, if what that turns out to mean is that for funds that are designed to develop prosperity in Wales end up being shared elsewhere. Now, it doesn't have to be like that, and there are ways in which the shared prosperity fund could be designed that would be much less anxiety-provoking to us. But Mike Hedges is absolutely right; if this was a fund that was wholly owned by the UK Government, where all the criteria for accessing it were set by the UK Government, where all the judgments made—let's just say it was on an application basis—where all the decisions on applications were made by the UK Government, where any sort of appeals mechanism against those decisions is entirely within the hands of the people who made them in the first place, then this is not looking like a very good deal for Wales. So, that's one set of dangers there. Of course, I understand that there will be places within the control of a different administration who feel that they need help as well, just as there are parts of Wales that feel they should have benefited more from the funds that we've had from the European Union. Those are challenges for that Government to solve rather than to solve them at the expense of someone else.

And Chair, here's another set of dangers: say the UK Government proceeded by identifying a separate ring-fenced sum of money to come to Wales for these purposes, that might look quite attractive—'Oh, look, here's a sum of money coming to us that we can only use for this'—but if, in the autumn budget, it turns out that that little pan of gold was funded by taking money away from other parts of the block grant, what we now have is no more money, and maybe less, only with many more restrictions over the way the National Assembly for Wales can decide how to use that money. I think you said, Mike, in the previous session, 'Sometimes be careful what you wish for', and I do hear some calls in the sector for that sort of approach—a ring-fenced sum of money to come from the UK Government to Wales for this purpose. I'm just saying that there are ways that that could be done that actually would be to our detriment rather than our benefit.

The Cabinet Secretary for Energy, Planning and Rural Affairs has held a series of workshops relating to the effect of European funding and potential changes in European funding, and the impact of changes. Are you intending to do that for sectors that are covered by the cohesion funds?

The essential answer to this is 'yes', and I'll say a bit more about that in a moment. But just to point to a couple of differences between the sectors, I think the series of meetings that Lesley has held have been widely regarded as very valuable and successful. It is a relatively contained sector that she has to deal with, and the impact of the funds that she has on the lives of the people who come through the door is very significant indeed. Now, if you are an upland farmer in receipt of payments through the European Union, that is absolutely mainstream to your future. Structural funds cover a much wider range of people, and most often, what you get through structural funds is a small increment on the business or activity that you are generally running. So, it's a wider sector, and the impact of funds is different. Lesley deals with a narrower sector where the impact is profound. So, having those discussions is slightly different. However, having said all of that, we have already had a very fruitful set of discussions with the sector in a variety of different ways. We have the programme monitoring committee that Julie Morgan chairs—and I know she was here a week or so ago—where we have that engagement all the time, but on our regional economic development paper that we published, we've had a series of conferences and workshops, we've had over 190 people take part in them already, and we intend to go on doing that with them. So, they're inevitably different in nature, but the basic principle of wanting to engage people, and as wide an engagement as we can, applies as much to this part of European Union funding as it does to Lesley's.

Thank you. Chwarae Teg have told the committee—and I'm sure they've told you as well—that urgent consideration should be given to which existing programmes can be delivered if there is a funding reduction following the end of structural funds. Is this something you've done already, something you're considering, or are you confident that we will not see a reduction?

I absolutely understand why Chwarae Teg particularly make that point, because they are an exception to the general rule I offered you a minute ago, when I said that structural funds in this area tend to be an increment over and above the core business. For Chwarae Teg, it's one of a relatively small group of organisations where the degree to which European funding supports its activities is much more significant than that. So, of course, they have a really direct interest in knowing what will come after.

My approach continues to be to say that we have to plan on the basis that the promises that were made to people in Wales during the referendum will be honoured. The promises that were made by people who advocated that we should leave the European Union were that Wales would not be a penny, as the Chair said, worse off than we are today. And, indeed, not just not worse off; the prospect in front of people was that things would be better. Now, we have different views about that around the room, but that is what was said to people and we have to assume that it was said to them in good faith and those people who are now charged with implementing that decision have to live up to the promises that were made. So, of course we do the thinking in the background and of course officials are always planning for different scenarios, but I am not giving up for a moment on the basic proposition that the money we have is the money we need and the money that we will get.

If I may, there is quite a lot of this going on already. We are hoping to publish next week a summary of the feedback that we got from our first phase of consultation on what the post-Brexit landscape should look like. And, of course, with the introduction of the economic action plan, a lot of that consultation will feed into that, so there is a lot of work going on already. If we were staying in the EU, we in WEFO would, at this stage, be quite well into the work of analysing where there are gaps in the Welsh economy and in the market, where there are failures, effectively, and where there is a case for intervention. So, that kind of work needs to go on anyway, but are we as advanced on it as we would be if we were staying? Probably not quite, because we have this blank sheet of paper to think about in terms of what the policy's actually for and where it's going. So, I think you've put your finger on exactly the kind of discussion that needs to be had across Wales, but it would be premature, even if we were staying in the EU, to reach conclusions on what would be in the next round. Because, of course, they are programmes—they have beginnings, middles and ends—and exit plans are always something that we're interested in to make sure that people can withdraw from dependency, if you like—varying degrees of dependency—on EU funds in a graceful manner. So, that's something we take a lot of interest in.

If we had stayed in, some people, including me, would've wanted us to change our NUTS regions anyway, especially as the west Wales and the Valleys area doesn't actually meet the criteria of the European Union, does it, because it's meant to be contiguous and it isn't contiguous because a bit of Powys sticks out. But we're not there, so that's beside the point—

Nobody noticed for all those years. [Laughter.]

Nobody paid any attention to it. I think that's perhaps more worrying.

The Industrial Communities Alliance has highlighted that there's little justification for a change in the shares of funding going to Wales and the other three UK nations, which I'm sure you agree with. However—there's always a 'however'; it's like a 'but', isn't it—they suggest that the Welsh Government should take a fresh look at the allocation of funds across local areas in Wales. Do you have any plans to do this?

I said earlier that one of the things that we are very keen to do is that, in the post-Brexit world, we will have greater flexibilities to look at the way that we use the funds at our disposal. There will be flexibilities of different sorts. In the way that Mike just referred to, there will be the removal of geographical constraints, so there will be more flexibility on where the money is spent. There will be greater flexibility on what you can spend the money on. So, we've not, for example, been able to spend European Union funding on housing, which always seems slightly anomalous to me. There are things we will be able to do with the money, potentially, that we have not been able to do up until now. And, of course, we will want to be able to use the funding in a way that does away with some of the artificial separation between different funding streams that you have to sustain in the European context. You've got to keep European funding very separate from other sources of funding that we provide in Wales, and we'll be able to break down some of those barriers. So, without going as far as the proposition that Mike read out, there will be flexibilities that will allow us to do that in the future in a way that we have not been allowed to do so far.

Do you share my concerns that, if we have a shared prosperity fund and the whole of Britain can start bidding into it, Wales would have great difficulty in doing as well as it does now under the cohesion funds?

Well, I think that is the enormous danger. As you said, it could end up with money being lost to Blaenau Gwent and moved to Berkshire instead.

Yes, that's always the danger, isn't it? That people seem to think that, once you have a fund, everybody should get some of it. The 'need' bit disappears and everybody must get some: 'How can you leave out Bromley and include Blaenau Gwent? Bromley should have its share', or 'Chelsea should have its share', whether they need it or not.

You don't have to go through the whole alphabet, it's okay.

The WLGA has stated that it's unclear as to the extent of planning in Wales for non-devolved scenarios relating to the shared prosperity fund, and that it should be a key priority for the Welsh Government to understand the rules of engagement for accessing any replacement funding post Brexit. What role has the Welsh Government played in assisting organisations to prepare for this potential scenario? Are you still convinced that we can and should be arguing, 'We've got our amount of money, our share; we should keep our share'?

Well, I'm absolutely in that final place, for the reasons that I've outlined already. If the UK Government were to decide that it would put itself in the position of running regional economic development in Wales in the future—the non-devolved scenario that the WLGA points to—then they would have to take the responsibility that would go with doing that. My understanding is that they would not have the legal powers they would need, so they would have to take legislation through the House of Commons to roll back devolution, taking responsibilities away from the National Assembly and saying they would exercise them themselves.

In some ways, I want to make a slightly more pragmatic case for this, as well as the principled case, which is that, 20 years into devolution, the UK Government simply does not have the presence on the ground in Wales to run programmes of that sort. Inevitably, and quite properly, things that they were responsible for in 1998 we are responsible for in 2018, and it is the Welsh Government that has offices, people, partnerships and resources on the ground that make these things happen. I sometimes joke about it—that when the man in Whitehall picks up the phone to speak to their person in Blaenau Ffestiniog to run the shared prosperity fund, they'll find that she retired in 1998. So, even if you didn't want to sign up to the principled position that I think we've set out, just in a pragmatic way, they can't do it. We can do it, because we have done it for 20 years.

My final question—and this is from the Country Land and Business Association—their concern is that, because of devolution and the changes that are taking place, England have local enterprise partnerships, which have been set up in a certain manner, and we don't have the equivalent in Wales, so if we end up competing against them, they would have a huge advantage. It really comes down to—and I have to quote from the people who have given this evidence for the benefit of our final report—but I think that, from what you've said up till now, you cannot see a scenario that would exist, where Wales was in competition with England for trying to get a similar amount of money as we used to have in the past, that would not end up in bad news.

Well, Chair, we work with the local enterprise partnerships across our border all the time. Powys has very important relationships with the LEP in Shropshire. The north-east of Wales has relationships with Cheshire LEP. So, it's not that we are hostile to the arrangements that are there on the ground on the other side of our border. The problem would be, in the way that Mike Hedges said it, that, if this was a UK fund, administered by the UK, they are familiar with the LEP system, they understand how that works, they inevitably have much less understanding of the landscape here in Wales, of the way that we are organised on the ground institutionally and so on, and, in that sense, LEPs would have an inevitable advantage. If they're talking to a Whitehall department who knows all about them and knows how they work, and we come through the door and they think that we're sort of one giant LEP that they can deal with on the same basis and find that we're not at all, then we are always struggling to get our voice heard and our arrangements understood, and they would have all those advantages already in their hands.

Just on a giant LEP, in some respects there are LEPs in England that have bigger populations and economies than the whole of Wales, so—.

Yes. I wasn't talking—

West Midlands.

I was just picking up the CLA's point, because I think we need the answers to these for our final report.

Yes. Can we turn to Nick Ramsay, then, please? Thank you.

Diolch, Cabinet Secretary, again.

Good morning.

Your written evidence highlights that you expect to have full control over the admin and strategic direction of replacement funding streams so that you can design a proper, clear Welsh approach. Have you had any clarity on this from the UK Government, and have you been working with the Scottish Government to make the case for fully devolved arrangements across all the administrations?

Well, Chair, as I said, we have worked closely with the Scottish Government on this agenda. I was in Edinburgh last week. I had a meeting with Derek Mackay. This was an item on our agenda. We rehearsed the arguments in advance of what we anticipate to be a finance quadrilateral—although it's not a quadrilateral in the full sense because we don't have Northern Ireland there at the moment, but the finance quad is at least a piece of institutional machinery that operates, to an extent, in the current context, and we anticipate a meeting of that body in the early autumn. Therefore, we wanted to make sure that we rehearsed exactly those arguments about why these funds should be fully devolved in line with current responsibilities, and we will make that case again, I'm sure, when we meet the Chief Secretary to the Treasury.

And how will the content of the UK Government’s industrial strategy influence your plans for accessing funding from the shared prosperity fund?

Well, I've said already, Chair, that we are hostile to some descriptions of what the shared prosperity fund might look like, although we know that those need not be the only ways. If the shared prosperity fund operates in the way that I've just described, by baselining the money we have now, then of course we are very keen to work with those aspects of the industrial strategy that are relevant to us here in Wales. I sometimes end up feeling as though I sound like, anything that comes from Whitehall, we are immediately going to be critical of it. I don't want to sound like that because that's not the position we're in. We are very hostile—

You always seem very constructive to me.

Well, thank you. I was just going to say that I've said lots of critical things about the shared prosperity fund in certain potential manifestations, but the industrial strategy is something that Ken Skates, who has responsibility for it, has met Greg Clark more than once about. We've identified those aspects of it that we think are relevant to Wales. There is the prospect of some funding coming from it to support activity here in Wales, and, of course, if we were in the position we want to be in, continuing to run regional economic development here in Wales on the basis of our knowledge and our priorities, then we would want to make sure that any interfaces with the industrial strategy that we could profitably pursue, of course we will want to do that.

We're just trying to get some details on what the shared prosperity fund is on this committee. So, you've obviously got better antennae than us. The Welsh Government said that it will not agree to simply administer funds where key decisions are made by the UK Government and is opposed to—and you've touched on this—UK management of the shared prosperity fund. Do you have any red lines in terms of agreeing to administer the Welsh share of funding? That's a slightly different way of putting it.

It is. I'm not attracted to a red line strategy in negotiation. You see how badly that has gone in another context, so that isn't the way that I would start. But, as a matter of principle, in the way that I've described to the committee earlier, if the UK Government wants to legislate to take this responsibility away from Wales, then it will have to bear the responsibility of doing that, and we would not simply be willing to be their agents in that situation. If they want to do it, they will have to do it. It's the wrong decision, and that's not where they should be. 

Can I just—? Just finally, do you think, in terms of the prosperity fund and other aspects of all this— trying to put aside the party politics element of it, do you think the UK Government a year before Brexit, or less than a year now, do you think they are where you as a finance Minister here would have expected them to be? So, I'm not saying are they where they should be, because I think we'd all like it to be more advanced, but are they kind of where you thought they would be at this point, or are you disappointed that there isn't more meat on the bones at this point?  

Again, trying to put this in the most non-partisan way, my impression when I go to London and meet UK Ministers is that the UK Government has been overwhelmed by Brexit—the sheer complexity of it, the sheer number of issues that emerge as soon as you start to look under the bonnet of it all. So, I'm not trying to say that I think that these are bad people somehow just failing on the job. I'm just saying that the scale of what is required has been beyond their ability to deliver on it in the very short period of time that they have found themselves, by their own choice, having to operate within.  

So, I don't believe that there is a plan in the drawer called 'shared prosperity fund' with all sorts of details and things, and bells and whistles that we aren't told about. I think it is well down the list of the most urgent things that they are spinning plates on every day, and that there is somebody somewhere who has a fraction of their working week devoted to thinking about this. And the reason that we don't have any more details about it is because the details—

So, they're more concerned at the moment about the market—access, customs, whatever form that would be. 

Customs, trade, how do they solve access to medicines, how do they keep planes flying, how do they—? [Laughter.] All those sorts of things. The job has turned out to be absolutely massive, and it's massive on every front, both in the list of things to think about and negotiate, in the legislative consequences that that gives rise to, because they've got to find a way of regularising all the arrangements that they come to. It's part of why I sometimes think that my little plea to the Treasury to solve structural funds in a way that says, 'Here's a problem we can solve for you', has some attraction to them, because their hands are so very full dealing with other things. 

While we're on the non-partisan point, do recent decisions on infrastructure funding in Wales make you feel less or more encouraged that the shared prosperity fund would be working to the benefit of Wales? I'm trying to tempt you out of your non-partisanship. [Laughter.] 

Well, look, even the most non-partisan person could not take comfort from the decisions that have been made recently in relation to infrastructure spending, and, if we're in an even bigger competition for resources with other parts of the United Kingdom, then the decisions on the electrification and the decisions on the Swansea bay tidal lagoon, if that is an indication of what the future would look like then we are absolutely right—

They do highlight, those decisions, internal UK competition for resources, don't they, and just how powerful or not Wales's needs are recognised in that. 

They absolutely do, Chair, and, just to go back to the point I started with, the reason we get the structural fund money that we do is because there is a rule book that we all operate by and anybody can look at. Now, it may be very sclerotic and it may be very complex, and I understand people's frustrations when they have to deal with it, but in the end there is a set of rules. And if anybody can find me the set of rules that led to the decision on the Swansea bay tidal lagoon, I will be very pleased to see it, because I don't believe that it was a rule-based decision at all. 

Precisely. Okay, Jane Hutt. 

Thank you very much. Cabinet Secretary, you've been very clear, and very clear with the UK Government in terms of negotiations, that we could relieve them of these issues if they would only implement your fine regional investment in Wales after Brexit plan, which, actually, I often say to this committee—. You published that plan in December, I think—

Before Christmas. 

So, the Welsh Government has paved the way in terms of preparing for this. And I think this will be a real test as to whether the UK Government will see that this regional investment in Wales after Brexit plan should be respected because, actually, it is demonstrating new opportunities, building on the structural funds, the contribution of structural funds. 

So, I want to turn to that policy paper, which you have been consulting on, and it's useful to hear that we're going to hear more about that in terms of the response to the consultations. But you do talk about the opportunities to give greater responsibility in decision making around regional and local partners, regions and local areas in Wales. So, do you want to say a bit more about how that could operate and how Welsh Government could support those partners to build capacity to enable them to play this important role?

Thank you very much, Chair. So, when we published our paper before Christmas, we tried to be clear with people that what we were doing was trying to summarise the state of the debate at that point rather than trying to say that this was a definitive plan that nailed down every aspect of the approach we would take to regional economic development in the future. And, as Peter has said this morning, I hope next week to be in a position to publish the results of the consultation that we carried out on that paper, which I think you will find broadly endorses many of the key propositions in it. So, we say in that paper, as you know, Jane, that there are real strengths in the way that we have done things in Wales up until now, and that the partnership approach is really important and, the way we've worked with others, we need to do that in the future; the fact that it's been a multi-annual programme, and we recognised that earlier today; that the focus in on outputs rather than on the inputs and ways—. What we're interested in is the results from it all, and we'd want to preserve that into the future as well. So, there are a series of things we want to do. 

We want to move some decision making down to a regional and a local level. So, I still think there is a role for the Welsh Government in terms of setting some clear strategic direction for regional economic development, for having a clear policy agenda for it, and having some oversight of the regime. But I also believe that some decisions are better taken by people who are closer to the problems that we are trying to solve, and that all that expertise certainly does not rest here. And we rehearse that in the paper, and there's a lively debate, which I sat in on in some sessions and see the results of in the consultation, and there's less of a settled will amongst people out there, I think, as to the detail of how you would make that happen. But increasing the capacity of regional and local tiers to be able to do that is a theme in the consultation, and we have recently, I think—Peter will tell me—I think we have succeeded in securing from the European Union, or hope to be on the verge of—.

Yes, but the wheels still have to turn. The ink isn't dry on it, but, yes, the conversations have been had with the European Commission about using some ESF money in the current programmes in a way which would help develop the governance capacity, if you like, within regional partnerships. The landscape on this is changing all the time really when you think back to where we were when we were planning the current round of EU programmes. The depth of experience and mutual trust, if you like, in some of the partnerships that we've seen growing across the regions of Wales wasn't at the level that it is now. We didn't have city deals and that sort of thing. So, there are structures out there that we can build on now in a way that we just didn't have when we were planning the current round. So, we're hoping to do that. 

We're also talking to the Organisation for Economic Co-operation and Development because they have quite a lot of expertise in this kind of thing. They can give us a lot of advice about multi-level governance arrangements, which enable the kind of engagement across regions that the Cabinet Secretary is talking about without turning it into some kind of monstrous bureaucracy.

Well, obviously, WEFO is now adapting, adjusting, or, hopefully, promoting that kind of preparation, in terms of—. So, just in terms of Mark's view on this, in terms of WEFO as a body to—. Do we still need a national body of that kind in terms of administering funds and how can—? We've heard evidence from the programme monitoring committee members, which is very much a partnership as well. Presumably, there are opportunities to strengthen that kind of national, local, regional engagement in terms of governance and administering funds.

Well, Chair, I think there will be a need for some central capacity at the Welsh Government to do this work the other side of Brexit. I saw the evidence that you had from Grahame Guilford when he talked about everything to be built up in the work that WEFO has done and said that it would be a shame to throw all that away. And I saw the evidence that Hywel Ceri Jones has provided to the committee, where he said that it would be absolutely vital to have a strong central unit in the Welsh Government.

So, there are some activities that, I think, inevitably have to happen at a national level. If there are contracts to be let, then somebody has to manage the contracts. The contracts have to be overseen during their lifetime. We would not want to throw away—and I think the people who have been involved say this—the monitoring and evaluation work that WEFO has consistently done and the drawing of lessons from that. So, I think there are some very important things that will still be needed centrally. It will not be WEFO, but there will be a successor to it that we will want to retain.

And, obviously, one of the issues in terms of the evidence that we've taken, in terms of management and delivery of structural funds, is about bureaucracy, and there are opportunities to reduce the bureaucracy that we've seen in the EU funding streams. Can you, or are you already able to, spend some time thinking about this in terms of preparation for the new arrangements in terms of reducing bureaucracy? 

Yes. I think there's a very important opportunity for us to do just that. I try and say, every time, that the current rulebook has to cover 281 different regions right across Europe, and it's inevitable, when you're trying to devise a single scheme to cover all that scope, that the scheme will not fit easily into the circumstances of an individual place like Wales.

So, we have done what we can within the current rulebook to try and make it as—I don't want to say 'simple', because it's not, but at least as understandable as we can to people. But to give you a different example, Jane, think of an organisation like Swansea University, which has been a partner in every single round of European funding. If we were to be running this all ourselves, we would not expect Swansea University to go through every bit of testing that an organisation has to be part of a funding stream in the future. They are a trusted partner in that sense, we know where they are, we know their record, and they do not have to go through every hoop that you have to go through every single time in order to qualify for funding.

If it was an organisation that you knew nothing about, that were coming to you for the very first time looking for funding, well, of course, the bar would be higher in terms of what you'd expect them to demonstrate to you before funds were committed. It's been very hard to have that sort of flexibility, that sort of proportionate approach to administration within the current round, and we would definitely be looking, the other side of Brexit, to have an administrative regime in Wales that was more aligned with the fact that we know the people we are dealing with, by and large, we know their track records, we know the questions that we need to ask them, and it can be a more proportionate approach. 

That's helpful. There are other ways in which some of the artificial boundaries that could perhaps be seen geographically could be reduced so that there could be some spend in money where, perhaps, a more economically active region can have a benefit on other more disadvantaged areas, and there are also ways in which we've talked about integrating funds to be more cohesive. This must start emerging when you're looking at city deal-type arrangements. So, do you want to say anything on those two opportunities for flexibility?

Thank you. I want to respond a little to some of the anxieties that, I think, the committee may have heard in earlier witnesses, because, sometimes when we talk about being able use funds more flexibly, some people in areas that have benefited from the funds up until now hear that and as saying that funds will be taken away from them and spent elsewhere. So, when I talk about flexibility, what I am thinking about is sort of flexibility at the margin—you know, flexibility that does away with some of the artificial constraints there are now when you cannot spend money in a way that would be to the benefit of areas that have it now because there is a line on a map that means that you can't do something sensible. So, when I talk about flexibility, I do not have in mind a sort of wholesale redistribution of the money that we have today away from those areas where need is greatest. It would cut against everything that I've said to you this morning about the case we have for this money—that it is needs based. So, flexibility, yes, but not in a way that I think should give rise to anxieties amongst areas that have had the funds up until now that this is somehow going to tear up what they've had up until now.

Your second point, I think: there may be greater possibilities there because, as I say, there are topics that we've been unable to apply European funds to, where, if we had, we would have been able to bring other funding streams together with that and made a bigger difference and made it in the areas that we've been talking about. So, in that area of flexibility, I think there may be more room to do things differently in future.

There's kind of an overhead, if you like, associated with the fact that we have different funds, and we made a very conscious and deliberate decision when we set out at the beginning of this programme to keep the European regional development fund and the structural funds separate, for instance, simply because it makes it easier to negotiate the internal politics of the European Commission. I think we've been proved right, actually, on that, looking at some of our colleagues who went down the other road in a laudable attempt to try and integrate those funds. But what we have done, at the same time, is to create a single monitoring committee across all of the European structural and investment funds, and, as far as I'm aware, that is still unique across the whole of the European Union. I had this conversation with a number of Members of the European Parliament a little while ago, and they sort of stared at me as if this was something that they hadn't come across before. So, there are ways of making sure that the funds are mutually supportive, that they don't sort of overlap and tread on each other's toes unnecessarily and so on and so forth, but the overhead and the sort of performance you have to go through to make sure that that happens is something we could well do without.

Thank you.

Mike, on this.

I've raised this with the First Minister without any success, so I'll try again—I'll try you. Powys: Powys has been incredibly badly treated. It's very low on gross value added. You've got a situation that you can spend money in Aberystwyth, you spend money in Dolgellau, but you can't spend money in Machynlleth. You can spend money in Ystalyfera, but you cross the bridge into Ystradgynlais, between two former mining communities—one can get the money, and one can't. It always seemed to me bizarre. I've always thought that Powys should have been added to West Wales and the Valleys, but that was an argument I lost with other people. Would this now allow a more coherent approach to areas? I'm not saying, 'Open it up for everywhere in Wales', but to those areas that are obviously disadvantaged, which are obviously quite often attached to areas that do get it, for them to be able to work with the areas that get it in order to benefit the community as a whole.

Well, Chair, without wanting to give away everything that is in the document we will publish next week, when I was reading it I thought the three words that came across to me from the people who have responded is that they're looking for a future in which the schemes are consistent, co-ordinated and rationalised. I think that chimes very well with what Mike Hedges has just said.

Thank you.

I appreciate what you said about wanting to send out a signal of confidence or flexibility at the margins and not looking for wholesale changes. On the other hand, we do have an awful lot of experience of what has and hasn't worked in terms of structural funds, and there has been earlier criticism of structural funds—not that they didn't have a positive benefit in some of the communities in which they applied, but they didn't have that overall benefit, and changes have been made, and they've been aligned better and have been more strategic as a result of some of those changes over the years. So, do you see this change in funding, which is going to happen whichever way this all pans out, as an opportunity to have that slightly more radical review of what has been working or what may not work? I know you haven't suggested that, because you want, particularly in the transitional phase, to be sending messages of confidence, but there's also something new that can be done here, is there not?

Well, of course we are very keen to go on learning the lessons and to carry on doing those things that we know are effective, and, where there are things that we think have worked less well, to be able to reallocate and redesign. But I think the point I would make, Chair, is this: as I said in the beginning, I still think there will be an important role for some national strategic priorities to be set, and for things that we know will matter, wherever they are done, both in terms of people and places. Now, more local flexibility in the 'how' things are done, but the 'what'—when we know what works, we should be saying to people across Wales, 'This is the strategic priority or the strategic direction that we will set for Wales. Now, how you make that happen where you live and where you work, you know a bit better than maybe we do'. But in terms of the direction and the purpose, I still think there's a genuine case for some national push on that.

Okay. Neil Hamilton next.

You were very generous to the UK Government earlier on, in a kindly, professorial way, ascribing the failure to resolve certain uncertainties that are within their grasp to being overwhelmed by the scale of the transitional problems of leaving the EU. There is a degree of truth in what you say, but I think that was a generous view. There is of course another culprit in this that could resolve some of the uncertainties as well in other areas, and that's the European Commission.

I'd like to concentrate in my questions on the future funding of research and innovation. Welsh Government's policy is perfectly clear: that you'd like the UK Government to continue to participate in Horizon 2020. The UK Government's position is slightly more opaque than that, and they've resolved, in a form of words, on a

'far-reaching science and innovation pact'

with the EU. Unfortunately, the negotiating tactic of the EU Commission so far is for Mr Barnier to cast himself as the lineal successor to Mr Gromyko, who you'll remember as the Soviet foreign minister whose answer to everything was, 'Nyet'. So, it would, it seems to me, be perfectly easy to agree, in everybody's interests, that if the UK and the devolved Governments want to participate in these research projects in the future, without any favourable terms compared with anybody else, it should be possible to do so. But we're not in that happy position.

Let's assume that the EU is not prepared to allow the UK to participate in these programmes in the future. We'll have to then decide what kind of home-grown science, innovation and research arrangements we're going to make. Cardiff University's very concerned about this. All universities will naturally be concerned about it, and I share their concern in this respect. Could you say what funding mechanism you consider Wales should seek from any successor programme in the event it's not possible to secure continued access to Horizon 2020? The universities in Wales have not been as successful as in other parts of the UK in accessing various funds, so how do we protect the interests of Welsh universities in this respect?

Thank you. I think it's important to say to begin with, of course, that Welsh universities have been more successful in relation to Horizon 2020 than other parts of the United Kingdom. You were absolutely right to say, I think, that, with some other research funds—Medical Research Council, ESRC—Wales does not get a population share of funds from the UK funding bodies. But in Horizon 2020, we have done particularly well, and, of course, through WEFO we have had a particular advice service for Welsh universities, and the picking up or drawing down of Horizon 2020—you can see it following on from that service.

I will answer that question directly in a moment, but let me just say first that I think it is very important from a Welsh perspective that we do continue to be able to participate in the successor programme to Horizon 2020. Personally, I'm not surprised, and do not share Mr Hamilton's view that it is somehow unreasonable on the part of the Commission, that they put a proposition that looks to defend the interests of the 27 countries that will remain in the European Union. So, they want a proposition for the UK Government that we can't get any more out of the Horizon 2020 successor programme than we put in. Because, at the moment, the United Kingdom gets a lot more out than we put in. So, understandably, from their point of view, they would like that not to happen. I don't think that's sensible—I don't think it's sensible for them either, but I can understand why they put it. They say that UK universities would not be able to bid for moneys that are to do with future economic development in the European Union. And I suppose that's because they think: why should they allow UK universities to have a competitive advantage, or the UK to have a competitive advantage? So, from their point of view, it's a rational set of proposals. We need a Government here that negotiates those things hard, and tries to make sure that UK universities' position is protected. It is much harder to do that from outside the European Union than from inside it.

The big fight in Horizon 2020 has always been between those member states that believe that the touchstone for research proposals must be quality, and those other parts of the European Union that want to argue for fair shares, which say, 'How will we ever compete for research funding if we're not allowed to get our foot on the ladder, and therefore you should share it out more?' We've always been in the research quality end of things, and that's why Welsh universities have done so well. But our voice will be weaker in that argument from outside the European Union than it was when we were a member. So, that's my opening pitch: we should stay in it, and the UK Government should argue hard for the successor programme to be organised on a basis that would be to our advantage, and to the European Union's.

I've heard the opposite proposal. We have a senior-level officials group that meets with the Treasury—ourselves, the other devolved administrations, and the Treasury, including Northern Ireland, because it's at official level. The question was asked of us there, if we can't have Horizon 2020, should we just have a UK fund with the same amount of money that universities can bid to. And the answer from universities is that these will not be equivalents at all. I don't want to sound pejorative of any UK institution, but if you're being asked to give up a relationship, let us say, with the Sorbonne, and to substitute it for a relationship with a university that's essentially a teaching university somewhere else in the United Kingdom, that is not going to give you the same research impact for the investment that you are making. So, having the equivalent amount of money is not the same as having the same level of quality of research, and if you don't have the same quality of research, then your ability to attract people who are very mobile, and who can be employed anywhere they like, will be diminished as well. So, I think it would be a very pale fallback of the version we've been able to enjoy while we've been in the European Union.

Well, I don't disagree with what you've said, and I certainly think that the British Government should not expect to get something for nothing out of the EU as part of the Brexit negotiations. If the calculation is that we've got more out of the Horizon programme than the money we've put in, I think that the British Government should be generous enough to say that, yes, it's swings and roundabouts: we benefit in some areas; this is one where it may cost us a bit more to participate in the project. It seems to me that that approach to negotiation would be much more fruitful than the one that has actually been adopted.

But we are where we are—as we keep on saying and hearing—and, should we not manage to agree any successor arrangement to participate in Horizon 2020, we are going to find ourselves with the shortfall that you described, and we're going to have to try to set up new institutions, maybe on a bilateral basis with universities elsewhere, which we would select for partnership programmes, if they're interested in participating with us, of course. Should the UK Government, not ring-fence, but perhaps think in terms of providing funding for research and innovation equal to the amount that the UK currently receives back, in addition to its contribution to the Horizon 2020 programme?

Well, I think that's very important from our universities and research institutions' perspective. They need the certainty and confidence of knowing that the equivalent amount of money will be available to them in the future. If we're not in Horizon 2020, then the way in which that money can be used ought to be a matter for debate. That Member's description did sound to me, I'm afraid, a bit like an attempt to put Humpty Dumpty back together again, having spent time shoving him off the wall. But there we are, he's off the wall if we're not in Horizon 2020, and whether we can put back bilateral arrangements or whatever. I don't want to dissent from the proposition you've put. If we're not in Horizon 2020, universities need to have the equivalent funding, and we need to think hard about ways in which that funding can be used to preserve those really important cross-border research relationships that are to all of our mutual advantage.

I'll resist the temptation to perpetuate the argument about Humpty Dumpty and, I think, possibly, we can end upon a note of consensus about the way forward. I think that what you've outlined is a very practical description of what we should be doing.

Just on that point, though, we already have UK research councils in the UK context that very much demonstrate this debate around quality and everyone should have their share, because we don't get our share from the UK research councils because there is an inbuilt—'bias' is too strong a word—but there is an inbuilt tendency to work around the golden triangles and all the rest of it, and the history of research and so forth. I think we do okay on arts and humanities, but we're weaker in the other areas. If it is the situation that we are not part of Horizon 2020, which is clearly the best programme that allows cross-border collaboration of the highest quality, will it be enough simply to put the equivalent sum into the research councils, because at least you keep the quality going there? Or do we need a specific programme that maintains those international links? Because research councils also do have some international links as well—research work that goes on that does include that.

Truthfully, I don't know that I'm the best person to have a view of it, but I do think there's a proper debate to be had. I think it is true, as you say, if you strip out Imperial, Oxford and Cambridge, then the gap between Welsh universities and the rest of the sector is not as big as when you put those in. But, just in the sense that we were having a discussion about whether successor funding could be used to preserve links elsewhere, rather than just going into general research council funding pots, I think that is a very proper debate to have and I don't know that I'm the best person to have an answer.

And I'm not aware that it is really being debated—it's part of the wider problems around shared prosperity funding. These are ideas that have been sketched out but nothing more. 

Yes, sketched.

There's one other, sort of, angle on this post-Brexit debate to consider. One of the things we're very good at in Wales is making a connection between the kind of research, almost lab-based research, if I can call it that, that Horizon 2020 currently funds—Horizon Europe as it'll be called—on the one hand, and then the next phase as you turn that into something that is moving into scale models of deploying it in practice, if you like. Going into that space that is between the laboratory and the stage where you've got a commercial proposition that you can get funding for from the banks, if you like, that's the space that we operate in with the RDF money, and the links that we make between the Horizon projects and the RDF money are very good, and we're held up across Europe as a good example of how to do that. So, as we think about whatever replaces Horizon 2020 and our relationship with that, and as we think about how we develop the economic action plan, preserving that connection is something that will be well worth while doing

And just a final point on where the European Investment Bank is available to countries or does invest outside the EU, is that something that we can maintain a relationship with? It's been successful so far. 

We have always argued for the UK to remain a subscribing partner of the European Investment Bank. Sixteen per cent of the capital of the bank is capital that is there from the United Kingdom. I'm afraid that if you read the text of the March Council of Ministers, it doesn't talk about that. I think the jargon is something like, 'modalities for separation'. We think that's a shame and a bit more imagination could still allow the United Kingdom—as other countries are allowed—to have access to the European Investment Bank. Wales has certainly benefited from it, and I think we should continue to make the case to try and find a more fruitful relationship than just finding better ways to separate.

I was going to say, Swansea University benefited substantially from it. But, at that time, the pound was a European Union currency; the pound will no longer be a European Union currency. Is there not a danger that we'll have to borrow in euros and pay back in euros, and even if we borrow from the European Investment Bank, we will be affected by the fluctuations in exchange rates?

Well, I'm sure that would be an issue, but it's an issue, of course, for us already, in relation to the current funds that we have, where currency fluctuations—I think we started the current round with a planning assumption of €1.27 to the pound, and our current assumption is €1.17, and I think Scotland is planning on €1.13. So, every time the pound and the dollar part company, we either have to find money to hand back, or we have money coming through the door we have to try and find a use for. So, it's an eventuality we manage all the time.

This is where hedging would come into its own.

I was going to say that the thing is, at the moment, we can borrow in pounds and pay back in pounds, because that's a European-accepted currency. Well, when the pound ceases to be a European-accepted currency, I know that Neil Hamilton talks about hedging, but that is itself expensive—it's not achieved at no cost.

On that optimistic note from Mr Hedges, we'll bring this to a conclusion. [Laughter.]