|David Rees AM|
|Jane Hutt AM|
|Llyr Gruffydd AM||Cadeirydd y Pwyllgor|
|Mike Hedges AM|
|Neil Hamilton AM|
|Nick Ramsay AM|
|Rhun ap Iorwerth AM|
|Dr Victoria Winckler||Cyfarwyddwr, Sefydliad Bevan|
|Director of the Bevan Foundation|
|Dyfed Alsop||Prif Weithredwr, Awdurdod Cyllid Cymru|
|Chief Executive, Welsh Revenue Authority|
|Jackie McGeehan||Dirprwy Gyfarwyddwr, Polisi Treth Incwm, Cyllid a Thollau EM|
|Deputy Director, Income Tax Policy, HMRC|
|Jim Harra||Ail Ysgrifennydd Parhaol, Cyllid a Thollau EM|
|Second Permanent Secretary, HMRC|
|Rebecca Godfrey||Prif Swyddog Strategaeth, Awdurdod Cyllid Cymru|
|Chief Strategy Officer, Welsh Revenue Authority|
|Sam Cairns||Pennaeth Cyflawni Gweithredol, Awdurdod Cyllid Cymru|
|Head of Operational Delivery, Welsh Revenue Authority|
|Dr Ed Poole||Cynghorwr Arbenigol|
|Georgina Owen||Dirprwy Glerc|
|1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau||1. Introductions, apologies, substitutions and declarations of interest|
|2. Papurau i'w nodi||2. Papers to note|
|3. Cyllideb Ddrafft Llywodraeth Cymru 2019-20: Sesiwn Dystiolaeth 4 (Sefydliad Bevan)||3. Welsh Government Draft Budget 2019-20: Evidence session 4 (Bevan Foundation)|
|4. Cyllideb Ddrafft Llywodraeth Cymru 2019-20: Sesiwn Dystiolaeth 5 (Awdurdod Cyllid Cymru)||4. Welsh Government Draft Budget 2019-20: Evidence session 5 (Welsh Revenue Authority)|
|5. Cyllideb Ddrafft Llywodraeth Cymru 2019-20: Sesiwn Dystiolaeth 6 (Cyllid a Thollau EM)||5. Welsh Government Draft Budget 2019-20: Evidence session 6 (HMRC)|
|6. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o weddill y cyfarfod||6. Motion under Standing Order 17.42 to resolve to exclude the public from the remainder of the meeting|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Dechreuodd y cyfarfod am 09:20.
The meeting began at 09:20.
Bore da. Croeso i chi i gyd i gyfarfod y Pwyllgor Cyllid y bore yma. A gaf fi eich atgoffa chi bod yna glustffonau ar gael ar gyfer y cyfieithu neu ar gyfer lefel y sain? A gaf fi hefyd atgoffa pawb i droi eu dyfeisiadau electronig i ffwrdd, neu i sicrhau eu bod nhw wedi eu tawelu, beth bynnag? Ac a gaf fi ofyn i Aelodau: a oes gennych chi unrhyw fuddiannau i'w datgan? Na, diolch yn fawr. Nid oes yna ddim ymddiheuriadau, ond mi wnaf i estyn croeso i aelod newydd y pwyllgor, Rhun ap Iorwerth. Croeso atom ni, Rhun.
Good morning. Welcome to you all to the latest meeting of the Finance Committee. May I remind you that headsets are available for you to hear the interpretation or for sound amplification? May I also remind everyone to turn their electronic devices off, or ensure that they are silenced, at least? And may I ask Members: do you have any declarations of interest? No, thank you very much. There are none, but I will welcome a new Member to the committee, Rhun ap Iorwerth. Welcome, Rhun.
Ac mi symudwn ni ymlaen i'r ail eitem ar yr agenda, sef papurau i'w nodi. Fe welwch chi fod yna ddau bapur i'w nodi. Yn gyntaf, llythyr gan Gadeirydd y Pwyllgor Economi, Seilwaith a Sgiliau ar gyllid ar gyfer projectau seilwaith mawr a model buddsoddi cydfuddiannol. Bydd Aelodau'n ymwybodol ein bod ni'n mynd i gael sesiwn friffio technegol yn ddiweddarach y tymor yma ar y pwnc yma, felly yr awgrym gen i yw efallai ein bod ni'n ystyried y llythyr yng ngoleuni, neu ar ôl cael, y sesiwn friffio yna, ac ymateb ar yr adeg hynny, os ydych chi'n teimlo bod hynny'n addas. Iawn. A phapur arall i'w nodi yw cofnodion y cyfarfod a gynhaliwyd ar 17 Hydref. A ydy pawb yn hapus i nodi'r ddau bapur yna, felly? Diolch yn fawr.
And we'll move on straight to the second item on the agenda, which is papers to note. You will see that there are two papers to note. First, a letter from the Chair of the Economy, Infrastructure and Skills Committee on the funding for major infrastructure projects and the mutual investment model. Members will know that we'll have a technical briefing session later in the autumn term on this subject, so my suggestion is that we consider the letter following the technical briefing, and respond to that, if you think that's appropriate. Yes. And then the second paper to note is the minutes of the meeting held on 17 October. Is everyone happy to note those two papers, therefore? Thank you very much.
Ymlaen â ni at y sesiwn dystiolaeth gyntaf sydd gennym ni'r bore yma, ar gyllideb ddrafft y Llywodraeth ar gyfer 2019-20, ac mae'n bleser gen i groesawu Victoria Winckler atom ni, sydd yn gyfarwyddwr, wrth gwrs, gyda Sefydliad Bevan. Croeso.
Mi wnaf i gychwyn gydag ambell i gwestiwn, os caf i. Rydych chi wedi awgrymu, wrth gwrs, o ran datrys tlodi a lleihau anghydraddoldeb, nad yw gwneud mwy o'r un peth yn opsiwn. A ydy cyllideb Llywodraeth Cymru, felly, yn gwneud pethau'n wahanol, neu a ydy hi mewn gwirionedd yn gwneud fawr o'r un peth y mae hi wedi gwneud yn y gorffennol?
On we move, then, to the first evidence session, and it's on the Welsh Government draft budget for 2019-20, and I'm very pleased to welcome Victoria Winckler, who is the director, of course, with the Bevan Foundation. Welcome to you.
I'll begin with a few questions, if I may. You have suggested that in terms of decreasing inequality and solving poverty that doing more of the same is not an option. So, does the Welsh Government budget do things differently, therefore, or is it doing more of the same that it's been doing in the past?
I think, first of all, it's actually very difficult to track what's happening in the budget. I don't know if it's just my weaknesses, or if it's a matter of presentation, but there's a lot of narrative, and it's quite difficult to go through and pick out the figures from that, and it's also hard to compare, not so much year on year, but over a longer period. But that said, I think the draft budget is an iteration of previous years' budgets. I think, to some extent, that's understandable, because the room for manoeuvre at a time of austerity and rising demand is extremely limited. Nevertheless, the broad pattern there that we've had for many years is still the same, with health taking the lion's share of the budget, and, for the most part, cheeseparing, I suppose, of other bits of the budget. And it's not just a matter of the quantum, of course—it's how that quantum is used. But is this a radical budget? If that's what your asking me, the answer is, 'Not especially, no', in my view.
But you appreciate that there needs to be an evolutionary process to get to the point where we need to get to.
Absolutely, yes. 'Incremental' is the word I was searching for, yes.
Incremental, yes. But do you get the feel that the pace of that incremental change is sufficient?
I think the big challenge is the sheer size of the health budget, which leaves very little room for manoeuvre with virtually anything else. So, one can have all sorts of ambitions about, for example, free school meals for every child, not just the poorest, or free social care or whatever else you think might be transformative for people's lives, but the reality is that there isn't the budget there. So, I think, without going back—. Unless the Welsh Government was able and willing to go back to an almost zero base and start from scratch, I think it's a reasonable fist within a very tight space, if that's not mixing metaphors. [Laughter.]
But I know what you mean, yes. Of course, the Welsh Government has suggested that changes during austerity have been quite regressive, and the largest impact has been felt by low-income families. Now, would you agree that the Government is taking sufficient action to try and offset some of those challenges, particularly targeting those less well off people in Wales?
I absolutely agree that the cumulative effect of tax and benefit changes has been extraordinarily aggressive. You only have to look at the Institute for Fiscal Studies's graphs after every budget, which show very starkly that it's the best-off 50 per cent who gain and the worst-off 50 per cent who lose, and the further down the spectrum you go, the bigger that loss. I looked it up before I came, and workless families with children are set to lose more than £4,000 a year; now, that's a big chunk out of anyone's household income, let alone if you're already not getting very much. So, that is a major challenge. I think there is some recognition of the challenge. I think the increase in the budget for discretionary housing payments is welcome, but I think there is scope to do more. When more and more people are living in private rented accommodation, for example, and finding that their rent—the housing element of their universal credit or their housing benefit doesn't cover their rent, I think there should be questions about the priority, for example, given to Help to Buy. I think there are other questions where you could ask—. If you go through the budget and ask, 'Who does this benefit?' And if the answer is not either everybody or the least well-off 50 per cent, then you have to look extra carefully, and there are a lot of places that you could do that.
So, although I don't want to say that there is nothing in the budget, I do think that there could be more done. I can give you lots more examples, if that's helpful, but I think overall it's more progressive than it might have been, but it's not as progressive as it could be.
The key question is: how is the Welsh Government using its limited tools and, given austerity and all the points that you've made, Victoria, how it's using the budget to tackle poverty and whether the approach—and, obviously, it is an adjusted approach now, with Ken Skates leading on this in terms of 'Prosperity for All'. Do you have a view about whether the Welsh Government is achieving this joined-up approach, which we've said forever is the key way forward to tackle poverty—whether it's got the clear mechanisms to deliver those priorities? And do you see that this is demonstrated in the budget? You mentioned the discretionary housing payments, council tax reductions—there are a few in terms of mitigation, but what do you feel about the overall approach now in terms of Welsh Government?
I will be very honest, and I'm sorry to say this, but I don't see that tackling poverty, solving poverty has the priority that it should do, given the scale of it and the impact of it, and, despite statements, I don't see a joined-up approach and I don't see the mechanisms in place. So, what we get, particularly in the narrative, is a really liberal use of the word in the narrative, but the actions don't necessarily follow and aren't necessarily the actions that we know will make a difference. I got particularly irritated reading something yesterday about higher education, where there's a statement that higher education can help solve poverty. Well, it can, but only 28 per cent of children on free school meals even get the GCSEs they need in order to go on to A-level study. I think 16 times more children [correction: more poor children] go into further education than HE. So, if you wanted to invest in skilling up, post 16, the poorest children, you would be putting your money into FE, not HE. And there are lots of times like that. If you look at trains versus the bus—. So, I think what we get is we get very high-level commitments and then a sort of vacuum in between before you get to the delivery on the ground, and you don't always get the fit that you might need. I don't know if that—does that make sense?
I suppose also that tackling poverty is also about trying to protect or mitigate—. Obviously, we've talked about the impact of welfare reforms and continuing austerity and low pay. The week after next is Living Wage Week—that's for further questions. But also, of course, it's about vulnerable people, and so things like investing in Supporting People and early years, obviously, are—. Still, they have to be decisions that have to be made in terms of a tough priority. I see that you've endorsed a new methodology for measuring poverty, which is what we have to be able to judge where were going—. The Social Metrics Commission produced this. Can you just say a bit more about this and whether you think this would help the Welsh Government?
Okay. It's very technical, like all measurements of poverty are, but the big difference with the measure proposed by the Social Metrics Commission is that it takes people's costs into account. The measure that's normally used is only an income measure. And the value of this is not only does it reflect more the reality of people's lives, but it also then makes allowances for the additional costs faced by disabled people or by people in rural areas.
The data is still quite limited for Wales, but what there is available shows that there are even higher rates of poverty than we thought amongst households with a disabled person in them and even higher rates of poverty amongst children and lower rates amongst pensioners. Now, it is very new. I wouldn't have expected that approach to be built into the Welsh Government's thinking. I think the advantage of doing so in the future is that it does mean that some of the Welsh Government tools in its kit can make more of a difference, because the Welsh Government is more able to help to reduce household costs, whether that's through reducing energy costs or housing costs or costs of social care, for example, and those will show up. Whereas, if you just only have an income measure, you can cut people's costs, but because you're not measuring the inflow into the household, it doesn't make a difference.
So, going forward, I think that would be a really positive—. You know, it's not my job to defend the Welsh Government, but I think it would be actually quite helpful to the Welsh Government to adopt that. It's a more rounded approach, really.
You mentioned rural poverty. Of course, in the cities, especially Cardiff and Swansea, private rents are very high, substantially higher than they are in Merthyr, for example. So, do you see that also as having an effect on urban poverty in that you might be paid the same amount in Swansea as you are being paid in Merthyr, but your housing rental costs can be substantially higher?
Absolutely. They are just one of the—. It's swings and roundabouts, isn't it? In urban areas, you tend to have higher housing costs, but lower transport costs, and in rural areas vice versa. It's not a competition for who's poorest.
I'm struck by—[Inaudible.]—in 2017 towards an economic department strategy on tackling poverty, 'Prosperity for All'. Prosperity, of course, is a distant dream to many people; not being in poverty doesn't equate to prosperity. In that case, would it be true to say that the budget strategy here is aimed at stopping poverty in future rather than helping people in poverty now, i.e. trying to create a prosperous future but actually there are people today who need help through this budget?
I suppose it's the area of prosperity that I find most problematic, to be honest. It's a very big and important ambition, but there need to be the mechanisms in place to make it happen. And there's a lot of talk about an inclusive economy or inclusive growth, but what does that mean and how do you get it? We've suggested that there are four elements to an inclusive economy, which are around having diverse businesses, people with adequate skills, decent, reasonably secure jobs, and connections between people, so by transport or digital connections. When you start looking at, 'Have we got the mechanisms in place to deliver that kind of inclusive economy?', I don't think—. Although it is early days, I think there's a little—not just a little way, but there's quite a way to go. I think any attempts to increase prosperity and reduce poverty are medium term. I don't think there are any quick fixes. The quickest fix you could make the Welsh Government doesn't have control of, which is around changes in the benefits system. I mean, you could transform people's incomes overnight with some radical changes. That's a subject, perhaps, for a different time, but—
There are things that could be done on cutting costs, day-to-day costs, for example, though.
Yes. But, again, when you're working in a pretty well fixed quantum, I do recognise there are extremely difficult choices to be made.
That certainly starts to answer my next question: what kind of actions you would expect in the budget to create an inclusive economy? You said some things have started happening. What positives are you seeing?
Okay. I mean, in terms of the positives, I think the economic contract is a really welcome and interesting development. I just wonder about the scale of it, because at the moment it applies only to directly assisted companies by the Welsh Government. It doesn't apply across the board. So, it's actually quite difficult to find out how many businesses and how many employees will be affected. But in terms of setting the tone, I think it's quite right, that this is a something-for-something deal, if you like. But I think if you were to have a shopping list of the kinds of investment areas or intervention areas that would make the economy more inclusive, they would be around investing in public transport, and that includes bus. Most people on low incomes go on the bus, they don't go on the train. So, it includes investment in bus, it includes investment in FE-level skills, or vocational skills, and in adult learning and training. It would be around support for the foundational economy and for small and medium-sized enterprises, and not just because they're small, but because they're good businesses, and it would be a clear spatial strategy that identified both where the real trouble spots are in the Welsh economy and what can be done to give them a kick start.
And that would suggest that you would agree with that refocusing that happened in 2017 towards the new 'Prosperity for All' strategy.
Has there been—? As a result of that refocusing, have you seen—you've made it clear you haven't seen enough, but have you seen a change in direction and an improvement in pace of change, for example?
I think in fairness to officials that some of it is quite challenging because they're working in areas that—you know, they're on untrodden ground. But I'm an impatient person, so I would quite like to see faster progress.
We all are impatient, I think. There we are. Fair play. David. Diolch.
Diolch, Cadeirydd. You said this morning that you don't think—there isn't a joined-up approach across the Welsh Government. Your answer to Rhun just now is to have some areas you think could be looked at. Last year, you identified five tests. Based upon the answers to Rhun, do you think those tests are still applicable, or are you looking at different tests?
I think the tests that we did, which were around, really, questions—whether the budget reduces inequality in education, whether it reduces inequality in health—were not just about who gets what money, which budget line gets how many million. It was about how that money is used as well. I think there are some welcome signs—the increase in the pupil deprivation grant, some of the other proposals—but I suppose it's a question of scale, really. Are those big enough to make a difference? I think those questions are still—if you're concerned about reducing inequality—I think those questions are still relevant and still cannot be unequivocally answered 'yes'.
The detail of some of the departmental budgets obviously only came out this week. Have you had a chance to look at that as to whether those tests could be applied?
Well, I did, I looked at it yesterday evening, and that's one of the things—. It's very hard to see the wood for the trees. There's such a lot of narrative, and I kept looking for a table and I couldn't find one. So, like I say, having looked at it, I think there were some shifts, and I think that's very welcome, but I think there is still further to go.
The Welsh Government also talked about—we've mentioned it before—the preventative agenda, and the documentation actually specifies prevention as one of its aspects. I suppose we all ask the question: are the actions they're identifying preventative actions? And is their definition of 'prevention' realistic?
Well, I always wonder: prevention of what? Because what you do depends on what you're trying to prevent and what your understanding of the causes is. I often scratch my head when it's used in such a blanket way. I do think at least we now have a definition of 'prevention' in the document, which is better than no definition, and I understand that that's been thrashed out amongst the various parties. And that's probably a good sign, but I still think it's quite a blunt instrument. So, for example, I think I read that the intention is that all of the expenditure on education is classed as preventative, and that's when I think, 'Well, preventative of what and is that really appropriate?' But it's work in progress, and I think that, given the requirements of the Well-being of Future Generations (Wales) Act 2015, at least we do have a definition and at least it's being applied, even if you could quibble over the detail. So, it's on its way.
So, keep an eye out for what the detail will be and what they're trying to prevent—
Well, that for me is the question: what are you trying to prevent? Because the appropriateness of what you do depends on your logic chain of what caused the problem, and not every intervention is right for the same thing. I just scratch my head, really in puzzlement.
Diolch, Chair. Morning. Last year, you suggested that, in the absence of Communities First, there needed to be a focus on inequality and poverty in every public service. Do you feel that the Welsh Government's budget supports that focus?
I don't—. I think, as I've said already, there are elements in the budget that attempt to address inequality, but they often appear as add-ons rather than as an integral part of the budget. And I think, without wanting to sound like a stuck record—
You said—I'll say it for you—you said earlier that there were a lot of good words, which would be great if they were happening, but you don't feel that it's necessarily going into policy or translating. Is that fair?
I repeated a question so I got a repeated answer. [Laughter.] Who said that repetition is the best way to—we won't go there.
How do the high-level allocations in the outline budget proposals address adverse childhood experiences, and are they given sufficient focus?
It's not an area of expertise of mine, and I don't think I can really answer that effectively, sorry.
Sure, that's fine, that's fine. It goes back to the poverty issue, which you've answered already—
I think what I would say about each budget line is: what does this £x billion spend—what does it do, from our point of view, to reduce inequality and solve poverty? What is it that does it? And if that is a handful of add-on initiatives around additional payments or additional reliefs, to me, that's not enough. It needs to be embedded in the priorities and embedded in the focus. Now, it might be, but it doesn't come out in the narrative.
No, that's fine. You suggested in the past that the Valleys taskforce doesn't address the underlying problems. What do you see as the issues with the Welsh Government's approach?
Okay. I feel like my past's coming back to haunt me today. I have been very critical of the Valleys taskforce because of the raised expectations and the apparent lack of progress. I think the announcement last week or the week before about the Valleys regional park is welcome, and I spotted in the budget that there is some provision for strategic hubs in the Valleys. Again, that's welcome because, at last, there's some money coming behind that, but we're back to the same challenge, which is: what does the Valleys taskforce want to achieve, is what it's doing going to achieve those things, and will it achieve them on the scale necessary? And it's always incredibly difficult. So, you see £25 million or whatever—I can't remember whether that's the right figure—on the strategic hubs, and you think, 'Oh, yes, that sounds good', because it's a lot of money, but is it enough? Is it only half what they need? Is it too much? We have no sense of scale by which to judge that—certainly, for me, where I sit. Divide that by seven strategic hubs and, actually, you're starting to look at not so much money, and £3 million probably doesn't go very far, actually, particularly if you've got any land purchase involved. So, that to me is the question, understanding is what's there is enough. But at least I will say that there is some money there now, which there wasn't before, and let's see.
We are obviously entering a new phase, where the Welsh Government's going to be getting a certain amount—well, does have some devolved tax-raising powers in certain areas and will be getting more next April. Do you think the Welsh Government is making—? I know it's early days, so it's unfair to judge them on this yet, but is the Welsh Government making the noises you'd like to hear in terms of using those tax powers effectively to alleviate poverty and other issues in Wales?
Well, I think it's probably right that the Welsh Government is quite cautious in the early years. This is a massive change, where the Welsh Government is directly taking money out of people's pockets, and it has to make sure that its systems are working and that it has the credibility. You know, this is a big deal in my view, and I think it's probably right to be quite cautious. They're probably quite right to have made the commitment about not varying income tax for a period. What happens after that I think is very interesting. But what I will say is that income tax is not a particularly effective tool for directly alleviating poverty, because the very poorest people are outside of the income tax bracket, either because they're not working at all or because their income falls below the threshold as individuals, because taxation is by individual. So, I think that, certainly for income tax, I wouldn't see that as a particularly effective lever.
The Cabinet Secretary for Finance also told us that, were you to raise the basic—the basic rate would have to be where a lot of the money came from, and so you'd actually be taking some money off people who, whilst they're not below the poverty line, haven't got that much. So, in answer to that question—and I probably agree with this—you support the Welsh Government, at the moment anyway, being steady as you go, let's get the powers, let's see it working in practice until we make any changes.
Yes, sure. The Government's proposing to introduce a vacant land tax. Do you have any views on that? Is a vacant land tax something that would tick one of the Bevan Foundation's boxes or is it not something you would—?
Well, the devil's in the detail on that one. We did, in the work we did on taxes a couple of years ago now, identify that a land value tax was of considerable interest, in which undeveloped land could have a higher rate, and particularly to try and discourage land banking. I think it's certainly an area worth looking at, but, as I said, the devil's in the detail. There is a bit of a risk of unintended consequences if it's not got quite right, but, in general, I think I'd give it a sort of a red and amber light.
Just a quick one on this. Nick Ramsay highlighted the income tax agenda, and you indicated clearly it's important to ensure we are able to go along steadily in the first instance. In your view, quite clearly, to attack some of the lower paid is—. One of the big issues is the tax levels and when we start paying tax—the thresholds. Is there a challenge there, perhaps, for the Welsh Government, who haven't got the powers to change the thresholds but only have the powers to change income tax? That's going to be a very difficult balance in one sense.
The band—. Well, increasing the threshold at which people pay tax normally benefits higher taxpayers, because they have more untaxed income, whereas if you're only earning £10,000 a year, raising the threshold to £12,000 a year makes no difference whatsoever to you. And, even if you're earning £15,000 a year, raising the threshold makes less difference than—. But, for what it's worth, I do think that having—. It's like having half a toolkit, isn't it? That you can vary the rate but not the band seems weird to me, but, there we are, that's what it is.
One of the answers the Cabinet Secretary gave—he highlighted an example, where he said, for one of his constituents, it would actually be problematic if he raised the tax, so the threshold might have actually got her out of taxation—
Well, there may well be, but, on a population-wide scale—. It's not my evidence; it's the Institute of Fiscal Studies that have looked at it, and it's very clear, at a population level, the people who benefit from increased rates are the higher paid—not the high paid but higher-paid people.
Yes. I think, of course, the more you earn, the more tax you pay; any changes that reduce anything have a bigger effect on you than on others.
I was very disappointed that the Welsh Government decided to end Communities First; I'm still very disappointed the Welsh Government decided to end Communities First. I want to talk about the voluntary and third sectors and support for those. I'm well aware that my MP, during the summer, had a fortnight of feeding 5,000 or 6,000 children. I'm also well aware the chapel I go to collected food that, in previous years, they used to send to Romania and now send around to the food banks of Swansea, which are under huge pressure. So, there's a huge amount of work being done on absolute poverty by voluntary and charitable organisations, and some of this has gone, or is going, because of the loss of Communities First that used to fund organisations like Faith in Families, which also fed children during holidays.
If I go on to 'Prosperity for All', it contains a commitment to build a sustainable relationship with the voluntary sector with the right funding model. How should third sector bodies be funded so they are able to contribute to Welsh Government policy objectives and also able to meet broader charitable needs? And is there a danger that, as pressure comes on all sorts of organisations, their payments to third sector organisations is one of the easier, in terms of budgets, for them to cut?
We did a piece of work with the Big Lottery Fund about a year ago that looked at what the future was of what they called 'doing good'—so that was not just the third sector, but all those organisations who contribute to good things in society. What we found was—. I mean, it's very clear that charities and other groups should not be expected to fill the gaps in the statutory sector. By definition, they're voluntary groups, they exist because they want to, and they should not be relied upon by Government, at all levels, to fill the gaps, although I understand why they do and they want to—clearly, when children are hungry in the holidays, that's what you want to do, but those are gaps in the safety net that the state should be filling, in our view.
What we saw happening as a result of financial pressures was, particularly, local authorities reducing the amount of grant aid, or grants, that they would give to the third sector in their area. But, over and above that, they were changing the type of funding that they give—so, they were switching from grants to contracts, and they were also changing their expectations, and I think it was the change in expectations that a lot of the groups we talked to found the most difficult. So, they were expected to do things for nothing, they were expected not to pay the living wage, they were expected to pay a lower pension contribution, and, certainly, some of the groups we talked to thought that was pretty rich coming from local authorities, where they did those things. That, combined with sometimes not very good specification of contracts, was creating real challenges for some third sector groups. Now, what we found was big differences in the capacity of those groups to respond. Some were really on the back foot and just taking the bad news, I suppose, and struggling and probably going to go under; others were adopting a much more creative approach. But, at the end of the day, a lot of what they did cost money, and someone somewhere needed to pay for it, if you wanted it to carry on.
Last year, you said that you didn't see the balancing act that needed to be made in the budget, that it read more like an allocation system rather than in terms of the opportunity costs of who benefits, and a rational approach to budgeting would want to look at the expected outcomes in terms of, certainly, relieving poverty or making people's lives better at the lower end of the income scale. The strategic integrated impact assessment is supposed to contribute towards that, shall I say, for a variety of different groups, and the issues looked at are equalities, human rights, children's rights, Welsh language, climate change, rural proofing, health, biodiversity, economic development—quite a collection of things. How well do you feel this works in the budgetary process at the moment? Does this impact assessment demonstrate the expected positive and negative impacts of decisions about the allocation of revenue?
I found the strategic impact assessment quite hard work, I'll be honest. It wasn't systematic in the way that I would have expected, and in a way that equality impact assessments are systematic. There were a lot of assertions made without much back-up. Now, I accept that the process is very constrained, and at least there is an impact assessment, I suppose, but I don't think it's quite what is needed, really, for what, at the end of the day—
It's just waving a flag that doesn't actually mean very much in practice.
Possibly, yes. [Laughter.]
What would you like to see change, then, in order to make it meaningful?
Well, there are quite demanding standards of equality impact assessments, which are a good starting point. I would expect to see both some system and some rigour in what was done, and some use of evidence in assessing the impact, rather than just claims.
Well, the Equality and Human Rights Commission has recommended that, in fact. So, you think, if that were introduced, then that could remedy a major part of the deficiency that exists at the moment.
Well, they're not perfect either, but I do think—. I would welcome that; I think that would be a very positive step forward. I think it would make it clear what the impact is, it would tease out and, hopefully, take out some of the kind of heroic assumptions that are being made. What I would say is that, if there is an equality impact assessment undertaken, it would need to include a socioeconomic assessment as well as the protected characteristics.
Yes. So, understanding the metrics of this is crucial to the social welfare outcomes of the budget. If we haven't got the information to start with, or the means of evaluating the spending decisions, then we're flying blind in this instance.
I suppose, at the back of my mind, because of—. There's always a question: what's been cut? We saw last year that the proposed—. It was in the budget that the school uniform grant would be removed, and I don't think anybody, including through the scrutiny process, had spotted that. I think, if you are going to make cuts, then you need to be upfront about it and be clear about the consequences of that, and that's the kind of thing that I would hope an equality impact assessment would tease out.
That's a good example, because it created a very significant controversy earlier in the year, which we raised in the Assembly many times.
The Welsh Government's budgetary advisory group on equality is supposed to address these equality issues in the budget setting process. How effective do you think that has been in influencing the budget, so far as you can tell from reading the documents?
Well, it's difficult to tell, because they don't have their badge or their thumbprint on every proposal that had its origin with that group. In that I think this year's budget has more references to equality and reducing poverty and has some initiatives, then it may be that it's that group that has achieved that. I have no way of telling that. But, in that I would not see this as a budget for reducing inequality, then I suppose it hasn't had as much as it could have. I'm not involved with that budget group, so it's quite difficult for me to say.
I suppose the reality is, as you started out by saying this morning, such a massive part of the budget is already allocated to health and, indeed, the other big ticket items, the discretionary element of spending is pretty small. So, the Cabinet Secretary is dealing with the crumbs from the table, rather than the whole loaf.
—is just to ask: are there any other mechanisms that could be used to improve upon this budgetary advisory group on equality's work? Or is this a will-o’-the-wisp that we're never going to be able to catch?
Well, what I will say, and I don't yet have my board's approval for this, but, having been through all these documents over the last couple of days, I thought, 'I wonder what an anti-inequality budget would look like', and we would quite like to go away and talk to some people and perhaps almost come up with an alternative agenda. But that would be a big piece of work and I don't have sign-off, and I wasn't going to say anything about it, so—. [Laughter.]
If you get the sign-off, we would very much like to see the work as well.
So, there we are, we've come to the end of our allotted slot, so can I thank you for joining us this morning, and for giving your evidence? As always, of course, you will be sent a transcript of the proceedings just to check for correctness. Thank you very much.
Can I invite our next panel to join us at the table, please? Diolch.
A gaf i felly groesawu ein hail banel ni, sy’n ymuno â ni’r bore yma o Awdurdod Cyllid Cymru, ac yn arbennig Dyfed Alsop, prif weithredwr yr awdurdod? A gaf i ofyn i’ch cydweithiwr, efallai, i gyflwyno’u hunain hefyd?
May I welcome the second panel who join us this morning from the Welsh Revenue Authority, and especially Dyfed Alsop, who is the chief executive of the authority? May I ask your colleagues to introduce themselves, please?
Sorry, I didn't catch any of that.
Cewch chi gyflwyno nhw, te, Dyfed, os ydy hynny'n haws.
You can introduce them, then, Dyfed, if that's easier.
I'm Rebecca Godfrey, chief strategy officer.
Bore da, my name's Sam Cairns, I'm head of operations at the WRA.
Grêt. Diolch yn fawr iawn i chi, a chroeso unwaith eto. Mi awn ni’n syth i gwestiynau ac mi wnaf i gychwyn, os caf i. Mi oedd Llywodraeth Cymru wedi neilltuo cyllideb o £6 miliwn ar gyfer costau gweithredol yr awdurdod yn y flwyddyn gyfredol yma. A allwch chi ddweud wrthym ni beth yw’r gyllideb ar gyfer costau gweithredol ar gyfer y flwyddyn nesaf, os gwelwch yn dda?
Great. Thank you very much, and welcome once again. We'll go straight into questions and I'll begin, if I may. The Welsh Government had budgeted £6 million for operational costs in this current year. Can you tell us what the budget for operational costs is for next year, please?
Yr un faint.
Yr un faint. Felly, nid ydych chi’n rhagweld unrhyw newid, rydw i’n cymryd.
The same. So, you don't foresee any change, then.
Wel, rydym ni wrthi’n dysgu lot am ein costau ni ar hyn o bryd, rili, mae’n rhaid cyfaddef. Rŷm ni dim ond wedi bod yn weithredol am chwe mis, felly mae yna lot inni ddysgu ar hyn o bryd. Mae’r faint sydd gennym ni ar gyfer y flwyddyn yma’n gwbl iawn; nid oes problem gyda hynny o gwbl. Cafodd y maint sydd gennym ni ei sefydlu rhyw 12 mis yn ôl, rydw i’n meddwl. Yn amlwg, mae’r £6 miliwn am y flwyddyn nesaf sydd gyda ni yn iawn ar hyn o bryd.
Well, we are learning a lot about our costs at present. We've only been operational for six months, so we have a lot to learn. The amount we have for this year is entirely fine; there's nothing wrong with that at all. The amount we have was established 12 months ago. Evidently, £6 million for the next year is fine at present.
Felly, mae’n deg i ddweud nad ydych chi’n rhagweld unrhyw amrywiaeth yn y flwyddyn bresennol yma a fydd yn cael effaith y flwyddyn nesaf.
So, it's fair to say, then, that you don't see any variability in this current year that will have an impact next year.
Dim ar hyn o bryd. Mae yna bethau sydd ddim yn glir y flwyddyn nesaf. Mae'n debyg fod y pwyllgor yn ymwybodol o bethau fel costau'r pensiynau sydd gennym ni i ddod i'r public sector pensions. Mae pethau felly yn newid y flwyddyn nesaf, felly mae yna bethau yn newid, ond ar hyn o bryd mae pob dim yn iawn.
Not at present. There are things that are not clear next year. It appears that the committee is aware of things like the costs of the pensions that we have to come into the public sector pensions. Those kinds of things will be changing next year, so there are things that will change, but at present everything's fine.
Ac o ran costau sefydlu yr awdurdod, a ydych yn gweld bod y rheini yn weddol agos at beth oedd wedi ei ragweld?
And in terms of the costs of establishing the authority, are they close to what you expected?
Fe wnaeth y broses sefydlu orffen i gyd ym mis Mawrth y flwyddyn yma, felly mae hynny wedi cael ei wneud yn barod, ac roedd hwnnw yn rhan o'r cyllid a oedd gan Llywodraeth Cymru i greu yr awdurdod. Ond jest i fod yn glir, rwy'n meddwl, oni bai am £30,000, fe wnaethom ni wario bob dim a oedd gennym ni, ond wnaethom ni ddim gor-wario chwaith.
The set-up process finished in March this year, so that's already been done, and that was part of the funding that the Welsh Government had to create the authority. But just to be clear, I think we spent, aside from £30,000, everything that we had, but we didn't overspend either.
Wel, dyna'r peth pwysig, rwy'n siŵr. A gaf i ofyn felly pa strwythurau sydd ar waith gennych chi er mwyn sicrhau eich bod chi yn gweithredu yn annibynnol ar Lywodraeth Cymru?
That's the important thing, I'm sure. May I ask, then, what structures do you have in place in order to ensure that you are operating independently of Welsh Government?
Iawn. I gychwyn, rwy'n meddwl ei fod yn bwysig jest i gadarnhau ein bod ni yn—nid wyf yn gwybod beth ydy o'n Gymraeg, sori—non-ministerial Government department. Felly, mae yna gysylltiad cryf iawn rhyngom ni â'r Llywodraeth ond, ar yr un pryd, rydym yn gorfod gwneud yn siŵr bod yna gap rhyngom ni. I gychwyn, pethau fel lle ydym ni o ran y swyddfa sydd gennym ni: nid yw'r pasys yma ar gyfer pobl sy'n gweithio i Lywodraeth Cymru ddim yn gweithio yn ein swyddfeydd ni. Felly, mae'n rhaid i chi fod yn aelod o Awdurdod Cyllid Cymru i ddod i mewn. Y systemau digidol sydd gennym ni, maen nhw ar wahân hefyd. Ni allwch fynd o system y Llywodraeth i fewn i systemau yr awdurdod—nid oes ffordd o wneud hynny o gwbl. Er enghraifft, o ran manylion y data rydym yn ei rannu efo'r Llywodraeth, mae hwnnw yn yr un modd â beth rydym yn ei gyhoeddi yn gyhoeddus; hynny ydy, y manylion rydym yn eu cyhoeddi bob mis. Rydym wedi gweithio yn fanwl iawn efo'r Llywodraeth i wneud yn siŵr ein bod ni'n cael digon o fanylion allan yna er mwyn i bobl wneud forecasting, ac yn y blaen, ond nid oes data arall yn mynd rhyngom ni; mae'r holl beth jest yn cael ei gyhoeddi.
Okay. To start, I think it's important just to confirm that—I'm not sure what it is in Welsh—we're a non-ministerial Government department. So, there is a strong link between us and the Government but, at the same time, we have to make sure that there is a gap between us. At the outset, aspects such as where we are in terms of the office that we have: these passes don't work in our office for Welsh Government workers. So, you have to be a member of the authority to come in. The digital systems that we have, they are separate as well. You cannot go from the Government's system into the authority's systems—you can't do that. For example, in terms of the details of the data that we share with the Government, that's the same as what we publish publicly; that is, the details that we publish every month. We have worked in great detail with the Government to ensure that we publish enough details in order for people to do forecasting, and so forth, but there is no other data that passes between us; everything is just published.
Rwy'n gwybod ei bod yn ddyddiau cynnar, ond a ydych chi'n hyderus bod y canfyddiad allan fanna hefyd yn deall yr hyn rydych chi wedi ei ddweud, hynny yw, fod pobl yn gwerthfawrogi bod yna wahanu rhwng y Llywodraeth a'r awdurdod?
I know it's early days, but are you confident that people out there understand this? That is, that people do appreciate that there is a separation between you and the authority.
Nid wyf wedi cwrdd â neb sydd wedi cael unrhyw anhawster efo fo.
I haven't met anyone who has had any difficulty with that.
Ocê, diolch yn fawr iawn i chi. David.
Okay, thank you very much. David.
Before I come on to my questions, I've just one question or point. In answer to a question from the Chair on the structures, you talked very much about physical structures, and everything else. I suppose the governance structures are very important. Are you comfortable that you have clear, distinct governance structures so that you can be seen to be independent from the Welsh Government?
Yes. So, as a non-ministerial Government department, we have a link to—. I'm a civil servant, and there's a link via my reporting line into the Welsh Government, but in terms of the governance of the WRA, that actually goes through the WRA's board, and all of that has been set up. In fact, we recently had an internal audit report looking at whether or not the legislative requirements had actually been properly embedded into the organisation in terms of how our governance works. And, unusually for an audit report, we got a clean bill of health that we had actually made sure that all of those different bits were in place. So, yes, there is definite governance separation.
Okay, thank you for that. Clearly, we've had a transition period and we're now in a time of tax collection. Can you just perhaps summarise how effective the transition period has been?
Yes. Perhaps I'll bring others in to talk about some of the aspects of the operations but, from my perspective, I think what we've tried to do is strike the right balance between ensuring that the transition is smooth i.e. people haven't experienced unnecessary changes in what they need to do with us and, at the same time, take advantage of the opportunities to do things differently. And that balance has been quite difficult to do. But if I point you to the sorts of things they were, you can see the efficacy of that and what we've done thus far. We're at over 97 per cent of people file online with us, so hugely using our digital systems. And if you looked at payment, when we took over the taxes about a quarter of people were paying by cheque. In our first month, we had 24 per cent of people paying by cheque. That's now down to last month's 16 per cent. So, we've seen a third of reduction in the number of people who are paying—. Sorry, let me get this right now. A third of reduction in the number of payments made by cheque; I don't know exactly who's doing it, but there is a third of a reduction in that. So, I think you can see people engaging with and buying into the idea that we want to be more digital and we want to persuade them to interact with us in a particular kind of way. And maybe—. I don't know whether, Sam, there are any examples you've got of things in terms of guidance, perhaps, or the feedback we've had. We've had very good feedback.
Yes. We recognise that even though the taxes are relatively similar in terms of stamp duty land tax going to land transaction tax, and landfill tax going to landfill disposals tax, we recognise a lot of importance in providing support, particularly around guidance and making sure that that's clear and accessible. So, we did a huge amount of work before we went live in actually developing the guidance, getting input from key stakeholders, working with HMRC where there were common issues, for example cross-border, and we made sure that guidance was available for when we went live.
We also made sure we put a lot of effort into supporting and developing our staff early on, to be able to open our helpdesk. We opened that on 20 February, so well before the go-live on 1 April, to enable people to register for the online system but also to work with the landfill site operators, so they could do everything that they were required to do under the legislation, so there was a smooth transition. To date, we've seen no issues with that. In fact, by the end of April, we'd managed to register, I think it was, 1,200 solicitor firms with our online system, and all the landfill site operators were registered by 1 April to pay the tax. So, as Dyfed said, so far so good.
We are learning. So, the first six months have been really useful for us in actually understanding our taxpayers—
If you're learning, are there any unforeseen events that have arisen that are yet to be resolved?
I wouldn't say 'yet to be resolved'. I think a recent example is with regard to the Landfill Disposals Tax (Wales) Act 2017. There was a change to the legislation, which went through the National Assembly for Wales on 9 October, and the legislative change was made on 10 October with regard to site restoration relief—a particular provision within that. Through working with our landfill site operators, we became aware of certain permitting and environmental requirements that required them to use certain types of topsoil when they're actually undertaking site restoration. That wasn't a qualifying material, because we don't want people to be depositing lots of good organic materials into landfill, but the reality is when you're actually undertaking that final stage of site restoration, you need that organic material to actually enable plants and things to grow, to actually restore the site. So, we saw that there was a disparity between their requirements and the pressures on them and the current legislation. So, the operational team then worked internally, and I think there's quite an important point around governance, that we have an internal policy and legal team within WRA, so operationally, we'll discuss those issues—that's taxpayer information, which obviously remains within WRA—but then our policy team has the relationship with Welsh Government, and they'll be discussing these issues at a policy level. So, there's no discussion around taxpayer-specific information, to protect that, but they're able to highlight any particular issues with the current policies and any changes that are required, and are able to support Welsh Government in the consideration. We are pleased that that went through, and I think that's a good example of us being able to learn from our taxpayers and the relationship we have, to be able to react to changes in the requirements.
Okay. Clearly, again, one of the big issues that's been raised by this committee or within this committee is the lack of data that existed previously. I'm assuming—and you can confirm this—that you're in the process of doing work on data collection, and perhaps you could just explain the type of data you're now collecting, and how often you will report on that data.
Yes. I'm sure we can go into some more detail on that, and that's already happening. So, on a monthly basis, we're already publishing a whole suite of data, which I think the evidence given by Bangor University said was very useful in terms of making better forecasting. So, we've worked very closely with Welsh Government and others to find out what sorts of data would be useful. We already, from month 1, have been publishing that; we publish it every month. In terms of LTT and LDT, that's a quarterly data release. In terms of the sorts of things, I don't—well, I might have it somewhere—have exactly what we publish. But the extent of the data that we publish at a Welsh level is far ahead of what we previously had. Yes, absolutely.
And are you preparing for the income tax agenda as well, because obviously there will be data coming in in that sense?
So, that's obviously HMRC.
But I would think that you would want to have some understanding of the data associated with that, so your forecast can be more effective.
That's a good question. I'm not sure I would—. I mean, I can often see links between data sets and the advantages of doing that, but in terms of being able to—. So, obviously, we're not doing the forecast for the two taxes that we're responsible for collecting, because that's a Welsh Government thing. I'm not sure I do particularly see a link in terms of the forecasting, to be honest, but it's not us doing that.
Diolch. How will your relationship with the Office for Budget Responsibility work in terms of providing information to feed into their independent forecasts?
So, this is the relationship to come once the OBR are doing it? So, what we have been doing to date is producing publicly available data sets that are what forecasters have told us they require—the sort of level of information, obviously protecting taxpayer confidentiality, which is aggregate-level data that are available to people in a timely way so that they are able to do that. I think the sorts of things that are useful about a dialogue in an ongoing way—. So, I would expect that situation to continue, but in terms of the relationship you want to build up, whether it's OBR or whoever it is, from our perspective, I think, the thing that the organisation running the tax system has is—. We have, obviously, people who are looking at the data for all sorts of different reasons, and they understand the systems we use and I think that being able really to understand what the data means, you really, really need to understand the systems that produce the data. Data don't just happen miraculously—they're part of some sort of IT system.
Exactly. So, I'd expect them to be able to have conversations with us about how that works, but not, of course, about any particular details that are identifying any taxpayer, but a proper understanding of how the process works, what the intent is and what the systems will be producing, and what they mean. We'd expect to have an ongoing conversation about that, as we do now with Welsh Government.
And what indicators have been put in place to measure your overall performance in relation to administration and collection of taxes and how will they be monitored and reported?
So, what we have been trying to do this year is establish how we want to go about administering the taxes and, from that, how we want to go about measuring our success in doing so. So, forgive me if this might sound a little bit longwinded, but it's quite important to understand what we're trying to avoid doing. So, what we've been trying to avoid doing is having measures that look at how effective we are at addressing places where people haven't paid the right amount of tax at the right time. So, our focus is entirely on making sure that people are paying the right amount of tax at the right time, first time, so that it's done correctly to start with, so that you don't have to go looking for people who've got it wrong and catch them out.
So, unfortunately, all the traditional measures that tax authorities have, and we've been looking even at international comparators, all look at 'How good are you at catching people out?' We think there's a great opportunity for us not to do that. There's a great opportunity for us to think about this differently and say, 'How can we measure our efficacy in stopping people getting it wrong in the first place?' So, we have started to work on how that might work and what those measures might look like. It's quite complicated, as you can probably imagine, because you're sort of reliant on knowing whether the person is telling the full truth and all that sort of thing, so it's quite a complicated thing to get right. We didn't have any data to work on. We're probably at the stage now where we have a reasonable understanding of the sorts of things we want to do to measure that. I think, at the moment, it's actually a subject that we would quite like to talk to you about in a bit more detail at some point, perhaps in the context of how we measure our corporate plan for the next three years. So, we have to do a corporate plan by the end of March, and we'd really like to have a conversation with you in detail about how that works.
I suppose, because you're dealing with a much smaller base than HMRC have been dealing with across the UK, then it does give you an opportunity to get it right from the start and to be able to focus more on the individual, so that what you were just saying about people trying to catch people later on doesn't apply as much.
That's right, and actually that whole ethos, which we call our approach to how we're going to get it right at the start, actually has an impact on all sorts of things we do. So, we do a lot of work going out and explaining how things work. We've done a webinar recently to explain the taxes in quite a lot of detail, but as clearly as possible to explain how they work. It also matters how well we capture data at the beginning. So, the sort of approaches that you might see around processing quickly, checking later, that's not what we do, because we want to try to make sure that when you get it processed, it's right in the first place. So, it has quite a profound effect on what we do and measuring that is quite tricky. But we're confident that we've got some really good ways of looking at it.
I don't think I'm treading on anyone's toes if I ask one more question, Chair. The Cabinet Secretary has told us that the LDT tax in the first quarter has actually raised far more than was anticipated. Okay, so that just might be the first quarter, and it might change later on, but he said it looks like it could have been underestimated. So, that's an area, actually, where we've got the opposite of the problem—you're bringing in more money than was forecast.
Yes, and we believe that our approach allows you to bring in the right amount of money at the first point of call, rather than having to chase it up later. That’s the whole point.
What I would say about the LDT work, really, is, you know—I’m really proud of the whole way this has been done. So, starting at the legislation, the way that that was crafted, the way that the idea that we work closely with NRW was suggested and brought into being—that's been really effective for us, and the relationship that we have with NRW is really, really good. The expertise that they’ve been able to provide has been absolutely superb. So, we’ve been able to provide, I would hope, a much better service than we would ever have been able to do without their support. So, they’ve been really, really helpful in terms of the technical knowledge and being able to be as clear as possible, to give people as much certainty as possible in terms of what they have to do.
And, yes, I think we’re really proud of that. It’s one quarter of data. So, I don’t know what we can conclude from that, but I certainly am very proud of what we’ve done so far.
Yes, and having that further discussion about your approach to collecting the taxes I think would be something that we would be interested in at some point. Jane.
—and the right skill set and diversity. And, in terms of the fact that we’ve discussed this before, and transition, you’ve had a lot of people seconded to the WRA. And, you know, in terms of retaining those skills, and recruiting—and you’re still recruiting—it’s just helpful to have an update on this in terms of ensuring that you have got the right skill set for the administration of existing and newly devolved taxes.
Yes, I'm happy to talk about that. So, in terms of the number of people that we have on loan or seconded from other parts of Government, that’s at about 40 per cent—slightly lower than that. We expect that, by the time we finish recruiting, it will be more like 30 per cent. That’s probably manageable. That’s okay. We feel that, in terms of that issue overall, the important thing about retaining people for us is making sure that the WRA remains an exciting, interesting, stimulating, good place to work. We think that that’s the key, because I think that one of the things that may have flown the veil [correction: flown under the radar] a little bit is that we have 16 different Government professions, and only slightly more than 60 staff. So, you’ve actually got a very thin layer of highly specialised people in all sorts of different fields, which is quite unusual. And so, we're never going to be in a position where somebody who is a communications professional—that there entire career is going to be run out in the WRA. That’s just not plausible. So, the idea that people can move in and out of the WRA is fundamentally going to be part of our future, I think. So, making sure that we're the sort of place that continues to attract people is as important as anything else, I think, and we continue to get large numbers of people applying for roles.
Diversity—obviously, part of the issue is that we are so small that some of things that we might want to talk about in terms of publishing, the fact is we're not quite big enough to publish that yet, but if you took something like gender, then it’s not far off a 50:50 split. That’s true right the way through the layers of the organisation. So, if you took my senior team, then it's, including me, team 'arwain' is four women, three men, and you’d see that reflected right the way through the organisation—roughly a 50:50 split.
Have I answered everything?
Yes, no, I mean, it's, you know, making sure that—. Well, I'm sure, we've been up to visit you, and it seemed a very highly motivated team of people and very exciting opportunities. But you'd have to have that kind of team to address the kind of ethos and the opportunities as a new organisation in Wales, which, you know, you've got that challenge and opportunity—.
We've talked a bit about guidance, and I know that, in terms of learning lessons from Scotland, and Scottish Government commenting on the guidance they published, that Revenue Scotland published, helped to reduce the volume of enquiries, and you talked about the building up—and, Sam, you mentioned this in response to David Rees's questions—. But how effective do you think the tax—? Can you give more—? Do you want to say anything more, really, about the impact of your tax guidance in terms of being clear for stakeholders with their understanding of what they're going to face?
Yes, certainly. Dyfed has already highlighted our approach in terms of the fact that we want to support taxpayers to get it right. Guidance is one of the key components of that. Having clear, up-to-date, accessible guidance is really important. As I mentioned in my previous answer, we are learning a lot about our guidance. For example, we support taxpayers through our helpdesk, which was set up early on, and where we're getting a large number of queries on a particular area, we can use that data to then inform further improvements to guidance. But it's not just improving the guidance that we currently have drafted, it's also actually trying to understand the use of the guidance, how people are using it and the types of taxpayers or their representatives that rely on the guidance. So, one area in particular we're identifying from the queries we've had to date is around higher rates, the additional dwellings relief [correction: the additional dwellings rules], and we're actually recongising that a lot of taxpayers and smaller agents are relying on the guidance for this but also contacting us for support. We're actually developing webinars—those were rolled out recently. So, that's online training to supplement the guidance. But also we've developed an online tool as well, which we're rolling out in the next month, which is effectively our way of trying to innovate more around guidance, looking at it in a different way to actually support people.
We've also got the tax opinion service. This is something that is supported by our specialists within WRA. So, if people have a set of circumstances that don't fall squarely within the guidance, or there is genuine ambiguity, they can write to us with the facts of their case and we can provide an opinion on how the legislation should apply to them, and that's something that they can be comfortable with in terms of then filing their tax return. It's about our approach 'cadarnhau', which is about finding certainty. From the tax opinions we get, we're then able to see if there is a gap in our guidance and whether we can then use that to inform that. So, we've already started to use some tax opinions we've received to date to actually make improvements to our guidance.
Generally, from the events we've been providing and from the experience I've had, people have been very positive around the quality of our guidance. In particular, we've not just simply lifted what was already there publicly before we went live, we've actually spent a lot of time developing and improving what was already available. For example, on our interpretations guide, a number of experts have commented how pleased they were with the efforts that we put into that.
When we came up to Treforest, we had a very interesting time talking about your digital services project at an early stage. I wonder if you could give us an update on that and tell us—because Wales Audit Office said this was a potentially high—risk project right at the very start, perhaps you could give us an update now on how this turned out for you and whether you kept it within budget. It all looked pretty good at the time, so is it a success story right the way through?
I'll begin with getting us up to going live and where we're going now, and perhaps Becca, who understands exactly what we're doing now, will talk to you a bit more about the detail of that.
So, the budget for setting up the digital systems was part of the overall budget for the establishment of the WRA—so, yes, that came in as we expected it to. What we said was that in our first year or two of operation there were probably three areas where we would need to spend on our information technology systems, either to fix things that weren't quite right on day one, and that always happens—actually, I have to say, I'm personally stunned by how few of them there have been, so that's a testament to our supplier. I have to say, they've done a really, really good job, and the work that Welsh Government did in helping us set it all up. So, that's been really, really good. And responding to customer feedback—we've had all sorts of interesting things that customers have suggested, 'Actually, we'd rather you did it like this, rather than like that.' We've begun to do that work now to change how our systems work in response to customers. I suspect we will have got that completed this financial year. The vast majority of things that people have said, 'Could it look like this or work like that?', we will have changed. The third thing was that in order to go live safely we didn't introduce the full amount of sophistication of our systems for our own monitoring and measurement purposes—case management, that sort of thing. It wasn't necessary on day one, because all you're trying to do on day one is just ensure that people can send you their details and pay their money. But over time, you start to want to take corrective action, you start to want to investigate things, and you'll need more sophisticated systems to do that. So, that's the bit that we haven't yet got to, and that's what we need to do this year and next. That's where some of the uncertainty lies. But in terms of how it works, Becca might—
Yes. Our IT systems work very well. We continue to get good feedback from our users. We've got more than 4,000 registered users of our systems, who are all filing LTT returns online. I think we said earlier that 97 per cent of all returns come in online, digitally, but it's not just that digital front end that's working well. We've got our own finance system, and the digital tax system and the finance system are integrated. So, the flow through: we get about—. Ninety-five per cent of all transactions that come in flow straight through and don't need any human interaction at all, which has provided really good efficiency, so we're really pleased with that.
As Dyfed said, we haven't had as many glitches as we initially might have thought, given this was a bespoke and brand-new system. So, what that has allowed us to do is invest more money into the changes that customers want, and also more time. So, we purposely—. Well, the immediate changes: we made a few changes straight away, as you might expect, but we deliberately waited six months to get that feedback so that we can prioritise effectively and listen to customers more in the round, rather than reacting, and decide which changes we need to make. So, we're just about to embark on that series of changes for the customer. And as we did before we went live, we'll do a lot of user testing, because I think that user testing, and letting people feel and look at the systems as we were developing them, really helped us to eliminate glitches as we were doing that.
We're a fully cloud-based authority, so we don't have any physical infrastructure at all. We don't have any phones, that's all Skype for Business, and all of that element is also working really well. We are very pleased that we have been nominated for the UK IT Industry Awards this year, along with Welsh Government and our digital partners. That's something we're excited about.
I think we'd better put you in charge of the NHS informatics. [Laughter.]
I think Becca undersells that. We're finalists for that. If that's something that would—. Again, I think there is maybe an opportunity for us to provide more information in the round about how our IT model works. It impacts on the question that you asked me earlier about finances. We don't have a situation where there's a big amount of capital and then depreciation over time, because it's all cloud-based. It's a rental thing. So, it's a completely different model. So, we're happy to give you more chapter-and-verse information on that.
We're more than willing to accept any information that you have for us, yes.
We spent a lot of time talking about cross-border transactions—me probably more than anybody else, and Steffan always used to say, 'Well, we're not different to anywhere else in Europe. Cross-border is fairly normal. It's just we're joining the normal of Europe.' We estimated about 10 to 30 cross-border transactions expected in a year. Have you had any cross-border transactions, and how have you dealt with them?
So, I can't go into specifics because of taxpayer confidentiality, but I can confirm that we have had what I would say is an incredibly low number of cross-border transactions. And, as you say, that was to be expected. No issues have been identified, or risks, to date. We're working with HMRC on those to make sure that everything is being processed as expected. I think that, as we expected at the start, this is seen as a relatively low-risk area. We've also been doing the work with Her Majesty's Land Registry before we went live, and with HMRC, around the guidance to make sure we supported taxpayers on that. We also did quite a lot of stakeholder engagement around cross-border, knowing that this was a particular change to the legislation—a new area—and there were a number of concerns raised. I think we ran—. We managed to speak to just under 1,000 solicitors through the webinars or stakeholder engagement events, and particularly around the border, we had a number of events where cross-border was covered to try and support. So, I think the outcome of all of that is that we haven't actually seen any risks and issues, so we're quite pleased with the progress on that today.
Sorry, I wasn't asking about individual transactions. All I was asking really was: were there any problems in having the allocation between which was ours in Wales and what was HMRC's?
So, no. No issues have been identified to date with that.
Okay. LDT is simple. You're dealing with about 20 different organisations or so, so informing them and keeping them up to date on what's happening is not a particularly difficult task. Land transaction tax, on the other hand—you can deal with any solicitor in England, Wales or possibly Scotland. So, that's a much greater need to inform, isn't it? Have you encountered any issues or lack of awareness from those paying tax—conveyancers in England for whom this might be the first time it's been different. I'm assuming the Welsh ones would all have been up to date, and you've informed them and had all the seminars and discussions with them. But, people in England, and perhaps not even close to the border, who are dealing with these: have you had any problems with them actually knowing the system has changed?
Again, I'll ask Sam or Becca whether they've got anything to add to what I have to say. On the LDT side, I would just say that it's a slightly bigger community, so one of the things I think we have been able to do—and, again, with great help from NRW on this—is work with the waste producers. So, actually, yes, there are only 20 landfill site operators—no, sites rather than operators in Wales, but there are lots of other producers. Working with the waste producers is, we have found, very effective in helping to make sure that they're doing it right in the first place, so that what arrives at the landfill site is also correct. So, it's a slightly bigger audience, but I agree it's a much more contained one. In terms of have we had any difficulties with people understanding what they need to do, not that I'm particularly aware of, but Sam might—
Yes, I think there are small pockets of people who perhaps haven't picked up on the awareness efforts that we ran before we went live. So, we still get people registering to file online. Part of that's down to the fact that some people might not have many transactions in regard to Wales, so they're only really coming on board now. We also find small areas of people making very small mistakes. So, within our approach, we will go out and speak to those agents and help provide education. We've had a few meetings recently where we've actually gone out to particular areas to help educate and help the taxpayers and, ultimately, their agents understand how to file. But, on the whole, I think the transition's run smoothly. As I said, we had 1,200 agents registered before the end of April, and we use that community to send an operational update. So, we recently sent a six-monthly operational update highlighting common issues, any common mistakes that we're seeing, et cetera, as well as any improvements we've made. That went down well from the feedback that we got at the recent tax forum.
I think the point I was trying to make—. In England, especially in rural areas, there may be villages and very small towns that have solicitors working as single solicitors rather than as part of a team, who are the solicitor for that village or that group of villages or that parish. They may deal with a transaction into Wales once in the whole of their career. So, are there any difficulties with them finding out, or do HMRC say, 'Sorry, you're moving into Wales now. You need to do this'?
Yes. So, effectively, if they try and file a return with HMRC, they can't. But, your point is absolutely right about the need for us to show an ongoing helpful attitude, because it could be the first time that somebody's ever had to deal with a transaction in Wales, and we need to be open to that and as helpful as we possibly can be.
And that might happen in 10 years' time. There could be a first transaction, because they have only dealt with local transactions before and, all of a sudden, somebody is moving to Wales from, let's say, a small village in Wiltshire. [Laughter.] It's a possibility.
Okay. Thank you, Mike. Rhun. [Interruption.] Oh yes, sorry. Neil wants to come in. Yes, okay.
Apropos of that last remark, in fact, in a sense: a fascinating fact we learned in an earlier session of this committee is that there are 34 properties that straddle the border. So, obviously, there's an issue there of residence for tax purposes. You can have your breakfast in England and go to sleep in Wales. How do you manage to resolve those issues if, indeed, they have been resolved?
That's where the cross-border transactions would come into effect.
Yes. So, for LTT purposes, that's obviously something we would be looking at—
For income tax, that's not something we would—
Yes. We don't have to exercise the wisdom of Solomon on that.
Diolch yn fawr. Mae gen i ddiddordeb, jest mewn rhyw gwestiwn neu ddau, yn eich perthynas chi efo partneriaid eraill. Sut mae eich perthnasau chi'n gweithio? Rydych chi wedi dweud eu bod yn gweithio'n dda iawn efo Cyfoeth Naturiol Cymru o ran y dreth gwarediadau tirlenwi, ond sut y mae'r berthynas yna yn gweithio a beth sy'n ei wneud hi mor effeithiol?
Thank you very much. I have an interest in and I have a few questions about your relationship with partners. How do those partnerships work? You've said that it works very well with Natural Resources Wales in terms of landfill disposal tax, but how does that partnership work? What makes it so effective?
Rydw i'n meddwl mai'r ffordd orau i ateb beth yw strwythur y berthynas a sut mae hi'n gweithio ydy gofyn i Sam sôn am sut mae o'n gweithio efo nhw, a sut mae o'n gweithio o ddydd i ddydd.
I think that the best way to answer and to describe the structure of the relationship is to ask Sam to mention how he works with them, and how he works on a day-to-day basis with them.
So, we've got a formal delegation that was set up and, I think, it was something that the Finance Committee had actually advocated quite a while back. So, that was set up at the end of December and then a memorandum of understanding and an information-sharing agreement was signed around that time.
The delegation work was undertaken between senior personnel within WRA and senior people within NRW, working together through a joint steering committee, and the decision that came from that was to set up a separate operational team within NRW. So, NRW have recruited a small team of operational specialists within waste who work jointly with our customer relationship managers within WRA. So, effectively, what we've now got is a joint organisational operational team that are working with LSOs on landfill disposals tax. So, they've brought with them the expertise around waste and the wider relationship with the rest of the NRW community—in terms of information sharing and understanding—and then we've been able to bring our tax expertise to bear for that. And at the moment, that's become a really effective relationship. So, when we've been going out and meeting landfill site operators, considering things like water discounts and other agreements, we've been able to utilise the expertise of NRW along with our tax knowledge, to be able to provide the agreements in a very short period of time.
We've also got an ongoing joint steering group that is set up to, basically, provide the oversight and strategic governance of that relationship. It's something that's been put in place for two years, and would be subject to review at the end of the two years.
And we've also got then subset operational working groups set up to look at particular ongoing opportunities and actions. So, for example, unauthorised disposals tax is an area where we've got a working group set up at the moment, to look at how we can effectively use the tools that have been provided to us from 1 April in regard to unauthorised disposals.
Diolch yn fawr iawn am yr eglurhad yna, ac mi edrychwn ni ymlaen at glywed am sut mae adolygiadau yn mynd mewn amser. Mae honno'n berthynas o rannu arbenigedd, mae perthynas wedyn, rydym ni wedi'i chrybwyll, yn ymwneud â rhannu data. Rydym ni wedi crybwyll rhannu data eto Llywodraeth Cymru, rhannu data efo HMRC a phobl sy'n gwneud rhagolygon, er enghraifft. A oes yna bartneriaid eraill, o ran rhannu data? Allwch chi roi sylw ynglŷn ag effeithiolrwydd y prosesau sydd gennych chi ar gyfer rhannu data?
Thank you very much for that clarification, and we look forward to hearing about how the reviews are going in time. This is a partnership in terms of sharing expertise, then there's another partnership, which we've already mentioned, about data sharing. We've discussed sharing data with HMRC and Welsh Government and people who do forecasting, for example. Are there other partners, in terms of sharing data? Could you give us your clarification on the effectiveness of your processes for data sharing?
Gallaf. Rydych chi wedi enwi bron pawb yn barod, rydw i'n meddwl, ond rydym ni hefyd yn gwneud gwaith efo Revenue Scotland. Mae gennym ni MOU ac ISA wedi'u paratoi'n barod. Mae'r sefyllfa yn yr Alban yn eu gorfodi nhw i wneud newid bach yn eu legislation nhw, felly, maen nhw'n gorfod gwneud hynny jest er mwyn iddyn nhw lofnodi'r peth a gwneud iddo fo weithio. Mae hynny’n iawn. Rydw i'n cael cyfarfod efo Elaine Lorimer, sef y prif weithredwr yn yr Alban, bob mis. Felly, mae yna gysylltiad eang iawn rhyngom ni.
Rydym ni hefyd yn gweithio efo'r Land Registry. Ar hwnnw, beth oedd yn bwysig, ac mae o'n gweithio'n iawn, oedd jest i wneud yn siŵr eu bod nhw'n medru cymryd tax certificates oddi wrthym ni ac wedyn gwneud y broses o gofrestru tir yng Nghymru. Ac mae hynny'n gweithio ac maen nhw'n medru gwneud hynny. Ac wedyn, beth rydym ni'n ei wneud ar hyn o bryd ydy ystyried efo nhw pa fanylion ganddyn nhw rydym ni eu hangen er mwyn i ni tsiecio pethau i wneud yn siŵr bod pob dim wedi cael ei wneud yn gywir. Ond, yn amlwg, nid oeddem ni angen hynny ar y diwrnod cyntaf, oherwydd nad oedd gennym ni ddata i'w ailtsiecio. Cefais i sgwrs efo Mike Harlow, y dirprwy brif weithredwr yn Land Registry, bythefnos yn ôl, jest i egluro'n union sut mae'r MOU a'r ISA yn mynd i weithio efo hynny. Ac mae o'n iawn hefyd.
Rydw i'n meddwl fy mod i wedi sôn am bawb, oni bai am y valuation office. Beth rydym ni'n ei wneud efo nhw ydy rydym ni'n ailddefnyddio'r system rydym ni'n ei ddefnyddio i anfon y manylion i HMRC. Maen nhw'n cael ailddefnyddio'r manylion maen nhw eu hangen o feed hwnnw, basically.
Yes. You've named nearly everyone there already, I think, but we are also doing work with Revenue Scotland. We have an MOU and ISA that have already been prepared. The situation in Scotland forces them to make small changes in their legislation, so, they have to do that, just for them to be able to sign it off and make it work. That's fine. I have a meeting with Elaine Lorimer, the chief executive in Scotland, every month. So, there is a broad-ranging relationship between us.
We are also working with the Land Registry. On that, what was important, and it is working properly, was to ensure that they could take tax certificates from us and then do the process of registering land in Wales. That works and they can do that. And then, what we're doing at present is we're considering with them what details we need from them in order for us to be able to check things to ensure that everything's been done properly. But, evidently, we didn't need that on day one, because they did not have any data to check again. I had a conversation with Mike Harlow, who is the deputy chief executive of the Land Registry, about a fortnight ago, just to clarify exactly how the MOU and ISA are going to work on that. But that's fine as well.
I think I've talked about everyone, except for the valuation office. What we do with them is we reuse the system that we use to send the details to HMRC. They can reuse the details they need from that feed.
Cydymffurfiaeth oedd un arall roeddwn i jest eisiau ei grybwyll. Roedd yna lythyr ar y cyd gan Lywodraeth Cymru a HMRC—copi yn Saesneg sydd gen i yn fan hyn:
Compliance was something else I wanted to mention. There was a joint letter from the Welsh Government and HMRC, and I have it in English:
'Following the devolution of taxes and the creation of the WRA it is important that we seize the opportunity to share data, expertise and intelligence across UK tax authorities, this will ensure a complete view of compliance risks and a robust, integrated approach to dealing with them.'
O ystyried mai dyna oedd y bwriad ar y dechrau—dyna oedden nhw eisiau trio gweld yn digwydd—a oes yna ddiweddariad ar a ydy y rheini i gyd wedi cael eu ticio, a ydych chi'n meddwl, erbyn hyn?
Considering that was the intention at the outset—that's what they wanted to see happening—is there an update on whether all that is being fulfilled, do you think, by now?
O ran y data ei hun, rydym yn anfon, bob mis, data i'r HMRC, felly, mae hwn yn gweithredu'n iawn. O ran sut rydym ni'n cysylltu efo nhw, o ran intelligence, os nad ydych chi'n meindio, eto mae Sam yn ymdrin â hwnnw.
In terms of the data itself, we are sending, every month, data to HMRC, so that's working fine. In terms of how we engage with them, in terms of intelligence and so on, if you don't mind, again, I'll ask Sam, because he deals with that.
In terms of the actual managing of risk and the identification of risk, that's a key part of our risk assessment strategy, namely to regularly review risk in conjunction with HMRC and Revenue Scotland to see what the current issues are—emerging issues. So, we have fairly regular meetings with the HMRC teams. We've been up to Birmingham, where their stamp duty land tax offices are, quite regularly. I've been up a few times myself, and part of those discussions are talking about emerging risks. We also meet with the stamp taxes practitioners group, which is a body of expertise, not just within the tax authorities, although tax authorities form a key part of that. Part of the purpose of those discussions is also to talk about emerging issues, which may contain risk. So, whilst at the moment we're not necessarily talking about specific individual taxpayers—that's not necessary at this stage—we are talking about overall emerging issues and risks, which is helping to inform our plans and the work that we're doing to help mitigate those risks.
Grêt, diolch yn fawr iawn. A oes yna unrhyw gwestiynau pellach? Na. A oes rhywbeth ychwanegol rydych chi eisiau sôn amdano fe?
Great, thank you very much. Are there any further questions? No. Is there anything additional you'd like to talk about?
Jest gwahoddiad, os ydych chi eisiau, yn enwedig gan fod gennym ni'r corporate plan yn cael ei ffurfio ar hyn o bryd ac rydym yn gorfod cael rhyw siâp arno fo erbyn mis Ionawr, buaswn i'n meddwl. Os yn bosib, buaswn i'n hoff iawn o gael cyfle i siarad â chi am y pethau yr hoffech chi eu gweld ynddo fo a'r math o bethau yr ydych am ein gweld yn eu mesur a pha fath o bethau yr ydych chi eisiau ein gweld ni'n cael focus arno fo, os yn bosib.
It's an invitation, if you like, particularly given that we have a corporate plan that's being formed at present and we have to get that into shape by January, I think. If possible, I'd like an opportunity to speak to you about the things that you'd like to see in it and the kinds of things that you want us to measure and the kind of things that you want us to focus on, if possible.
Fe wnawn ni, yn sicr, ystyried sut y gallwn ni wneud hynny yn ymarferol yng nghyd-destun y blaenraglen waith, ond mae'n bendant yn rhywbeth, hwyrach, os nad yn ffurfiol, y gallwn ei wneud mewn rhyw ffordd arall hefyd. Grêt. Wel, diolch o galon ichi am ymuno â ni. Fel rydw i'n ei ddweud wrth bawb, mi fydd yna gopi o'r trawsgrifiad yn cael ei ddarparu i chi gael ei wirio fe, ond gyda hynny, a gaf fi ddiolch ichi ac mi wnaiff y pwyllgor nawr dorri tan 11 o'r gloch? Diolch yn fawr iawn.
We'll certainly consider how we'll be able to do that in practice with our forward work programme, and if there's anything, which may not be formal, we can do also. Great. Thank you very much for joining us this morning. As I tell everyone, there will be a draft transcript sent to you for you to check, but with that, I'd like to thank you, and the committee will now break until 11 o'clock. Thank you very much.
Gohiriwyd y cyfarfod rhwng 10:48 a 11:01.
The meeting adjourned between 10:48 and 11:01.
Croeso. Os ydych chi eisiau defnyddio—
Welcome. If you want to use—
If you'd like to use the translation equipment, I'll be speaking Welsh.
Diolch yn fawr. Croeso cynnes yn ôl i gyfarfod y Pwyllgor Cyllid, ac fe symudwn ni at y bumed eitem ar yr agenda heddiw, sef sesiwn dystiolaeth bellach ar gyllideb ddrafft y Llywodraeth, ac mae'n bleser gen i groesawu Jim Harra, ail ysgrifennydd parhaol Cyllid a Thollau Ei Mawrhydi, a Jackie McGeehan, dirprwy gyfarwyddwr polisi treth incwm Cyllid a Thollau Ei Mawrhydi. Croeso cynnes i'r ddau ohonoch chi. Mi awn ni'n syth i mewn i gwestiynau, os ydy hynny'n iawn, ac mi wnaf i gychwyn drwy ofyn os allwch chi grynhoi i ni sut yr aeth y broses bontio o dreth dir y dreth stamp a'r dreth dirlenwi i drethi yng Nghymru ym mis Ebrill eleni.
Thank you very much. A warm welcome back to the Finance Committee, and we'll move to the fifth item on the agenda, which is an evidence session on the Welsh Government draft budget 2019-20, and I'm pleased to welcome Jim Harra, who is the second permanent secretary, Her Majesty’s Revenue and Customs, and also Jackie McGeehan, who is the deputy director of income tax policy, Her Majesty’s Revenue and Customs. Welcome to you both. We'll go straight into questions, if that's okay, and I'll begin by asking if you could summarise how the transition from stamp duty land tax and landfill tax to Welsh taxes went in April of this year, please.
Good morning, Chair. So, from our point of view, that went very smoothly. There were minimal enquiries from customers afterwards, for example. Everyone seemed very clear about what they were expected to do. The systems and data all went well, so we did not collect any tax that belongs to you, and, as far as we know, you did not collect any tax that belongs to us, and that's testament, I think, to the work of the Welsh Revenue Authority and also the close working that we've had with them.
And that's exactly what we want to hear, clearly. So, could you update us, then, as a committee, on whether final transition costs for land transaction tax have been identified and what these were?
Yes. So, as you know, last December, I wrote to Mark Drakeford to say that they were going to be higher than we had initially anticipated, with an upper range of £2 million, and that remains our view of how much it's going to cost. We expect to complete the work by January of next year, and it will come within that range that I said in that letter.
Have you been able to confirm the final cost savings for no longer administrating SDLT and landfill tax? How is that money going to be treated?
Yes. So, HMRC savings from no longer administrating stamp duty land tax and landfill tax in Wales is about £172,000 a year, which is slightly higher than we had estimated, and that saving passes to the Welsh Government.
Diolch yn fawr iawn. Rydym ni yn symud, wrth gwrs, tuag at gyflwyno cyfraddau treth incwm Cymru. Y cwestiwn syml: sut mae'r gwaith yn mynd ar hyn o bryd?
Thank you very much. We are moving towards the introduction of Welsh rates of income tax, and the simple question is: how's the work going at present?
It's going very well. We are on track to complete it all in time for 6 April. The next step for us is identifying—. First of all, the next step for us is contacting all of our customers who we believe are our potentially Welsh tax payers, so we will write next month to just over 2 million customers on our databases who have Welsh addresses. That is more than the number of people that we expect actually to pay tax, because some of those will have earnings below the tax threshold, but nevertheless they will all get a letter from us next month explaining that the Welsh rate of income tax is now a matter for the Welsh Government and the Welsh Assembly but that we will be administering it, what it is that they can expect to see, and, in particular, if they are in pay-as-you-earn or if they have an occupational pension, that they will see a 'C' on their next pay-as-you-earn code for next year, and explaining what they do and do not need to do and, in particular, that they don't need to do anything unless they move address into or out of Wales, in which case we'd like to know that.
So, that's the next step. Then, in December, we start our pay-as-you-earn coding run, which will actually put that 'C' flag on all of our systems against those taxpayers and start to produce 2019-20 pay-as-you-earn codes for them with that identifier on it, and we will start between December and the end of January/February time issuing all of those codes to taxpayers, and, in February, we then issue those to the employers to put through their pay-as-you-earn systems from 6 April. In the meantime, we have been working with employers, pension providers, and the software houses to make sure that their systems are all ready to accommodate that.
Chi sy'n gweinyddu, wrth gwrs, hwn—nid yw e'n rhywbeth sy'n cael ei wneud gan Lywodraeth Cymru na'i asiantaethau. Ond a oes yna waith pellach sydd angen ei wneud mewn rhyw ffordd yn y berthynas rhwng HMRC a Llywodraeth Cymru wrth i fis Ebrill nesáu, ynteu a ydy hwnnw'n gwestiwn mwy gwleidyddol ynglŷn â phenderfyniadau o ran beth i'w wneud efo'r cyfraddau treth, ac yn y blaen?
You are administering this, of course—it's not something that's being done by the Welsh Government or its agencies. But is there any further work that needs to be done in some way in terms of the relationship between HMRC and the Welsh Government as April approaches, or is that more of a political question in terms of decisions as to what to do with the rates of tax, et cetera?
Obviously, it's a political decision for the Welsh Government and the Assembly what the Welsh rate of income tax should be, and I know the draft budget has been published. So, that is definitely a political matter, which I'm going to stay well out of. However, at an administrative level, we've got a very good working relationship with the Welsh Government. We have an agreed compliance strategy that matches onto the Welsh Government's compliance strategy and, for example, as part of the mailshot that we do next month, we will be incorporating in that a flyer from the Welsh Government, which is branded as coming from the Welsh Government, explaining that the Welsh rate of income tax is now a matter for the Welsh Government and the Welsh Assembly, and therefore making people aware not just of the administrative changes, but actually of the change in devolution of tax powers that has gone with that. We also have a project board to deliver the changes and over that a programme board of senior officials to scrutinise that and to take any escalated decisions, and the Welsh Government is on both of those boards, which means that they have got full sight of and engagement in all the decisions that are being taken and how we're managing all the delivery risks and how we're managing the costs, for example.
Cwestiwn sy'n deillio o hynny: i ba raddau bydd y cyd-frandio yna o'r bil treth, os leiciwch chi, y mae trethdalwyr yng Nghymru yn ei gael, yn bodoli, ac y bydd o'n glir ym mhob cyfathrebiad gan HMRC i bobl yng Nghymru bod wnelo rhan o'r hyn sydd o'u blaenau nhw â Llywodraeth Cymru?
A question that stems from that: to what extent will joint branding of the tax bill, if you like, that Welsh taxpayers will have, exist and make it clear in every communication from HMRC to people in Wales that part of what's in front of them is related to the Welsh Government?
So, as far as the implementation is concerned, we've got the memorandum of understanding, we've got the joint strategy and—. However, once we are into running, we still have to settle what the service level agreement is between HMRC and the Welsh Government, and that work is getting under way to make sure that that's in place for next April, and I'm sure that that will include what our communication strategy is and how we continue to identify for people. Clearly, from an administrative point of view, we want people to be very clear that, if they have got any issues with their income tax, contact us, don't contact, for example, the Welsh Revenue Authority, because we don't want to waste people's time and our resources, but also I know that the Welsh Government is very keen that people are aware that this is Welsh income tax that they are paying and that's—we reflect it, for example, in the initial communications that we're doing next month.
Felly, mae'r gwaith yn parhau ar hwnnw. O ran costau, os caf i gyfeirio at gostau gweithredu'r cyfraddau treth Cymreig newydd, rydw i'n meddwl mai'r costau amcangyfrifiedig a gafodd eu rhoi i ni oedd rhwng £5 miliwn a £10 miliwn. Mae o'n amlwg yn ystod eithaf eang yn fan yna. A ydym ni'n gallu mireinio rhywfaint erbyn hyn ar beth mae'r gost yn debygol o fod?
So, the work is ongoing on that. In terms of the costs, if I could refer to the operational costs in terms of the Welsh rate of income tax, I think that the estimated cost that was presented to us was between £5 million and £10 million. It's obviously quite a wide range. Could we refine that somewhat in terms of what the likely cost is going to be?
Yes. We have refined that. It continues to be within that range, but we are now saying that, as our costings get firmer, it's between £7.5 million and £9.5 million.
Unwaith y bydd o wedi setlo, ni fydd yna llawer o fluctuation, rydw i'n cymryd. Mi fydd yna bris gymharol gyson o flwyddyn i flwyddyn unwaith y byddech chi wedi canfod, ar ôl y flwyddyn dreth gyntaf, beth ydy'r swm.
Once it's been settled, there won't be too much fluctuation, I take it. There will be a relatively consistent price from year to year once you've discovered, after the first tax year, what the sum is.
Yes. So, we estimate that the annual running cost will be around £314,000 a year. That depends on, in particular, the level of compliance work that we think is necessary, which would depend on the level of any differential in the income tax rates between Wales and England, for example. So, whilst the differential is low, then we don't think there will be any significant extra compliance risks that we will need to spend resources on managing, and therefore the £314,000 a year would be our estimate. But, if there was a very large differential and we felt that created initial compliance risks that we needed to manage on behalf of your revenues, then there would be a different cost and we, obviously, would want to engage with the Welsh Government on what those costs would be.
Ac, efo'r ffigurau yna, rydych chi wedi ateb fy nghwestiwn nesaf i, felly diolch yn fawr iawn.
And, with those figures, you've answered my next question. So, thank you very much.
Diolch. Can you expand on lessons you will have learnt, I'm sure, from implementing the Scottish rates of income tax, and how you can apply those lessons to the Welsh rates?
I'll pass to Jackie in a moment on the lessons learned around identification of taxpayers. But you're right: whilst we recognise that there are some unique challenges in relation to the Welsh rate of income tax that are quite different from Scotland, nevertheless, we have had a dry run and you do benefit from that, as we have learned some key lessons that we are applying in the Welsh case. And that's one of the reasons why our implementation costs in your case are lower than they would otherwise have been if you'd gone first.
Some key differences, however, are: first of all, this time around, we've only got two years to implement it rather than the four that we had before. And that is something that we're comfortable with, because, actually, as I say, we've already implemented this once, so we've had a rehearsal for the main act, if you like.
Secondly, the border populations, and the extent of cross-border movements, are different in Wales than in Scotland, so you've got a much more populous border area, which causes some issues for identifying Welsh taxpayers, which I'll let Jackie expand on. But, also, the Office for National Statistics estimates that there are about 115,000 cross-border moves every year between Wales and England, by and large—roughly speaking, the same each way; slightly more into Wales every year than leave it—and that compares with 80,000 for Scotland. So, those are some key examples.
The other key difference, obviously, is the communications, where we have the Welsh language to factor into our communications strategy. So, we have learned lessons. It means that we can do it quicker, it means it'll be lower cost, but we also recognise there are particular differences that we have to bear in mind. But I'll let Jackie pick up on identification issues.
So, as Jim says, there are more challenges in that the population around the border is greater in Wales. So, we have a much more difficult challenge of identifying which addresses are which side of the border, but we have a very good process in place to do that based on the Ordnance Survey geographical information—so, even down to properties where the actual building straddles the border, we can identify which side they should be allocated to. So, we've got a very precise process for that.
In terms of identifying Welsh taxpayers, we have got a long process—I think the committee was given a copy of a road map, which was literally a little road on a piece of paper, but it takes you through the stages of identification—and we will be doing work to cleanse our addresses. So, in our database, we have addresses that might have a postcode missing, might be incomplete, or have the wrong postcode, so we will be cleansing those addresses. We will then issue letters to about 2 million people, and one of the main messages there is, 'Tell us if you are not a Welsh taxpayer or you think this is not you. Tell us about your change of address if you do move', and we will keep updating that information. So, on an annual basis, we will test our data, our address data, against third-party information.
We'll also encourage employers to tell us about addresses—where they take on new employees, they will let us have that information. So, we will build—. Over time and we will keep refining and updating our address data. It isn't a static population, obviously.
Yes, I have lots of questions that I want to ask, actually, whether you base somebody in Wales or England on where their lounge is or where their bedroom is, or that kind of thing, if their property is straddling the border. [Laughter.] The one I wanted to ask you is: it might be tempting for people who have homes in both Wales and England, to coin a phrase, to flip where their main residence is, depending on where the most favourable tax rates are. Have you decided how you're going to deal with that?
Yes, we have a lot of ways of doing that, but fundamentally, whether you're a Welsh or UK taxpayer depends on where your core connection is. For most people, that's really clear cut: you live in one place; you live in Wales or you live in England and that's it. For those who've got a number of residences, we look at a number of factors. Where are your families' houses? Where do your children go to school? Where are you registered to vote? That sort of thing. Are you a member of a club locally in one place or another?
If needs be. Very rarely would we, I think, ever need to go to that extent, but those are very well understood criteria that we would use if we had to look at whether someone was a Welsh or UK taxpayer.
The key point is that someone with two addresses cannot just nominate where their residence is. It's actually a matter of fact. So, we do know that we have a number of taxpayers who have got a correspondence address and a residential address, which are not both in Wales, and therefore we are specifically looking at those cases to determine them. I would also say that the most wealthy taxpayers, who are the ones most likely to have multiple homes, they are not just in the sort of mass-market run of taxpayers; they all have a nominated compliance officer, whose job it is to understand their lifestyle and where they live and their attitude to tax compliance.
That's very helpful to hear about what has been useful with the Scottish experience, but how can we be sure that the implementation of it will be monitored so that we can see that the revenues that you collect are transferred to Welsh Government and are accurate?
Okay. So, I think there will be two things involved in that. First of all, there is actually auditing the outturn, and that is audited by the National Audit Office and, for example, we've had the first outturn for the Scottish income tax for 2017-18, which the NAO has certified as accurate. So, that is confirming that the amounts that we have collected from people who have got that flag on our database as being that taxpayer have been passed to the correct Government. The other issue is how we, over time, maintain the accuracy of the Welsh taxpayer database. So we've got a one-off exercise now to cleanse our records and make sure we identify people, but over time we've got to maintain that, and we will be agreeing, as part of the service level agreement with the Welsh Government, the kind of activity that we will undertake. Again, our experience in Scotland will be relevant here, but it will have to be subject to—bearing in mind the special issues around Welsh addresses around the border, for example, and the level of migration.
The key thing for us is maintaining an accurate, up-to-date address with us because it is the address that drives us to put the indicator onto people's records, and therefore we did some work around 2014-15—some research—to look at the extent to which taxpayers spontaneously tell us when they change address, and about 75 per cent of people do so. Since then, we have ramped up our communications around notifying us of changes of address. We've also put in place some obligations on employers to tell us of the addresses of new employees. We've also put on the self-assessment return, which tends to be for more affluent taxpayers, a specific obligation to confirm once a year what your residence is. So, in the case of Scottish taxpayers, we have an assurance rate of between 98 per cent and 99 per cent. There is no benchmark, so there is no register of who Welsh residents are against which we can compare, but what we do have is access to third-party databases, like the electoral register or credit reference agencies, et cetera, which we have used to compare our addresses with, and where there's a discrepancy, we have investigated those in relation to Scotland. And that's the kind of assurance level that we have—98 per cent to 99 per cent—and we'll be seeking to agree with the Welsh Government what kind of assurance level we can get to for Welsh taxpayers, and what kind of activity we'll need to do ensure that.
Thank you. I just want to ask a few questions about how HMRC are going to be inputting into the tax forecasting processes, and I'm just wondering how you're working with Welsh Government to make sure that data related to Welsh income tax, for example, can be fed into the forecasting process.
Our basic approach is to make sure that the Welsh Government has the same subset of data that is used by the UK Government both for policy analysis and for forecasting of revenues, and that is, really, we've got something called the survey of personal incomes, which is run on HMRC data every year. That is what is used at a UK level by the Office for Budget Responsibility, for example, to do forecasts and what is also used by Treasury to do their policy analysis. It is a version of that that the Welsh Government gets for Welsh taxpayers. Essentially, it is the same data. At the very top income levels, we do have to sometimes aggregate that data so that it is genuinely anonymised and you can't identify who the taxpayer is. And there'll be different levels at which we have to set that aggregation for Wales compared to the UK because of the different size of the population. But apart from that, it is the same.
The other issue is then in-year forecasting, so what data can we give during the year. Really, the only data that we have, which we are very willing to give, and that we certainly do give to the Scottish Fiscal Commission and the Scottish Government—and I assume we will give to the Welsh Government, as part of the service level agreement—is, we get monthly data from employers on real-time information in pay-as-you-earn. There are some sorts of issues with that data for forecasting purposes. First of all, it doesn't include self-assessment, which accounts for about 14 per cent of income tax receipts. Also, it is a snapshot in time, so we could be deducting tax from someone as a Welsh taxpayer at the beginning of the tax year, but, actually, by the end of the tax year, we've concluded that they're not a Welsh taxpayer. So, there's a little bit of variation in there, and we've discussed the level of movement in and out of Wales. And also, there are sometimes elements in the pay-as-you-earn codes that relate either to reserved taxes or to other things like student loan recovery or whatever, so it's not precise. I think what will happen is that, over time, we will get better at using that data to forecast accurately. But, initially, we will have to learn how to use that data, and it'll take time, I think, to understand fully the issues with it and how to take those into account.
It's OBR who will most likely be responsible for providing future tax forecasts for WRIT, so what arrangements do you envisage having between HMRC and OBR?
Again, we've got to agree those, but if I just describe what happens at the moment between HMRC and OBR for the UK forecast, which I would expect would be followed. We don't actually—. In the case of Scotland, we send an anonymised data set off to the Scottish Fiscal Commission. In the case of the OBR, they don't receive data from us; what happens is, they give us the set of assumptions and determinants from their model that we apply to the data, and we run that through our data and produce the forecast figures for them. That is the process that runs at UK level, and I would imagine our first starting point would be: is that what we shall do for Wales? But it still has to be agreed.
So, that's a different route to the Scottish route because of their fiscal commission. And how will HMRC approach the compliance of WRIT, mitigating risks of non-compliance, which could negatively impact, of course, on revenue collected by the Welsh Government?
You're quite right, some taxpayers don't pay everything that they are obliged to; I'm afraid that applies to some Welsh taxpayers as well. Our approach, really, is UK-wide because we have a risk-based approach, so we would not envisage doing any specific compliance action in relation to Welsh taxpayers other than in relation to their taxpayer identity—their residence status, in other words—which could be relevant, depending on the size of the differential in the tax rates. Otherwise, we have a UK-wide compliance plan that seeks to keep the tax gap as low as we can possibly keep it, and maximise the amount of revenues that you'll get. What will happen in the—. Because it can take a very long time for our compliance work to complete, long after the outturn is settled what will happen is that there will be a sort of formulary adjustment for the amount of compliance yield that we would normally expect to receive, which will be built into the Welsh receipts, rather than an actual amount of the compliance yield from Welsh taxpayers that we investigate. I wouldn't want the Welsh citizenry to think this is going to happen, but if, for example, in one year, we decided not to investigate anyone in Wales at all, you would still get a share of the compliance yield that we bring in.
One of the important elements of the devolution of income tax to Wales is that it will affect, potentially, the amount of money that the Treasury sends to us and, therefore, the issue of accurate data collection and reconciliation to outturn is going to be of very significant importance. So, can you tell us what discussions you've had with Welsh Government so far about potential changes to the Welsh rate of income tax? There is nothing going to happen in the short term, because the Government has said that for the period of this Assembly, the income tax rates will remain aligned with the income tax rates in England. But, what's the process going to be to ensure that the consequential changes, as a result of any change in the rates of tax, will be calculated correctly?
Well, our approach, obviously, is to give this data set to the Welsh Government and then it is for the Welsh Government to do its analysis as part of its policy costings when it's making its decisions for what it wants to propose in its budget. Whilst we have analysts in HMRC and we would be willing to give any advice or help that is required, particularly in terms of understanding what that data set really means, it is ultimately a matter for the Welsh Government to do its own policy costings.
There are some other consequential changes that might need to be made, depending on decisions that the Welsh Government and the Welsh Assembly take, for example, in relation to some tax reliefs that apply at certain rates, and Jackie could give you more detail, if you like, about what—
You'll have seen with the Scottish rate of income tax that new rates will apply from April, and we've had to make a number of decisions and adjustments to the way gift aid and marriage allowance type of things will work, because the rates have been slightly different. We'd do the same with the Welsh rate of income tax should you decide to go for a different rate.
Yes. Very useful.
There may well be additional costs for you in this process. How would you assess these costs if you were going to send a bill to Welsh Government to recoup the expenditure?
Simple rate changes are actually very low cost for us to introduce. We will obviously be billing the Welsh Government for any identifiable additional costs that we have, but in practice, rate changes are something that we do all the time or will be ready to do all the time and it's not a very costly thing.
I think the two main potential—. I've said, obviously, we think the annual running cost is about £314,000. I think the main drivers for cost that we will need to watch are, first of all, depending on the timing of when the Welsh Government and Assembly introduce a rate change. If it is done before the beginning of the tax year, then we can accommodate that and that's not a problem, but it if was, for example, done late and we had to run a special coding run to get it into pay-as-you-earn codes, then there could be an additional cost for that. And then, as I mentioned earlier, the other potential cost that would shift that £314,000 a year is if the differential in rates was so significant that we thought it created compliance risks that needed to be managed, and then there would be additional costs.
The forecasts will be reconciled to outturn when these are available, but that won't be until about 15 months after the end of the financial year, and of course, that reconciliation will be applied to the Welsh Government's funding for the following financial year. Can you take us through how this reconciliation process will work and how this will affect future Welsh Governments?
Jackie, do you want to do that? I'll do it then, that's fine. Yes, you're right, the final outturn is about 15 months after you're starting to get your funding, which is why it's so important to the Welsh Government and the Welsh Assembly that there is as good as possible forecasting as we go along.
I think what our experience with Scotland—. The Scottish Fiscal Commission has set out some explanations for the difference between the forecast and the outturn. What our experience is is that there is no data series from the past to inform the first year's forecast. So, I think there is a risk that there will be a difference in the early years which hopefully you can narrow as you get more familiar with how to do the forecasting, and you get a data series that you can use. But what we would do is we would give the cut-down data set from the survey of personal incomes to the Welsh Government, or to the OBR in the case of where the forecasting is done, and we will give them monthly RTI data from pay-as-you-earn, which will enable some monitoring to be done in-year of whether in-year receipts are in line with the forecast, or whether there's some adjustment required. I've described the issues with that RTI data in terms of how it's not a complete data set of all taxpayers, and there are some issues with what is in there that is not all relating to devolved income tax. But I would imagine that, over a couple of years, both the Welsh Government and the OBR and HMRC will get much more familiar with what adjustments you need to make in relation to that data, and therefore get more accurate forecasts over time.
So, I think what we will want to do is to track, first of all, what that initial differential between forecast and outturn is and whether, year on year, we are narrowing that all the time.
Will it take more than one financial year, do you think, to acquire the Welsh-specific data that are currently lacking to a sufficient degree of accuracy and reliability that they can be properly relied on for forecasting purposes?
Yes, so, for example, if you take pay-as-you-earn—so we've got that monthly data, but it is actually several months after the end of the tax year before we've completed our reconciliation and have a real outturn from that, and can understand the extent to which we were counting things in that monthly data that actually fell out in the reconciliation. And then, if you take the 14 to 16 per cent of receipts that come through self-assessment, the deadline for filing the 2019-20 self-assessment returns is the end of January 2021. So, that's the kind of timeline that you're looking at before you can validate your forecasts.
Okay, thank you very much. I think we've covered all the bases that we were hoping to cover, so unless you have anything that you wish to add, or any other areas that you were hoping to address. No. There we are. Okay. Can I thank you very much for your attendance this morning and for your evidence? You will be sent a copy of the transcript to check for accuracy. So, with that, thank you both for being here today. Diolch yn fawr.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).
Cynigiwyd y cynnig.
The next item on our agenda is to move into private session, and I propose in accordance with Standing Order 17.42(vi) that the committee resolves to exclude the public from the remainder of the meeting. Are all Members content? Diolch yn fawr.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 11:33.
The public part of the meeting ended at 11:33.