National Assembly for Wales

Y Pwyllgor Cyllid

Finance Committee

15/11/2018

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

David Rees AM
Jane Hutt AM
Llyr Gruffydd AM Cadeirydd y Pwyllgor
Committee Chair
Mike Hedges AM
Neil Hamilton AM
Nick Ramsay AM
Rhun ap Iorwerth AM

Y rhai eraill a oedd yn bresennol

Others in Attendance

Cathy Madge Arweinydd Ysgogi Newid, Swyddfa Comisiynydd Cenedlaethau'r Dyfodol Cymru
Lead Change Maker, Office of the Future Generations Commissioner for Wales
Joshua Miles Rheolwr Polisi, Ffederasiwn Busnesau Bach Cymru
Policy Advisor, Federation of Small Businesses
Sara Jones Pennaeth Consortiwm Manwerthu Cymru
Head of the Welsh Retail Consortium
Sophie Howe Comisiynydd Cenedlaethau'r Dyfodol Cymru
Future Generations Commissioner for Wales

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Bethan Davies Clerc
Clerk
Dr Ed Poole Cynghorwr Arbenigol
Expert Adviser
Georgina Owen Dirprwy Glerc
Deputy Clerk
Martin Jennings Ymchwilydd
Researcher
Owen Holzinger Ymchwilydd
Researcher

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 09:06.

The meeting began at 09:06.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Bore da. A gaf i groesawu pawb i gyfarfod Pwyllgor Cyllid y Cynulliad Cenedlaethol y bore yma? Ac a gaf i hefyd nodi bod clustffonau ar gael ar gyfer cyfieithu ar y pryd ac ar gyfer addasu lefel y sain? A gaf i atgoffa Aelodau i ddiffodd unrhyw ddyfeisiau electronig neu ddiffodd y sain, beth bynnag, os gwnewch chi? Ac a gaf i ofyn a oes gan unrhyw Aelodau fuddiannau i'w datgan?

Good morning. May I welcome everyone to a meeting of the Finance Committee in the National Assembly for Wales this morning? And, may I also note that headphones are available for translation and to change the level of the sound? May I also remind Members to turn off any electronic devices or put them on silent? And, may I ask whether any Members have any declarations of interest?

Chair, I have noticed that there's a letter from the Petitions Committee about a petition submitted to it and that petition comes from the Unison branch in my own area. I'm also a member of Unison, so I want to put that on record.

Digon teg, iawn. Diolch yn fawr iawn am hynny.

Fair enough. Thank you very much for that.

2. Papurau i'w nodi
2. Papers to note

Fe symudwn ni ymlaen at yr ail eitem ar yr agenda, sef nodi dau bapur. A gaf i wahodd Aelodau i nodi'r llythyr gan Gadeirydd y Pwyllgor Deisebau a chofnodion y cyfarfod a gynhaliwyd ar 7 Tachwedd? A ydy Aelodau'n hapus i nodi'r papurau hynny? Ydyn. Diolch yn fawr iawn i chi.

We will move on to the second item on the agenda, which is the papers to note. May I invite Members to note the letter from the Chair of the Petitions Committee and the minutes of the meeting held on 7 November? Are Members happy to note those? Yes. Thank you very much.

3. Cyllideb Ddrafft Llywodraeth Cymru ar gyfer 2019-20: Sesiwn dystiolaeth 8 (Panel twf economaidd)
3. Welsh Government Draft Budget 2019-20: Evidence session 8 (Economic growth panel)

Ymlaen â ni, felly, at y sesiwn dystiolaeth gyntaf y bore yma. A gaf i estyn croeso cynnes I Joshua Miles, sy'n rheolwr polisi gyda Ffederasiwn Busnesau Bach Cymru? Hefyd, croeso i Sara Jones, pennaeth Consortiwm Manwerthu Cymru. Mae Rhianne Jones am ymuno â ni hefyd y bore yma, sy'n gynghorydd polis gyda Chymdeithas Tir a Busnesau Cefn Gwlad, ond yn anffodus, mae hi'n stuck mewn traffig, felly, mi wnaiff hi ymuno â ni pan fydd hi wedi cyrraedd. Felly, mi symudwn ni'n syth i mewn i gwestiynau os ydy hynny'n iawn. Mi gychwynnaf i drwy ofyn i chi: i ba raddau ŷch chi'n credu bod y gyllideb yma'n blaenoriaethu twf yn yr economi yma yng Nghymru yn ddigonol? Ac, a ydy hyn wedi cael digon o ffocws o'i gymharu, efallai, â blaenoriaethau gwario eraill sydd gan y Llywodraeth?

On we go, therefore, to the first evidence session this morning. May I welcome Joshua Miles, who is policy manager with the Federation of Small Businesses Wales? I also welcome Sara Jones, head of the Welsh Retail Consortium. Rhianne Jones, is going to join us also this morning, who is a policy adviser with the Country Land and Business Association, but unfortunately, she is stuck in traffic, so she will join us when she has arrived. So, we will move straight into questions if that's okay. I'll start by asking you: to what extent do you consider that this budget prioritises the growth of the Welsh economy? And, has this been given sufficient focus in comparison to other spending priorities that the Government has?

Okay. I'll pick up on that first. I think any budget has got to do a number of things, you know, a budget's not just about the economy; the economy is one part of it. I think, generally, we're quite happy with the content in the budget. There's enough there around a lot of the economic actions for us to sink our teeth into. I think, where we would've liked a little bit more focus is in relation to the new tax-raising powers. There's a lot in there that will come from the rate of growth in the economy in terms of receipts. So, we think the Welsh Government could've been a little bit more explicit about saying, 'We need growth in things like income and productivity', which will then increase the kind of returns through things like income tax. But, I think that's a relatively minor point. On the whole, I think the budget's pretty positive.

I think we'd echo Josh's points as the Welsh Retail Consortium. There are lots of good things in this budget, and money around infrastructures and skills—it's positive. But I suppose the missing ingredient as far as the retail industry is concerned is around sufficient action or initiatives to reduce the cost of doing business, and also in terms of the cost pressures that maybe our consumers are facing at the moment. So, there could have maybe been a bit more there around enabling both industry and around consumers, but generally, on the whole, we're supportive and see it as quite a positive budget.

I'm just wondering, as well, whether this budget is a little bit business as usual, or whether it actually reflects a refocusing of allocations that result from changes to policy and prioritisation that have been set out in the economic action plan.

I think it's hard to tell, if I'm completely honest. There's a lot of movement into a budget line that is called 'business development direct support' and the rationale in the budget papers was that there's a lot of transition going on from the old economic programme towards the economic action plan, and, therefore, the easiest way to deal with this was to put it under one heading so that we can deal with legacy and new programmes in the same heading. From an outside perspective, it's incredibly difficult to see how much transition is actually going on within that as a result of that, and my concern would be—and we've had conversation with officials about this a little bit—that perhaps this transition is going to be longer than we thought and, from our perspective, we think that there's a lot to commend in the economic action plan; we should be really embracing the contents of that and making it clear in the budget where that happens. In particular, I think that a lot of the direct funding to businesses, things like the economy futures fund—you can't really see how much is allocated to that and how much is allocated to legacy programmes within that budget line, so that's a real concern.

Just out of interest, when we moved to the economic renewal programme, when that came in in 2009-10, there was a separate budget line for legacy funding from previous programmes, so the Government has handled this differently in the past. So, I think we could ask questions there as to why it's been done differently this time, and I think a little bit more scrutiny on what those figures actually look like would help in making an evaluation of that.

09:10

Okay, so you would like that greater clarity, in effect.

I think so, yes.

Yes. Just going back to your point that it feels a bit like business as usual, for the retail industry, it's certainly not business as usual at the moment. It's the most disruptive year we've probably faced as an industry and the challenges we have coming forward are enormous in terms of both shop closures and job losses; it's a really disruptive time for us. We needed to see maybe a little bit more initiative within the budget. Again, the clarity maybe is not there, the granularity's not in the budget lines themselves, so that will come through and that will follow. But we would push for as much investment as possible in the economic action plan in terms of being able to develop the actions that are in there. So, the enabling plans for the foundational economy—they're yet to come forward, and it will be really important to see budget directed towards that to enable us then to take advantage of or to look at the opportunities around the economic action plan enabling plans themselves.

So, better aligning policy and budgets is clearly something that you're looking for. That would also help in terms of monitoring the impact of that investment as well then, I'd imagine, would it?

Yes, and also the speed of the shift towards the economic action plan. We understand that there are new ideas, like the foundational economy, that are going to take time to get going. I think that can't be used as a rationale not to show where the change might be in the budgeting system. So, I just think they could be a little bit more explicit about that so we could measure that pace of change and have a discussion about whether it's quick enough if we need to.

FSB—obviously 's' stands for small—has had concerns over whether the Government's actually focusing more on the anchor companies rather than a wider mix, shall we say. Do you see any evidence in this budget of where you think there's a change going towards that wider mix of the economy, and perhaps particularly towards more indigenous businesses?

I think there's a mix in this budget. For reasons I mentioned earlier about that business development budget expenditure line, it's hard to see where the direct grant funding has changed. So, we've got the economy futures fund, we've got the idea in the economic contract that you get something for something from a Government perspective and that we're thinking a little bit more strategically about the kind of investments Government makes rather than just jobs. So, the policy narrative is there, but it's really hard to see in the actual figures through that budget expenditure line what has actually changed. That might, for all I know, be masking a lot of business as usual. We just don't know. So, I'm happy to give the benefit of the doubt, but having it more explicit would help.

Elsewhere in the budget, I think there are some quite positive changes. So, the development bank, for instance, is getting quite a lot more funding. That's a really good thing. It's been very successful since it started as a development bank, and clearly that's aimed to our kind of audience—more indigenous businesses that want to grow, want to go from that small to medium size. So, I think that's really good. There's also a more explicit Business Wales budget expenditure line in there, which, again, I think is fantastic, because we can see how much spending that takes in the context of the broader budget when that's done explicitly. So, I think it's a bit of a mixed picture. The policy narrative is in the right place; we just need to track it through, I think.

And you're saying that the way the budget lines are set up, tracking at this point in time is difficult for you.

Yes, it's mixed. In some ways, it's been a positive, but that one budget expenditure line has made things quite difficult, I think.

And does the retail sector feel that the mix is getting better for your economy?

In terms of businesses being supported?

Yes. Our focus on this is that Welsh Government has to be very careful not to pick winners and losers through where it focuses its budget support. We feel like we're having good support, growing support, by Welsh Government for the sector that we're supporting, and I think there's a good mix, a good relationship with the smaller business sector as well. So, it's overall very positive, but in terms of the tracking it is quite challenging around the budget lines there to see and monitor that going forward.

09:15

And, clearly, the economic action plan has a social aspect built within it. Again, do you see the budget now being a more inclusive growth type of budget? Is it moving in that—? Or, shall we say, shall you say, is there evidence it's moving in that direction?

I think—. Yes, there is evidence it's moving in that direction; it's just hard to measure the pace of that change.

And that's the—. I think that's the bit we need to unpick a little bit more in terms of how the budget expenditure lines work. But, yes, I think the evidence is there; the narrative is right and we just need to see that kind of flow a little bit better underneath it.

So, the feeling is that the narrative is right, but what you need to have is a more definitive set of measurements so that you could actually see whether that narrative is actually delivering or—

I think so, yes. And perhaps a little bit more of a timescale. There could be reasons why this takes some time to change; it's a big shift in policy. But perhaps being a little bit more explicit about when that will start to come would help, I think.

I think the issues around the inclusive economy are very important. And it is also about how we ensure that we're reducing regional disparities in the economic action plan. Can you just say whether you feel that the allocations of the budget enable the Welsh Government to use those levers to address regional economic inequalities sufficiently, or do other actions need to be taken?

I think the regional dimension is—again, it's a quite a new intervention, certainly from the economic action plan, so we've welcomed that. I think it's focused less on addressing regional disparities and more on creating agendas within regions, if that makes sense. So, I think, if you look at the way the city deal infrastructure works—and I would imagine the chief regional officers will work to support that kind of infrastructure—it's very much about articulating policy measures that would work in, say, south-west Wales. It's that kind of agenda. It's less about tackling inequalities between, let's say, how south-east Wales does compared to north Wales, or, even within regions, how Cardiff does compared to the Heads of the Valleys. So, if that's an explicit ambition of Welsh Government, it could be more explicit within the budget on that.

In terms of the specific funding for the regional aspect of the EAP, I think it's about £2.5 million. Again, that's just enough to get the ideas rolling; I think it's the supporting, kind of enabling infrastructure. You would expect this to come in later budgets when perhaps some of the interventions have been identified. So, it's difficult to put a lot of money into that at the moment without knowing what the interventions would be, so I can understand why that's quite a small part of the overall budget, I think.

We work for the large UK-wide companies that, typically, are headquartered across the UK. So, it's a challenge for us to actually engage on this agenda around the regional economic inequalities, or regional economic models, that are out there. I think we'd ask Welsh Government, using the budget, to look at how they can account-manage big business that have a presence in regional areas to ensure that we have that dialogue into the decision-making process—so, I suppose just more widely around some of the tools and initiatives that could be used to try and address some of those regional economic inequalities. Business improvement districts, for example—we've seen funding going into that through this budget—they can be really good initiatives; they can also be quite bad. So, again, it's around the monitoring of those and ensuring that we look at the effective evaluation of them before further funding goes in. But positive on the whole, so—.

I mean, obviously, it's a tension between—. Well, it must be a policy-driven approach through the economic action plan to address those disparities in wealth and opportunity across different parts of Wales, and also at a time of scarce funding as well. So, do you think we've got the right balance, they've got the right balance, between what will have to be redirecting from Welsh Government funding to address those regional economic inequalities, against the fact that we have got very scarce funding and there are national priorities as well?

At the moment, I think the balance is fine; there's not a huge amount in terms of the economy aspect of the budget that is related to that. That might change and we might need to have a further debate later down the road, when perhaps some of the interventions are identified.

One thing we would say is that city deals and growth deals are great, but we've tried to highlight the role of towns within that as well. It's almost, 'How does the within-region conversation work?' You haven't got to travel too far to find a lot of towns that are struggling, and we need to find a place for them in that conversation, I think, about a kind of city region as opposed to just an emphasis on cities. But, again, that's something that I think there's a broader debate to be had about.

09:20

Very much following on from what you've said now and what you said earlier, of course every large firm, or nearly every large firm, started off as a small firm and grew. One of the great weaknesses of the Welsh economy is we're not good at growing them. They reach a certain size and they either stop, get sold out—get bought out by a multinational, and they stop being a Welsh firm.

The other thing is—take Dundee, for example, a city not dissimilar to Swansea in terms of size. Dundee has built a niche economy on computer games, and it is now seen as the British leader in that. One of the things that's a great weakness in Wales is we lack these niche companies and this growth of companies of a similar type. If you look at the top 10 companies in the world, four of them are ICT companies—in fact, four of the top five are ICT companies. So, what I'm saying is: should we be—well, do you agree with me that we should be doing more to promote life sciences, ICT? I mean, ICT is the area where we are weakest compared to the rest of Britain. We're around about a third of the rest of Britain. Should we be doing more to promote these high-value companies? Because—a question to the retail consortium—isn't what you really need more money in people's pockets, a wealthier area, and then the local shops benefit? It doesn't matter whether it's in a small town like Carmarthen or a city like Swansea—put money in people's pockets and it will then generate better retail sales.

Absolutely. I 100 per cent agree. We know that consumers are hard pressed at the moment, with a very challenging landscape for them, and so it's around the cost of doing business and costs for consumers. But, as I say, costs for doing business for the businesses themselves—we are facing a very difficult operating environment and we need to see some of those operational challenges addressed, and business rates are at the top of that list. But, in terms of the consumers, yes, it's absolutely about enabling our consumers, and we have income tax powers now, an element of income tax powers, and we need to be ensuring that we maintain or don't increase that to prevent that consumer spend then being squashed.

I think the sectors idea there is a really interesting one. We've been down that route in the past. I think the thing that's always struck me with sectoral approaches is every Government in the world seems to identify the same sectors and you end up with lots of aspiration, but quite a difficult challenge in meeting the aspirations. I think where we've been quite successful in Wales is perhaps looking at where we do have assets. So, if you look at the compound semiconductor activity there, we've clearly got a niche there, and perhaps developing those kind of areas where we know we've got some sort of niche—. From our perspective as FSB, obviously we've got members in all sorts of sectors doing different things. The main thing is that we remove those barriers that stop them becoming Welsh medium-sized firms, as you say, Mike. That's absolutely spot on. Things like the development bank are a massive tool in enabling that to happen, I think, and the more we can do to unlock those barriers, hopefully some of those niches will emerge.

Can I just come back on that? I mean, you've got a region like Mannheim in Germany: it's a medium-sized city whose GDP is three times the European average—sorry, three times that of Swansea, which is only 70 per cent of the European average; that's 230 per cent of the European average—and they've done a lot of it, building on the universities. There are opportunities for people spilling out of universities, creating, using those skills, and, if you look at all of the successes in America, they've been created by people—they might have dropped out of university, but they were people who were in university studying these subjects. Facebook started off as an American university scheme, Hewlett Packard, you look at Google—these are all the same sort of form. Should we be trying to get more out of our universities than we are at the moment? I speak very highly of M-SParc in Ynys Môn, which is a science park, which is the only one we've got in Wales, which I find amazing, and not in a good sense.

No, I think we absolutely should. I think you're spot on there. There is an element in the budget to this, because, historically, Welsh Government has reduced—I think I'm right in saying, an element of the business/university interaction fund, it was zero for the last couple of years in Wales. The Reid review looked into this and said we really need to up our ambition here if we're to take the knowledge and expertise we undoubtedly have in our universities and get it into businesses so they can grow. So, we would absolutely see that as a priority because there's an opportunity we're missing there.

09:25

Back to the issue of tackling regional differences, Government hasn't been doing well in spreading capital investments, certainly, throughout Wales and, actually, looking at the figures over the past few years, we've been slipping back, where north Wales gets far below its population ratio of spending. There's been a huge slip in mid and south-west Wales, from 19 per cent of all capital expenditure in 2013-14 to 9 per cent in 2017-18. Are you seeing any signs in the budget that decisions are being made on spending now that will address that?  

I think it's difficult to assess that without going through the WIIP project in detail and a handle on the pipeline; sometimes, there are reasons why the pipeline looks certain ways. I think, as a general comment, though, we've got chronic underinvestment in infrastructure in Wales, and not all of that is down to the Welsh Government, to be fair. If you look at rail infrastructure investment, there's been a massive shortage for a long time in Wales of investment in that area, and, over years, that has an impact. I think this is the kind of issue that, if we're serious about addressing it, we need to throw into the National Infrastructure Commission that's been set up and task them with that challenge, and say, 'We want to make sure we're able to build infrastructure in every part of Wales. We need to maximise that amount of investment. How do we do it? How do we create it to allow that to happen?'

So, I'm not entirely sure whether this budget address that, But I think it's something, going forward, that we need the National Infrastructure Commission to really grab hold of, so that we can say, 'Here's the long-term pipeline of things that we need to do to address the infrastructure needs of all of Wales'.     

Sara, are you concerned about that clear lack of progress on capital expenditure specifically and trying to achieve a fair regional spread of that spending? 

It's not something that is raised a lot by our membership in terms of the regional disparity side, but it is an issue, particularly around digital infrastructure spend—you know, the move towards a much more digital retail industry, where we're seeing a lot more online spend, click and collect, I know that itself brings challenges in terms of the impact of that. But we need to be able to enable our consumers to have access, as well as our retailers, to be able to have decent digital infrastructure right across Wales. Again, whether that investment's being spread equally and fairly through the regions, the level of detail isn't really there, but that's one we probably have concerns about, more on the digital infrastructure side.  

Before we make progress, I think, David, you just want to come in very briefly. 

Talking about regional disparity, my earlier questions were on the balance and the mix of small businesses and larger businesses, and, clearly, as everyone knows, Port Talbot steelworks is in my constituency, which has support from many small businesses and the supply chain that feeds into it, and it has links into universities for that type of innovative research development approach. Is this budget focused more on the city deals approach, because that's wider than perhaps, in a sense, regional disparity, because the Swansea bay city deal covers Carmarthenshire and Pembrokeshire, as well as Swansea and Neath Port Talbot. Is the budget focused more on the city deal-type concept, or is it actually trying to address proper regional disparity and looking at areas where growth can be sustained through an anchor company, linked into science and research?   

Just on the first point, on companies like Tata Steel, from an FSB perspective, anchor companies are really important. It's not an argument for removing support for anchor companies; it's more about asking how we can make sure they do the most for their local firms. I think the Tata example is a good one, so I would agree with that. 

I think the city deal element of the economy budget is only one part, and I think you need to have a Wales-wide strategy for a lot of these things. Having said that, I think the focus, where it is on regional issues, is through those mechanisms, not on the inequalities within those. So, I don't see a huge part of the budget that's articulated dealing with that kind of regional inequality. So, I think you're right to say it is the city deal framework that attracts regional funding at the moment, but, ultimately, that's a decision for Welsh Government, whether they see that as a priority.

I appreciate that, but I'm just trying to understand what your views are on how this budget is focusing.

Thank you. If we look at taxation—something you started off with, actually, Josh—you said that there wasn't enough focus on how to increase the tax base, given that we have new powers for the first time over elements of income tax. Do you want to expand on that, and what tricks are being missed now, and what the potential is perhaps for the use of those new powers?

09:30

So, you're very fortunate to have Dr Ed Poole around the table today. Ed's work has helped inform a lot of our analysis. It's an excellent contribution to the discussion there. Clearly, public services are under pressure, budgets are under pressure, and what you can see from tax devolution is that the tax base is now something that we really need to consider if we are to grow the public financing that's available to Welsh Government. Again, Ed will be able to correct me on this, but you can tell that having employment levels, for example, that match UK employment levels leads to a significantly bigger budget, in terms of a couple of hundred million pounds over a longer term period. So, we think there's a real opportunity for Welsh Government to make some gains there in terms of pursuing those kind of policies.

In the past, we've focused a lot on jobs. If you look at employment rates in Wales and the unemployment rates, we've caught up to a large extent, which is fantastic; it's good news. What we need to focus on next is the quality of those jobs, the incomes of those people, and, to do that, we think the best way to do it is to increase the productivity of those businesses—very much like the discussions we've had already. I think the economic action plan is about that. It's making that shift away from jobs to talk about a broader set of issues, so we're definitely getting there in that respect. But ultimately we're now at the point where, to unlock that kind of potential, we've got to do some of the harder things. Working Wales has to address gaps in disability employment, for example, and minority groups being underemployed. That stuff is going to take a long time to do and you're going to need to bring businesses along with you on that journey. So, that's where the focus needs to be, I think, if we're serious about unlocking that potential.

I don't want to put words in your mouth, and it may be inevitable because this is the first time that we've had these powers, but is there an immaturity in what you see in terms of how policy tries to link into making the best use of the new powers?

It's going to take us time, yes. It's a new area for all of us. It's new for us as external organisations as much as it is for the Assembly as an institution and the Government. I think, if you talked to the tax department of Welsh Government, they absolutely get it. There's enough information there to show that they see this as a prime concern and policy needs to reflect it. The challenge is going to be how do you get all departments of Welsh Government to think in that way, to realise that spending on social care, for example, might have as much of an impact on economic growth and growth in the tax base as the direct economic development element. So, that's where I think we need to just do a little bit more. 

What are your thoughts? We should point out that both your organisations think that the Welsh rates should be left where they are for the time being; you see it as a last-resort measure. But what do you think is welcome in the Government's initial approach to the use of taxation and what do you think might be missing, from your organisation's point of view?

I very much support what Josh has just said. It's all about ensuring— . With consumer spending, obviously, if they've got less money to spend, we're going to see fewer retail jobs, fewer shops—there's all the impact of that, as the obvious things. But, in terms of going forward with new Welsh taxes, whether it be the behavioral taxes, for example, around things like a possible plastics tax, those sort of things, we're having very good early engagement with Welsh Government. So, it's very positive, I think.

Josh's point around the cross-departmental working is really important to ensure that policy, budget, taxation is all aligned. For example, what is the impact of the investment we're making in our skills and employability budget on the longer term tax base opportunities there? I don't know how well those dialogues are taking place at the moment, but it's early days. So, it's a difficult one to monitor and assess at this stage.

In terms of business taxation, obviously there are very few levers that the Welsh Government does have to pull on that, but, again, the biggest one for us is around NDR. Business rates reform is absolutely key, and what we'd call for is using some of the consequentials that are coming forward to freeze business rates for the next two years, whilst the Welsh Government then looks to address that issue around fundamental reform, which we think is so important to all industries that are business rates payers, which would really help to enable us to thrive and have a vibrant economy in the future. 

There are some people who say, 'What's the point of having levers like the ability to vary Welsh rates of income tax unless you use them?' There's another school of thought that would say, 'Having the powers and having the responsibility in itself is enough', and having the responsibility to bring in more money, because you are responsible for those rates, that that is enough in itself. Where are you on that? 

09:35

Well, to some extent, both are true. The fact that we're talking about economic growth and how that impacts on the taxpayer suggests that the second of your points is taking place. So, clearly, we are all thinking about that already. Ultimately, it is a political decision—income tax—whether the rates go up or down. I think there's been quite a lot of change in the Welsh tax system. In the last few years, we've had a new version of stamp duty in land transaction tax, we've had landfill tax, a vacant land tax being proposed and also quite a lot of consideration about reforms to council tax and NDR. So, from our perspective, one of the reasons we've said, 'Keep it as it is, at the moment' is that because there's so much going on it's worth having a pause and then looking at it holistically, I think, in the next Assembly term. But, yes, there are opportunities to do things differently here, and Welsh Government has shown a little bit of ambition in a lot of these areas, I think. 

Nick wants to come in and Mike very briefly, and then back to Rhun. 

Yes. You've touched on the issue of business rates, and I think 'freezing business rates' was the expression you used. Clearly, there are going to be consequentials coming to Wales because of the decision across the border with reducing the rates by a third, I think, of businesses up to £50,000. 

Fifty-one thousand, yes. 

I'm not entirely sure of the details but I think that's about—. So, would you want the Welsh Government to mirror that policy here or would you like them to go further or not quite go as far? 

We would welcome what the UK Government did, but I would say it's very much a sticking-plaster approach to a system that's broken. So, it's not addressing the root cause of the issue and it's certainly not giving that comfort to the larger businesses. There's some good stuff there—there is some good stuff—but it's about going further and using that funding to give confidence to an industry at a time, as I say, when it's going through such unprecedented change. Freeze business rates for two years so we don't have that rise coming and hitting us in April, and then look at what that longer term picture looks like. So, use the funding to freeze rates—that would be our ask. As I said, we welcome what UK Government's done, but we don't think it's gone far enough and it's certainly a sticking-plaster approach to what's a very broken system. 

That's quite clear. I like your idea about freezing business rates. Of course, we know that when you freeze things, you need to make sure that then, somewhere down the line, you don't have massive jumps, which can actually be worse than a gradual increase.   

Yes, well, we're already challenged. We have the highest business rates multiplier of anyone in mainland UK. So, we're already at a position where it needs to be addressed, and I'm sure it's something that the FSB would echo as well. We might not necessarily always agree on what that would look like or what the alternative might look like but we're all in agreement that there needs to be reform of this. 

There are two key bits of funding that cause consequentials in that budget that we think should be considered. You've mentioned the high-street relief. We think that's something you probably can replicate in Wales. By my admittedly quick calculations, there's around £25 million to £30 million in consequentials there, which is a decent amount of money. Welsh Government has its own high-street scheme at the moment, so we could look at increasing that, making that something more significant, and also a lot of the debate about the budget was around how hard pressed local government finance is at the moment. So, that could be a means of perhaps giving local authorities some room for manoeuvre around the towns agenda.

The second element of funding that generated a consequential—and I think this is the more interesting one for the long-term discussion—was the future of the high streets fund. Now, that, I think, is about £30 million over five years. So, it is a smaller pot of money, but one of the things we've said is—we launched our research project, Future of Welsh Towns—why don't we create a future of Welsh towns fund and allow towns to bid into it for some ideas as to how they can make their places better, perhaps help every town come up with a town strategy and really have a Welsh take on what the future of towns should be, and not just from a retail perspective, but from a broader perspective: how do public services, how do other kinds of businesses outside the town centre play into a future of towns discussion? So, we'd very much like to see Welsh Government consider that kind of approach for that consequential. 

I'm just going to bring Mike in very briefly, because we do need to make progress. 

Very briefly, how do you ensure that, if you freeze rates, the small retailer is the beneficiary of it, because a lot of people pay joint rent and rates? I know of at least one shop in Morriston that is actually zero rated in terms of the amount of money it's paying but every year its rent and rates go up and they're told 'Well, it's the rates, you see'. So, how do you ensure, if it's frozen, it doesn't actually just put extra money in the landlord's pocket but that it does actually help retailers? 

Do you want to pick that up? You had the freeze conversation. 

You mentioned the smaller businesses, we typically are representing the larger businesses—it should be all that are supported for this. Obviously, you pick up any newspaper at the moment, it's the larger retailers that are hitting the headlines in terms of the impact of what those business rate hikes are having. So, I haven't got an answer in terms of how you prevent that. Freezing itself gives a very clear message that Wales is open for business and, actually, we are a place where we're looking to do something and initiate a conversation around longer term reform. So, I think in itself it's a symbolic message. 

09:40

You've hit on one of the issues of rates, to be honest. It's not clear how you—it's quite a blunt tool and it's hard to make sure that benefit goes to the people you want it to. And you say, quite often the link between rates and rent is blurred, and from a business perspective it's the same cost essentially—it's the cost to occupy the premises. We talk about small business rate relief: that's actually a misnomer; it's small premises rate relief. There are lots of very large businesses that occupy small premises and get rate relief. Again, Welsh Government has made changes in this area that have reduced that. But it's a blunt tool at the moment. Again, this is one of the reasons why we need to think about what we do with it longer term. We know that's something the Cabinet Secretary is actively considering at the moment, but certainly there are things we can do in the short term like re-evaluation cycles, make them more frequent. But in the longer term we need to have a think about how the rate system runs. 

Okay. We'll carry on with Mike then, if you want to—

I'll talk about Brexit, which is topical, but I don't think anybody's much the wiser what's going to happen. The £50 million made available through the European Union transition fund, is that sufficient in helping Welsh businesses and public services prepare for Brexit or are greater funding and additional Brexit funding streams required, or haven't you the faintest idea because you don't know what's going to happen? [Laughter.]

Probably the third one at the moment. It's really difficult to know if that's enough money because we don't know the scale of the challenge around the changes. Having said that, the things that have been done with the existing funding so far, we've been quite happy around the Brexit portal for SMEs. We called for that, that's a great idea—it just allows companies to risk assess themselves, work out where their vulnerabilities might be. I think it's really important that we keep that up to day and we keep pushing firms towards that, particularly as we start to see the detail of what is actually going to change. 

Yes. I don't have a huge amount to add. Providing we've got the two-year standstill transition period, that'll give us enough time within our own businesses to prepare and deal with the challenges, particularly around supply of labour. 

I think this was touched on earlier—the Wales infrastructure investment plan and the capital allocation. You mentioned the importance of a strategic approach to delivering economic growth, to what extent do you see the capital allocations in the budget helping towards that? 

Yes. I suppose—

Yes, they are. I think the biggest issue with infrastructure at the moment is it's not easy to articulate a longer term vision around it because we look quite a lot at short-term infrastructure projects that are in the pipeline. Again, that's part of the rationale for setting up an infrastructure commission, and really we need to get that commission up and going and considering its work looking at infrastructure in the broad sense of the word, be that physical, digital or even social infrastructure, so we can really have a plan for the next 30 years that everyone can buy into, to de-politicise it a little bit, I think. So, again, I think where we are at the moment, the budget's addressing how we deal with things in the present, but in the future, hopefully with the infrastructure commission taking a firmer role, we'll be able to make that budget allocation on a bit more of a longer term basis. 

And the Welsh Government is talking about economic strategic hubs as part of the ministerial taskforce. Are you positive about those as well? 

Again, it's quite early to say. As long as there's resource and capacity there to engage with nationally based businesses at a local level to ensure that. Again, it goes back to the point about determining local decision making, but ensuring that you have that route in and that dialogue with very large, nationally based businesses. So, yes, it's supported but again a little early to tell. Providing enough resource is allocated to that it could be a positive way forward. 

I think hubs are an interesting idea. It comes back a little bit to the sectors conversation—

They're in vogue at the moment, hubs, aren't they? Hubs everywhere. 

It's like anything—you've got to be really strategic. If you have too many, then they become meaningless. If you have too few, then perhaps it detracts from elsewhere. So, there's always a challenge there.

One bit that does get missed often in the infrastructure conversation is we focus on new infrastructure excessively. One of the things the economy committee came up with was the state of the roads inquiry, which was really interesting. It showed that for most people it's actually the day-to-day infrastructure falling into disrepair that's causing the biggest issues. So, again, I think we could reflect some of that better in the way we handle the infrastructure conversation. But, as for hubs and the Valleys taskforce, I think it's a little bit too early to know exactly what that looks like, and whether it's something we'd want to see more of or not. 

09:45

Okay. Thank you. Neil. Oh, sorry, David wants to just come in.

Just on that point. You've highlighted some of the concerns by the Economy, Infrastructure and Skills Committee, that the state of roads—existing infrastructure, basically—was questionable. This budget included some reference or some funding for that purpose. Do you think this budget starts addressing the issue of existing infrastructure, compared to new infrastructure?

I think it starts to address it, but a lot of this is down to the way local government is funded, to be honest. A lot of that responsibility is theirs and they're under a lot of pressure at moment, and we get that feedback from them quite a lot. So, again, I think there's more to be done with the consequentials and seeing how, perhaps, that can be addressed further.

Because roads are down to the responsibility of local authorities.

Mike Hedges raised what I think is the single most important macro-economic point in any budget, which is how to raise gross value added and, therefore, the tax base. An important part of that will be increasing the skills that the workforce has, added to which we've got the challenges of automation and long-term technological change in the future. Do you think that Wales is fully prepared for the challenges of upskilling and retraining that we all know are coming? And what could we do? What's the plan? What's missing in the plan that we could change?

I can, obviously, only speak for the retail industry and clearly automation is a huge disruptive impact on retail, and a huge opportunity as well.

In terms of the skills of the workforce, employability, absolutely critical and just within the budget, it looks like it's a bit of standstill in terms of skills investment. Maybe a £5 million increase in higher level skills. For us, it's absolutely fundamental that we get people—. We've got a lot of new starters, people who've left school, people coming back into employment, so we need to ensure we have enough lower level, gateway, level 2 apprenticeships, which are the gateway into, a route through into skills. My concern is that that's being restricted.

The challenges for our industry is that we pay a levy, a UK Government decision, which, unfortunately, then is imposed on the Welsh Government who has to make the most of that. But it's really challenging. There's no transparency around that in Wales. And the challenge for our members who are all paying into the levy, which is to go to skills development for this very reason, is that we're not accessing that funding. We're not getting it back.

What you're going to see—and I think in the budget narrative it talks about trying to eradicate the skills divide that Wales, potentially, has. We know within our members, many of them are not offering apprenticeships, whereas they will over the border, because of the way the system's very opaque. So, we'd like to see more clarity around the skills funding and ensuring that it's drawn back down to those who pay into the levy.

I note from the FSB's evidence that SMEs accounted for 56 per cent of Wales's apprentices in 2016-17 and that figure fell by 2 per cent. So, it's going in the wrong direction.

That's been declining as a proportion of the apprenticeship spend by 2 per cent every year, which is a concern to us. We think there might be other reasons why that's happening.

I think the levy has been quite disruptive in terms of how that money is spent at the moment. The big thing we've seen happen is the public sector and large private sector businesses are now paying the levy. They want a return for that, so they want to start offering apprenticeships. The cake is the same size, essentially, as it was before, so if they're coming into that territory, then obviously an element of that cake is being moved away from the smaller companies that were engaged previously towards large companies. We need to think about how that's going to happen in the future, what kind of skills level we want.

There is, to some extent, an issue around medium and lower skilled areas. With the focus on higher apprenticeships, which is a good focus, we've perhaps lost a little bit more focus on the entry levels—that comes out in some of our skills survey work at the moment, particularly around skilled trades and occupations.

On the broader issue of automation, we've got to be really responsive with this kind of issue. If you think back to 2008, the response was ProAct and ReACT. It was a really good way of dealing with a lot of large companies that had a lot of redundancies. But that's something that's quite tangible—you can see when those kinds of redundancies are made; you can create a programme to deal with it. What's going to be a lot harder is the small number of jobs that change year after year, which automation will bring. So, again, post-compulsory education and training reforms, the tertiary education commission, that's something that's got to be really responsive to economic needs when it's set up, and it can't just be an internal conversation about, 'How much does FE get? How much does HE get?' It needs to be a much broader economy-facing body, I think, that can pose the challenge back to those organisations, not just deal with their concerns.

09:50

Automation and technological change is a good thing, because it'll raise productivity and has done throughout human history. The problem that we've got is how we cope with the transitional difficulties that that creates—jobs in one industry being lost and no obvious alternative. Obviously, the economy throws these things up spontaneously, but the problems of change are significant. As the speed of technological change increases, it's a far more significant problem today than it was, perhaps, 150 years ago.

We've got an opportunity to shape that change, haven't we? We need to think about it in those terms. It isn't necessarily a new phenomenon, because change has been happening for a long time in the economy in different ways over different periods, but we just really need to get on the front foot with it and try to shape it, I think.

I think it's about using policy levers to do that. We've got the framework there with the economic action plan, which is a very good thing, but it's really now about accelerating that plan. We need to see some action around those enabling plans for those industries that are going to be most disrupted—let's get those enabling plans, and get Government and business to have a very strong dialogue. That's absolutely key, and we do have a very good relationship with the economy department, but, again, it has to be not that silo mentality—working with the skills department, where we have less of an engagement, for example, to make sure it's for the greater good, then, so when some of these challenges do come in we turn them into an opportunity.

One of the problems that we've got in Wales is that the amount of discretionary spending that the finance Secretary has got at his disposal is relatively small. Health is a massive part of the budget—50 per cent or so. It's difficult to see that as a proportion ever reducing—in fact, the pressures are all the other way. Professor Gerry Holtham has suggested that we should be refocusing spending from economic development and health towards primary and secondary education, which is the kind of heroic proposition that an academic can easily make, because he doesn't have to cope with the postbags of politicians complaining about the health service and/or education.

The aim, of course, is to boost competitiveness, and we all want that to be achieved. This goes back to, perhaps, a point that Rhun was making earlier on—the extent to which we can use the tax system in Wales to improve Wales's competitiveness, within the United Kingdom, perhaps, as well as internationally, to make Wales a more attractive place in which to invest, work and live as a lever to try to increase GVA, and therefore the tax base, and then create a virtuous circle of income generation and spending.

Again, in some ways it's not a new problem. It's the invest-to-save agenda, isn't it? I'm not an expert in health policy, so please don't take this as gospel, but we know that an impact on social care has an impact on the health budget, for example. What's new, I think, here, in the way that we think about the economic action plan, is that we're talking about things like the foundational economy, which is in social care and is in childcare. So, perhaps we can start to think about how, from an economic perspective, that funding could be mobilised to unlock benefits elsewhere in the budget—for instance, in the health service. So, again, it's not necessarily a new problem, but it is a problem that the Welsh Government faces in terms of how it sets its budget. 

Just on the specifics around Gerald Holtham's point around investment and moving budgets into primary or secondary education, just from a retail perspective and industry perspective, a lot of our workforce is an older workforce. A lot of people are coming back into the workforce because it's a great place to work in terms of flexible working patterns and the support that we give to employees. The challenge we have is the digital skills in particular of that older workforce and ensuring we invest in their time and invest in their skills. That's obviously going to happen through, potentially, apprenticeships and through employability schemes, and, again, it's about ensuring that funding is ring-fenced for that purpose within the Welsh Government budget.

Thank you. Mike, you just wanted to come in at the end.

If you look at the Welsh economy 40 years ago, when I was graduating from university, leaving aside the loss of some of the larger industries, if you look at the high street, coffee shops were almost unknown, and if you had the word 'gym' you normally had the word 'boxing' in front of it. [Laughter.] We've also lost some of the great trades—toolmaker was considered one of the great trades and was highly skilled. Draftspeople have been reduced in number because you draw it once and you can then scale it using things like AutoCAD.

The question I'm really asking is: we don't know what the new replacements are going to be for coffee shops, and we don't know what the new replacements are going to be for personal trainers and gyms—we don't know what those will be— but should we be getting ready for what the next generation will be, with this change in artificial intelligence? Because the ICT revolution created lots of ICT jobs, but it also generated a whole range of jobs, nothing to do with ICT, which—. Should we be looking to try and see what we can do in order to promote those?

09:55

Yes, we should, absolutely. We need to be on the front foot with these kinds of issues. You're absolutely right, the economy's changing all the time, and coffee shops—. Co-working spaces weren't a thing 10 years ago. What we need to think about, though—and this perhaps is more relevant to an SME conversation—is it's not just the creation of that kind of new technology but the diffusion of it. So, you can focus on where AI is created, but, actually, the bit that has the biggest change in the Welsh economy is how firms take that up and use it in their businesses, and you see that in lots of small ways across lots of small firms. So, we need to do both bits, I think, but I absolutely agree.

Just a quick one. The question for this committee is: does the budget actually demonstrate that that process is being undertaken?

I suppose I would go back to the original point, that the actions that are in the economic action plan can't be seen under the business development element of it. We don't know how much of the contract and the economy futures fund is as part of that funding, so 'no' at the moment. I think the intent is there, but it's harder to see where the budget does that in practice.

Well, that's where we started, and it's very appropriate that we conclude at that point as well. So, can I thank you both for joining us this morning. You will be sent a transcript of the session, just to check for accuracy, and, again, thank you both for imparting your views and knowledge and experience with us as part of our inquiry. Diolch yn fawr. We'll move straight on to our next session, and whilst we just get everything ready, I'll pause for a moment.

4. Cyllideb Ddrafft Llywodraeth Cymru ar gyfer 2019-20: Sesiwn dystiolaeth 9 (Comisiynydd Cenedlaethau’r Dyfodol Cymru)
4. Welsh Government Draft Budget 2019-20: Evidence session 9 (Future Generations Commissioner for Wales)

So, we'll move on to our fourth item on the agenda, and can I extend a very warm welcome to Sophie Howe, the Future Generations Commissioner for Wales, and Cathy Madge, who is lead change maker at the Office of the Future Generations Commissioner for Wales? Welcome to you two. We'll go straight into questions, if that's okay, and I'll kick off, if I may, because you have noted that you expect to see 'real change'—which is what you described it as—in how the budget process and documents reflect the Well-being of Future Generations (Wales) Act 2015, of course. The Welsh Government has referred to developing a systematic and incremental approach to the Act, so my question really is: in terms of the budget, are you satisfied with the progress that's being made in incorporating the Act into the way Government makes decisions, particularly around budget?

I think that there are some positive indicators that that's happening. My office are in the process of developing what we're calling a kind of journey tracker, where we're identifying: what are the simple changes you might make in accordance with the well-being of future generations Act? What would it look like if you were being a bit more ambitious and more adventurous? And then, what would it look like if you were really leading the way? I think we would probably put where we are in this budget round in the first category as 'simple changes'. I think, in terms of, 'Can you track a journey from going backwards?', I'm not sure. Maybe you can. Perhaps last year we weren't even on the bus, or what have you. We're now on the bus, I think, on that journey in terms of simple changes, and the reason that I say that is in terms of the commitment of the Cabinet Secretary, for a start, to go through that process and evolve the understanding of his department in particular. That has been very, very welcome, and he's clearly demonstrated a commitment to working with my team. My team have been working very closely with budget officials, and that's why you can see the budget presented in a different way—so, presented in terms of linking across to the well-being objectives. I think one of the key things that we're seeing in this year's budget—although, again, I would put it in the category of a simple change and still much more work to do—is that definition of 'prevention', which—. I know numerous Assembly committees have been advocating for a definition of prevention for many years, and that has never been able to happen. This year, in discussions with the Cabinet Secretary, I said, 'Well, either you come up with a definition of prevention with us, and we can work with you to do that, or I will come up with a definition of prevention and I will monitor the budget on that basis.' So, I was really pleased to see that the Cabinet Secretary and his department and officials were working with us to do that.

In terms of what it might look like, however, if we were moving from the, kind of, simple changes, if you like, which, perhaps, are early stages of applying that definition of prevention, early stages of presenting the budget in a more integrated way and presenting it in a way that aligns with the well-being objectives, I think, possibly, what we're lacking at the moment is a coherent narrative, particularly across the cross-cutting priority areas. So, those six priority areas that Government have set. There are new bits of funding or different parts of funding allocated across those priority areas, but you don't get a sense from the budget that that's part of an overall strategic and coherent plan. So, I could give some examples on mental health if that's helpful.

I think, also, if you look at the budget at a very strategic level in terms of the definition of prevention in particular, at a high level what we would be expecting to see is probably a shift away from acute spending in the NHS to more preventative spending within the NHS, but at a very strategic level, probably a shift away from NHS spending towards local government and, clearly, we're not seeing that in this year's budget. And that gives me cause for concern in terms of, at a strategic level, how the Government understands the shift to prevention that is needed.

10:00

Okay. So, that pace of change—I mean, clearly, it's still early days, I'd imagine, because you can't compare to previous years, but are you content that there's a willingness from the Government to move in that direction, but, maybe, slight frustration that things aren't happening as quickly as you might have wished?

Yes, I think that's a fair reflection. As I said, the Cabinet Secretary for Finance has been personally very supportive of getting the definition of prevention—of setting us on a kind of journey. I think the challenge with Government is, obviously, that's one Cabinet Secretary and there are, then, all of the other Cabinet secretaries, their departments, and how that flows right down through departments. And there is a significant issue, I think, in terms of the support that is available for that kind of cultural change within departments. We've done quite a lot of work in terms of working with operational leads who gather the budget information in each department. The feedback from the sessions that we've done there has been—they found them incredibly useful, they'd asked us to do similar sessions for each of the other 50 sub-subsections within the departments. We weren't actually able to resource that. You know, my budget is £1.4 million. Arguably, throughout Government, the civil service should be resourcing that sort of cultural change, and they are doing some things, but it's indicative to me that—. It's brilliant that we started with a commitment from the Cabinet Secretary, but, actually, there's got to be significant resourcing in terms of cultural change flowing right down through the organisation to help that change.

And is that a resource that you can see in the Government's budget?

So, the Government have established a future generations team, which—they're currently recruiting to that team. The people who are so far in that team are very skilled and have a huge amount of knowledge in terms of the future generations Act. I've just written to all Cabinet secretaries to ask them what resources they're putting in through their departments but also beyond their departments to their sectors. So, for example, what resourcing is going out to enable planning officers to understand the obligations under the future generations Act, what resources are going out to enable teachers to embrace the future generations Act and so on. So, I'm waiting for a response from them, but if I'm honest, I don't expect a response to say that there's very much resources going into that at all, and that's a significant issue.

Okay, thank you. David just wants to pick up on this and then we'll come to Mike. 

Just one quick point—you said you don't think they're committing enough resources. Is there initial capacity within the Welsh Government? Because, clearly, when I talk to the First Minister about Brexit and other issues, there's an issue of capacity. Is there an issue of capacity in the Welsh Government to actually be able to allocate those resources?

There's a definite issue in terms of capacity, and I can give you an example of that. I've offered to second someone from my team into this new team who are focusing on the future generations Act. We've been trying to get back secondment arranged I think for about the last four months. We're unable, even, to get there through the human resources system because the HR system is clogged up with the new posts that are coming in or that are being brought in for Brexit and so on. So, there's a huge issue in terms of capacity in the system. Brexit is obviously diverting a huge amount of attention, resource, capacity, and that is a challenge in terms of trying to get some of these other really important things done. But I don't think that's a situation that's unique to the Welsh Government. It seems to me that that's a situation where the UK Government and the Scottish Government are feeling the pain as well.

10:05

Can I ask quickly on that preventative one first? We've been told, or I've been told by a number of people, that slightly raised blood pressure has no effect whatsoever on people's mortality and their likelihood of having a stroke or a heart attack—very high blood pressure does, but slightly high blood pressure doesn't. We've spent lots of money in Wales, and it will come under prevention, because we're spending money to deal with people with slightly raised blood pressure. Is there not a danger that we spend money on prevention that doesn't prevent anything?

I think that's a really good point. I can't pick up on the blood pressure example through the budget, but there are a few other examples that I could pick up on. And this is where I think my point about moving from simple changes—so, simple changes, we've got a definition of 'prevention', great. Moving along that journey would be an understanding of what it is we're trying to prevent, and there's an example in housing where they're referring, I think, to the Supporting People budget and so on, and they're saying that that's primary prevention. Now, I suppose you could badge that as primary prevention if what you're trying to do is to prevent people who are homeless becoming to be in a worse situation. However, it's not primary prevention if you're not actually preventing people becoming homeless in the first place, and the reasons why people become homeless in the first place are outside of the housing system and probably outside of Supporting People and so on. So, I think the issue that we have in terms of the understanding of prevention at the moment is that what we can't see across Government is: take an issue, be that mental health, be that jobs and skills for the future or be that decarbonisation, and a really thorough assessment of what it is that we're trying to prevent. If we're trying to prevent that thing, where does that prevention need to happen? Is there an evidence base to say that that is the right thing to happen? And that's the coherent part that I don't think we've quite got to yet.

I think I'd tend to agree with you on that. Moving on, you've noted the 2018-19 budget was structured around ministerial portfolios, with clear examples of a similar initiative being funded by separate portfolios with little or no connection between them. It's incredibly difficult to know who's doing what—that's my additional bit. Do you feel that the approach this year, which uses the key themes and priorities within 'Prosperity for All', is better? If it is, do you think it would be a good idea if we kept it year on year, so we could actually see the changes?

A final point on this: we talk about all these things and what we're doing with the budget, but I can tell you now, this year's budget and next year's budget will give extra money to health, and it will cut back in local government and most other services.

So, dealing with your first point, yes, I think the presentation of it is better. Again, I would say the presentation is in the form of a simple change. I completely agree with you that—well, I think this is what you're saying—it would be useful to maintain that in order to track progress. The discussions that I've been having with officials are around, moving forward from here, actually developing with them a kind of journey checker from that baseline. So, next year in the budget, what would we expect to see so that everyone's clear about that? I think it's probably also an important point to make that this budget is a standstill in lots of ways. It's the last budget before the spending review, but, actually, that presents a real opportunity in terms of next year's budget with the spending review, to try and move along in terms of the level of ambition and actually reform. Now, whether I would want to see in that budget, which comes after a spending review, as I said, a shift from acute spending in health towards preventative spending in local government—I think that's a matter that the Government has really got to grapple with, because to me, across a huge number of these budget lines, that's the elephant in the room.

Associated with that, in a way, on the participatory budgeting and a partnership approach to budget setting, you've called for more of a partnership approach, of course. Are you seeing evidence of it?

In terms of agreeing the definition of prevention, that was a genuine partnership approach between my office and Government, and we brought a range of different stakeholders in to help in that—people who had expertise in the subject, people from the third sector, and a range of other things. I really welcome the approach that the Government took there. 

In terms of participatory budgeting, if you recall, last year, the Government attempted an approach around participatory budgeting that wasn't particularly successful. I think there was a willingness to try and do that, but again, the resources weren't really allocated to it. So, it was a few budget officials—no criticism of them at all—sent out to meet with a focus group of people to discuss, in a fairly short amount of time, 'What should we do with this whole Welsh Government budget?' Actually, they weren't geared up to do that, there wasn't the level of resources, time, commitment and understanding of participatory budgeting to do that. And, where you do it—. I would say it's better not to do that at all than to do it badly, because, as an example, one of the things that the Government refer to here is, through that participatory budgeting process, people say that they want an increase in health spend. Well, to me, that's a bit like Henry Ford and the car—he says, if you ask people what they wanted before we had the car, they would've said 'faster horses'.[Laughter.] I've got to find a new analogy and move on from Henry Ford and the car, actually, and I'll work on that one.

But, if you only give people a short amount of time and as much information about the budget as you can—you know, a massive, massive issue—given that short amount of time, I don't think you're going to really get sensible answers back from them. I don't think that participatory budgeting is perhaps an appropriate approach to the budget of a whole country. Where you see it work effectively in other areas, it tends to be in particular cities, so there was one in Paris, they called it 'Madame Mayor I have an idea'. There was a budget allocated—I think it was a few million—and there was a kind of participation voting and polling around how should we spend that money. Doing that across the whole budget of a country—we can't really see any good examples anywhere else. So, I think the Government would be better placed, if they want to pursue that, to do it on a particular theme over a period of time, 'We'll do an in-depth look with people on social care'. or whatever it might be. Or perhaps in a particular area, like a local authority area, but obviously, then, you get into the, 'What happens to the revenue support grant and what the health board are spending?', so it's difficult, I think.

10:10

Yes. I was hoping to tease that out of you, because I agree, especially on the health issue. Yes, we'd love to see more investment, but investment in health can be in the form of better decisions, for example, can't it? And Government can wash its hands of tough decisions by means of elaborate participatory processes.

One element that certainly you're happy to see in the Government's new approach is to include decarbonisation as an aim. Just tell us what you think of the inclusion of that as an aim and whether you think Government is saying and doing the right things through this budget to strive for those aims you'd like it to get to.

Yes, that's correct. I'm really pleased to see decarbonisation added as a kind of sixth cross-cutting priority. That was added, I suppose, later in the day and maybe what I'm about to say in terms of where they are is a reflection of that being added later in the day. But I suppose our top line on that is that, quite simply, there is nowhere near enough investment going into decarbonisation to meet the scale of the challenge.

So, our analysis indicates that spend on decarbonisation amounts to about 1 per cent of the overall Welsh Government budget. We've identified about 15 different budget lines where you can see clearly there's a link to decarbonisation. I give a bit of a health warning there, because—I'm sure you feel the same as me sometimes—it's not always easy to see clearly where those budgets are going. But, all but one of those are in the energy, planning and rural affairs department and the economy and transport department, and the other one is in housing in terms of the housing innovation fund. On energy, planning and rural affairs, that's the smallest budget of £0.3 billion and investment from that budget in decarbonisation appears to have fallen by 3 per cent, so from 12 per cent of that budget last year to 9 per cent. And then, in terms of the economy and transport's main expenditure group, £1.1 billion in terms of that department, so I think it's quite disappointing to see that only 2 per cent of that department's spend is allocated to decarbonisation.

So, to sum up, they're talking the talk, in terms of including this as an aim, but they're not walking the walk in budgetary terms.

10:15

I think that would be a fair reflection in terms of this year's budget, and we can see—. The Welsh Government are consulting on the low-carbon pathway, which is due to be published in March. My office has been very involved in supporting on that and bringing in different stakeholder views, et cetera, on that. I suppose, if you asked them, they might say, 'Ah, but we haven't published our low-carbon pathway yet.' I would say, actually, most of the actions within that are not going to be entirely new actions, they're things that we've known for a long time. We've had a climate change action plan since 2010. I don't think it's an excuse to be saying, 'Oh well, we need to wait until the low-carbon pathway is published.' There are things that are in there, for example, reducing the carbon footprint of taxis and buses to zero within 10 years; there's a commitment in the investment plan to reduce carbon emissions from the ambulance fleet, but there doesn't appear to be anything else in the budget to support that commitment; doubling the percentage of adults making cycling journeys and walking journeys, and so on—I would say that there's insufficient investment in terms of active travel. If it's useful to expand on some of that, I can, but I'm conscious of time. 

Okay. That's useful. There's a debate, actually, in the Assembly on decarbonisation in energy next week, so—.

Yes, I just want to relate this to what Mike Hedges was saying earlier on about preventative spending that doesn't actually prevent anything, because we obviously make a difference in the carbon footprint of Wales, but this is a global problem, because it is global warming, and global carbon emissions matter, if you accept the theories that underlie these policy prescriptions. If we are spending 1 per cent of our budgets on reducing Wales's carbon footprint but making no difference to what's happening in the rest of the world, what's the justification for this? Couldn't we spend that 1 per cent in other ways more profitably?

I think this is the sort of distinction between us being global consumers and actually recognising that we're also global citizens. And I think if every country took that approach—well, every country has taken that approach and that's why we're in the mess that we're in. 

I also think that there are issues on a big, global, strategic level—Trump pulling out of the Paris agreement and so on—but, actually, if you look at the actions and the analysis behind that, the fact that very many states in the United States of America have said, 'Actually, we completely disagree with what has happened here, and the actions that we take as a state are going to be the right actions in terms of decarbonising.' In many ways, states in America and small countries like Wales actually control more of the actions that would relate to decarbonisation than are perhaps controlled at a huge level in terms of what Donald Trump may or may not do. So I think it's absolutely incumbent on us to be global citizens as well as global consumers.

Aside from that, we have statutory obligations, both in our own Environment (Wales) Act 2016 and within the well-being of future generations Act, to meet our decarbonisation targets. We're currently not on track to meet those decarbonisation targets. I'm sure Members are aware that there was a reduction in the target that we were supposed to meet by 2020, which was a 40 per cent reduction. That was reduced to a 27 per cent reduction, and we're currently on 14 per cent. So, by 2020, we've got 13 per cent decarbonisation to make up. So that causes significant concern, I think, in terms of Wales meeting its global obligation on this—it is an existential crisis, as far as I'm concerned, but also meeting its own Welsh legislation, targets and commitments. 

Yes, just a quick question—procurement and how Welsh Government spends its money clearly can have a direct impact on the well-being of future generations. How is Welsh Government doing in this budget, do you think, on procurement, and is it heading in the right direction?

It's very difficult to track, through this budget, what is actually happening on procurement. I suppose it's a bit like: how do you track through this budget what happens in terms of when the RSG lands with local authorities and when the NHS spend lands with health boards? So, I'm not sure that the budget is the right place to actually do that tracking. It's more in the policy approach.

So, again, Members will be aware that there's been significant concern about how national procurement policy was working—the National Procurement Service. There was a Public Accounts Committee review, there was a Wales Audit Office review and so on, and we contributed to a number of those things.

Simply put, we don't think that the current national procurement policy statement is compliant with the well-being of future generations Act. The Cabinet Secretary set up a review to look at that. I was a member of the stakeholder group of that review. I believed that they were getting the review the wrong way round—so, they were looking at what we should do with the National Procurement Service and then planning to look at what we should do with procurement policy. That's, kind of: set up the infrastructure to drive the policy, and that's completely the wrong way round. It should be: set the policy and then set the infrastructure to deliver against that policy. I'm really pleased that the Cabinet Secretary has taken on board the views that I expressed there, and a number of others, and has said that he will look now at the procurement policy, but we're yet to have further information as to how exactly that's being done.

One of the things that I think we can welcome is, through that involvement in the review, we introduced the Government to the work that was being done in Preston, where they'd brought together a number of anchor institutions in Preston—all of the public bodies, the universities and so on. And between 2013 and 2017—so, in 2013 in Preston, they spent £38 million in the Preston area and £292 million in the wider Lancashire area. By bringing together all of these agencies, mapping what they were actually spending locally, setting a plan together and coherently around how they wanted to improve that, where the areas for improvement were, by 2017, that £38 million had gone up to £111 million in Preston alone. In the wider Lancashire area, it had gone from £292 million to £486 million.

So, that to me shows what can be done when you take a really concerted approach. At the moment, we can't see how that is—. I think there's a willingness to do that—certainly the Cabinet Secretary himself has latched on to the Preston example and, as I said, we've facilitated that connection—but it's difficult to see at the moment how exactly that is shifting. But I would expect to see that shifting, certainly, over the next 12 months.  

10:20

There's one very simple way of changing it and that's making contracts smaller. The real problem is—the A55 is an example, isn't it? They put a several hundred million pound contract on the A55 that meant there were three or four national companies that could bid. It's the same with schools. If they build one school and put it out for a school at £7 million or £8 million, it'll almost certainly go to a local company. If they put out a block of eight schools for £60 million, it'll almost certainly go to a national company. This is just about a very simple thing that could be done—are you pressing for that? 

Yes, I am pressing for that. We've done some work specifically with the National Procurement Service around food contracts where the modelling was exactly the same, and there's been some  improvement there in terms of the number of local suppliers who are able to bid by simply doing what you're suggesting there, which is having smaller lots, basically. I think there is an issue though for procurement policy to grapple with, which is a bit of a complex environment and the fact that policy isn't always saying, 'Okay, the future generations Act can provide a kind of overarching approach to doing procurement'—so, really, what we should be doing is, in every contract, 'How are we maximising our contribution to all of the seven well-being goals through that contract?' Some of that might be local employment, some of that might be, 'We've mapped our carbon emissions', some of that might be, 'Are we using materials ethically to be globally responsible and so on?' There's a bit of a complex mix of—. You've got the ethical supply chain policy: that is becoming the big new thing. That's fine. I'm not against ethical supply chains, of course I'm not, but, actually, it needs to sit within this broader context. So, I think what I'd like to see from a procurement policy review is how the future generations Act is the overarching policy that drives all of the rest of it.

10:25

Your job involves looking ahead to provide policy prescriptions to avoid problems arising at all, or to diminish those that currently exist—a very valuable role that is. But, in evaluating the Welsh Government's approach to this and its attitudes towards preventative spend, in order to be able to do that effectively, we have to know what we mean by prevention. And there is a definition in the draft budget that looks all very symmetrical and obvious in an academic sense. You were involved in drawing up the definition. Can you tell us more about what happened in the development process of this, and how you were involved, who you were involved with, and how your ideas fed into the system? And, then, are you happy with the outcome?

Yes, certainly. So, as I mentioned earlier, I suppose, using as a starting point the numerous recommendations that have been made by Assembly committees over the years, the fact that there is, obviously, now this statutory definition within the well-being of future generations Act, but it requires more meat on the bones to make it meaningful in terms of actually allocating money and taking decisions, and the dialogue that I'd had with the Cabinet Secretary—as I said, quite simply, I said, 'Well, either you develop a definition with me or I'll develop one and I'll monitor the budget on that basis.' So, I'm pleased that we were able to work in partnership to do that.

The work was led by strategic budgeting officials in collaboration with my office, and Cathy led that work on my behalf. They came up with an initial definition after trawling through what's the best practice in a range of different areas. We fed into that and brought together a range of different stakeholders. So, Public Health Wales were involved, the early action taskforce, WWF, representatives from the Wales Council for Voluntary Action. Who else am I missing?

The University of Stirling.

The University of Stirling, yes, who did the work on prevention with the Scottish Government. The fire service were involved, because they've made significant strides in terms of shifting their resources towards prevention. There's probably—there were about 15 or 20 people involved and I can't remember the whole list, I'm afraid.

So, the definition was changed as a result of that. I think the position that we got to is that we don't think that this is a perfect definition and, in a way, you're never going to be able to see how good it is until you start running it through decisions and spending priorities. But we felt it was important that we didn't just continue to float around in this vacuum without a definition, that there should be something that we could at least start to use.

And we can see in this year's budget how the Government are starting to use it. I think it's quite interesting some of the areas that have been picked—so, particular parts of budgets, perhaps, in some areas, rather than whole budgets—and the particular parts of budgets that have been picked tend to be those ones that are doing better on prevention than not. That goes back to my point that I think we're in this simple change, getting it into the consciousness of people. There's further work that needs to be done to understand this and, as I said, what we want to do with Government next year, and I think the Government are warm to this, is to develop this journey checker to say, 'Okay, this is where you are at the moment. This is where we would expect you to be next year and in the coming years.'

I fully accept this is a journey and we're at the beginning of it. That's a perfectly reasonable point to make. Are there any glaring omissions at the moment that you'd like to change?

I think, in terms of—. Again, the most useful pie chart, if you've been through the budget document, was what I described as the elephant in the room—the NHS allocation, which I think is 74 per cent on acute spending. Is that right? I've got it here somewhere. I'll give you the exact figure in a moment. Yes, 74 per cent on acute spending. It's a good starting point, actually, that we've got that, because what I would expect to see next year is that 74 per cent is reducing and moving into the different forms of prevention.

There was some evidence of a real lack of understanding here. So, on social care, I think it was, they'd actually put the whole budget for the older people's commissioner allocated as preventative spend. And I'm not sure that that is quite what we're trying to get at. And then there are some issues around, as I said, this approach to having a proper discussion and a way of analysing across Government. Right: what is it we're trying to prevent? And what is the best place to prevent that? And so I think you can't look at prevention in isolation. You almost have to look at that in terms of integration as well. Because what we're not seeing as yet is: 'We've looked at mental health, we've decided that these are the things we need to prevent in mental health: we need to prevent children and young people developing mental health conditions in the first place; we need to have earlier intervention for those people who develop low-level mental health conditions; we need to have faster routes to treatment for those people who already have mental health conditions' and so on and so on.

What we can't see is a clear narrative across Government that that assessment has been done, that there's an understanding then of where those points of prevention need to happen. There are some positive things in there like the allocation for mental health for schools, the £2.5 million going into schools. That's an indication that there's an understanding that we need to do something with young people to prevent mental health, but it appears to be one decision sort of plopped into the budget, if you like, without that coherent narrative of what's happening across the board on mental health, and you would expect, particularly where mental health is one of the six priority areas, to see that coherent narrative.

10:30

I think Nick just wants to pick up on that particular point.

Yes, just very briefly. Because the whole point of the future generations legislation and the concept was that what you've just said wouldn't happen and that it would be mainstreamed throughout all departments and there'd be an overall strategy. So, trying to do add-ons like mental health afterwards is completely not going to work.

I think that's the challenge. So, in a way, you don't want to take away from the fact that somewhere in Government—the Cabinet Secretary for Education in this case—said, 'Actually, I recognise that, in meeting the Government's overall priority on mental health, there's a piece of work that I need to do and I need to allocate some resources.' That's great. However, I would see a role, for example, for Cabinet office, maybe, actually saying, 'Across Government, these are all of the things that we need to do. We need to take into account, for example, the fact that whilst moving funding into acute spend in the NHS we're moving it away from local government, that local government is absolutely key in terms of the preventative services particularly around mental health.' There are some brilliant examples. Torfaen local authority are funding community connectors—so, those people who are lonely, isolated, on the edge of falling into services, actually routing them out in different ways. So, there needs to be an analysis of, 'Okay, so, if we're reducing local government funding, how is that actually going to impact on this cross-cutting theme that we have around mental health and what are the knock-on effects?' And that's the part that we're not seeing as yet.

The detailed budget includes an analysis of selected spending areas classified against the Welsh Government definition of prevention. Do you agree with the analysis that has taken place? Is this information useful, or useful enough, and does it go far enough?

I don't think it goes far enough. I think it's a starter for 10, as I indicated. Some are more useful than others. The NHS one is actually quite useful. The social care one, where they've put the older people's commissioner budget in, that just shows a bit of a lack of understanding. In housing, they collected a range of budget areas like Supporting People, which are preventative services, rather than looking at the whole budget. I can give you the analysis that we've done across a few of those areas in terms of what proportion of the whole budget is classified as preventative spend [correction: what proportion of the selected groups of budget lines have been categorised into the levels of preventative spend]. So, in housing, it's [correction: the budget lines comprise] about 3 per cent; in social services, 0.5 per cent—this is social services that are retained within Welsh Government, rather than through the RSG—in sustainable travel, it's 9 per cent; climate change and sustainability, it's 41 per cent; education and training standards, 41 per cent. So, that's where we are at the moment. There's further work to be done to dig beneath those figures to really test, 'Well, is that really prevention? Have you understood the definition?' and so on, and, once that work is done, then we would want to see those percentages increase [correction: to see bigger proportions of the MEGs categorised]. 

You mentioned earlier on a range of organisations that were involved in the preparation of the definition, and you mentioned the University of Stirling as experts, as advisers to the Scottish Government. Were there any other people who might be described as experts, as opposed to those who had something to say about it from their own perspective as a third sector organisation? Do you think that third sector involvement in this was very significant and is there more that we could do to encourage greater participation?

10:35

The third sector had actually been working with the Welsh Government over, certainly, the last year, to try to move to this definition of prevention, but I'm not sure how much progress was being made there. So, I think bringing them all together was useful. In terms of other experts, the early action taskforce—was Social Finance involved?

Social Finance.

Social Finance, who are a third sector organisation [correction: a not-for-profit organisation] at a UK level. They've actually been working with us doing the analysis of the budget. They specialise in financial analysis, if you like, for social good. So, they have real expertise in this. Could we have done more in terms of—? We had the WCVA there and a couple of other third sector representatives, could we have done more in terms of reaching out further? Yes, probably. But, if we had done that, we wouldn't have had this definition in time for this year's budget round. So, I would see that there's probably further dialogue that would happen this year, finally.

Thank you, Chair. You've talked about the preventative agenda and your definitions. The four levels—. By the way, I think the fourth level is the prevention, actually—the acute spend is actually reactive as a consequence of not doing the prevention. But are you now going to look at—? Because you've mentioned earlier this morning that you eventually got the Welsh Government to agree the definitions, but how are you going to assess and monitor those definitions to ensure that they are actually delivering on what they're supposed to deliver on? And will you be looking at modifications as a consequence of that assessment?

Yes. That's why I'm proposing that we work with the Government to develop this journey checker with them, so that they're clear and I'm clear about the change that we would expect to see.

But this is a proposal at this point in time, so there's nothing's been set and agreed yet.

Nothing has been set as yet. What I will be doing in the next month or so is to give detailed feedback to the Welsh Government on the budget and make recommendations in terms of how we might work together in the coming year. And that will form part of the recommendations. We haven't yet had a conversation with the Cabinet Secretary about that; we have had conversations with strategic budgeting officials who have indicated that they may find that useful. I think perhaps what we need to do is—. Because we've really struggled, in a way—do you look at the whole budget, which is a beast, and, you know, you can pull out some of the big strategic issues like local government versus health spend, but, actually, in terms of getting down into the detail, that's really difficult? That's why we picked a couple of areas this year, which were mental health, social care and decarbonisation. So, our thinking is that we might continue with those topics as discrete topics to see how the Government is shifting in terms of applying the definition of prevention and develop journey checkers in those areas, which could then be used to apply to other areas. But I think, if we try to do it across the whole budget, it's going to be very difficult to track and monitor.

There's also this issue around that this year we focused on the Welsh Government spending lines, rather than how that then translates into the NHS and into local government. And, if we can test the robustness of this definition of prevention, what I'd like to see really is how that's then being passed down into local government in terms of how they're spending and, indeed—well, particularly so, actually—in terms of the NHS.

Well, that was going to be my next question as to how do you see that transfer down to the other public services, and, in your opinion, whilst you've just said that you haven't yet assessed that within those public services, does this budget make it possible for that cascading down to actually take place?

I think that's a really valid question. I think the WLGA, the Association of Directors of Social Services, and a range of those partners would probably say, 'No, it makes it very, very difficult.' The sorts of services—. You know, we know that culture services have been cut by 42 per cent and library services, I think, by 35 per cent. The sorts of services that you would see as that, particularly primary and probably secondary prevention are the sorts of services that are provided by local government. So, when local government is not funded, the pressures aren't funded and when their funding is reducing, it does become incredibly difficult for them to retain those services. Having spoken to a number of local authority leaders and chief executives, I know that there's a real willingness to try and do that. I mentioned the community connectors in Torfaen, which is being protected in this year's budget, but that is becoming increasingly difficult. I actually think, and I've written to the Cabinet Secretary for health along these lines, that the Government should adopt a position that any new money that goes into the NHS—and I say that because it's really only the NHS that ever gets any new money—should only be able to be spent in partnership with others, particularly local government, and should only be able to be spent on prevention, because I think, without that, we're just ploughing more and more money into acute spend at the cost of preventative spend elsewhere. 

10:40

On that, we talked about capacity earlier on, and is it a concern that you have that it's not just about capacity, but it's perhaps the skills and confidence within the departments of Welsh Government to ensure that type of consideration is made within their departmental budgets to allow that prevention to happen?

Yes. The Welsh Government allocate their funding and then it's up to local government to do what they will with it, but with that connection between only allocating funding to meet basic core services, and maybe not even that, then what can local government do? I think that's the position at the moment.

The Welsh Government does have more control, obviously, in terms of what health boards do, and so that's why I think there should be a bigger focus in terms of what health budgets are doing, the extent to which health boards are working in partnership with local authorities and the third sector, indeed, on these preventative services and how their budgets—. I've said directly to health, 'When you've got over 50 per cent of the Welsh Government budget, you should be expected to do more of the heavy lifting in terms of prevention.' I think that's a fair point to make, and I think Government policy needs to direct that. 

Another challenging area, but one that I know you're very engaged in, is strategic integrated impact assessments. We've got a new framework—the Welsh Government's got a new framework—for those assessments, and that comes following the Public Policy institute for Wales report. Do you feel that you are engaged in this, in terms of how the framework takes into account the well-being of future generations Act, and did you have involvement at all in feeding into that public policy institute report?

We had some involvement in the move to the strategic impact assessment that is being run this year. I wouldn't say it was extensive involvement, but some involvement. We had already developed something called the future generations framework, which I wouldn't describe as an impact assessment, but some of the things could be drawn from that to help with this, and some of the things that you see in the strategic impact assessment have been drawn from that framework.

I have a bit of a fundamental issue in terms of strategic impact assessments—well, I have not just one fundamental issue, I have a number of fundamental issues with strategic impact assessments, actually. I suppose my biggest one is that I think impact assessment is getting it entirely the wrong way around and isn't really actually applying the principles of the future generations Act, because it suggests that we've taken a decision, we've decided to do something and then we're assessing the impact of that, whereas the future generations Act is about taking the decisions that are going to maximise your contribution to the goals. So, it should be at the front of the process rather than at the end of the process. So, I think that there needs to be a shift that way. 

I think in reality what is happening is that we are only impact-assessing decisions—we've got the budget and then we'll impact-assess and perhaps mitigate or change on the basis of any impact that's identified. But that doesn't necessarily say that we're making the right spending decisions in the first place. So, that's my big issue there. 

In terms of the approach to strategic impact assessments, if we're going to stick with them, I think it is sensible to have a strategic impact assessment. The number of impact assessments that Welsh Government have to go through to test policy areas is completely unmanageable. I think I counted 16-odd impact assessments. And the extent to which anyone is able to comprehensively go through those with any level of in-depth understanding of the issues where they're actually looking for impact and mitigation for is a real issue. I think that public policy over time, for good reason, has almost developed an approach of, 'Ah, what we need is a process to do this', and we all comfort ourselves that there's a process to assess impact. But actually, in reality, we probably haven't provided the training, expertise and capacity for those people who are completing the impact assessments, and I'm not sure that the process itself is actually getting us to the right endgame; it just gives us comfort to say that we've gone through it.  

10:45

I understand there is going to be an assessment of the new framework, and I think that's an opportunity for you to—. Are you aware of this opportunity and that you could have an involvement?  

Absolutely. Next week, in my advisory committee, which is made up of the other commissioners and a number of other partners—trade unions, business representatives, Natural Resources Wales, the chief medical officer—that is the main subject of discussion of the advisory committee, and Welsh Government officials are coming along to discuss that. What I recognise is that I think—not just because I'm the future generations commissioner—genuinely the future generations Act can provide this overarching framework for strategic impact assessment. I do, however, recognise that there are perhaps some sensitivities with other organisations, commissioners, groups who want their specific area to be covered in detail. I think that there's a way of finding a way where there's a lighter touch, high-level impact assessment across, using the future generations Act as a framework, and then a deeper dive where specific impacts have been identified to still cover those areas that are important. 

Presumably, that dialogue will develop in terms of those sensitivities. I mean, I think this has been discussed about whether the future generations Act can supplant other duties such as equalities. So, it's actually how you enable the deep dive in terms, particularly in relation to equalities, because that goes back to the whole socioeconomic impacts of the budget as well. So, you know, that's where, obviously, this is—. The new framework does need to be assessed to see whether it's enabling your influence in terms of the Act, and also those specific—. Well, they are duties, actually, in terms of—

Yes, absolutely. There are two other pieces of work that are going on alongside this discussion that we're having with officials specifically on the strategic impact assessments. I keep forgetting what they're called now—Public Policy Institute for Wales they were; whatever they are now—

The Wales Centre for Public Policy, sorry, yes. They are doing some work specifically around the gender review to look at impact assessments on gender. So, Dr Alison Parken is doing that work, and we're working quite closely with her. That would enable us to look at where gender could fit and what that deeper dive in terms of gender—and then, potentially, other protected characteristics—could look like if you were to take that approach through the lens of the future generations Act. 

There are also emerging issues, as you know, around requests to incorporate new conventions into Welsh law—so, the convention on the rights of disabled people being an example. And I've had some discussions with Julie James around what that would look like, again, through the lens of the future generations Act. What we've agreed to do is almost like a gap analysis—what's covered, what in that convention, and potentially other conventions, that might want to be incorporated into Welsh law that are already covered within the future generations Act, and then clearer guidance on how and what that actually looks like, and then what parts aren't and what the Government may then want to do about that.  

Yes, because, obviously, those are impacts—. Some of those are opportunities that don't just relate to the budget, but relate to policy making as a whole.

Of course. Absolutely.

Diolch. Looking on the bright side for a moment, we've heard about some of the issues and problems with not having a connected-up approach in terms of future generations legislation, but since we spoke to you here, last year I think it was, has there been any progress in the way that the Government have dealt with your concerns, dealt with our concerns?  

10:50

I don't know whether I would say I'm pleased with progress because I always want more, but I think, in this last year, there definitely has been progress, both in terms of the level of understanding, particularly within the strategic budgeting department—. I have to say the officials there and Cabinet Secretary have been incredibly engaged and wanting to do the right thing. So, that's a good starting point, and we can see that by how the budget narrative is reflected, that we've got this definition of prevention and so on. In terms of policy areas, there are some highlights where I would say that we are aligning with the Well-being of Future Generations Act. The protection of the Supporting People budget is one of them.

Active travel—I've gone through this twice and we're still at the same figure, but it feels quite difficult to believe—there's been a 273 per cent increase in active travel spend. I'm still questioning that. What I would say as a health warning is that that's from a very, very low base and—

A 273 per cent increase in active travel spend, according to our figures.

The issue around schools and mental health, and the allocation there of the £2.5 million, that's clearly connected to, one, the Assembly committee report, 'Mind over matter'; two, information that's come out of the future trends report; three, information that's come out from the 'Well-being of Wales' report, which was feedback on progress against Welsh Government priorities. So, you can see where there's that positive action there.

I suppose the continuation of the integrated care fund and the transformation fund to regional planning boards—. So, from 'A Healthier Wales', as I understand it through discussions with officials, the intention was that £100 million fund would go into the NHS to do the transformation work that was required from 'A Healthier Wales'. We lobbied strongly that that would not be the right way to do that, because it would just go into NHS black hole of acute spending, if you like, and instead should be allocated in partnership. That's now going through the regional partnership board.

So, you can see some measures of progress. I think the big issue, however, is how we see that in a coherent way. I don't think it's beyond us and beyond the Government, particularly in those six cross-cutting areas that they've established, that there should be a really coherent narrative across Government as to how they consider long-term trends in those areas—what they understand in terms of what, in those areas, needs to be prevented and where, then, those actions for prevention need to happen across each Government department and so on. I think that's, really, the next phase that we would like to see next year.  

I was going to ask you about the impact assessments but you've already mentioned that you think that that's quite unwieldy for Government to deal with. In terms of unhypothecated funding, the Welsh Government has said it's reliant on partners to assess the impact of their decisions and act accordingly. Do you feel that this is an acceptable approach? 

I think it comes back to the two points that I've already made, which is the strategic allocations—health versus local government, which, as I keep saying, is the elephant in the room—and the extent to which the Government are actually enabling other bodies, like local government, to meet their statutory duties, if you like. And, then, I think it's also about the capacity of people—the level of training, support—. I don't really like the word 'training' because that suggests you come for a two-hour session and everything's solved, or what have you. But it's that kind of ongoing capacity building, support, constructive challenge within a system to say, 'How have you actually taken that decision? Have you taken that in line with the well-being of future generations Act?' And that going through into other bodies is really important, and I think it definitely needs a huge amount more capacity to do that.

This year I have requested an increased allocation to my budget. I have no idea whether that will be successful, but it's to build that capacity that we're not seeing out there. So, local government, for example, are saying, 'Well, we're having difficulty maintaining core services'—you know, how they're training their planning officials, housing officials, people taking their decisions on a day-to-day basis, which will impact on the implementation of the Act, is perhaps not being seen as a priority. I think that the Government need to recognise that and take action to address it.

10:55

Okay. Just to conclude, from me, then, to what extent are you articulating to Government where you would expect them to be in terms of this journey that they're on—next year, over three years, over five years? Is that practical for you to do, or is your role basically just to encourage them every year to do more?

No, I think certainly, as I said, this year, we've sort of focused on getting them to think holistically, or at least present their budget holistically, and on this definition of prevention. As I said, moving forward, what we hope to do jointly with the Government is these journey checkers that will say, 'We would expect you to be in this place next year or in the next two years' or 'We'd expect you to be in this place in the next five years' and so on. We've started some initial work and thought on that, which we can share with Government to give them a kind of indication of what that might look like, but we're very much hoping to do that in partnership. I guess if we don't do that in partnership I can still do that and monitor progression on that basis, but it's always better to do things together.

And that'll be something that'll be available to this committee, and publicly available?

Absolutely, yes.

And I'm intending to publish a kind of critique, I suppose, which will be based on some of the evidence that I've given to you today, and probably more detailed because of the time constraints. We'll certainly make sure that you're the first to have that.

We'd be very grateful for that and any other information that you feel would be of use to us. Can I thank you both for attending this morning and thank you for your evidence? Diolch yn fawr iawn. 

5. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o weddill y cyfarfod
5. Motion under Standing Order 17.42 to resolve to exclude the public from the remainder of the meeting

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).

Motion:

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.

Motion moved.

The next item, then, is to propose that, in accordance with Standing Order 17.42(vi), the committee resolves to exclude the public from the remainder of the meeting. Are all Members content? Thank you. We'll move into private session. Diolch. 

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:56.

Motion agreed.

The public part of the meeting ended at 10:56.

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