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Y Pwyllgor Cyfrifon Cyhoeddus

Public Accounts Committee

24/06/2019

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Adam Price AM
Gareth Bennett AM
Jenny Rathbone AM
Mohammad Asghar AM
Nick Ramsay AM Cadeirydd y Pwyllgor
Committee Chair
Rhianon Passmore AM
Vikki Howells AM

Y rhai eraill a oedd yn bresennol

Others in Attendance

Adrian Crompton Archwilydd Cyffredinol Cymru
Auditor General for Wales
Andrew Slade Cyfarwyddwr Cyffredinol, yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru
Director General, Economy, Skills and Natural Resources Group, Welsh Government
Duncan Hamer Dirprwy Gyfarwyddwr, Busnes, Llywodraeth Cymru
Deputy Director, Business, Welsh Government
Matthew Mortlock Swyddfa Archwilio Cymru
Wales Audit Office
Sioned Evans Cyfarwyddwr, Busnes a Rhanbarthau, Llywodraeth Cymru
Director, Business and Regions, Welsh Government

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Claire Griffiths Dirprwy Glerc
Deputy Clerk
Fay Bowen Clerc
Clerk

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 13:23.

The meeting began at 13:23.

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

Can I welcome Members to this afternoon's meeting of the Public Accounts Committee? As usual, headsets are available for translation and for sound amplification. Please turn off any phones or put them onto airplane mode. In an emergency, follow the ushers. We haven't received any apologies today; we're at full complement.

Can I welcome Gareth Bennett, who has joined the committee? It's really good to have you with us, Gareth, and good to have us back, as I say, up to a full complement of Members.

Do Members have any declarations of interest they'd like to make at this point? No. Okay.

2. Cymorth Ariannol Llywodraeth Cymru ar gyfer Busnesau: Sesiwn dystiolaeth gyda Llywodraeth Cymru
2. Welsh Government Financial Support for Business: Evidence session with the Welsh Government

Item 2 and Welsh Government financial support for business. We have today our evidence session with the Welsh Government. Can I welcome our witnesses? Thanks for being with us today. Would you like to give your name and position for the record?

I'm Andrew Slade, director-general for economy, skills and natural resources. And on my right—

I'm Sioned Evans, director of business and regions.

And on my left—

Duncan Hamer, chief operating officer, business and regions.

Great. Thanks for being with us. We've got a number of questions for you. I'll kick off with the first couple. The auditor general's report identifies a broad and complex landscape of financial support available to business through different mechanisms. Since the launch of the economic action plan, what, specifically, have you done to make this landscape clearer and more coherent for businesses that may wish to access financial support?

13:25

Chair, the first thing to say, I think, is that we very much welcome the auditor general's report—lots of useful material there and work that chimed very much with stuff that we were doing across the group as a whole. We've accepted the recommendations and we're in the process of following those up and working through the principles across the group and across Welsh Government as a whole, but also through our audit and risk committee, so we're working with them on a number of the topics that came up.

Funding, of course, is just one of the levers of economic development that Welsh Government uses, and we can talk about some of those, perhaps, a bit later on. I think it's worth just remembering, in the wider context, that we have a smaller budget to play with in Welsh Government. Overall, our budget is just over 5 per cent smaller in real terms than it was in 2010, and, in respect of capital budgets, it's down just over 10 per cent. So, that's the sort of financial context in which we are operating, and, of course, Brexit looms over all of this activity.

As you point out, we launched at the end of 2017 the new economic action plan. The EAP sets out a much clearer and more simplified route for businesses to various forms of finance, and our principal lever for making sure that things are as joined up as they can be is routing people through Business Wales. Duncan, who heads up that operation, can say a bit more about that later on. So, we are signposting everybody in a much more co-ordinated way, and we have a simplified set of schemes now being run through what's called the economy futures fund, and that delivers against the principles and the key objectives set out in the economic action plan. So that, in a nutshell, is what we have done to simplify the territory in relation to finance and to start to work increasingly to make sure that signposting is joined up across all of the available sources of business finance.

Are you planning any further measures to increase the clarity for businesses?

Well, we work with stakeholders all the time, so I meet regularly with the business organisations, they come together with Ministers on a frequent basis, both in respect of the council for economic development, but also on Brexit, latterly. We've done a lot of work with the business organisations to make sure that they are sharing information out through their memberships—that's one channel that we use. And we're carrying on doing that; there'll be more of that to come.

We do a lot of work with the development bank—I know you saw the chief executive, Giles Thorley, last week—to make sure that we're as joined up as we can be, and, again, we can say a bit more about that. And we're making sure that we're using our IT platforms, our digital platforms, in as smart a way as we can to make sure that, again, we are signposting people in a joined up and an integrated way, and there's more of that to come over the course of the next few years.

You mentioned the development bank—what about the British Business Bank? Are there any opportunities there that Welsh Government is hoping to open up to businesses?

We do quite a bit with the British Business Bank, and that has been substantially assisted by the appointment of a Wales manager, with whom we're working very closely, and one of the key business bank products in relation to start-up loans is facilitated and, indeed, administered through the work of the development bank. So, there's already quite a good degree of join up. That join up I think will continue and deepen, particularly as we deal with some of the challenges of Brexit. I spend a lot of my time talking to colleagues in the Department for Business, Energy and Industrial Strategy, the department for business at Whitehall's end of the M4, as does Sioned and as does Duncan and a number of other colleagues across the group. And, more generally, in the climate of Brexit, we need to do everything that we can to make sure we're using the levers that are available across the United Kingdom to support businesses and assist with finance and doing that in an intelligent way. Duncan, is there anything more to say in respect of the business bank?

Yes. Just to add a bit of detail around start-up loans—so, I think that's the way we'd like to work with the British Business Bank in that they've come and worked with us in Wales, integrated their offer into the Business Wales platform, and, as a result, invested around 5 per cent of their total funding, through Welsh businesses, in a kind of integrated fashion.

In your paper, you set out the role of the Welsh Government and the development bank as being—to use the phrase—'the lender of last resort' when other avenues have failed. But the auditor general's report also identifies other areas where the Welsh Government looks to step in to support economic development. How could you define the fuller role of the Welsh Government in providing finance beyond just that 'lender of last resort'?

I think that's a very fair point. We're not just about the lender of last resort, although that is a key factor here. We're also about addressing market failure, and we're also about making sure that we're using economic development levers across the piece to their widest potential, which includes what we do on skills, what we do on infrastructure, what we do on business support and advice, work with the higher education institutes and others on innovation. So, I think the answer to, 'What else are you investing in?' is that, by and large, when a company is thinking about a particular project, a growth-related project, we will we try and signpost them towards the private sector first—can they get their finance out in the market? If that's not a runner and they meet the relevant criteria, including in relation to size, we would point them to the bank. Then, if that was not an appropriate mechanism, they would come to us, and we might look there in respect of gap funding, we might look there in respect of gap either grants or loans, and we might be working with other players who are bigger than SMEs, who may be looking to come and invest in Wales, and that's about harnessing opportunities and trying to make projects come about for a wider suite of economic development benefits. So, if you're funding a larger company, you are almost always looking to ensure supply chain benefits with the kind of ecosystem, the infrastructure, supporting that bigger endeavour.

So, it's a mixture of things. It's not just one thing, and it's partly also to do with levels of risk associated with the project. Anything to add on that?

13:30

Yes. Thank you. Just really to say that the support we give is there to complement rather than compete with anything that is there in the commercial sector, or indeed through the development bank. So, we're very keen to make sure those avenues are explored beforehand, so that's really where the 'lender of last resort' tag comes from, but it's far broader than that in terms of fulfilling our requirements as a Government to ensure that businesses flourish in Wales. 

Thanks. I think Rhianon Passmore has a supplementary.

Very briefly, you've mentioned the Wales manager at the British Business Bank and the, in a sense, simplification of measures and the signposting moving forward—we'll come to those points again. In regard to the level of concern and uncertainty around this looming Brexit situation that we're all in, do you feel satisfied that our links are as comprehensive as they could be, and what else is necessary in terms of being able to strengthen that?

There are a number of things, potentially, there. So, one is making sure that we and our arm's-length bodies and other parts of the Wales infrastructure are as joined up as they can be. I think it's a lot better than it was previously. We've learned along the way, we've made sure that we're sharing information where we can and we're legally allowed to do so. We may come on to talking a bit about governance, but making sure we've got a good degree of communication between the bank, for example, and ourselves at a senior level—that's undoubtedly assisting—making sure that we in Welsh Government are as joined up as we can be about the levers that are available to us, and then, at a UK level, there are a number of specific projects and programmes that are linked to Brexit itself, but, more generally, not just in relation to the business bank, but also what we're doing on research and development, United Kingdom Research and Innovation, what we're doing around the UK's industrial strategy and making sure that, where it's appropriate, we're tying in with the thinking there—that's all part of this picture of getting ourselves as ready as we can be for the challenges that clearly lie ahead.

In relation to the bank, your impression is one of a growing—the business bank—relationship, Duncan, and that's getting better all the time. 

Yes, I think so. I think I'd go back to that we really want to be working with them from the point of delivery so it's integrated into the Welsh ecosystem, using the development bank, Business Wales. So, again, going back to simplicity for the customer—so, simplistic, connected and visible is what we try to aim for. I'd just add to Andrew's point as well—British Business Bank, yes, but also Innovate UK and the broader ecosystem of offer, so we're able to address quickly those issues that come up, particularly in the context of Brexit and other challenges. 

Thank you. Some of the Government's loans in the past have been to businesses that caused a certain amount of surprise, like car insurance or supermarkets, which are not known for struggling with their financial model. So, how do you think the economic action plan is different in this regard in preventing you being pressurised to put up loans or else the company threatens to go somewhere else?

One of the premises of the EAP is that we will be more proactive and strategic going out to the market in relation to what we're prepared to fund. That doesn't mean that we are blind or deaf to requests for assistance that come in that are not in the plan—and, as you said, some things will crop up on a more ad hoc basis. But fundamentally, through the calls to action, we're trying to drive investment into a series of things set out in the economic action plan, including decarbonisation and the headquartering of companies in Wales, and so on. 

13:35

But you're still talking predominantly about grants, as opposed to loans. 

We are moving, I think, increasingly towards loans and repayable finance, not least because, as I was mentioning earlier, of the financial climate. Our starting position is not to rush for a grant, but there will be—

So 'predominantly grants' is, perhaps, an exaggeration, or—

Well, the point about a company along the lines of the ones that you've mentioned, say, or others that are larger, will tend to be about 'Can we make a project that's going to be of wider value to Wales come off through the investment that we're making?' So we are going out through the calls to action to say, 'If you can help us with these things and you're targeting these particular priorities for the Welsh Government, you are much more likely to get funding from us, full stop.' But, where there are other projects that are out there that don't immediately fit that bill, we will talk to people and we will say, 'Look, if you want to come and secure finance here, you're going to have to meet our economic contract, the terms of that—the something-for-something agenda—and you're going to have to help us with the meeting of these wider objectives.'

Okay. Thank you for that. Could you just describe the differences between the financial support available from the Welsh Government directly as opposed to through the development bank?

The bank is predominantly—not exclusively, but predominantly—providing loan finance. We will still be using a mixture of loans or repayable money and grants. The terms of reference for the bank in relation to each of the funds is set out pretty clearly. They don't have a huge amount of scope to vary between those funds. Those are set out, as I say, for each fund, including in relation to the risk profile associated with the business. Government can, and does from time to time—we've had recent examples of that—step in with projects where the bank might be able to make a contribution but not go the whole way. So, we're closing the gap at the end. It might be that the bank says, 'We can completely see how worthwhile this project is and we think it'll add hugely to the make-up of the economy in Wales, but actually it doesn't fit neatly within one of our products, or there's a level of risk associated with it that our terms of reference for that fund don't allow us to engage with.' And that's part of the dialogue with us about whether we will pick something like that up. That's the basis on which these things are done.

I was just going to add that the letter of an offer for grants sometimes contains things that you wouldn't necessarily have in a commercial loan that are more of interest to us as a Government in terms of retention of premises and business in the location for a period of time beyond the end of the repayment. And, also, because the bank works commercially, it will charge interest rates based on the level of risk that it takes; Government may take a slightly different view of that because of the greater value-add that a particular investment would offer. 

Okay; thank you. How confident are you that there's no duplication of purpose between the two branches of lending, and, indeed, effort in assessing whether company X is worthy of support?

Pretty confident, I would say. We spend a lot of time working with the bank to make sure that, for want of a better phrase, we're not fishing in the same pool. But I think the point there is that we will cross-refer, so if the bank says, 'I don't think we can help here or we can't help all the way, can you assist, Welsh Government?', or we will say, 'No, actually, business X, you'd be much better off talking to the bank, they've got a suite of products that will help you here, and they will be more able to help you than we are.' Some of that goes to sharing information, some of it's about the governance arrangements that we have in place. 

Duncan is an observer on the bank's board—

The board, yes. [Inaudible.]

I think it's probably just worth adding, as well, that a lot of the cases we're seeing are a combination of 'all of the above'. So, we'll quite often see, perhaps, that a high-growth start-up will have their own investment, perhaps family backing, angel-type investment, then they'll be using the development bank to add some, perhaps, tech seed, venture capital-type activity. So, when it gets to us in a research and development basis, we're literally funding the last tranche. So, in terms of sharing information, we're very often developing a joint case that uses the three different vehicles in the hierarchy, starting with personal, high street, the development bank, and into our R&D grant offer, in that instance, for example.

13:40

Okay. Clearly, it will depend on the size of the loan you're talking about, but does the Minister always have something put in front of him or in the case of a small loan from the development bank it doesn't need to go—?

I was going to say, I think our processes on that are reasonably clear.

Yes. So, when it's Welsh Government funding, it's ministerial advice to Ministers. The development bank has its own accountability, in that even though I'm an observer and a shareholder representative, I wouldn't in any way influence an investment decision. That's where the chief executive, Giles, who gave evidence to you last week, would make that decision in the development bank context. Likewise, with a private finance area, that's their decision to make.

Of course. Very good. Could you just elaborate a little bit more as to whether you envisage the development bank expanding its remit to possibly take on more functions currently done by the Welsh Government?

Well, the bank has already expanded in its remit. So, compared to its predecessor body, Finance Wales—. So, if you go back about five or six years, I think Finance Wales was investing about £180 million, something of that sort, predominantly EU funding, and the bank now is at £1.1 billion. That includes all the work on Help to Buy and housing. Just recently, the Minister's announced a number of new funds that have gone in through the bank, will be administered by the bank, one around tourism. What are the other ones around?

Commercial property. So, bridging the gap between the cost and value and tourism, where we're combining the two entities, basically, in a shared investment model.

So, those things are going to be done or led on by the development bank.

So, it's a work in progress, most definitely, and then there will be future opportunities. We always —. Duncan makes a good point in meetings elsewhere about wherever there's an operational possibility for us to do things better in a different way, we just get on and do that, but where there are policy decisions, obviously, about the role to be played by the bank vis-à-vis that for Government, those are matters for Ministers. But we're in constant dialogue with the bank about things that they can do and help with, and where we are thinking about new potential products, we would be straight into a dialogue with the bank first about, 'Is this something that you could do? If Ministers agree, would this sit best with you?', and we have those dialogues all the time.

And could you ever envisage a time when most grant funding was going through the Development Bank of Wales or not?

Well, in relation to the amount of money being handled by them, it's a very significant amount of money already. But I think there has to be a role for Government always to operate in a slightly different space from that occupied by the bank. That would be my view, sat here today. Where loan finance is involved and it fits with the products that the bank are leading on, the most sensible thing to do, because of the way that they're set up, is to put that in the bank's direction if Ministers are content with that approach. I think Sioned wanted to add something else.

Yes, sorry. I was just going to add—and I don't know whether it quite answers the question that you asked originally about, 'How do we know where they're investing some of their money across Welsh Government?'—we've recently established the development bank oversight co-ordination group. So, that's where I chair a meeting of all senior representatives across the Welsh Government to talk about where the DBW are involved and to look at opportunities for us to work together with the development bank to discuss, perhaps, where the development bank are already involved in our business, so that we can share that information and knowledge in a more cohesive way and we can help to align what we want to do with the bank in a way that gives us more collective power, I think, to use the bank than, perhaps, dipping in and out as individual departments.

Okay. So, that prevents one of their officials having to do the discovery path that you've already done.

Well, it just means that we're sharing more information about where the development bank are involved and it helps Duncan in terms of his role in overseeing the development bank to be sighted from both sides of the table, really, on not only what the development bank are talking about and how they feel they're being received by the Welsh Government and how they're penetrating into the activities they're undertaking, but also seeing it from the other side of the table. I think that's really helpful. So, that's something we do on a quarterly basis and it—. We've had the one meeting. We have them scheduled in now. So, that's something we felt was really valuable now that the development bank is contributing so much to our agenda.

Very good. I mean, overall, how important is financial support to a business, as opposed to other things that Government can provide in terms of advice, indication of wider opportunities there might be in a particular area? 

13:45

Generally, my experience of dealing with businesses—and I'll bring colleagues in, because they've got lots of experience to bring to bear on this as well—businesses are looking for assistance with infrastructure, they want the right set of skills available to help grow their business, they want signposting, business advice and support, and they want a stable operating environment. And then, around that package of things, there is a question about, 'How do I bring my thing to fruition, my project to fruition, and can I access the finance?' That's where the financial component comes in, and that's where you're into the hierarchy that Duncan talked about. Firstly, can you do it in the marketplace? If not, can the bank assist you, including using a potential product from the British Business Bank, but plenty of our own funds? And then, if not, but we all think that this is a worthwhile project and Ministers agree, is there a role for Welsh Government to play directly either in a loan or some form of repayable finance? We've talked previously about the very, very small number of cases where we provide a guarantee arrangement, or a grant. Is that a fair assessment? 

Absolutely. All I'd add is that they're all important, so it depends on the case a little bit. Everyone plays a different part. So, a couple of things come to mind. With Nidec Control Techniques Limited, Newtown, a big, major company, the most important thing we've been able to intervene on is the Newtown bypass, because it connects their R&D centre with their manufacturing facility, where it was basically taking them 40 minutes to do the three miles. So, aside of any money that we do, that really's been a really important intervention. 

Skills also. So, what I would say is that of all our enquiries, the top-three ranking sort of enquiries, are generally finance, but finance with quality advice is equally important as well, particularly for smaller businesses. You know, what's the right type of financing? Is it grant, is it high street, how do we work through? So, I think the combination of all three, and skills as well, is absolutely critical to providing the right ecosystem of support. 

Thank you for mentioning skills because I was going to raise it anyway, because how much of your effort goes into advising somebody who's thinking of investing where the source of particular skills would be coming from? 

Do you want to say a little bit about Business Wales, and the role that the team provides? 

Certainly, and combined with the development bank. So, the Business Wales/development bank triangle, so a couple of ways of answering that question at different levels. If development bank are making an investment on the back of a Business Wales referral, quite often they'll consider the skills of the board, so there may be a recommendation around a non-exec director to support, particularly in the smaller business space. But ultimately, our ability, we recognise—and the reason why we've got reciprocal board membership between Business Wales and the development bank—that advice sat alongside finance is really important about the way we effectively support. And very often, I'll say as well that sometimes finance is the first thing that's flagged, but often it's a skills issue or perhaps a logistics issue, or something else. So, getting in early with that quality of advice, and working with the business to identify what the end need is, is really important to getting the right answer, which often is very effective from a value for money side as well. 

Sioned was just going to add. 

Yes, I was just going to say, in terms of the engagement we have with businesses in the real world, we also talk to them quite a lot about—Duncan touched on the infrastructure—the skills element. And, of course, within Andrew's remit we also have Huw and the higher education team—

Huw Morris. 

Huw Morris, yes. So, we work very closely with him in terms of the liaison with colleges and higher education institutions, and further education institutions in the other part of the Welsh Government, in order to ensure that we are aligning our courses and our offer to the businesses, particularly if there's a big business. The conversation we have is: what skills do you need? And the very latest ones I've had, I've just recently been involved with the aeronautics business, and it's the cyber security element of that. So, how do we in Wales, then, respond to that business need in order to build on the strength we have in Wales, and to make sure that we're encouraging the schools and the education institutions to really focus on those sorts of skills, that we're producing the right quality at the end in order to feed the businesses? So, we have a number of conversations around that, and how do we intervene in that space to try and support an agenda that supports businesses in the longer term. 

13:50

Thank you, Chair. We've taken some mixed views in evidence to date about the way in which Business Wales and the Development Bank of Wales work together. How well does the relationship and communication between the two organisations work from your perspective?

I'll bring Duncan in in a minute because he's got a unique overview of all of that, but we've been on a journey. This has been a process of learning and refining and sharing experience. It goes back a bit to the cross-referrals point we were talking about earlier on. I think from my perspective, looking at it across the group as a whole, what's been so encouraging has been the levels of customer satisfaction in respect of Business Wales. We track that each year and, over the course of the last four of five years, that has gone up very significantly as a proportion of that, in the engagement with the bank. That is very encouraging from my perspective. Do you want to talk a bit more about that?

Yes, certainly. I absolutely agree that the link between the two is really key. A couple of things I'll pick up on there. Andrew just mentioned about adviser quality, and that's one of the big guides. I've been working with Giles and Gareth as the chair and chief exec of DBW about really driving that quality of advice. So, as Andrew mentioned, we've gone from, over a three-year period, 76 per cent satisfaction rate to 90 per cent, with about 1,500 sample businesses. So, statistically reasonable. But also what I'd add on to that is the referrals between the two organisations. So, we've basically increased Business Wales to development bank threefold in the last year, and that's been, I think, probably driven by the leadership of both organisations. We recognise the importance of that link, but what I'd say is it's not a complete piece of work. This is an ongoing piece of action with us, development bank, and actually British Business Bank as well, which was mentioned earlier, to really try and drive that getting the best out of both bodies. For example, development bank's website is now hosted on Business Wales for that exact reason, so that if you're landing on the platform you're straight away able to get into that direct advice. So, it's really a continuing piece of work, I would say, but I'd agree wholly.

Thank you. That was a really useful example you gave us there about the website. Are there any other practical examples you can give us about how the relationship has evolved and the two organisations are working now? 

Yes. So, completed to date, both relationship management cohorts, if you like, in both bodies have done reciprocal training. So, some was around equality and diversity from Business Wales to the development bank, and then on investment readiness and finance-type finding from development bank across. It's probably worth also asking, between our two joint executives—it's worth mentioning that we're lucky to have an ex-FTSE 100 chief exec running development bank, so we do draw on that expertise as well to sort of inform Minister's advice, and, vice versa, they work with us in where we can advise in other areas. So, that is work in hand. Moving forward, Giles and I lead a working group where we're constantly looking to progress and do other things in this space. I think we're exploring investment-readiness training for small and medium-sized enterprises, for example, at the moment, and how we can best deliver that jointly, instead of doing it separately.

What advantages and disadvantages might there be of brining the two organisations formally together?

The advantages, I guess, would be around furthering and continuing to deepen those links. I think a lot of that work can happen without any sort of formal merger. There are potential downsides, and, again, Duncan may want to say a bit about this from his perspective, but I suppose an obvious one would be that there is a separation at the moment between the advice that's being given—I think that's fair—and the people providing sources of money. If you bring those two things together and conflate them, there is a risk that you say, 'The advice you need is this, and the funding instrument you need is that, and I provide both.' There is something about the discipline of those things being separate that I think is probably helpful. I'm not necessarily sure that the bank—. I don't know if you asked, I'm trying to remember—having looked at the session you had last week, I'm trying to remember whether Giles would have answered that in a positive way. I think he would see the benefit in the slight difference in the relationship or they type of work that we do. Anything more to add to that?

Just to echo those points that, yes, there are absolutely efficiencies to do. I've mentioned the website work, digital delivery, those things that we might both be using—buy them once and well, I suppose, is the principle. I think Andrew's right, as Business Wales we're impartial advisers. So, if we're advising a business that needs finance, the risk is you'd only offer the DBW offer, and it's a far broader offer, of which DBW is an integral part. So, we recognise the positives. Again, going back to the board membership, we're looking to do things jointly wherever possible, but without conflicting ourselves unintentionally, if you like, in that separation that's needed. 

Thank you. Mr Hamer, I think you've touched on this a little, but if I can ask you—if there's anything else you'd like to add—what specifically are you doing to raise awareness of the Business Wales function and to support the financial and other support that is offered across as wide an audience as possible, including to under-represented groups? 

13:55

Again, fair question. Clearly, we've had, I guess, five years now pushing the Business Wales brand. I suppose, if you think about the individuals accessing our services—Google, for example, dominates where people find information. People don't put a website address anymore, they just search 'business support Wales', so we're really trying to drive activity. Shared marketing activity—so, for example, the SMARTCymru research and investment is going out under the Business Wales banner. Brexit push and drive—we're trying to really use Business Wales as that one-stop shop, go-to point. So, that's led to—for example, last year, we had a million unique visit hits on the web platform with high levels of social media interaction and lots more traditional marketing. But I would never say that's a job completed. It's constantly trying to drive that awareness of both Business Wales and development bank as well, so that people are aware about it and they find it. I think we're making good progress. 

In terms of under-represented groups, we've recently launched the female entrepreneurship action plan—10 points. That was some of the Business Wales board and a group basically leading how we do those activities. We have a participation fund, as part of the Business Wales offer, which looks to address those particular under-represented groups. We're increasingly doing more bespoke work in place setting. So, some of the Valleys taskforce areas—. We've recognised that our start-up entrepreneurship offer is almost—it needs to come back a stage almost, so you're almost giving people access to a role model earlier where they don't have that access. Andrew mentioned start-up loans, they've been a really important part of our offer. They're for those who can't raise £10,000 on their credit card. It's very much there targeting a particular market. So, again, lots of activity and actions, but I would say more to do as well, as we go forward, to ensure we are reaching every audience. 

Thank you. The end of your answer ties in very nicely with my final question, actually, which is around the Federation of Small Businesses report that we considered last week. That suggested that if budgets are under pressure, as we know they are, then support for small to medium-sized enterprises could actually provide a better return on investment in a broader set of contexts. What is your view on that assertion? How do you review the overall balance of support you offer, in terms of the size of businesses that are receiving support to ensure that you target the right businesses and achieve value for money? 

There is some truth in the point made by the FSB in relation, I think, particularly to a cost per job on the whole—the cost per job in relation to SMEs, apart from a few very specialist areas, will tend to be a bit lower and therefore you can look for a value for money component there. It's also true that we are pushing hard at a spatial level across Wales to make sure that we're helping small to medium-sized—small businesses in the first case, micros—to get going and helping them with their growth journey. There's a particular issue that we may want to come back to about what happens when you get up to the 200-50 bracket for businesses. We haven't got many of those, but where we have, do they want to go on that bit further and become larger enterprises? There's a whole suite of things that flow from a decision to go, effectively, over 250 employees. I suppose it's back to the point I was making earlier about a kind of ecosystem of businesses. The predominant make-up of businesses in Wales is of small to medium-sized enterprises. I think, Duncan, it's about 260,000 businesses—

Yes, in total. 

—of which 90 plus per cent—more, 95, is it—are SME? 

So, basically, yes—2,000 mediums, 10,000 smalls and the rest in the small space. 

So, we're trying to help people on their growth journey. From time to time, it can be helpful to work with a larger enterprise, because they're going to have supply chain benefits. Ford is obviously very much in the news, at the moment, and the amount of money that's gone into Ford over recent years, but also I think Ford, as an employer, has put about £3 billion into the economy over the time they've been with us. So, there's a very substantial contribution made by larger players in certain circumstances, which benefits smaller businesses. So, you need the mix. 

Just briefly, if I may, Chair? You mentioned there support for businesses who want to cross that crucial threshold to over 250 employees. Given the absence of the Mittelstand in the Welsh economy, and the importance of that, is that still somewhere that you see that there's a significant need for investment there? 

There's a general view across the UK, including here in Wales, that if you can grow businesses to get more in that kind of size bracket, there are lots of advantages that come from that—the role that they play in the economy and in communities, and unleashing, wherever we can, growth potential. So, there's a lot of work going on across the group at the moment with that in mind. 

14:00

Okay, before we move on to Rhianon Passmore—Adam Price, did you have a supplementary?

Yes, just on this wider question of the degree of involvement by the Welsh Government in the operational side of the development bank. Duncan, you were the observer, as you said, on the bank's board, representing the interests of the Welsh Government. We heard, in our evidence last week, the chief executive say that his paid directorships had been approved by the board of the bank. Were you involved in those discussions as a—?

Sorry, would you like me to answer that, Andrew?

Yes, you've got a story to tell here.

Yes. So, the actual accountability lies with the board, but Giles, also in parallel, informed us of the response group to ensure the Minister was also visible and aware of the decision. And the Minister followed that with some mitigations required to accept that invite, basically. And, clearly, that's based around successful performance to date—they are delivering their challenges—managed against a potential conflict if they were to ever apply for funding in the future. So, yes, we were involved, yes, we were sighted, and the Minister was aware of it too. 

Thanks for that. The statement that was put out by the Welsh Government last week seemed to suggest it was the company—the Wales-based company we're talking about here—that contacted the Welsh Government to see if it was okay. That isn't correct, from what you're saying?

I think a number of us had contact from Giles about this.

Sorry, you're talking about, actually, the company itself?

So, we were made aware from both parties.

Right, okay. And just as a matter of policy, you've referred to some of the mitigating factors, but in terms of, I don't know, reputational risk, would you expect companies that executives of the development bank took paid directorships in to also be subject to the general rules around fair work, and that you're seeking to advance from the economic contract? Will you expect them to be living-wage companies et cetera?

I was going to say, in relation to the bank and the work of Business Wales, the principles of the economic contract are enshrined in the way that we operate. Are you asking about—?

I'm asking specifically about paid directorships, within giving your approval. So, from what you're saying, you would expect now for there to be ministerial approval in these cases. Is there a policy around—?

Just to clarify, the accountability since the chair of the DBW board as a public limited company—. So, that's where the accountability is. In the framework we—

So, the framework agreement states that that is a decision for the board, in terms of the chief exec's ability to deliver his operation. But we also ask that issues such as that are notified to the Government and that they're aware. So, Giles, in terms of his chief exec role, was careful to ensure all his stakeholders, any shareholders, ultimately, in Government [correction: and Government as shareholder], were aware. 

So, there's no requirement on the development bank to ask for ministerial approval? In this case, the chief executive voluntarily requested ministerial approval. And is that the policy of the Welsh Government—that, effectively, you're content with you not having any right to approve a paid directorship by an executive in the bank?

Well, I think the framework agreement provides for things of that sort to be brought to our attention, but the decision, ultimately, rests with the chair.

So, their requirement is to notify us. Now, Giles, clearly, if the Minister is to go back and say, 'I'm not happy with this', is likely to say, 'I can't do it.' But, ultimately, the accountability, in a plc sense, sits with the board.

Okay. And just finally, are there any other executives—? Has this happened before, or is this a one-off case? Any other paid directorships that you're aware of?  

Not that I'm aware of. I'd need to get back to you.

I was going  to say—if it helps, we can enquire and then write to the committee on that.

Thank you. I've got a number of questions around governance, but in regard to what was mentioned earlier, around the alignment of capacity—to bring it back—skills and finance. We mentioned the Valleys taskforce and you mentioned a number of small businesses that would help the £10,000 limit on the grant. Is that ambitious enough in terms of what we're hoping to do around the growth of small businesses in regard to both the development bank and Business Wales? 

14:05

There are a number of funds potentially available to small businesses.

The entirety of the development bank's portfolio is an SME-based offer, so they're all available to SMEs—that's their core route. So, I think there's around £700 million of available capital in different funds. So, the development bank has a range: SME general loans through to quite technical venture capital—

So, I suppose, if I'm more specific, in regard to the development bank in particular, is there enough of an emphasis on those—on smaller-sized entrepreneurial growth?

The start-up loan fund would be—.

So, there are—. So, when you say 'small' you mean, basically, small by definition, less then 10 employees.

So, I think there's a focus on all areas—small, medium, right the way through to 250. So, basically, the bank has its small SME fund and that's what it does there is really support those small nought to 10 employee type businesses. In effect, the vehicle is there to support whatever size or scale up to 250.

And I realise it's multifaceted, but I'm interested in particular around the development bank in that particular area. Also, you've mentioned working with further ed and higher ed in terms of possible alignment of skills. Obviously, we know we need to do this and we are doing this, but does that go as far in terms of the development bank as curriculum creation or co-construction of curriculum matters?

I may be wrong about this, but I think they were one of the consultees in relation to the development of the new curriculum, because part of the curriculum is about developing business-ready skills or skills for employability in the marketplace. We can check that.

But, I mean, there's a whole suite of—. Community entrepreneurship, social enterprises—there's a lot of work that goes on both for the bank and ourselves in response to these parts of the economy.

Okay. Thank you for that. In regard to—. Could you succinctly for me outline the difference, then—perhaps the top three differences—between the development bank and Finance Wales? Obviously you've mentioned a number already.

So, scale, then, is one of them. A different type of leadership. The framework is different—although, I suppose the fundamental principles about making loans and finance available are the same. The breadth of the portfolio, I suppose, as well—so, if you think back to housing and Help to Buy and the work that's been undertaken by the bank there. We are partners with them on a number of funds, or there's a slightly more mixed approach, so—

So, what are the advantages, then, to where the development bank is now, compared to what it was?

We've got a bigger enterprise with more funding to play with, which has a broader-based governance and leadership arrangement.

Well, the whole thing has been a journey, as Ministers have put more functions in the direction of the development bank and as we have looked to use money in as efficient and effective a way as we can to drive the changes in the economy. But, you know, the development bank is doing very well. It's hit its five-year target within two years, and we are making good progress with the bank, and I think other countries are looking at what we're doing with the bank and they want to learn from us.

Okay. In regard to evaluation of its operation, how does that take place? You've mentioned—you touched upon it earlier—some issue, potentially, around how we look at the model of governance around this. You've mentioned the operations oversight group. Could you give me a bit more detail on that, as to how that works? You've met recently, haven't you?

We met back in April and we've got a meeting coming up shortly. It is, as I mentioned, senior representation from across the Welsh Government, and the purpose is to ensure that we are sighted on the activities of the bank and that we ensure that their direction of travel aligns to where we wish it to be heading. So, recognising that it's its own legal entity, but of course because of the nature of how it's been established and our involvement with it, we have a very good working relationship with them and can help to shape the bank, really, to deliver what we need to as Welsh Government.

And just on the point around what is different, I mean, the bank very much approaches business propositions as a business. As a Government, we have to look at slightly softer measures as well, which are really important, and that's why we don't compete with the bank, that we're there to complement it, and to look at all the different levers within the economic action plan that we'd want to pursue as a Government that, from a commercial point of view, may not be such a priority.

14:10

That absolutely makes sound economic sense. In regard to potential weaknesses around governance, what would you like to see improved, or are you content with the situation as it is?

Well, I think all of these discussions will continue, and we learn over time. I think that things are much—. In terms of the integration of thinking and ensuring that communication channels are open, things are much better now. That's improved over a series of years. Duncan's been a big part of that, but the bank's leadership have been driving that too. I see the chief executive on a roughly quarterly basis. I see the chair in between times. You've got a regular dialogue going, Duncan, including the group that you've got, and, as Sioned has mentioned, the group we have within Welsh Government looks at corralling Welsh Government's interests in the bank and the kind of performance measures that we want to see the bank deliver against across the suite of funds. So, it feels a reasonable platform—. I'd do better than that: I think it's a good platform for us to be building from from here on in.

If I could just add to that as well, from my perspective, the top three are: change in leadership, and I don't just mean DBW; I also mean in terms of the Government—the support I get from Andrew and Sioned taking the active interest so it's something that's delivered across the piece; scale, Andrew mentioned—self-explanatory; and the third thing I'd probably add is EIW, the Economic Intelligence Wales unit, which is the Office for National Statistics, Cardiff University and development bank joint research institute. The idea of that is that we are able to identify what's needed for the future, so it links that evaluation piece. So, it's doing some work through the summer on the missing middle, for example, about how that delivers change and how it operates through the vehicle. So, we can combine that with research from the Federation of Small Businesses and the rest to work out where our policy initiatives need to be.

And with that scale point comes geographical spread as well. So, we've got an office for the bank up in Wrexham, but they've got team members who are looking at interests across the whole of the country.

With regard to the oversight co-ordination group, understanding what you said with regard to this being, obviously, a journey, and hopefully a very impactful one, how often will that group meet and do you envisage it in its same format in, I don't know, a year's time?

Quarterly, at the moment, we meet. I also meet Giles in between, but quarterly we meet as a group, and I think it will stay like that for a period of time—

It's directors from across Welsh Government, so not just in Andrew's area but across the entire stretch of the Welsh Government where they may have an interest in DBW. So, there are, I would say, about 10 to 12 members of that.

So, in regard to what was stated earlier about aligning and being joined up, would you point to that being an optimum make-up of that group?

It's early days for that. I think I would be bold to say that it's absolutely where I'd want it to be maybe in a year, two years' time, but it's a start, and I think it's a really important start, and it has already started to trigger those conversations that we need to have around activity of DBW and how we want it to work for us in a way that truly supports our objectives.

Okay. Thank you. Finally, in regard to the housing-related funding in the development bank as it stands, and working across different parts of Welsh Government, how are you ensuring that the work undertaken by the development bank is co-ordinated across the Welsh Government? You've partly answered this question. And, in regard to holding it to account, is this group the mechanism to hold it to account?

So, there are a couple of pieces about it. So, each of the funds has its own oversight group. So, for example—I've got a total mental block on the director of housing—

John Howells.

John Howells. Thank you. John and his team would chair the housing initiative individually, and I'd also have a representative on that from the sponsorship team, so each of the funds is evaluated and overseen by its management group. Those will then report into the oversight group in terms of keeping that co-ordination across the piece. So, for example, if we learn something on the housing initiative, how could that be deployed against an economic intervention. That's the principle of the oversight team. But each fund is managed on a far more regular day-to-day basis as well at an individual level.

Thank you very much, Chair, and good afternoon, panel. A couple of questions regarding the strategic approach to providing finance support to businesses in Wales. Through the economic action plan, you have also introduced a new operating model for providing financial support. What practical, structural and other changes are necessary to implement the new operating model, and how much progress have you made to put them into effect? How are these changes being communicated to the business community? Finance Wales and now the Development Bank of Wales—I hope you're not painting a different colour to the same building. 

14:15

Since the economic action plan was launched, we've put in place the new economic contract. I suppose perhaps the best way to describe it is that companies have got to be willing, in principle, right from the get-go, if they want finance from us, to engage in the economic contract. There is a series of principles in relation to policy objectives that matter to us in Welsh Government, and I'm pretty sure would matter to all of you as committee members: conditions of employment, contributions that were made by the project to the wider economy and what we do in respect of decarbonisation. So, there is a suite of things of that sort.

If the company, having satisfied colleagues in the relevant bit of Sioned's directorate, can get to a point where they say, 'Yes, we're satisfied that you're going to treat this seriously' and enter into this economic contract, in principle, between us, then we will look to invite them to bid against the calls for action under the economy futures fund, which are—and I'll read them out so I don't forget one—decarbonisation; innovation, entrepreneurship and headquarters; exports and trade; high-quality employment, skills development and fair work; and research and development, automation and digitalisation. And these are all meant to be about things that we believe will contribute to the future development of the economy, hence the name of the fund. If companies are willing, then, to channel their project—their project is based around delivering against those calls to action—then we will get into a conversation at Welsh Government level about the possibility of funding.

But that will all be subject to all the points that Duncan was touching on earlier: 'Is it possible for you to go somewhere else for this money? Can the bank assist you?' before they come to us. I think we have signed up, in principle, to 200, something like that, economic contracts, and we've committed about £41 million of business support under the new arrangements of the economy futures fund. And that, in turn, Mr Asghar, in terms of how it operates, brings five or six funds together that we've been operating within Welsh Government. So, it's a very considerable simplification from where we were a few years ago.

Thank you, Andrew. Under the economic action plan, is it your expectation that businesses receiving support from the development bank will have to meet the same criteria as if they were receiving finance directly from the Welsh Government—especially due diligence and all the rest of it? Because when you look at the paper from the auditor general on page 26, the third paragraph there, the case will be submitted to the Minister and then the panel and then the advisory board and then the final decision by the Minister. Is it the same in this case?

Well, we still have those sorts of mechanisms in place. So, depending on the size of the grant awarded and the nature of it, it will go to one of a number of panels internally for an overview before we get to the point of making advice to the Minister. That's very much a part of the due diligence process. The bank has very thorough and rigorous due diligence processes of its own, and we liaise pretty regularly about that. So, sometimes, we will get the bank to have a look at something that we're doing, just for a second opinion, and vice versa, I think it's fair to say.

We are in discussions internally and with the bank about the possibility of extending the economic contract more widely than just Welsh Government grants, rolling it out more generally across the Business Wales suite of offers and across what the development bank are offering. But I have to say, the principles—i.e. the things that we're trying to do through the contrac—I think are already there, both in the way that the bank operates and certainly in the way that Business Wales functions, and you would do a series of checks with anybody that you were advising through Business Wales, which would pick up most of those points.

I think it's just a slightly different—we're applying it in a slightly different way. So, for Business Wales, a business, typically, would receive a diagnostic review or an analysis of the areas, and then, past that, we'd cover off the items that Andrew listed: R&D, decarbonisation. Likewise, the bank is using the principles to implement its consideration, but doesn't actually go as far, at the moment, as putting the economic contract in place. But as Andrew said, this is an ongoing discussion, and as we see how to implement it with our own offer, then we'll consider how we'll keep developing it.

I was in the committee, Chair, last week, with the chief executive of the development bank—the Economy, Infrastructure and Skills committee—and he was concerned that he hasn't got professional people in his bank, and he's finding it difficult to get some good brains in his bank, in that simple word.

14:20

There are a lot of good brains in the bank, and it's a very good and a strong team. There are certain segments of the bank's work where it is harder to recruit and retain because it's a very thriving private sector market for those sorts of sets of skills. So, we are talking to the bank about those sorts of issues. It has a bearing on recruitment and retention arrangements within the bank, and what we can do to assist there. But it's a relatively small subset of the bank's work. Is that fair?

Yes. So, for example, equity specialists—they are very hard to get hold of and recruit in Wales; it is a competitive market out there. So, for example, a north Wales-based equity specialist is likely to be attracted to a Liverpool/Manchester type role, so there some challenges there. But there are quite specific elements of the bank that we're working with him to address. 

Okay. And you have had difficulty appointing members to the new ministerial advisory board, and they have continued with the existing advisory arrangements until this is resolved. What form will these existing arrangements take, and are you satisfied that they remain fit for purpose—at least for the short term? What is it that you are looking for when appointing members to the advisory board that is making recruitment difficult, both in equity and diversity, prospectively, and in terms of skill, experience and more generally putting the right people in the right place?

The advisory board was established about a year ago under the chairmanship of Sir Adrian Webb. It is a policy advisory function rather than anything that's looking at, say, grant decisions or finance decisions. So, it's not an authorising or approving body in that sense. It's offering advice to the Minister in taking forward the economic action plan. We've got a number of people on the board who were appointed in the first instance on an interim basis to get the board up and running, and I think the membership of the board is publicly available. We can certainly write to the committee with the names of the people who serve on the committee at the moment, on the board, if that would be helpful.

The expectation was always that we would go out to a public appointments exercise, which we duly did. One of the things that I think we found was that we were struggling to get a diverse group of applicants—gender mix, ethnic minority mix, disabilities and also in respect of Welsh language—and that's very important in a body that's advising the Minister. We got to a point where we felt that, rather than carry on with what was a rather more limited pool of candidates, some of whom were thoroughly excellent, we wanted to go back and do the job again. We've asked committee members or board members where they can to stay on for now because we're in the middle of taking the economic action plan forward, and, with Brexit and everything else, having a team that have got used to working with the Minister, and the Minister used to working with them, is important as part of that process. But we will go on to do another round of public appointments recruitment in the autumn, I think. 

Oscar, just before you continue, I think you had a supplementary, Jenny?

I want to go back to something you were saying three answers ago. I just want to probe a little bit more about the five calls to action and how they interact with each other, because although it's excellent we have a more focused approach to who we're going to invest with, the third one, exports and trade, could be stretched to mean pretty much anything. So, I want to explore whether an organisation that was trading or exporting in something that was going to cause a significant increase in carbon emissions would still get funded, or would the mere fact that it was not supporting decarbonisation knock them out, even if they were going to do lots of trade, lots of exports?

We would be talking to the company and ultimately that would form part of the decision about whether to proceed with the business finance option, whether that was a loan or a grant, about the future. So, there will be a thing that happens at the point when a project gets under way about where the project is taking us in the longer run. So, you'd have to look at the life cycle of the project in making a decision. I don't want to say we would never fund something, because it might have a particular set of interests in the short or, indeed, over the longer term, and we need to weigh up all of these factors, but the expectation for all of the people coming to us looking for funding is that they are alert to all of those points in the calls to action and they are showing how they're going to contribute to those objectives.

14:25

Okay. So, they shouldn't be contributing negatively to any of those five calls to action.

No, although obviously there might be a difference in timescale. So, in the short term, you might be adding to carbon, but, over the longer run, you need to have a better impact. 

Okay. I've got that. And where does the foundational economy fit into these five calls to action?

The foundational economy is part of the economic action plan in itself, although of course it relates to everything else. And the same sets of criteria would apply for something that we felt was coming up through the foundational economy as we would for other bits of our economic infrastructure or our economic ecosystem in Wales. 

Thank you very much. Thank you, Chair. 

During the past few weeks, we have had the news about Ford and what's happening there, and the ongoing concern about steel in Wales—the steel industry—and the decision on the M4 relief road. There are also wider issues regarding Brexit uncertainty here and the recent declaration of a climate emergency, all of which pose several key risks, challenges and potential opportunities for the way in which financial support to business is delivered. Against that backdrop, what is your overall take on the economic outlook for Wales, and is there a need to revisit the focus of the economic action plan as a result?

Wow, how long have we got, Chair, on this? [Laughter.] 

It'll probably take longer than all the questions we've had so far. 

It's a brilliant question. If my friend, the chief economist, were here, he would say, 'If you want an accurate economic forecast, can you give me an accurate political forecast', because too much of the fortunes of our economy across the United Kingdom are intimately bound up in what happens on Brexit. There's plenty of evidence that uncertainty out there—and that's not a surprise, really—is having an impact on levels of investment across the UK, and we would be no different here in Wales. And companies are just biding their time, wherever they can. 

If you're very directly affected by the implications of Brexit, particularly a hard Brexit, then you are by definition more exposed to the potential shocks coming ahead, and we're monitoring things very carefully to see what's happening in the marketplace, including about how funding to those sorts of businesses goes on, because we are picking up anecdotes about banks being less willing to fund businesses with that kind of level of risk. I've no evidence to back that up, but I think it's a live issue for us out there. This will not please every member of the committee, but I think the general economic opinion is that our economy is somewhere between 1.8 per cent and 2.3 per cent smaller now than it might otherwise have been in the aftermath of the decision to leave the European Union, again because of this uncertainty factor, and different forms of Brexit have different levels of impact on your GDP, going forward, at least over the span of about a decade.

Employment rates are high in Wales. The employment position is about as good as I can remember in my career, as are inactivity rates—as in, they're pretty low. And actually, in productivity terms, we've done rather better in Wales than in other parts of the United Kingdom. So, there's stuff to be positive about, but that general level of uncertainty linked with what happens next to our relationship with our single biggest market on our doorstep dominates everything else. There are other international factors, for sure: the relationship between the United States and China; what's going on in other parts of economies further east; general protectionism that's out there in trade discussions at the moment—all of which are having an impact; what's happening to sectors, including for example automotive. You mentioned the climate emergency and decarbonisation, and a number of companies are looking very hard now, if they weren't before, at decarbonising their motor offer. So, all of that's out there in the wider economy, for sure, as are technological trends—artificial intelligence, increasing the digitalisation of functions. All of that needs to be taken into account. But, right now, in the next year or two for sure, and probably for the next decade, the implications of Brexit are key. 

What does that mean for the economic action plan? Sorry—you did ask me. Well, most of the principles of the economic action plan hold absolutely good through all of this. What are you doing about your foundational economy? What are you doing about a place-based approach to making sure that your economy, in an area and in a region, is working successfully? Are you driving the things that you're most interested in from a policy perspective back to the calls to action and those core components of the economic action plan? When we're spending public money, are we getting something back for that—the something-for-something agenda? Are we trying to do this in an inclusive way? You don't want growth to take off and leave large parts of the economy and communities behind. So, all of those things are entirely relevant, but they are accentuated because of the Brexit threat, and we need to be very vigilant as we go through this process. And then, lastly, there are obviously changes in manufacturing, which we've seen. Ford is an example. There are others out there that are struggling in the current environment and, again, we need to be as alert to that as we can be.

14:30

A brief supplementary, Adam Price, before I bring in Gareth Bennett.

Yes. The ONS used to carry a subnational breakdown of the monthly redundancy figures. They've discontinued that. Do you keep a log on where we are in terms of levels of redundancy in Wales? Has it increased?

I think we're largely using ONS's data. I can come back to you on more specifics if that would be helpful, but I think, by and large, we use the ONS data, generally, for all of our key data sets, partly for comparability across the UK.

They don't publish a Welsh breakdown any more because they've discontinued the UK— 

Do either of you know about that?

So, have you yourself got your own data set on redundancy?

We have monthly updates on economic and employment figures. The stats come round for that, but I'm not sure where that's sourced from. So, we can check that.

I think it's ONS data. I mean, Sioned will be getting reports from her teams at a regional level, so we'd have a good anecdotal feel for what's happening.

Okay. The redundancy data set is a separate data set, so it's not in the general unemployment figures—the employment figures. If you could come back to us on that—maybe they still collect them and they just don't publish them—it would be interesting to know.

With the anchor companies—the 50 or so anchor companies, and then there are another 40 to 50 or so regionally important companies—does each one of them have a designated account manager within Welsh Government?

We've moved away increasingly from our sector approach to one based more around regional structures so that we get the join-up across all parts of the economy in an area. So, one of the risks with the previous arrangements was that we were overly focused on sectors. But I think it's true to say that, for most of those companies, there would still be a lead contact.

And how often do they speak to those companies? Do you have monthly engagement with them?

So, I think anchor companies would have a core go-to point. The regionally important—quite a long list. So, it depends, really, on where they're at, but I would say, actually, it's working with the company that defines the relationship. So, in some cases, it's a very regular meeting, and, in others, it's a quarterly stop point in whatever it might be. So, I think it's very much defined. One size doesn't really fit all and it does depend on their growth and their activity and what they're asking for from us. So, we tend to define it as defined by the company, particularly the anchors as well.

If you were thinking of, for example, Ford, maybe, I would think that we were in and out of that company and talking to representatives of the company pretty regularly—at points, daily, and certainly weekly, I would think.

With the announcement of Ford, of course, I think it's fair to say that it caught the Welsh Government by surprise. As a result of that, have you gone back to all of the anchor companies and said, 'Look'—I don't expect you to tell me which ones would have answered this in the affirmative—'How many of you are considering radical reduction as a result of whatever factor, really, whether it's Brexit related or not?', so that you have an accurate picture of how resilient the existing economic base is?

So, there are several strands to the answer to that question. We are in regular dialogue with companies, including in relation to those that are mobile, in relation to flight risk. On Ford, I think the fact that Ford were weighing up their options and were finding the operating environment challenging—all the points that have come out in subsequent discussions with the press—none of that was a surprise. The UK chair of Ford, Graham Hoare, came and briefed the First Minister, Ken Skates, me and one or two others back in February about the latest state of play. But I think the decision to close and the relative imminence of that was a surprise to everybody. I haven't met anybody who has said, 'Yes, we knew this was coming for months', and we would have picked that up in our very regular conversations with the company. So, it was that week when the D-day anniversary came—I think the announcement was on 6 June itself. It was that week that I think we got wind that the US management of the firm wanted to talk to senior stakeholders in the UK, which means the Secretary of State for business, the First Minister and our economy Minister. We have a pretty—

14:35

Just on that, that's interesting, because, previously, I think, the First Minister himself said this was a decision by Ford Europe. Are you saying that you are aware that a catalyst for this decision was a decision by the company's global management based in the US?

Well, I'm working on the basis that Ford is a global player and there will be dialogue between the United States and Ford Europe and then with Ford UK.

And when was the last time the Welsh Government—well, at ministerial level—engaged with Ford Motor Company's US-based global management?

I can't remember when that would have been, but, again, we can find that out for you.

And is there any intention to engage with them now at that level?

Yes, there has been engagement since the announcement.

Sorry, you asked about—yes, regionally important companies and anchor companies and dialogue. Partly because of Brexit, we have looked very hard at all of the key companies, and we have a pretty good idea, across companies, by supply chain and by place, of companies that are most exposed in the context of Brexit and other factors that are live in the wider economy. But, as you say, companies will sometimes be a bit coy about what they're prepared to share, and I'm sure we will see—and we've seen some evidence of that elsewhere—that some things are attributed to Brexit that may or may not be actually related to Brexit. But we are doing a lot of work with companies in respect of that risk.

Thanks, Chair. The auditor general's report identified the need for the Welsh Government to be clear about its risk appetite to inform overall programme management and individual project selection. What progress have you made to agree the approach to risk appetite described in your response to the auditor general's report and what options or choices were on the table as you considered your approach?

This was definitely a recommendation by the auditor general, as you say, Mr Bennett, and we've followed that up—we're in the process of doing that—so we have agreed with Ministers a risk appetite for the economy futures fund, so these are the directly managed Welsh Government finance offers, and we have now set that out quite clearly based on the factors determining a decision, and we put a risk appetite ranking against each of those. I can't remember off the top of my head what they are, but I think they go from a conservative risk aversion through—here we are, Duncan's got it. So, for example, in describing this, we have an open approach to applications, so open in the context of a scale that starts at averse, so the avoidance of risk at pretty much all costs, through minimal risk aversion, cautious, open and to hungry for risk, if you think about appetite. We've set out a statement in respect of the economy futures fund that talks about an open approach to applications for private sector and third sector, averse to risks associated with dishonest behaviour, a cautious approach to state aid risk, a hungry appetite for innovation where that will create major opportunities, a hungry appetite for applications from across the whole of Wales, a cautious approach to ensuring funding provided is the minimum necessary from Welsh Government, and so on. So, each of those themes gets a risk category attached to it and that then describes the risk appetite for the programme as a whole.

The main benefit of this is that if we get applications in or requests for assistance, and the threshold that we have set looks like it's going to be exceeded, so one of those where we say, 'We're cautious about this', but suddenly we find something that is going to be more open or risky, that puts a flag up and that prompts a conversation either with the company or with somebody else within Sioned's team. We're now in the process of pushing that out through business and regions as a directorate; there's a whole week's training associated with it.

The approach is going to be rolled out consistently—

14:40

The risk appetite may be different in different areas—

For different funds or schemes.

—so I think that's the key. So, it's the approach that's consistent, but the appetite may be slightly different, depending on which part of the—[Inaudible.]—we're looking at.

Okay. So, that aspect might differ, but he mentioned that there will be training so that this approach can be applied consistently.

Yes. Ministers signed off the appetite—because, at the end of the day, it's programme funding so they've got to be content with this—a couple of weeks ago. That's now being written up into guidance for staff and will be promulgated along with training for colleagues. It's a good discipline and, as you say, it's one that will roll out consistently, although it won't be uniform, because the nature of the business or the funds that we are managing will give rise to slightly different treatment. And as I've said elsewhere—and I've bored the committee in the past on this so you're welcome to start being bored on this by me—in relation to risk appetite, if you look at all the things that are happening across my group, from inspecting farms and inspecting vessels on the high seas, managing castles and our historic monuments, working with businesses, working with the higher education sector and the further education sector and skills, doing what we do around growing regions, working with farmers on support payments—all of those things are very different types of activity and the levels of risk associated with them and the risks that I am prepared to tolerate as accounting officer will be very significantly different. So, I have a very, very low and averse threshold to risk in association with anything that involves my people potentially getting hurt—so, inspectors out on the ground or out on boats or the work we do around management of our highways. You wouldn't expect me to have an open approach to risk in respect of those areas. So, the nature of the business and what we're trying to achieve in each case will drive the risk appetite.

We develop these with internal auditors—

Yes, we haven't just come up with them by ourselves—

We haven't developed these by ourselves. We develop them very closely with internal audit.

Who are drawing on advice provided by WAO colleagues.

Okay, thanks for that. The auditor general's latest report didn't focus on due diligence arrangements for individual investments. However, previous reports by the auditor general and others have raised concerns in that regard. What have you done to strengthen due diligence arrangements, considering issues raised in previous reports from this committee?

Well, it might be worth just taking the economy futures fund and just thinking about working through the due diligence in respect of these new funding arrangements. So, we had a recommendation from the PAC back a while on the Circuit of Wales in relation to declarations. So, part of the due diligence process now, in the light of that, ensures that we ask very specific questions about transactions involving the fund being likely to be conducted through related companies. So, there's an example, and that's been promulgated in the guidance.

In respect of the work of this committee on things like Kancoat, where there were a number of recommendations, we have ensured that a suite of new due diligence arrangements are put in place. So, we have learned the lessons from what you've done as a committee and embedded those into our operations. We presented all this to our Welsh Government's grant assurance panel, so that's a wider range of governance mechanisms across the whole of Government, and got their approval for how we operate the EFF. Sioned, you might want to say a bit more—you're bringing internal audit in to do some consultancy work, aren't you, in this area?

Yes. One of the things I was keen to do when I took up post was to make sure that the relationship with internal audit was particularly strong and open. I picked up from the report and from conversations around the report that there was a bit of tension there in terms of certainly how my team felt and how internal audit felt. So, I've asked internal audit to come in and do a piece of consultancy. Essentially, they will undertake an audit but there'll be no formal opinion at the end of it, but it'll be fed back to me and to the team so we can help to strengthen that relationship, and I'm very keen to develop that as we move on, to make sure that we are completely transparent and very much aligned to best practice.

Thank you, Chair. The auditor general's report identified that management information about financial support to business is held on different systems and that those systems contain some gaps and errors, hindering the ability to produce a timely, accurate and comprehensive picture. What action have you taken to address these issues and improve your internal reporting about the programme of financial support?

14:45

I think there are a couple of things there. One is about whether we can accurately track our payments and can we access that information at the touch of a button? And the answer to that is 'yes'; I have no particular concerns about that. For some of the reports, as colleagues in the WAO identified, it took us a bit longer to pull this information together than I would like, or the team would like, to be fair. But it wasn't that we couldn't pull the information together, it just took longer, and it wasn't as efficient and effective as we would like. And part of the problem, also, is that we can sometimes harness data regularly, on an annual basis, but if you're trying to look multi-annually, it gets more tricky.

So, we've done quite a bit of work since the report came out about how we can streamline some of our reporting processes and make sure that different data sets talk to one another, and I'm confident that, within the group, we're doing a lot more of that. So, the position has improved; I wouldn't say we've absolutely got it nailed, but it's a lot better than it was. As I say, I'm not worried that we haven't got the information per se, it's just how quickly it can be accessed and how efficiently. And we are talking to colleagues about what more we can do to connect up our business system, our customer relationship management work, with our payment systems, because that would allow us to do a different suite of interrogations of the data. Is that an accurate—?

Yes. Basically, I think the two systems—customer relationship management/customer information and the payment module—allowing those two systems to talk to each other is the kind—. At the moment, we're relying on a report to come out of those. We're working, based on the findings of the audit, basically, to understand how we can link those two together, either directly or through a reporting tool. So, that's the kind of forward action.

Okay, thank you. And with regard to Welsh Government information and the development bank information, how do you aggregate those two things to look across the piece?

Information sharing, as we were discussing earlier, is a big part of the relationship. We don't use a common system, though, do we?

I think it's interesting—actually, we've got a development bank board meeting on Wednesday, and one of the areas for discussion is exactly that. From a technical perspective, we, business and regions—[Inaudible.]—could allow DBW to access our CRM to ensure that happens. At the moment, it relies on us talking to each other and working with each other constructively, as we've talked earlier. I think going forward, the intention is to basically share one of our systems, provided we can get the data sensitivity right.

Okay, thank you. And the same report also questioned aspects of the way in which the Welsh Government's sectors and business team budgets for the financial support that it provides, and in particular the fact that future budgets for support were only based on known commitments on existing projects with no budgeted funding for future projects. So, how have you set your latest budget for financial support to businesses?

Well, this is partly linked to the way that the Government sets budgets. So, right now, I think we have a revenue budget, which we can forecast out for about a year and capital for two years—something of that sort. We're waiting to find out what will happen with the next spending review. That was promised some time ago—that was pushed back; we were expecting it for the autumn. There are signs coming out of the Treasury now that that may not happen. It's quite hard to do a spending review until you know what's happening with Brexit, so there's a suite of factors that might mean that we don't get a spending review now until into next year, and that will also be dependent on a new Prime Minister's view about how to go forward. But even when we get the spending review—and please be assured that Welsh Government is already working on the assumption that there will be one shortly—we need to be ready for it in terms of the pitch from Wales, and we are doing something similar within my group to feed into that exercise.

Even if we get a spending review, that will still only allow us to budget for three years. In practice, that's two years and an overlap year, which is not the same, obviously, as what happens with European money, where you have a multi-annual financial framework that spans six or seven years. And that's one of the things that worries a number of people who currently receive European funding—that even if there are guarantees coming from elsewhere in UK Government that moneys might be made available to the same tune as the money you had before under European funds, that will then still be locked into, for the most part, anyway, the standard three-year spending cycle.

We do a lot within the portfolio—the Minister for Economy and Transport's portfolio—to make sure that we move money around to provide the suite of economic development and infrastructure benefits that are needed. And we don't carry, because we haven't got the money for it—we don't carry a surplus that's there just to draw down when we might need it. But we work very closely with our central budgeting colleagues. So, relatively recently we've had some money made available for our work at a regional level, and that's a dialogue that goes on throughout the year. And, as I mentioned earlier, we've committed about £43 million or £44 million, I think—something of that sort—to the new economy futures fund under those calls to action.

14:50

If you don't have a total defined budget for a particular financial year, how do you actually know how much you're going to be able to spend on financial support for new projects?

We would work on a series of planning assumptions that a number of projects that are already committed to won't happen; there'll be some slippage in some of them; companies will decide that they want to do part of the project, and that quite often sets the process back, because we then have to review the nature of our support. So, in a standard year, you will get a reasonable amount of movement in the programme, and that usually allows for a degree of new business coming on stream. So, we can accommodate new business, of course we can, but on the other hand, back to my point right from the very beginning of the session, we have less money overall to play with in this regard. And that's why repayable finance loans and so on are so important in the mix, because you've got the opportunity to recycle money or not commit money that is a loss forever, even if it's to develop and deliver a series of project outcomes.

And how do you actually reconcile a long-term strategic approach with reactive, opportunistic in-year funding? That must be quite a challenge.

It is challenging, but it goes back a bit to the economic action plan and how we try and drive grant funding and finance more generally in a more proactive and strategic way than we have done hitherto. So, if you're doing it that way, you are reducing—you're not eliminating, but you're reducing—the kind of ad hoc stuff that comes in. But we do need to be ready for opportunities. A company may come to us and want to invest in Wales, a company may want to grow in Wales as an indigenous business and have an excellent idea, and suddenly it looks like there's a project there that we didn't know about six to 12 months ago. And Sioned's teams, whether they're operating at regional level thematically across the country as a whole, are looking out for those sorts of opportunities, but, as far as possible, to fit strategically with what we're trying to achieve through the economic action plan.

Thank you. One final question from me. You mentioned the economy futures fund already, what are the budgeting arrangements for the different schemes that comprise that fund?

We budget at fund level, so we don't say, 'It's this amount for this strand and that amount for that strand', and we play tunes, to some extent, across the different strands, according to the nature of the project that's coming forward. So, that total that I've given you, the £40 million-odd committed, will be across the different strands of the EFF as a package.

Just to be clear, you said earlier that your certainty, now funding has gone down from the six or seven-year cycle you mentioned before down to two and a bit—.

At European level, so either structural or social funds or the common agricultural policy, all of that spending is planned and budgeted for on a six or seven-year cycle. So, Europe is about to go into the next round of its multi-annual financial framework setting. If you're—

Yes. If you're operating on long-term regional development, or you're operating, for example, in respect of land management, which requires decisions to be taken over a period of years, that has provided a degree of certainty under either the European regional development fund regime and the European social fund, or under the common agricultural policy, over that kind of period. But on the whole, UK Government has never operated like that and spending reviews, in my experience, have never gone beyond three years.

Thank you. I'm slightly confused. You mentioned, very much, at the beginning, the £180 million that was in Finance Wales, which was EU funded, and obviously we've moved on, but in regard to the shared prosperity fund and the UK match funding around that, what conversations have you had around that in terms of impact on the development bank? Because we've talked about it from the companies' perspective, but in terms of the banks' perspective, what sort of impact would a 'no deal' Brexit have on the development bank, bearing in mind all of the alignment with Welsh Government?

Well, I'll give an overview and then bring Duncan in. There are a couple of factors at play there. The development bank most definitely will be part of the suite of interventions we have available to us in the event of a 'no deal' Brexit, and we might come back and talk about that in a moment.

In relation to what we're doing at the UK level, we're in very regular contact with what's happening at UK level and across different parts of the UK Government machine in relation to, not least, the shared prosperity fund. But that, at the moment, is locked in a series of internal Whitehall discussions about the nature of the shared prosperity fund in future, how much money it might have, what its objectives will be and, indeed, how it will be delivered. We are arguing very strongly that Wales should have its share and that we should be left in Welsh Government to determine how to use that money as we have been with ERDF, with CAP money, so agriculture money, and components of the social fund within the European framework—

14:55

So, my question, and forgive me if it's unanswerable, but I need to be more clear: in regard to 31 October, if we end up with a 'no deal' Brexit, will there be an immediate impact on the Development Bank of Wales or not?

Do you want to pick that up?

Yes, I think. So, a couple of things, just from the experience of the March date. I suppose it's worth making the point that the development bank invested £80 million last year versus £40 million from business and regions, so, in scale—. We are exploring all those UK levels, and one of the impacts on the development bank in terms of UK funding has been the financial transaction reserve—repayable capital, basically—so that's obviously played well for the development bank's armoury. What we're seeing, or certainly what we saw with March—and it's an interesting period at the moment, there's a little bit of inertia in the system. But as we headed to March, cash flow was a key drive, so the development bank's ability [correction: the development bank was able] to respond at pace. I suppose its impact, it's likely that we might use some of that £700 million firepower quicker than we'd originally planned. So, we've got the opportunity to bridge some of that risk, but we just need to keep a really watching brief and watching eye on it, because, at the moment, we're not quite sure on the impact. What I think we will see is a lot of cash-flow-type applications where businesses—say in a 'no deal' scenario, the border closes, they're going to need to stockpile and cash will be needed to support it. So, I think there will be a number of impacts, but I think we've got the firepower to hit the short to medium term, and then that's an ongoing conversation as we head into 2020 and beyond.

Okay. I could spend a lot longer on that, and I know I don't have time. Okay, in regard then to the economic action plan, you aim to deliver a more comprehensive reporting capability, I believe, by 2021. So, what progress has been made on that to date—performance indicator—

We've got a team looking at this at the moment. Sioned might want to come in and say a little bit more in a minute. But I think one of the really interesting things for me, out of the auditor general's report, is this business about evaluation and have we got the mechanisms in place to make sure that we're evaluating not just what happens with an individual project or an investment, where I think, actually, we're pretty good at knowing whether we've hit what we said we would do by way of targets, but what happens when you sum that up to an aggregated level—is your programme, as a whole, delivering what you wanted and is your economic action plan delivering what you wanted? We're doing quite a bit of work at the moment to look at indicators for success and how we measure against those, and also what happens in respect of the different components of the economy futures fund and how those play in. We're also having a bit of a think about how we measure performance at the regional levels, so what happens more spatially, but I don’t know if there's anything you want to add in terms of the—. It's a work in progress.

Yes, it is a work in progress. I won't bore you with the details, but we recently reconfigured the directorate in order to support the economic action plan, which does then provide more of that place-based support for businesses. In that relationship building that we touched on earlier, we deal with an awful lot of businesses, and the reality is that some businesses will do well and some businesses simply will not do as well, and the role of the team that I have on the ground is to have the sort of relationships that mean that we have early insight into that and that we can help the businesses to develop in a way so we can start building up a richness of information. So, even if there's a blip on the landscape, we can factor that into the intelligence that we have around businesses, so we can help them with the right level of support, moving forward—

So, you mentioned that you've reconfigured the workforce. So, does that mean that you're working more on a regional, spatial approach—

Yes, in order to support. So, yes, there are now teams based in the regions, but, in a way, it's a bit of a smokescreen, because we've always delivered in the regions. So, Duncan's Business Wales remit is an all-Wales remit, and yet he's got very, very strong regional, local delivery. What we've done is corral some members of the team around three chief regional officers who are the focus in the region—

—to develop that place-based—and give somebody a face and a telephone number, somebody to contact. There's a really positive response to having that clarity around who they should be contacting, rather than I think some concern that businesses have had for a while around Welsh Government being so large, who do they get in touch with?

15:00

Okay, and in regard to—this is what's happening in terms of scoping for 2021. How are we actually tracking performance information at the moment, then? 

Sorry. In terms of what specifically?

In regard to development bank. Sorry, the economic action plan.

The EAP? We're developing, not least in light of the auditor general's report, some dashboards, aren't we, which look at how projects are performing, but also how the overall fund is performing, and the expectation is that we will make those—

So, in terms of indicators, you're working off dashboards. How do you measure your success or otherwise at the moment? Forget what you're doing in 2021. 

We're working on it at the moment. For example, Andrew mentioned the number of people who've signed the contracts to date. That gives us an indication of really how—

Just over 200, I think.

Are they cross-sector Government working, or in one sector, or—?

No, they're across the sectors. They're the businesses who have approached us for support, and we've had the conversation, we've had the economic contract, and we've determined between us and the business that, actually, they are very keen to work in this way, and have agreed to follow the contract. Therefore it allows them access into the next stage of discussions with us around wider business support. 

Yes, I'd like to ask some questions about Dawnus, the Welsh company in the construction sector that went into administration, sadly, recently. Just before I ask some specific questions, going back to the earlier discussion, have you identified through your antennae and discussion with some of the regionally important companies, for example, that there is a broader crisis in the construction sector particularly?

Construction fluctuates. It had been doing okay for a little bit. At the moment the turn is downward, but there are some pretty significant infrastructure projects out there that will still require construction firms. I wouldn't rush to say it's all looking terribly gloomy. There are some specific instances or issues in respect of particular companies, and we might come on to talk about some of that. I think, as the committee is aware, some of that is stuff that I'm prepared to talk about in open session, but I'm very happy to go into closed session on some more of the detail if that is helpful to the committee.

That's the thinking behind the closed session later. 

Yes. But I'm not rushing to say that the construction sector's on its knees more generally. I don't know whether Duncan's got a view on that. 

I think there are clearly—there is clearly some inertia from what we're seeing out there, and I think it's not always the obvious things that are happening. So we're seeing businesses actually sat on reserves and just delaying that investment decision, which inevitably would have an impact. If you were planning on building something, they're not going to be contracting early. So, there are quite a few moving pieces, but I wouldn't say we can yet draw a firm conclusion on one sector or another. It is a general—there is definitely a general inertia that we're picking up in the system.

So, we had Cuddy group obviously going into administration, just in the last few days, Jistcourt in Neath also, GM Jones in north Wales. I think in GM Jones's case, they were in receipt of Welsh Government grant.

I think they might have had some housing money. We can get back to you on that. 

Yes, I think it was for a headquarters project. And actually I think just today another company in the food sector, GRH Food Company, it's been announced that they, in Minffordd, have gone into administration. I think you also supported them with a headquarter-related project. Would those decisions have been implemented with the new framework that you described earlier? Are you satisfied that you went through the proper procedures with those?

It depends on the different propositions. So I wouldn't want to say yea or nay in relation to particular businesses, but I'm pretty confident that the decisions that led to the funding of these companies will have followed the due diligence process and everything else we've been talking about in this session. As Sioned said, very sagely, businesses will prosper and businesses will not, in some cases. I think the current rate of business death in Wales is about 200 a week or something, if you look across the whole of the landscape. 

15:05

So, there's no cause for general concern in relation to the construction industry in particular.

I think it's the general point that Duncan makes, Mr Price, about uncertainty out there in the marketplace. So, quite often, that impacts early on construction because people decide not to proceed with things that they might otherwise do. But I'm not rushing out to forecast doom in the construction sector per se. 

Could we turn to the specifics of the Dawnus decision? It's a complicated story, I think it's fair to say, partly because of the quite complicated structure of the interrelated companies. But, if I can focus in on one particular aspect that has received some commentary, which is: why was the Welsh Government involved in a package of funding that did involve at least an interrelated group of companies, partly whose assets were overseas? Was the funding partly given contingent on a charge on some of those overseas assets? How did the overseas dimension have relevance to your decision?

Dawnus as a company had UK operations and overseas operations. I think the overseas operations had been quite profitable in terms of margin. The margin in the UK businesses was smaller, but the company was doing quite well. There were particular difficulties experienced in respect of their overseas operations, and we also learned from the company that they were having problems with a couple of their projects in the south-west of England. And, at a point very late on in 2017, they came to us as a company and asked for support, and we entered into an arrangement, which I think is a matter of public record, on a pari passu basis, which is a step-by-step, equal-step arrangement, with their bank, HSBC, with a loan of, for us, about £3.5 million, of which we have now recovered just over £2 million. All the due diligence was done on the project and on the loan, and we looked very carefully at the company's assets and what work it had, its order book and so on, in entering into that joint equal-step arrangement with the bank. 

And so the charges that you had, were they charges over assets held by all the companies in the group?

I think so. It was secured on assets across the business as a whole. 

Some of the companies, though, are still ongoing concerns, are they not—Dawnus International—or was that not regarded as part of the group? 

No, I think Dawnus as a whole has gone. 

So there are no continuing Dawnus-related companies or companies that have re-emerged—

As an operation, my understanding is that Dawnus has gone into administration, full stop. So, as I understand it, there isn't a Dawnus group of companies with other bits that are carrying on and it's the UK end that hasn't survived. That's, to my knowledge, not the case. 

Right. Okay. Fine. In terms of the Welsh Government—? What do you expect to recoup? You've had £2 million, you said; what else do you hope to recoup?

We will continue to try to recoup the balance of the money that we loaned the company. I think we've got to be reasonably realistic about it in view of the challenges associated with that and others who will have a claim on assets and money released through work in progress. So, I would be reluctant to put an absolute figure on what that amount would be, but we are right now engaged in very serious discussions with all relevant parties, the administrator and the bank about all that, and we need to do it in a measured time frame in order to ensure best value for money for the taxpayer out of this exercise as a whole. 

15:10

One of the issues that arises in situations like this is that the Welsh Government has to balance its policy goals in terms of ensuring the viability of the company versus its responsibilities in other regards, for example to the subcontractors and also to other public authorities that the company has a contract with. And there has been some criticism in some quarters from other public authorities about your not sharing information sufficiently with those other public authorities subsequent to you becoming aware of the financial difficulties engaged in contracts that have resulted in financial loss to the public authorities concerned. How do you balance these issues about commercial confidentiality on the one hand, wanting to sustain the company, with the obvious need to protect the public purse?  

That is a very good question, because there is a suite of policy objectives, as you rightly point out, that you're trying to deliver against, but there are also some obligations on us in entering into arrangements under any kind of loan or any other form of financial assistance. So, we do that on a 'commercial in confidence' basis. If we breach that trust, the company can sue us. If we rushed off and broadcast to wider public bodies that we had a suite of concerns that weren't otherwise evident from material that was available in Companies House—I'll come back to that in a moment—we could very well trigger the very thing that we're trying to avoid by working with the company to keep them going. There were 700 jobs associated with Dawnus, of which about 430 were based in Wales—very significant amounts of business in Wales in terms of turnover for the company, and an important company for us to try and assist if we could, including in relation to other supply chain elements as well. So, we weren't in a position to rush off and say that we'd entered into a particular type of arrangement, because that would have breached the legal agreement we'd entered into with the company. 

On due diligence for public bodies, anybody entering into an arrangement with a supplier is obliged to undertake due diligence. We all do that; ultimately, it's a matter for the authorising authority. General levels of information are shared across the buying network in Wales. We've talked about procurement here before that happens, and Jonathan Hopkins may join us in a bit and we can talk through some of the processes that we use there. But the obligation in relation to carrying out due diligence rests on the authority making the contract, ultimately. I don't think rushing out and saying to a local authority, 'Don't enter into that contract because we're doing this over here to try and keep them afloat'—we would be, as I say, in breach of our legal obligations and we'd end up in court and be sued on that. I don't think it would actually have changed the nature of the outcome much either, because right up until the end when Dawnus was going into administration, we were working with the company to try and help them keep going and not get into this position. 

Was it also true—? Did wholly owned Welsh Government subsidaries or agencies, or whatever, however you want to describe them—Natural Resources Wales, for example—did they enter into contracts with Dawnus subsequent to—

I can't remember the sequence of all of the different contracts. Local authorities, obviously, were contracting with Dawnus. I can't remember whether NRW was as well. We have got a list of those. 

And Welsh Government departments were also involved, subsequent to you becoming aware of the financial difficulty. 

I can't remember whether that's—. I don't know on that. I'm not aware—

In any case, you would not have informed other parts of Welsh Government either that public funds were at risk, based on the information that you had on a privileged basis. 

We would not be telling other contracting parties that we were engaged in relation to the grant—or the financial assistance, rather, the loan. 

How does that work in practice within Welsh Government? Because you have fairly wide-ranging responsibilities. If you were involved in a decision over a contract but you were quite properly aware of the financial difficulties that a company was in, and the fact that there were teams trying to help them, would you then have to recuse yourself from that decision? Because it's quite difficult for you not to make the decision—

15:15

It depends on the nature of the decision and the project at stake. But we would be—. The precise terms of the arrangements, subject to me being sure that due diligence was properly in place for particular awards—I wouldn't normally expect to be in on all of the detail associated with that. I'm trying to think where the particular arrangements for Dawnus would have gone through the system. But, yes, if you got to a point where you were going to breach a legal obligation, then I would have to step away, and I would need to be clear what my obligations were in that regard. 

I don't think it's just a theoretical possibility. For instance, if you were talking about a multi-hundred-million-pound project, which required a ministerial decision, it's almost impossible to imagine that you would not bring to the Minister's attention the fact that this company—you are aware there is a question mark about the financial viability of the company. Surely. 

In practice, if you were at that sort of level and you were dealing with an organisation—. It's a question of scale, isn't it? Dawnus was a sizeable construction firm, but not a mega player in the construction sector, and I suppose it would depend a bit on the nature of the project.

There have been well-reported concerns about the financial problems facing Kier, which is also a major contractor in this space. Following the collapse of Carillion et cetera, have you got a process in place now for responding quickly to those concerns that are based on public domain information in terms of protecting the public purse?

Yes, we have indeed. And information sharing mechanisms and our business intelligence function, which we've talked about in this committee and elsewhere. 

Finally, some contractors have referred to a project bank account—I think that's the term—as a means of protecting under these situations the legitimate interest of suppliers. Is that something that the Welsh Government has adopted as an approach?

We use them increasingly. They don't work in all circumstances, but we are encouraging their use more often across the public sector as a whole to help deal with some of the risks that you've just highlighted. 

And finally, this may be largely a development bank issue, but in these scenarios where companies go into administration, are we fully exploring the prospects for management buy-outs, or indeed even EMBOs—employee and management buy-outs—wherever possible? Obviously, it would be done on a case-by-case basis, but is that something that is like a first port of call in responding to administration scenarios?

Yes, absolutely. In both scenarios, there's a rescue and restructuring fund available from the development bank, and there's also a management succession fund. So, all options should be on the table in all eventualities, basically. Plus, also, I'd add, in the context of the project you mentioned, we're actively supporting the supply chain as well, because, obviously, there are stresses and strains. So, the offer does go across the piece, yes.

Okay. Thank you. I know you're going to be staying with us now. That's the end of the public session, but I know you've agreed to stay for a little while in our private session, so that you can maybe elaborate on some of the areas that might be subject to confidentiality issues. 

3. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o’r cyfarfod
3. Motion under Standing Order 17.42 to resolve to exclude the public from 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.

So, I move Standing Order 17.42 to enter private session. 

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 15:18.

Motion agreed.

The public part of the meeting ended at 15:18.

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