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Pwyllgor yr Economi, Seilwaith a Sgiliau

Economy, Infrastructure and Skills Committee

17/07/2019

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Bethan Jenkins AM
Hefin David AM
Joyce Watson AM
Mick Antoniw AM Yn dirprwyo ar ran Vikki Howells
Substitute for Vikki Howells
Mohammad Asghar AM
Russell George AM Cadeirydd y Pwyllgor
Committee Chair

Y rhai eraill a oedd yn bresennol

Others in Attendance

Dean Medcraft Cyfarwyddwr Cyllid a Gweithrediadau, Llywodraeth Cymru
Director, Finance and Operations, Welsh Government
Ken Skates AM Gweinidog yr Economi a Thrafnidiaeth
Minister for Economy and Transport
Simon Jones Cyfarwyddwr Seilwaith Economaidd, Llywodraeth Cymru
Director, Economic Infrastructure, Welsh Government

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Andrew Minnis Ymchwilydd
Researcher
Lara Date Clerc
Clerk
Robert Lloyd-Williams Dirprwy Glerc
Deputy 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 09:33.

The meeting began at 09:33.

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

Croeso, bawb. I'd like to welcome Members to committee this morning. I move to item 1. We have apologies from Vikki Howells for the first session, and the substitution this morning is Mick Antoniw, so welcome, Mick, to committee this morning. We have no other apologies or substitutions. If there any declarations of interest, please do say so now.

2. Papurau i'w nodi
2. Paper(s) to note

In that case, I move to item 2, and we have a number of papers to note. We have a letter to me from the Minister for Economy and Transport on common frameworks. We have a letter from the Minister for Economy and Transport regarding the Williams rail review. And we have further information from the National Federation of SubPostmasters in regards to our inquiry on access to banking. So, none need action; all are for information. Are Members happy to note those letters? Good.

3. Craffu Ariannol yn ystod y Flwyddyn gyda Gweinidog yr Economi a Thrafnidiaeth
3. In-Year Financial Scrutiny with the Minister for Economy and Transport

In that case, I move to item 3, and this is our session on in-year financial scrutiny, and with us this morning is the Minister for Economy and Transport. I'd like to welcome the Minister to the committee this morning. I'd be grateful if you could introduce your—.

09:35

Simon, do you want to go first? 

Good morning. My name's Simon Jones. I'm the director of economic infrastructure. 

Good morning. My name's Dean Medcraft, director of finance, operations, economy, skills and natural resources group.

Lovely. Thank you for joining us this morning. So, I suspect this is the first time that we've had the opportunity for you to be with us, Minister, since the decision on the M4 relief road has been made. So, the larger part of our discussion will be around that this morning. If I could start by asking, perhaps, a wider question. The public inquiry and building up to that has taken six years. There have been £114 million of costs associated with that build-up, preparation work and the public inquiry itself. The inspector agreed with the Welsh Government's own proposals, only for the Welsh Government then to reject the inspector's report, or, indeed, take a different view in terms of the conclusion. The issues raised by the First Minister in making that decision were around affordability and environmental impacts, but weren't both of those issues known about and very clear at the start of the process? 

Chair, thanks for inviting me to give evidence today. It's been quite a year since I gave evidence regarding activities on the financial front last summer and a huge amount of activity has taken place over the last 12 months. Clearly, the M4 has been a major decision, but over the course of the past 12 months, in the broadest sense, we've managed to maintain unemployment at historic low levels, and inactivity likewise. Employment levels are near a record high and we've seen some incredible programmes being taken forward: the Advanced Manufacturing Research Centre; the International Convention Centre Wales is about to reach completion; the rail franchise has begun; various investments in businesses and the business environment, with the Development Bank of Wales operating its first full financial year of activities, and already well ahead of its five-year investment programme.

With regard to the M4, you rightly identify the period of time that this has been in development, and the costs in terms of the 2014 prices were known, but, of course, over that period, there have been additional costs and the financial environment, at least, has changed considerably during that period. Back in 2013-14, we'd been promised that austerity was coming to an end; 2015 was when austerity was meant to have been halted. That hasn't happened. There's still a lack of a comprehensive spending review and three-year budget security. In addition, Brexit has clearly caused considerable disruption, and likewise, the value of the pound has plummeted, and that's had impacts in terms of the project and the cost of the project. So, whilst the costs were known in 2013-14 prices, the actual operating environment during the course of the last five or six years has changed considerably and, in many ways, we wouldn't have been able to predict back in 2013 just how uncertain and unstable the financial environment would be right now. 

In terms of environmental considerations, well, much has changed as well. We've now got Welsh transport appraisal guidance 2017 in place. There's been the declaration of the climate emergency. There have been various recent reports that highlight the need to act now to protect the environment. So, I think, given that the scheme has been developed over a period of years, it's not surprising that significant change has occurred. But that change, I think, is greater than any of us could have imagined back in 2013.

So, just to take—. There were two parts to my question: there was the affordability and the environmental impact. On environmental impact, just to simply tell us: what has changed since the beginning of the project in terms of the environmental impact? What is is that you know now that you didn't know five years ago?

Well, it's the weighting that the First Minister placed on the environmental impact of the scheme. And I should just be clear right now that the decision was taken independently by the First Minister. This was not a Cabinet decision. I wasn't locked in a room for three months considering a report that was incredibly comprehensive and the First Minister gave it an extraordinary length of time and consideration and was very clear, and has given evidence to numerous committees about the weighting that he applied to environmental concerns, and so, whilst it's not necessarily that things have changed dramatically on the environmental front, the weighting that the First Minister and many others apply to environmental concerns has increased. 

09:40

Okay, so it's not so much that the environmental situation has changed, but the weighting has changed. And on costings, you mentioned a whole series of issues—Brexit being one. For example, how has Brexit affected the affordability of the project? 

In numerous ways. First of all, Brexit associated with austerity and the impact of Brexit on currency fluctuation. So, Brexit has led to considerable uncertainty in terms of future budgets. UK Government had by this stage been promising three-year budgets. That has not happened, so we don't have a long-term surety of funds. Brexit has also impacted, as I said earlier, on the value of the pound, and that's had consequences for the scheme. And in terms of priorities moving forward, if we crash out of the EU, there'll obviously be a need to intervene in many ways that could not have been envisaged back in 2013-14, in terms of direct support for businesses and injecting some form of stimulus into the economy.    

So, you think there'll be less revenue coming to support the scheme than otherwise there would have been.

There would have been consequences in terms of our ability to support businesses to support social infrastructure in the context of Brexit, and the damage that that would have caused. 

You talked about the costs increasing as well. Can you just explain how the costs have increased over this period? 

I'll ask Simon to run through the costs, but even during the period of the inquiry, the costs increased because of the works associated with the ports. Simon. 

So, I think, over that period of five years, there's been construction inflation and, as the Minister has pointed out, the change in the value of the pound had a particular impact because there were imported components into the scheme, so that would have had an impact as well. We've also, I think, talked in the past about the impact on the docks at Newport, and there were costs that emerged during the public inquiry for compensation to Associated British Ports as a statutory undertaker. So, those became additional costs. There was also, during the course of the inquiry, a recommendation to include an additional slip road at Magor, which added to the overall scheme cost as well.   

I'm looking at my—. I'm making sure I get these figures right here. So, on 5 June, the statement said that the cost estimate of £1.32 billion in 2015 prices equates to £1.57 billion in 2019 prices. Now, the deputy director for infrastructure and delivery told the Public Accounts Committee on Monday that the figure in 2015 excludes value added tax. So, while that adjustment figure in 2019 prices includes non-recoverable VAT, can you confirm that this is the case and provide the equivalent adjusted figure in 2019 prices, excluding VAT? 

I can't do the maths but if it's okay, we can drop you a note that sets that out. 

Yes, but the basis of the question is that where it's perhaps demonstrating on one particular issue, it's including VAT, and when it's on another issue, it's excluding VAT.  

So, at the PAC on Monday we had a long discussion about VAT and the treatment of VAT on the scheme. For technical reasons, when we do infrastructure work, we tend to quote all prices exclusive of VAT, because you don't include VAT in things like the calculation for the benefit-cost ratio, because it's an internal UK Government tax. So, that is excluded from the assessment of things like benefit-cost ratio. 

Yes, but if I could just jump in, in the 5 June statement, the £1.32 billion in 2015 prices equated to £1.57 billion in 2019 prices. 

Sorry, I'm perhaps off the point of the question, but we're talking about differences of including VAT or excluding VAT. 

So, I think the second figure—the £1.57 billion figure—does include VAT from what I recall, but it also includes the cost escalation over the life of the public inquiry as well. 

Okay. I'm going back to the deputy director, who said that the figure for non-recoverable VAT, in discussions with Her Majesty's Revenue and Customs, was between 11 and 13 per cent. So, I'm just wondering if you and the Minister recognise that equated figures that are not comparable in this way might leave the Government open to a suggestion that it is implying a greater cost increase than is actually the case, to the point at which it is rejecting the project on affordability grounds?

09:45

Okay. So, I think it's always a fine line for us to tread. So, as I say, there are technical reasons why we exclude VAT, but inevitably, then, we get criticised for not including VAT in the prices that we put out into the public domain. So, generally speaking, we'll put prices out there that exclude VAT. I think there was quite a significant call from members of this committee in the past for us to talk about VAT. So, I think that the figure that was put out at the end did include VAT for absolute clarity so that people could completely understand what the scheme costs we were estimating at that point were. 

But the suggestion is, by some, that it's presentational. So, when you want to present one argument, you include the VAT, and when you don't want to present us with an argument, you exclude it. That's probably a question to put to the Minister. 

I accept that if you wanted to present a worst-case scenario, you'd apply VAT, but we've tried to be consistent in terms of the application of the VAT, caveating with the fact that it may not be recoverable. Does the committee have the evidence paper from PAC at all because—?

Okay. Because there is a table, quite a comprehensive table in there concerning the costs.

We've seen that table. We've got that information ourselves as well, I think. I think it was you who presented that to us in your paper. Okay, perhaps we'll come back to that a bit later. There's different Members who want different questions. Bethan was first, then Oscar, then Mick, and then I'll come back to you.

So, I just wanted to clarify, and sorry if you've already said this somewhere else, and not in this committee, but you said it wasn't a Cabinet decision. At what point would you have thought that this should have been? Do you think that it should have been a Cabinet decision?

No, it can't be. Under legislation, it couldn't be. Under environmental legislation, it can't be a Cabinet decision, it has to be an independent decision on this occasion by the First Minister. There was a Cabinet discussion about capital investment in future years, and, of course, the M4 was considered as part of that discussion. And what we looked at were the pressures and the priorities within Government at the moment. And that included, for example, the twenty-first century schools programme, Velindre, the metros, both in the north and the south. It concerned some other major road schemes that we wish to take forward. 

And the second question was: we won't be talking that much about the environment throughout this committee, but I think it's important to just try and re-emphasise— why is the weighting of the environmental impact so different now than it was when you thought that this idea was something to propose? Because, for me, I don't think there's been that much of a change in the last few years, because it's an issue that spans generations. So, I'm just curious to understand a bit more about that. 

So, this relates again to the fact that it was the First Minister that was making the decision. I was the promoter of the scheme. The First Minister was the decision maker. He spent an incredible amount of time looking at the inspector's report, did not disagree with the inspector's assessment of the environmental impact, but he applied a greater weighting to the environmental concerns than the inspector did, and the promoter—me—therefore did during the process of presenting the evidence to the inspector. But I would recognise now, given the intensification of concerns over the environment, that the additional weighting placed on that particular area of concern by the First Minister, in his decision-making process, was right. 

And will that apply to future schemes, therefore, this perceived weighting?

Well, we now have—. I think it's important to recognise that we now have the WelTAG 2017 in place to consider future schemes. And the M4 relief road, the black route, was a product of its time—2013/14. We did not have WelTAG 2017 in place at that point in time. And, therefore, we do have new systems in place to consider the environmental impact, the social and cultural impact of road schemes that are different to those that existed back in 2013. 

Just to be clear, and just to clarify in my own mind, the way that the previous First Minister, Carwyn Jones, had presented the process would be that he took a quasi-judicial decision, which was not a political decision; it was a decision based on the inspector's report. But he would have to go, in that sense, with the thrust of the report, and then a political decision would take place afterwards with the financial orders and a meaningful vote in the Assembly. But the First Minister—the new First Minister—then would have short-circuited that process, and not allowed either the financial orders to be discussed or the meaningful vote later.

09:50

Not so, because the First Minister cannot make the orders unless he is absolutely confident that the scheme is affordable. And in this case, because of the cost of the scheme compared to other priorities within Government, he determined that it was no longer affordable.

No, because he has to be confident at the point of making the orders that it is affordable. And he couldn't be confident at that point.

The reason he has to have that confidence is because making the orders is imposing a series of compulsory purchase orders on people's properties. So, you're affecting people's human rights by doing that, and that is not a right that Ministers want to exercise lightly. Therefore, they have to be sure that they've got the finance to be able to deliver the scheme before they go and affect people's human rights.

Okay. That isn't what the previous First Minister had said.

The previous First Minister was clear that it was a quasi-judicial decision that was separate to the financial orders and that the financial orders would be dealt with separately.

Yes. The financial orders are different, though, to the affordability question. The decision maker would have to be absolutely certain the scheme is affordable. And then, if the orders are made, the financial orders would be considered—. You're right in that sense; they would then be considered separate to the decision over whether to grant the orders—effectively, the planning permission.

It's perhaps just worth adding that the decision making on the orders was a crucial step in the process, but it wasn't the final step in the process. There would have been a final investment decision, probably 12 or 18 months into the future, at the time that we'd gone out and we'd got the best and final offer from the construction partner, and we'd identified exactly what the final costs of the scheme were going to be. So, we weren't at that point of final investment decision, and perhaps that's the point that some of these other processes that you're describing would have come in. There was a need to be able to say that the financial envelope was affordable, because of the effect on people's human rights, at the point of making the orders, but there would have been another decision further down the line, which would have been the final investment decision against a full business case, which Ministers would have considered to take the scheme forward.

Can I just finish with the last—? I'm not convinced that—. A different First Minister would have made a different decision. Isn't the biggest change—? You've talked a lot about change. The biggest change here is the change of First Minister. That's what's really influenced this change in—.

I think the biggest change concerns the financial outlook of the Welsh Government and the lack of certainty of funding in the future. And that combination of significant factors, including Brexit, ongoing austerity, the lack of CSR and three-year budgets—they all combine to create deep, deep uncertainty over what we will have in our pockets to invest in public services and in infrastructure moving forward. And—

We're all familiar with how politics works. Why would the First Minister put a Minister like Lee Waters into his Government who he knew would have to resign if the relief road went ahead? Why would he do that if he hadn't already made up his mind?

In all fairness, this is not a question for me, I don't think. I don't think that's a question for me. It's a decision of the First Minister who serves in Government.

But is it not something you've said to the First Minister?

It's not something that I've said to the First Minister. This is—

It's something I'd say to the First Minister—ask him that question.

And you'll have an opportunity to do so, I'm sure, but it's not something that I would raise with the First Minister. It is something for the First Minister to consider.

Can I just clarify—? In response to Hefin's question, you mentioned that the main reason for rejecting it was on financial grounds, but the First Minister has said it's on environmental grounds. But first and foremost, even if there wasn't a financial situation, as you've described, he would still have refused it on environmental grounds. Is that the case?

Okay. I know Mick wants to come in. Can I just bring in Oscar? And then I'll bring you in, Mick, and then come on to your set of questions as well. Oscar Asghar.

Thank you very much, Chair, and good morning, Minister. There are quite a few questions here, very quickly. The inspector's report was very clear in saying that the scheme would offer at least some value for money, and most probably it would be good value for money. That was the inspector's report. And it was accepted by the Government. My question to you, however, is: the First Minister said—it is all on the record—that the Cabinet had concluded that decision; can you tell us the timeline for how the circumstances changed and when it became apparent—this whole impact in terms of costing and circumstances and when estimates were increased during that time, within the last six years?

09:55

I think there would always have been concerns about affordability of the scheme. As with any scheme, we’re always conscious that we have to get maximum value for money and optimise the benefit-cost ratio. In order to do that, you have to drive down the costs of schemes. So, we would have been considering the overall cost of that particular scheme throughout the process of promoting it. But, when the discussion took place at a Cabinet level back in the spring—in April—we were presented with some pretty tough options. Do we proceed with a scheme, potentially at the expense of some social housing? Could it be that other road projects are delayed or perhaps not even started as a consequence? And Cabinet was concerned that the scheme was not affordable against those other priorities, and that those other priorities came before the M4 relief road.

The thing is, I asked for the timeline. The estimate increased during those six years, constantly—

Well, in part, because of inflation—construction inflation—and also additional remedial works that would have to be undertaken in order to deliver the scheme. Of course, the value of the pound contributed to the increased cost as well, and so I think it’s reasonable to expect, over the course of a six-year period, with inflation added to an estimate, for the raw cost to increase and to increase quite considerably if you do have to undertake significant remedial works, as was the case with Associated British Ports in Newport.

Okay. Mick, if you want to have any supplementaries, and then come on to your area of questioning. Thank you.

I'll do that, then. I'll lead into that. Just in terms of the process, I understand what you're saying is that the issue of the prerogative of the First Minister is, within a global environment, to consider the issue of affordability, and the affordability issue is one on which the First Minister could basically decide, and that was effectively the key basis on which he decided. The issue of the availability of finance is the political decision—the decision of the Cabinet. So even if the First Minister had said it was affordable, it might well have been the case that there would still be the decision that finance wouldn't be made available because of the impact on those various—. So, that's actually the nature of the process, as I understand it.

It takes me on. Of course, in 2014, the environment committee here produced a report that basically seriously questioned the affordability. Isn't part of the problem of the affordability—? I mean, figures were flying around that were at such variance in response to a whole variety of questions, and so on, that we never really had quite a grasp of the potential cost of this even to the end, where, realistically, we were probably talking about a £2 billion project. Do you think it might have been the case that—? The Government never properly responded to that particular aspect of the report, but do you think that in terms of lessons for the future, the issue of affordability, and the potential availability of finance, is something that needs to be focused on far more closely?

I wasn't in Cabinet, so I wasn't party to those discussions that took place back in 2014. I take your point. I think there are a number of issues that we could examine concerning the affordability of this scheme and some of the concerns that were ongoing over quite a lengthy period, including the availability of borrowing and the extent to which we could borrow, and the degree to which that borrowing would be attributed to the M4 project. This would have been the single biggest infrastructure scheme since the dawn of devolution and, therefore, it would have had the potential to eat into a lot of other priorities and projects. Alongside continuing austerity and Brexit, and funding uncertainties, it would have, based on the Cabinet's assessment of the current operating environment, had a detrimental impact in many other areas. Therefore—

Can I take you on to that, then? Because what we clearly see—. Not long before the decision was announced, of course, there was the declaration of a climate emergency. Can we take it that there is—? You've talked about the increased emphasis placed by the First Minister. As a matter of Government now, there is a significantly increased focus on the environmental aspects of decisions. Is that essentially or partly a consequence of the declaration of a climate emergency?

10:00

I think in part, but also as a consequence of other legislation that has come into force more recently. For example, with the well-being of future generations Act, that's now considered as part of WelTAG 2017. That wasn't in existence back in 2013-14 when this scheme was devised. 

Do you think it might also reflect an increasing recognition of the impact of traffic changes and social changes in respect of the nature of travelling? The point that was put several times was it would basically be an outdated solution to a problem that was changing significantly.

Not necessarily, because whilst there is evidence to suggest that could be the case, there is also evidence to suggest that the move towards autonomous vehicles will actually see more vehicles on the road at any one time, because you're going to have a lot of empty vehicles driving around, picking people up. There's a belief that, with the decline in car ownership, there are going to be fewer vehicles on the road. Not necessarily—because people will be utilising whether it's Uber or other competitor services, rather than actually purchasing their vehicles, and therefore car usage would potentially increase. So, I'm not convinced that the evidence points to just one outcome. I think many experts are right to believe that the situation isn't yet settled, that we need to assess further evidence as we move away from the internal combustion engine towards electrified vehicles, towards connected and autonomous vehicles, and we shouldn't just make assumptions on what could happen in that transition.

Okay. So, there's a whole debate to be had there. One of the outcomes, of course, of the £114 million that was spent on the project development, and, of course, saying that this isn't all going to be wasted—. Well, of course, there's about £10 million in assets that have been secured as a result and, of course, they may increase in value and so on. But, of course, one of the points being made is that one of the benefits of the inquiry—. And that money is, of course, a whole series of developments of understanding, of processes, options, transport changes, and so on that are there. Therefore, the cost of those may actually be things that will obviously lead not only into what the commission does, but are things that are of value in terms of future decision making.

And can be applied elsewhere. We've already been able to share some of the work that was undertaken.

Do you want to elaborate on what some of them might be?

Again, the PAC report contains quite comprehensive information concerning the outputs of the £114 million investment. I'm sure that you'll be able to—

Chair, that's fine. I'm substituting on this committee—

You're absolutely right; there are things like an area-wide traffic model that now exists, which can be used not just by Welsh Government but can be used by local authorities. There was land remediation that was undertaken as part of this spend, again vitally important in many future developments. You're right to identify more than £10 million of property, which has probably gone up in value. If that's determined by the commission not to be needed any longer, then we would be able to recoup some of the spending by disposing of those assets. There are numerous other studies and assessments that have been undertaken that can be utilised in future work. We can provide a detailed note, but, as I say, it already exists in the briefing paper that was presented to PAC.

Can I just ask as well—? In response to Bethan Sayed's question, you mentioned WelTAG 2017. What does that mean?

I know the WelTAG, but it's the WelTAG 2017 I wasn't—

It was updated to incorporate the future generations Act. So, the previous version of WelTAG that we used to use, and we used when we were doing the assessment of the M4, didn't incorporate the future generations requirements, because that decision to promote the black route was made before the future generations Act came into force.

Just to quickly follow up on that, that's guidance, isn't it? So, I mean, when you weigh that up in any decision-making process, how do you think that can be tested to its fullest abilities, when it's guidance and not set in any statutory form?

10:05

I guess the value of having guidance is that it allows us to be able to see things in the round. It’s not completely rigid, but it’s an accepted criteria that we and local authorities and other scheme promoters use across the country and—

I'm just asking this because in the past we've had debates about—. I know you've made a decision now on open-cast mining, and that's one to be welcomed, but it's been tested legally, and because it's guidance, that's where, in any planning decision, it's become somewhat murky where some planning officials have said that there's a lot of weight to guidance and others have disagreed. So, my concern about it being guidance is that it is yet to be tested, I guess—I'm assuming it hasn't been—to know exactly how serious people in Wales are going to take it.

I think it's a fair point. What I would say with regard to this specific issue is that the inspector in any other major scheme of this type—. Any other inspector would surely give considerable thought to whether WelTAG 17, or any future WelTAG appraisal, had been considered by the Government in developing the plans. And, indeed, I would imagine any objectors in any future local inquiry for any major infrastructure scheme would be able to identify whether WelTAG was being utilised and considered in full. If it's not, then there would be pretty serious questions that would have to be answered of a Government.

It's worth just underlining though that it is based on the future generations Act, so there’s a kind of statutory foundation to it.

Yes, I get that. But, it's just from my experience in other places when we talk about guidance, and I think it’s worth asking.

In relation to the south Wales transport commission that you've set up, can you just tell me firstly why you didn't give this piece of work to the infrastructure commission?

So, the infrastructure commission has other important pieces of work to undertake immediately. This particular project—

Immediately? That's interesting—they're not going to be reporting for a long time.

But they're already carrying out engagement work, they're considering what projects and programmes they need to be looking at in the first instance. I considered it very carefully, and so did the First Minister. My concern was that this, as a standalone project, could have consumed all of their energy and, therefore, could have delayed other important pieces of work, particularly work concerning digital infrastructure, which I think has to be considered, as far as I'm concerned, as a priority.

But, surely, this would have been the natural home—. People looking in would have thought the infrastructure commission—this is one of the biggest infrastructure decisions that has ever happened—that that would be where it would sit. Do you not find it odd?

On face value, it would seem obvious that it would go to the National Infrastructure Commission for Wales, but, as I say, it would have consumed all of their time and energy.

But you could have just given them more resources. We had them in last week. They said they don't even have a separate website. They've only just now appointed the commissioners. If you'd given them more resource, then surely they would be able to do that work.

Well, they might have been able to, but even with additional resource, I'm not convinced that they would have been able to thoroughly investigate and interrogate other issues of immediate concern. 

So, what's different about this then? How is it set up? How are you putting resources into this commission?

The other important point regarding the South East Wales Transport Commission is that it’s going to be comprising of specialist skills concerning this particular project. So, we’re looking at a shortlist of candidates that cover areas of expertise such as transport planning, economic expertise, covers sustainability and environmental concerns, but also has expertise concerning emerging technologies and trends, and, of course, local knowledge. That might have been possible to bolt onto the National Infrastructure Commission for Wales, but it would still have meant that the National Infrastructure Commission for Wales, for at least 12 months, would have been working on just one project. Just one project, because of the scale and the size of this issue. I don’t think it would have been the best use of the national infrastructure commission’s time to concern itself just with one project when we could actually award that piece of work to a specialist commission, which is what this will be.

I understand, and we may disagree, so we'll leave it at that. But I'm trying to understand what resources, budget and staff you are allocating to this particular commission, so that we know that we can potentially learn lessons from the infrastructure commission—

—because it doesn't seem that they are fully fledged yet and we don't want the same thing to happen to this particular commission.

10:10

I think this is a really important point. So, I'm setting up a directorate within Government for this particular commission and this piece of work, to be headed by a deputy director. There will be budget available to the commission—it's going to be in the region of £5.2 million—to ensure that it's also operating on an independent basis, able to gather evidence and commission work. So, it will have staff available from Welsh Government to support its work—

Independent to the extent that the people who are going to be on the commission haven't had a part to play in the M4 relief road project that I was promoting. I think it's important to have fresh eyes on this, and for the commission to be able to get whatever research and expertise it feels it needs to make informed decisions about what alternative projects should be recommended to Government.

And when will they be all in place? When will the system be ready to go?

Sure. So, we've got the shortlist of candidates at the moment, which both Lord Burns and I are considering. We're in the process of reaching out to people. We want the very best. We recognise that some may not be available, so that's why we've developed a shortlist that is, in terms of numbers, bigger than what we will actually require, covering a number of areas of expertise that I've already highlighted. But Lord Burns has already begun work. He's already met with—

Well, he's sharing his time between London and Cardiff, and—

Yes. Yes, but also working, as and when is needed, with local government partners—predominantly those local government partners in and around Newport. So, Newport, Monmouth and other local authority areas will be able to accommodate him. He's already begun work in terms of engaging with local authorities, in terms of getting evidence from the existing M4 project team. We're at a point where we're able to narrow down the number of candidates that are going to be appointed to the commission—dependent, of course, on their availability. The first report, the interim report, needs to be with us within six months.

So, that will be by the start of the next calendar year that should be with us. And then there will be a final report in 12 months' time.

Okay. So, you are confident that despite the fact that none of them have been put in place apart from Lord Burns, that there will be an interim report and that there will be, then, the yearly report in the timeline that you've set.

That's the instruction the First Minister has given to me, and I am working incredibly hard to make sure that that time frame is met.

I imagine that you'll be grilling me and citing me in the Chamber.

My last question is whether you feel that we would be able to invite Lord Burns to this particular committee. Obviously, it seems relatively fluid in terms of the relationship you have and the independent set-up. Would you be happy, therefore, for the committee to scrutinise his work?

Yes, we've discussed, if you like, scrutiny and accountability and collaboration. He's agreed that this committee is a committee that he would like to engage with.

Good to know. And you mentioned the report will be completed by the beginning of the next calendar year. Can you be a bit more specific? I'm just conscious that 'the beginning' can be all the way up until April.

I've not set a date. I've not set a date, but I've said within six months of the commission being fully formed, and we're now at the point where we're reaching out to the candidates that will be appointed.

And when is the commission going to be fully formed by? You may have answered that.

As soon as we can get agreement from those candidates that they are willing and enthusiastic about sitting on it.

Well, I can't say exactly when it's going to be, because we're in the process of reaching out to them, and some of them are going to have to look at whether they can actually shift their diary and accommodate our requirements. So, to an extent, we're in their hands, but I would hope as soon as possible we'll get a 'yes' or 'no' from each of the people that we're reaching out to.

Right, okay. I think we've pushed that as much as we can. Oscar Asghar.

Thank you very much, Chair. Minister, against what criteria will the Welsh Government decide to accept or reject the commission's recommendations, and will a plan for the M4 corridor be published subsequently?

Okay. So, WelTAG 2017 will be used for appraising each and every one of the suggestions and recommendations that the commission come up with, and there are obviously existing policies within Government that we'll be utilising to scrutinise each of the suggestions. And then I would expect, as part of that interim report, a plan for the interventions if there's more than one to be published, and it may well be that those interventions, if they are multiple, will be sequenced in a certain way.

10:15

Okay. The First Minister has already said that the commission will have 'first call' on the funding set aside for the relief road. How much money is now available to address the M4 corridor at Newport?

Okay. I'm glad that you've asked this question because since the decision was made, I've had quite a bit of correspondence from various groups and organisations saying, 'Now that you're not going ahead with it, can you please now fund this, this and this?' And the calls have concerned all manner of infrastructure, transport infrastructure, social infrastructure. The fact of the matter is that the £1.5 billion would have eaten into other areas of spend, and so there is no free windfall available for lots of pet projects around the country. The original funding envelope of the project was around about £1 billion and the First Minister has said that the commission and their recommendations will be priority in any consideration of that money being spent. However, I think it should be noted that we're not going to be inviting the commission to spend £1 billion. What we've said to the commission is that in developing proposals there is the original funding envelope, but we wish to minimise public expenditure, but obviously get maximum value for money.

Oscar, do you mind if I just bring in Mick? I'll come back to you. Mick.

It's just because of the way in which the comments were made in terms of, 'You'll be first call in terms of the M4 relief road.' We tend to make a sort of assumption that somehow all this traffic magically appears in one particular area at some particular time and it can be resolved that way. The broader consequences, of course, is where the traffic is coming from, how it is you actually deal with the fact that this is all flowing in and that this is the bottleneck there, so that might be part of it, but in terms of the considerations, part of the solution is actually looking further afield more regionally. 

Well, it could well be. We've been very clear that the commission's role is in alleviating congestion in and around the Brynglas tunnels on the M4, and there are multiple reasons why there is congestion at that point. The commission will be assessing what interventions may be required and it may well be that they're not just interventions concerning that piece of road infrastructure, but there are other—

I suppose it's just worth adding that one of the things that we built, as the Minister said, during the inquiry process was a traffic model that looks at all of the origin and destination journeys in the region. So, we've spoken with Lord Burns about how that model will be used during the commission because, as you say, it's really important to understand what the flows of people and goods through that area are, and it might be a question of dealing with the particular issues to do with certain flows. 

Isn't it a bit surprising that doesn't already exist, though?

No, it does. So, we know exactly where the traffic's coming from and where it's going to. I've heard suggestions that we don't have that data—we do. 

Thank you very much, Chair. Welsh Government evidence to the M4 public inquiry estimated an adjusted benefit-cost ratio, which you mentioned earlier, of 2.29 for the M4 relief scheme, and the inspector felt 1.92 would be a reasonable estimate for the BCR. Will the commission achieve a similar or better BCR through its recommendations and how will the Minister respond if it doesn't?

Right. There's a big difference between BCR and value for money and we're going to have to weigh any benefit-cost ratio assessment against the value for money that any interventions offer. Value-for-money assessments take into consideration social, cultural, environmental factors and benefits of a scheme. Benefit-cost ratio takes into account the economic benefit from a particular scheme. Clearly, we would wish to see the best possible BCR, but we also wish to see the best possible value for money. So, I won't say now—I'm not going to commit now to saying that each and every intervention that is proposed will have to be at least as good as the 1.9 or 2.2 of the black route. Instead, we wish to see the best possible value for money achieved, but also the best possible BCR outcomes.

10:20

Thank you. And my final question: the line of the M4 relief road has been protected from development in local development plans since the mid 1990s, requiring Government to acquire properties as a result of blight. Is this land now available for development, and if so, when will the TR111 be removed?

TR111 is going to be considered by the commission, and we'll await the commission's recommendations before determining whether to protect the route. It's important to understand what 'protect the route' actually means. It means that any planning application that falls within that corridor should be referred to Welsh Government for comment. We'll be taking into account fully what the commission reports back with concerning that particular route.

On the BCR, if the commission's recommendations were to say, 'Spend £1 billion', but the benefit-cost ratio of 1 was given, would the Welsh Government calculate a BCR of 2.29 for the M4 relief road scheme?

I'm asking the question on BCR. So, if the commission suggested spending £1 billion, and the benefit-cost ratio, for example, was 1, what would be your view in that regard?

It'd be very difficult to justify a BCR of 1. If that was the BCR of the entire package of interventions—

The BCR for the proposed route was actually pretty impressive for a piece of road infrastructure. If you look at other benefit-cost ratios for particular schemes, you can see sometimes there's a negative BCR. The blue route, for example, was found to have a very low, if not negative, BCR. So, the black route was, actually, very impressive as a piece of road infrastructure. That said, a BCR of 1 would not be particularly impressive. But that's where we'd have to also take into account the value for money as well. Ultimately, we want to resolve the congestion that currently exists, and if the recommendations lead to a demonstration that there will be alleviation of congestion, then surely it would follow that the BCR would be pretty healthy.

Moving away from roads now, I want to ask some questions about progress being made in implementing the economic action plan, and also the way that you had to respond to recent manufacturing job losses. So, when does the Minister expect to be in a position to publish the regional economic development plan and also the regional indicative budgets for each of the three economic development regions?

Okay. So, in terms of recent job losses, it's been a very difficult period. Unemployment has gone down; latest statistics show that quite a considerable number of people who were not in employment earlier in this year are in work. However, we continue to face a prolonged period of uncertainty, and many businesses are facing difficulties because of that uncertainty.

But in terms of manufacturing—and that's where many of the jobs that have recently been lost have been contained within—we actually have a very good story in Wales to tell. Manufacturing jobs increased between 2017 and 2018. I think it was by around about 2 per cent. In order to maintain that sort of employment—and we've got a higher proportion of people in Wales employed in manufacturing than the UK—we have to create an environment that locks in what we've got but also attracts in new investors. And that's why we are spending public money on vitally important pieces of infrastructure such as the Advanced Manufacturing Research Centre, International Convention Centre Wales, some of the Tech Valleys initiatives and the Thales National Digital Exploitation Centre, to ensure that we can attract in future investors and guarantee current businesses can thrive in Wales.

Now, in terms of the place-based approach that we are developing for the economy, the OECD recently reported to us that if you don't have the benefits of agglomeration, then you have to make sure that economic development is conducted on a place-based method. And so, we have now got those regional units in place, headed by chief regional officers. Frameworks or plans will be published by the end of this calendar year, and work on the regional indicative budgets, which will support the development of those plans, is ongoing with the spending cycles currently being modelled. Now, the initial figures that we were looking at concern spend on the basis of per head of population in each of the regions, and also per active enterprise. What we're now doing across Government is comparing those figures against some of the other formulae that already exist—so, for example, through the distribution sub-group and through health spending. And then we'll reach a decision on exactly what formula should be utilised for those regional indicative budgets, and then we'll be able to publish them.

10:25

Well, I'd expect, in the autumn, the regional indicative budgets to be published and the frameworks to be published by the end of the year.

Okay. So, you outline quite well what you're trying to achieve and how you're going about doing that. Do you know what proportion of the budget is allocated for business support that sits outside the economy futures fund, and do you have any plans maybe to consolidate both of those funds? It seemed like that's what you were saying.

So, if I may, Chair, just kind of look at the broader picture here, the reason the EFF is important is because it relates directly to the economic contract and to the drive for inclusive growth, and it also relates directly to the calls to action, which are designed to drive sustainability, competitiveness and productivity. The EFF we're looking at consolidating with more funds, but we're assessing, at the moment, the effectiveness of that particular programme. Notwithstanding that, we're looking at other areas where the economic contract can be extended too. It's being extended right now to arm's-length bodies and those organisations that spend public money on behalf of the Welsh Government. Also, we're looking at how the Development Bank of Wales can incorporate the economic contract within its work as well.

Yes, I think there certainly will be, and over and above the consolidation of funds within this department, we wish to see the economic contract, or at least the principles of the economic contract, applied to other areas of public spend—for example through procurement and through local government spending—so that we drive inclusive growth as widely as we possibly can do, and not just through a consolidated economy futures fund.

Can I also say—? The Minister has asked us to look at the consolidation of the funds into the economy futures fund, but also the entirety of his budget as well. So, from a financial point of view, he's tasked us to make sure that everything goes through our lens—so, the £1.3 billion that is under the Minister's control—so everything is looked at through the economy futures fund and through the contracts, basically. And that's the way we've taken it forward.

If I could ask, then, because you have had to cope with some rather unexpected large-scale potential unemployment emergencies, what provision do you have within your budget should you have to meet sudden demands again in the very near future?

So, we've secured another £10 million for the economy futures fund. We've got the Brexit resilience fund, which is available over a period of three years as well, to help SMEs. The development bank will play a critical role as well in supporting businesses, as will Business Wales. Perhaps it's worth pointing out, though, that, compared to our budget, the UK Government's budget is immense, and if there is any form of stimulus package or rescue and restructuring package available from UK Government, we would expect to take a significant chunk of that money. We're already engaging with the Department for Business, Energy and Industrial Strategy in a programme that's looking at vulnerabilities within the economy. To date, that doesn't carry any financial support for any projects, any businesses that are identified as being vulnerable or fragile. I think it's important that the UK Government does, as soon as possible, apply some form of financial support to that work so that if any future challenges emerge in Wales, we are able to work with colleagues in BEIS to draw down vitally important funding, which will be considerably more than what we have in our coffers. In terms of support for those businesses that recently announced losses and closure, it can be difficult to quantify financially the support that we offer, because sometimes the most important support isn't a grant to do something new or to get certain skills training; it can be support in terms of developing a CV, signposting to other support services, and that's very difficult, sometimes, to quantify in financial terms.

10:30

If I can, Chair, there's another side, of course, to everything. So, we could see a situation where you do have to step in fairly quickly, or the UK Government has to assist you to be able to step in very quickly in one area that might be declining. But it is also possible, as a result of a 'no deal' Brexit, that you have to step in very quickly to support an area that is suddenly needed in a way that it wasn't needed before, like a dock, for example, or suchlike. So, what sorts of conversations have you had? Because we're in times of real flux at the moment. So, what sorts of conversations have you had with UK Government about those circumstances, and what sort of level of support do you anticipate they would give you?

Can I just jump in quickly? I'm conscious of the time. We're happy to go over, but I've got one more subject area from Hefin as well, so just to bear that in mind. Thank you.

Okay. So, in terms of the financial support, still, it's unclear. That's why I say I think it's important that, when the new Prime Minister is elected, that Prime Minister demonstrates that they're willing and ready to step in with a significant package of support for UK businesses. We're certainly working very closely with certain Government departments at Westminster, looking at the implications for, for example, Welsh ports through our work with the Department for Transport, and for Welsh businesses and various sectors of the Welsh economy with colleagues in the Department for Business, Energy and Industrial Strategy. But, to date, the actual availability of financial support has been pretty poor, and that's going to have to change soon.

Yes, it will be quick. So, how concerned are you, then, about the statements coming out last week that any future funding might be held by the UK Government and determination of spend made outside of your department, or Wales for that matter?

Look, we can't have competing interests leading to duplication or competition and a lack of collaboration. We've been very clear that we would expect not a penny less and no power lost. I think it's absolutely essential that any future funds are invested on a needs basis and that we continue to prioritise investment in, geographically, those areas of Wales and the UK that have felt left behind and have not benefited from the fruits of economic growth in recent years. In order to ensure that we get maximum benefit from that, I think it's vital that we co-produce and co-design interventions and investments, and that means working with local authorities. It means working, in many instances, with town and community councils as well.

So, we have said that what we would wish to see happen with future funding is that we will ensure that there are national priorities that it works towards—Welsh priorities—that there are also regional priorities it works towards, and that, thirdly, we have a degree of resource that's available for community-led interventions that are co-produced with people. Because I think one of the problems that we've faced in recent years is that people have felt that things have been done to them rather than with them, that their environment, their towns, their villages, their cities have been built not with their concerns in mind, and interventions and investments made not necessarily with their consent, but in spite of it, and that has to end. That's why we've said, 'Look, we need to make sure that that future money is not lost, first and foremost, and that it is spent in a way that reflects what people really want', and we can't do that if you have a centralised decision-making process in Westminster. That will not happen. You have to have collaboration on the ground, and we are, I think, in prime position to lead on that with the development of the new regional units.

10:35

It was a really quick question, just on the consolidation of the economy futures fund. I understand you consolidated the media investment budget as part of the economy futures fund. Will this stay there, or will that change when Creative Wales has finally been set up? I'm only asking because I think I've asked you before—people are finding it difficult to understand where to go to make those applications. So, when you're consolidating, on what basis do you unconsolidate? Or will you want to consolidate more as opposed to splitting off more of those budgets?

So, I'd need to check the business case for Creative Wales, whether that will still remain within the economy futures fund, wherever it goes if it doesn't remain within the EFF. My understanding is it will still sit within EFF, but if it does move out—[Inaudible.]

If the apprenticeship budget isn't meeting demand, what is the level of unmet demand, and which sectors?

Okay. So, currently there are pressures on the budget. The level of unmet demand in financial terms amounts to around about £14 million, like for like, on previous years' spending on each framework start. That equates to—if you take an estimate of around about £4,000 to £5,000 for an apprenticeship, you're looking at quite a considerable number. Next year, the pressure in terms of unmet demand could be in the region of £36 million—so, considerable. However, this is not unique to Wales. In England, there is an overspend, a considerable overspend, I think, of about £0.5 billion, and then it's going to go up to £1.5 billion. That equates to, if there is a consequential, something in the region of £25 million this year, £75 million next year, which, if we do get that consequential, if the UK Government does decide to spend more on apprenticeships to cover that overspend, that would then lead to the unmet demand being met if we were able to make—if I was able to make—the case to Cabinet colleagues that that money that comes to us through the consequential be channelled through into the skills provision of our department. Now, clearly, there are competing priorities in Government, but, in terms of driving growth, in terms of equipping people for a life of employment, there are few better interventions than apprenticeships, and so I'd make a strong as possible case for that money to come to the apprenticeship system. In terms of sectors, I believe currently engineering, social care and childcare are amongst those where there is unmet demand.

Okay, and it's not just across sectors; it's also the horizontal—the vertical approach. So, if you've got a patchy budget, you're going to have patchy progression.

Yes, and we've been really clear that we don't wish to invest our resources in interventions that will not lead to progress, and so that's why we've limited our spend on level 2 apprenticeships where there is not the assumption of progress through to level 3 and potentially beyond level 3.

And degree apprenticeships as well—progression means through to—. If you're going to have parity of esteem for progression, you've got to be funding degree-level apprenticeships. How is that proportionate to what's happening elsewhere?

We need to assess the outcomes of the degree apprenticeship pilots. They're not cheap. They are very, very expensive. 

Yes, and only in certain sectors—you know, the number of frameworks is increasing. But they are very expensive. We need to test whether they actually have the benefits for the economy and for the individuals concerned before we consider whether we expand the programme. There's been a transfer of funding from the apprenticeship programme within one of our budget lines to HEFCW. Of course, that's meant that there's additional pressure.

10:40

The principle behind that would suggest that you would expect there to be progression through from levels 3, 4 and 5 into 6 and 7.

Not necessarily all of that way, but certainly from 2 to 3 to 4, and, if possible, from 3 to 4 to 5.

But if they're going to have parity of esteem with degrees and an academic career, then there needs to be a vocational career funded too.

So, in terms of—. It depends how you judge parity of esteem, because—. We don't have an apprentice expert alongside me, but my understanding is that, in terms of economic benefit at the moment, there is already parity of esteem, because an average 2:1 degree over the course of a career is roughly the same as a higher level apprenticeship, at around level 4, but, of course, you don't have the cost associated with the apprenticeship that you do with getting the degree. So, in many respects, we already have parity of esteem, or parity of the value of degrees and apprenticeships. What we still haven't really secured is a perception, a public perception, that an apprenticeship is just as valuable economically as a degree, but I think that's coming. I think there is wider recognition. There is still work to be done, but we're getting there.

So, with that in mind, would you like to see the Welsh Government funding level 7 apprenticeships?

Well, before I can answer that, we really do need to test whether they've been effective. They are very expensive, and there is a question about whether the system would be sustainable if we were to rapidly ramp up activity in that area. Existing evidence suggests that it's investment around level 3 to 5 that really makes a difference to the economy, but we need to test. They are pilots, after all. We need to test whether they're actually benefiting the economy in the way that they're supposed to.

I'd need to check when the evidence is going to be gathered. They've not long begun, so there's no evidence available at the moment, until those apprentices have completed their frameworks and we're able to test (1) the successful outcomes i.e. progression, and (2) the economic impact that they've had. And it will have to be an immediate snapshot of how employable and how much those individuals are earning as a result of completing their frameworks, but this will take time. So, I just don't think it's possible, whilst the frameworks are being undertaken, to actually test whether they're effective and delivering against what supporters and proponents say they can deliver.

Okay.

Thank you very much, Chair. Just a point of information, Minister. These people for the skills sector, you know, apprenticeships—when they go to college for a three or four-year course, after two years they can get an apprenticeship paid by the Government for their apprenticeship in high-quality companies like BMW and Audi and all the rest. But, once students finish their course, after three or four years, then there is no apprenticeship available, and these companies are charging them £16,000 to £18,000 per year to just get this training. So, could you look into it, please?

Okay, certainly. We'll take that away and have a look into it.

Minister, can I thank you for your time and for your officials' time, this morning? I trust you'll have a good summer and an opportunity to have a break—a short break—before coming back and joining us again, no doubt, in September. So, thank you for that. 

4. Trafod y Memorandwm Cydsyniad Deddfwriaethol ar gyfer Bil Gemau'r Gymanwlad Birmingham
4. Consideration of Legislative Consent Memorandum for the Birmingham Commonwealth Games Bill

Can I just invite Sam Davies to the table, from Legal Services, for item 4, which is consideration of a legislative consent memorandum for the Birmingham Commonwealth Games Bill? Members will have a note in their pack from the Legal Services team. There is a recommendation or a conclusion from Legal Services, which is that Legal Services are satisfied that the Bill makes provision for the purpose within the legislative competence of the Assembly, and that the LCM is necessary under Standing Order 29. So, Sam is available if there are any questions, but, if there are not, we'll accept this recommendation from our legal services. Are there any questions? No. In that case, thank you, Sam.

I move—. Well, just before I move to item 5, which concludes the public part of the meeting today, can I just take this opportunity to say 'thank you' to our stakeholders who supported us over the past year? We will be back in September, 19 September, as a committee, but we have got two consultations going on over the summer period, and I think our newsletter—of the committee—will be coming out over the next few weeks as well. But if I could also take this opportunity, I think, on behalf of all the committee, to thank the clerking team for their support to us over the past year, and the wider integrated team as well for their support as well, and trust you'll also have a good, restful time at some point over the summer.

10:45
5. Cynnig o dan Reol Sefydlog 17.42(vi) i benderfynu gwahardd y cyhoedd o weddill y cyfarfod
5. Motion under Standing Order 17.42 (vi) to resolve to exclude the public from the remainder of the meeting

Cynnig:

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

Motion:

that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

So, under Standing Order 17.42, can I resolve to exclude the members of the public from the remainder of the meeting, if Members agree?

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:45.

Motion agreed.

The public part of the meeting ended at 10:45.

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