National Assembly for Wales

Good morning. Bore da. I'd like to welcome Members to committee this morning. I move to item 1. We have no apologies. If there are any declarations of interest, please do say so now. 

In that case, I move to item 2, and we have two papers to note this morning. None need action. One is a letter from the Minister Julie James with regard to our letter on the National Infrastructure Commission for Wales, and the second is a letter from the Minister Ken Skates with regard to Cardiff Airport, regarding the new chair of the airport and ensuring that the current chair stays in place until the new chair starts. Those papers are just both to note. Are Members happy to note both papers? Thank you.

In that case, I move to item 3, and this is our annual report scrutiny with the Development Bank of Wales. I'd like to welcome our panel this morning. Thank you for attending committee. Perhaps it would be useful if you could just introduce yourselves for the public record. Let's start from the left.

Gareth Bullock, chair of the development bank.

Giles Thorley, chief executive.

Good morning. David Staziker, chief financial officer.

Rhian Elston, investment director.

Thank you for being with us, and, Gareth Bullock, I understand you just want to make a brief opening statement, so, over to you.

Thank you, Chair. I just wanted to make four short points, just to set the scene, if you will, and hopefully that will be helpful to Members. This month, it'll be two years since the development bank was established. We are in and have been in a period of building our infrastructure and our organisation, as well as expanding the type and the number of funds that we manage. Today, just to give you a sense of that, we probably have now something approaching £0.75 billion here in Wales of funds that we're deploying or are to be deployed in the Welsh economy, and that's across about 20 funds. We're now about 220 people.

In our first full year, you'll have seen from the annual report, we reached the £80 million annual level of investment in Welsh businesses that was anticipated in the original plan for year 5, and much of that, of course, is due to the fact that we were very richly endowed at the outset in the first two years of our operation by £400 million plus of Welsh Government investment moneys.

The impact we have on the Welsh economy is through our direct investments. So, that £80 million, if you add that to what we call private sector leverage—that's the funds that come from the private sector alongside our loans and investments—we approach somewhere over £200 million a year of total investment. That will increase each year now. In the last five years, that numbers about £750 million—£0.75 billion. If we look forward over the next five years, I would expect that to be well over £1 billion, so, quite a significant impact.

Lastly, I would like to say, as chair, that the board is happy with the progress of the development bank in its first two years. I think we have a confident bank, not complacent. It's a core team of experienced professionals, led by Giles, and their challenge is to deploy increasing amounts of funds in an economically impactful way. I would just like to emphasise that we are a business that is growing, we have as many internal challenges as we do external, so things like staff, talent, remuneration, systems and organisation. They need to be put in place so that we build a sustainable bank for the future. But I would like to assure the committee that I and the board feel that, in the development bank, Wales has an advantage model and a bank that can safely and efficiently at the moment fulfil its purpose. 

Thank you. Thank you, Gareth. I appreciate that opening statement. If I could ask, I noticed from your annual report that you've either achieved or exceeded all of your own key performance indicators. So, for a committee like us, when we scrutinise you, if an organisation hasn't met its targets, we ask, 'Well, why is that?' but, if you have met your targets, then I suppose the obvious question is: were they challenging enough in the first place?

'Why is that?' as well, yes. 

Yes, why is that?

I'm going to hand that over to Giles. Why don't you take them through it?

Yes, thank you, Chairman. Bore da, good morning. Yes, the specific question in terms of the targets—the chairman has already mentioned that we invested £80 million in the Welsh economy. Private sector investment of £126 million was 248 per cent above the target. The invested amount was 117 per cent above the target. Three thousand, seven hundred and forty-five jobs protected or created—that was just over 100 per cent of the target, just over the target, and we did 420 transactions, so that was 136 per cent of the target. 

Of course, there's always the concern that, when you exceed the targets, the targets were light. But I think the level by which we exceeded them really highlights that that was a really very concerted effort by everybody within the organisation to deliver in the first full year of the organisation. It was helped by the fact that the Welsh Government have continued to support us with additional funds, particularly, for example, on the residential property development side, where we've become much more active in supporting small, local Welsh builders building new-build houses. And we're actually, coming into this financial year, extending that into commercial property, and also self-build property, which we can talk about later if you wish. 

So, should the level that you've invested into small businesses, the amount of jobs that have been created via your finance, have been a higher target?

I think the targets were fairly set based on working from the bottom up in terms of the funds. So, each fund has a specific criteria that we have to address, and we work those figures into a total result. Would I have said at the beginning of the process that we'd have been able to achieve £80 million? Certainly not, so that was a really significant improvement and a concerted effort by the team, not a light test. 

So, take us through the process of how you set those targets.

Yes. Do you want David to give a bit more detail on that?

Sure. So, we have a bottom-up approach, so every fund that we get approved by Welsh Government has investment targets associated with it over its investment period, which—they usually say five years, and then we consolidate all those targets together to give an overall target for the bank. So, it is really built up. So, if you think we've got over 20 funds, it's quite a complicated way of pulling together the actual investment targets to come to an overall figure. Then we try and sense-check that overall figure against our achievement in the prior year. So, for example, this year the actual investment target was coming out at £80 million once we'd aggregated all the targets, but, because we hit £80 million last year, we felt that wasn't appropriate, so we increased it then to £86 million to try and reflect the fact that, actually, it didn't make much sense just maintaining it at the current level. So, that's how we try to challenge ourselves—just not accept what's coming out of the base plans that we'd previously agreed with our Welsh Government colleagues. 

And how is Welsh Government involved in setting that final target?

So, they approve then the targets every year. Once we come up with our suggestion, then we sit down with them and approve—

Do they challenge you—

Oh, very much so.

—like, say, 'We want higher targets', or 'We want more'?

Well, say, for example, it was—. And our strategy has to evolve to reflect some of those challenges. So, in the last year, there has been a particular view that we should be investing in a larger number of businesses, so a smaller amount of money spread more widely. As I said before, the number of transactions we did was 420; for this year, it's 431. So, that was a—. We had quite a considerable debate about what was the right level and, actually, we've had to change our strategy slightly to address that in the way we're marketing to smaller microbusinesses, to sole traders, et cetera, to ensure that we're getting a wider base of potential investee businesses. 

So, if Welsh Government say they want a higher target, do you just agree to it, or do you challenge back, or—? How does that work?

Well, there's an open debate, because, of course, the higher target is obviously within the context of how much money we have to invest. Also, it's important to note that we cannot displace existing investors. So, that would (a) jeopardise the status of the organisation, but (b) would be damaging to the Welsh economy, because we want to foster and engender a much wider investment community of banks, financial institutions, and what we don't want to do is to become the organisation that the economy becomes reliant on. 

Okay. Right. Oscar Asghar, did you want to come in with a brief supplementary?

Thank you very much. I read very keenly about your report—your lending money to Pizza Hut, to the pubs and the marina development, for Alzheimer's, and I was very—. But, on page 181, which is the consolidated accounts, you're showing that the total liability for 2019 is over £821 million. And the total assets, on page 91, are £718 million. So, if you look at simple mathematics—liabilities more and assets less—it doesn't make sense. Do you think you would be able to explain why that is?

The main way that we are funded by the Welsh Government is through what's called financial transaction capital. So, you can see—. On our balance sheet, we have net positive assets, okay, so we are—

No, you can have this; this is on here. 

We have positive assets. 

I'm just looking at page 91 and page 181. Just look at that. It's very simple. 

Okay. So, David, if you can explain.

In the English version.

I'm not quite sure I understand what your question is. 

My question is: why are the liabilities much higher than the assets?

Why are the liabilities higher than the assets?

This is the question: the liabilities are high; it should be assets. 

If you look on page 142—

No, 181.

But we have to look at the consolidated balance sheet. 

Yes, this is the consolidated—. I'm looking—

Yes, on page 142. 

On page 142, you'll see that our balance sheet says net assets of £142 million.

I wanted an explanation of it. 

I'll tell you what, we're pushed for time. If we can get some clarity on the question being asked, give you time to consider it, and, if you can drop us a note back, is that okay?

Absolutely. No problem at all. 

Thank you. Joyce Watson.

I want to draw your attention to page 6 of the strategic asset document, which states that:

'The Development Bank of Wales would target becoming a prominent impact investor, monitoring key performance indicators such as reduction of carbon emissions, employment in deprived areas and previously under-represented groups.'

So, that's all good news. So, could you tell us about the progress that's been made in those particular areas, since you've highlighted them?

Yes. It's actually the cornerstone of what we're trying to achieve as an organisation. So, it's not just about deploying money to the Welsh economy on an ad-hoc basis; we're actually thinking about it in terms of our responsibilities. The first thing we did as part of the creation of the development bank, and we'll come on to it a little bit later, was the creation of Economic Intelligence Wales. And one of the tasks of Economic Intelligence Wales, which was a joint venture between us, the Office for National Statistics and Cardiff Business School, was to actually monitor the performance of the development bank to determine whether we were being effective in the impact of what we are investing in the Welsh economy. And a recent report, the quarterly report that came out earlier this autumn, identified that every £1 million of development bank investment equates to an estimated £2.3 million in terms of Welsh GVA, or gross value added. So, that's the first priority, in terms of making sure that we're actually adding value to the Welsh economy. But, when we're using public funds, we want to make sure that it's a sustainable investment model and they're supporting entrepreneurship and employment and strengthening communities. So, we began with a process of identifying all of the elements of the Well-being of Future Generations (Wales) Act 2015, and making sure that we incorporate that into our business, and we've done that already.

And, over the course of this year, we began collecting data on additional items for two reasons. One is because we think it's the right thing to do and we want to increasingly align ourselves with other Welsh Government initiatives, such as the call to action in the economic action plan. But also because it's becoming increasingly the case that institutional investors are starting to look for places to put money, as part of their corporate social responsibility, in impact investment funds. Perhaps, because Rhian's been involved in some of this, she could give us a bit more detail on some of the other impact-investing measures that we're looking at. 

Yes, absolutely. As Giles has mentioned, this year was really trying to understand what data we're collecting from the companies that we invest in, and really get a good picture of what's the baseline data that we're working with. So, historically, we've taken quite a narrow view of what we're collecting from companies, and it's really been focused on jobs, and we historically have collected those jobs annually after we've made an investment. So, we looked at how we could broaden that, what other impact measures we could bring into that assessment, and we started by looking at four key impact areas and mapped those across to the United Nations sustainable goals, but also took information from the economic action plan and the future generations Act to understand how all of those link together. 

So, what we're doing now is collecting a wider suite of data, at the point of investment, from the company, and then continuing to do that every year after we've got an investment into the company. They're covering four different areas. So, one is decarbonisation and the environment—so, we're looking to take information from the company on who's their electricity supplier, have they got any renewable sources of electricity, how much waste do they generate that goes for landfill. We're also capturing information on prosperity of global opportunity, which is looking at things like productivity—so, trying to get an idea of turnover growth versus employment growth—innovation and digital inclusion, and then, lastly, capturing information on communities' health and social inclusion. So, they're the four broad areas that we're trying to get this baseline data on from the companies. We've just started, so we are at that point now of getting the information through. So, the end of this financial year will be the first point when we can start to look at this data and start to report on it and really educate us on the different areas that we can work on, going forward. 

But we are already doing some things, and just to elaborate on those in a bit more detail for you, our biggest fund is the Wales business fund, and that is geographically-orientated, so the majority of that money—about 70 per cent of that fund—has to go into the west Wales and the Valleys area. So, deprived areas of Wales benefit from a significant percentage of that fund, and that fund is all about trying to support businesses to grow more employment in those areas. We also have some very specific funds, such as a local energy fund, which is about supporting community groups that come forward to us with renewable energy projects that they'd like to develop. So, that's about developing a renewable energy project, but also the communities keeping the profits back with them.

We do a lot internally to try and ensure that we are ensuring that our message gets to as many of the under-represented groups as possible, and that flows right the way through. It starts at our marketing effort, through to our business development activity. We've rolled out unconscious bias training for all of the teams. We gender-lens our marketing material. We try to ensure that we're showing a wide range of different case studies in the documentation that we produce. And, following on from that, it's good links with Big Ideas Wales, the Prince's Trust, Prime Cymru. One of the areas that we're quite excited about this year that we've just kicked off is a project with Disability Wales. They actually approached us to ask if we would invest both time and some financial resource to carry out a project to understand better what are the real barriers to entrepreneurs. That's just kicking off now, so I think that will help again to educate us in terms of what we've got to do in this area.

And then, lastly, one of the projects that's starting this year is working with the Wales Co-operative Centre, and that's across the development bank, so that's not just on our investment activity, but that's on everything else that we do. And that's understanding how we can make our services—whether that's us procuring a service or making an investment, how we can make that more accessible to the social enterprises. So, there's quite a wide range of different things that we're trying to do, including benchmarking as well as the proactive activity. 

Joyce, do you have any further questions?

Yes, I want to ask, you said that you're going to start reporting: can we look forward to seeing some of this in your report next year?

Absolutely—that's the commitment I think we made in the last committee, that we would gather baseline this year. 

Okay, and one question from me: are you going to disaggregate the data according to gender? Because all too often we've seen huge investments in areas, then we've seen disproportionate segregation of the workforce according to male and female.

Yes, part of the data that we collect at the moment is looking at the gender split. So, for the jobs that we create, we can understand what the gender split is and also the pay bands associated with that. We're a member of the Welsh Government female entrepreneur action plan that will be launched later on this year, and that's got really good practical action points both for Welsh Government, for us, Business Wales, and also things that can be used for the companies that we invest in.

I look forward to seeing it. Thank you.

Vikki Howells.

Thank you, Chair. Your strategic asset document says that the development bank intends to become a cornerstone for delivering Welsh Government priorities. So, I'd just like to test a few areas of that with you, if I may. Beginning with the foundational economy, to what extent do your activities align with the Welsh Government's ambitions regarding the foundational economy?

Rhian, do you want to talk about some of our foundational economy investments you've made? 

Yes, absolutely. I think one of the things that were key for us in terms of supporting the broader foundational economy was a move in the European money that we received. So, historically, the previous European fund, which was called the JEREMIE fund, was quite restrictive in terms of the companies that we could support. A big example being that it couldn't support retail businesses. So, when we moved on to getting the Wales business fund, and even more importantly the Wales flexible fund, it really opened up all of the different types of sectors that we can support. So, we can support lots of different companies now, covering all of the foundation economy.

Another area worth mentioning is a new fund that we launched this year, which is the Wales tourism fund—a really interesting fund because it's quite innovative in its approach and it's a combination between DBW providing a loan and also a grant coming directly from the Welsh Government. But importantly, the project is looked at to understand how much loan can be accessible for the project first, and then the grant is there really to unplug that gap, rather than it being the other way around. I think that's an important step in the right direction in terms of how we work closely with our colleagues within the Welsh Government.

Hefin, do you want to come in?

Yes, just something on that that struck me that was mentioned by Gareth earlier was the investment you're making with small house builders and also new builds. I don't think we're going to come on to that if we don't ask now, so with relation to the foundational economy as well, can you expand on that?

Shall I give you the context? One of the areas that we've discussed at this committee in the past is that we identified about three and a half years ago that there was a gap in funding for small and medium-sized house builders, particularly local Welsh house builders. In fact, they were unable to get any finance whatsoever for development, and the consequence of that was that all of the properties they were building they were building with their own resources. They couldn't expand very quickly—they could only do one project at a time. We've provided a liquidity facility and the first Wales property fund committed almost £30 million into Welsh smaller house builders. We've since increased that and we now have a number of funds targeting this sector. So, we have the second Wales property fund, which targets residential house builders in Wales. We have the commercial property fund that has just started; we've just approved the first project for commercial property. We have the stalled sites fund, which is a fund targeting properties that have a degree of complication or blight or challenge that makes it economically unviable to build on, so we can provide support in that respect. And then, finally, as I mentioned earlier, we have the self-build fund, which we're about to launch, which is working with Welsh local authorities to actually identify pieces of land and a structure to allow people to build houses themselves, and we reckon that that can save at least 20 per cent on the house cost for the individual.

Can you, when you're ready to launch, and the details of that launch—can you send me the details? I'm really interested in that.

Absolutely. It's interesting to get to that position, because there's a whole complication of getting mortgages for self-build property. We've gone through the whole process of how a self-build property should be funded. We've come up with a product that I think it was the Council of Mortgage Lenders said was an incredible innovation and something that should be rolled out nationwide, across the UK.

I appreciate that. Thank you.

Thank you. Another key part of the Welsh Government's economic strategy is to focus on regional development. So, I just wonder whether the banks had any involvement in the three regional business plans that are currently being developed by the Welsh Government's chief regional officer.

We haven't had involvement directly in the regional plans, but right at the outset, when the regional directors were named, I had a meeting with all of them, with some of my colleagues. We have allocated an individual within the development bank to be a direct liaison with the regional directors.

The other thing that I think I would say is that one of the key achievements of the development bank in the last two years has been to be materially increase our regional presence. So, in addition to the offices we already had in Newtown and in Dafen, Llanelli, we were tasked with setting up headquarters in Wrexham. The headquarters was opened in September last year, and we've seen a significant increase in the amount of activity we've been able to achieve in north Wales. We now have 30 permanent staff in north Wales. In fact, we've actually now opened a satellite office in Llandudno to cover north-west Wales as well, so we now cover the whole of Wales. Maybe Rhian and David can give some statistics on how much that's grown as a result. 

To give you a feel of some more granular data, just in terms of our west Wales and Valleys investments, in terms of the number of businesses we invested in last year, there were 242, compared to the prior year, which was 175. So, that's nearly a 40 per cent increase just in the number of deals, so that's really related to the number of staff that we managed to recruit in those areas to allow us to focus and deliver that performance.

It really links back to the fund requirements that I was talking about earlier. We need to deliver on that. Going back to the questions right at the beginning as to whether our targets were challenging enough for us, at the start of 2018-19, we were behind the curve in terms of how much we had invested in west Wales and the Valleys for the Wales business fund. So, that was absolutely a focus for us during the year—to make sure that we recruited the right people in the right area. Pleasingly, we came out of the year back on track, but it's something that we absolutely have to keep a focus on. It's a challenging target for us, going forward, but very important.

So, there's a similar impact there on the property side. So, as Giles has talked about how that's been growing, just to give you some more granular detail: the number of SME builders we were working with last year was 32; the year before, it was only 17. So, that's nearly a 100 per cent increase in the number of small builders we've been working with. Again, that's all down to the recruitment of staff. The knock-on effect, then, in terms of the number of planned houses you get from those deals—that went up from 236 in the prior year to 320. That covers 19 of the UAs, so we're nearly round all of them on an annual basis now, which we think is a fantastic effort. It's all down to the recruitment locally.

Thank you. One final question from me, talking about challenging targets. We can see in your evidence that you have created or safeguarded just over 3,700 jobs. Have you made any assessment about the quality of those jobs?

Yes, we do. In fact, we keep the data. We compile data on salaries as a proxy for that, and Rhian can give us some of the details on that.

Yes, absolutely. I've touched on it a little bit already in terms of what we do in terms of recording that information. I think that, probably, in the last committee, I talked a bit about what we mean by quality of jobs. Reflecting on quality can mean the location of the job, the sustainability of the job, the reward that people get from a job when you're working in a high-growth business.

One of the key, tangible things we can talk about is the pay bands. We record that information for the Wales business fund, and we've now broadened that out to all of our funds. The data are telling us that, at the moment, of the jobs that we have created within that fund, around 46 per cent of them are in a salary band above £25,000. That's moved on since the last time I was in front of you guys, where it was about 42 per cent. So, it's gradually creeping up in the right direction in terms of salary. But I think that we do recognise that that is only one part of the story when you're talking about quality of job. One of the things that we've been watching with interest, really, has been the work that's been carried out by the Fair Work Commission. We're aware that the report came out earlier on this year. What we've been doing now is reflecting on that. We'd like to speak to the individuals there so that we can really better understand how we apply the recommendations that have come out of there and assist our portfolio companies to reach those fair work requirements.

There's some stuff that we are doing already. We work very closely with Business Wales, as an example. They've got excellent systems already in place, where their advisers can go in and help our companies with thing like equality and diversity and wider human resources practices, and that's actually a really good scheme that we already tap into. We've got plans to run a campaign, possibly later on this year, around mental health to our customers. So, things that we can already get on with, but the Fair Work Commission report was a great piece of work that we really now need to understand and see how we can apply that to our businesses.

Okay, thank you very much.

Oscar Asghar.

Thank you very much, Chair. Panel, my question would be just: could you give us the details of the terms of the £10 million of institutional equity that the development bank has secured from Clwyd Pension Fund?

Yes. So, the Clwyd investment has gone into the—my mind’s gone blank—Wales management succession fund. Sorry. It’s—[Inaudible.]—so it matches the funding that the Welsh Government has put into the fund. So, it’s on exactly the same terms.

All right. Thank you very much. Also, there is another element—the development bank is attempting to attract significantly more funds from independent investors over the next few years. Your interest rate, I read in the book, is just over 7 per cent. Is this competitive with other banks to attract people to come to you rather than some other banks?

Well, one of the earlier questions was about impact investing. We are making a pitch to investors that we’re providing a different type of investment. Now, most of the institutional investors have large funds that they invest across all sorts of different investment sectors, whether that’s private equity or property or commodities or listed equities. So, what we’re saying is there is also a corporate social responsibility element to that. And, increasingly, that is becoming a defined sector. It’s not fully defined yet—it started with United Nations guidance on impact investing that we’re seeking to adopt, and then there are a small number of investment companies in the UK that have started to target this type of investment. And that’s the appeal we made to Clwyd.

Now, necessarily, that type of investing has a different return, and the returns cannot just be measured in absolute cash or cash return in the way that it would be if you were buying shares in the stock exchange. And, in fact, Rhian was involved in some of the process and actually can talk about some of the details of that and how we approached it.

Yes, absolutely. It was a milestone for us in terms of securing that equity investment in at a fund level from Clwyd Pension Fund. We approached them. The reason we approached them is by looking at their investment strategy. So, as Giles has mentioned, they invest in lots of different types of assets. They also invest in other private equity investors, but their investment strategy is very focused on the impact of their investment as well as a commercial return, so they are looking for both, in terms of who they invest their money with. So, an approach to them really delivered on a couple of different areas. We were able to give them the commercial return they were looking for, because the investment was into the management succession fund. We were able to give them the impact results that they wanted. We went through extensive diligence with them so that they could get comfortable with our investment track record and the governance that wraps around the investment activity that we do. And probably the most unique thing is that we were a 100 per cent focused on investing in Wales, which is something that the other parties that they invest in weren’t able to offer. So, it was a perfect alignment between what we do and what their members are interested in them doing, being the more Welsh-based individuals.

Thank you. I heard Giles saying that you work along the line with UN law or something like that. I understand you’re regulated by the Financial Conduct Authority.

We do have some FCA-regulated businesses, yes we do. In fact, the investment by Clwyd had to be in a regulated entity.

Okay, thanks. Is the intention to seek independent investors to invest directly in individual businesses as well as at fund level?

Yes. In fact, it's a requirement of ours. The chairman mentioned private sector leverage. For various reasons, that’s been changed to private sector investment. So, our obligation is always to attract additional investors into the transactions, and that, to be clear, is in addition to the entrepreneur that has created the business. I mentioned, in the review of the year, that our private sector investment in the year was £126 million that we had brought into the Welsh economy, and I also mentioned that it's a key component of our responsibility to build a much bigger investing environment in Wales, and we're doing that through a number of ways. In the year, we launched Angels Invest Wales, which is a network of angel investors, and that has produced £3.6 million-worth of investments into Welsh start-ups. That's bringing consortia or clubs of angel investors together, and we also now have a fund called the Wales angel co-investment fund to support those investments.

About 18 months ago, the British Business Bank produced a report on small investing and particularly focused on equity investing. And that identified the virtue of clusters and creating the right environment of multiple companies looking for investment. The companies attract other entrepreneurs, the entrepreneurs themselves generate ideas off each other, the collection of entrepreneurs also then attracts investors who are willing to back them. And I think we should not underestimate how significant the performance of the development bank, and previously Finance Wales, has been in this regard. 

The Development Bank of Wales is one of the top two equity investors in the UK by number of transactions, pipped to the post just by Scottish Enterprise. There are a couple of crowdfunders or peer-to-peer investors like Seedrs and others who exceed that, but they don't invest directly in the companies in the way that we do. And to put that in numbers, we made 62 investments in 2017, 77 investments in 2018, and, in total, we've done over 620 equity investments since the beginning. Now, previously I worked in private equity. You would expect a private equity firm to do between two and 10 a year, and we did 77. So, we have one of the most experienced equity investment teams in the UK—very small investments, but it's something very significant and something that we really want to grow.  

And, finally, Chair, on the pros and cons associated with securing funds from independent investors rather than from the public sector—I mean Welsh Government—. I don't want to go EU yet, because I don't know how long you're going to get European funding.  

Well, the Clwyd investment was obviously the first of that type—a direct investment in—. So, obviously, we're tasked with getting direct investment into the individual transactions. We are also tasked with seeking funds from other sources other than the Welsh Government and, as you said, the EU, and the Clwyd investment was the first of that type. Our strategy in that regard is to build our credentials as a responsible investor and look at some of the impact-investing measures that we talked about earlier, and then to attract funds that are looking for that type of investment. 

Bethan Sayed. 

Thank you. It's a really good question, and it's critical to what we're trying to achieve with the development bank. The first thing I would say is that, by starting with a blank sheet of paper to create the development bank, albeit with the experience and skill of the team from Finance Wales, we created a business with a name and an identity that was much clearer in terms of what its aspirations were to achieve, and we have used that in our marketing. So, you will have seen all across Wales and on Welsh radio shows there have been adverts talking about the development bank. We've made a lot of effort to not just focus that on the name of the development bank as a source, but also to spend a lot of time providing case studies of businesses. The annual report is quite a weighty tome, and I apologise for that, except for the fact that there is a significant component of businesses that cover the entirety of Wales and entirety of sectors that are examples. What we're trying to do is to make sure that we are in as many places as we can be with a finite resource. These happen in a number of areas. So, there are numerous incubator organisations within Cardiff and also across Wales, and we try to make sure that there is at least one person from the development bank who is a liaison representative with those people, as we have with the three regional directors of the regions that the Welsh Government is proposing. We've entered a dialogue with most of the university innovation centres, and, once again, we have somebody who is the liaison link with those organisations to try and help to facilitate the commercialisation of some ideas coming out of Welsh universities.

There's a lot more than we can do. Whilst we mentioned earlier the targets and whether the targets were soft or not, one of the things that have made a difference to the targets is that, I think, our marketing effort has been so much more significant. It has achieved a greater awareness in the first 18 months of the development bank than we had of Finance Wales after 16 years. So, we measure that awareness. The board gets a report on marketing every year. And, as I mentioned earlier in terms of how the investment targets change, the Welsh Government were keen to push us to invest in more businesses, and that requires a slightly different marketing strategy. So, our marketing strategy for this year has been targeting smaller businesses, start-ups, self-employed individuals as a source of potential investors. Having said that, we know that the majority of the population of business owners are happy non-borrowers. So, we're not here to try and force people; we're just trying to sell the virtues of the activity that we do.

And then, the final thing is that every one of us attends business events, awards ceremonies. Tomorrow night, I'm at the Powys Business Awards in Brecon. I'm hosting the education Minister, who's at her constituency. And the rest of the team are around the country supporting businesses and supporting business events like that.

Just in terms of the first point in your question, Bethan, for any member of the committee, and I would put this to all AMs, to the extent there is any question from any of your constituents about the need to borrow, or the opportunity, please direct them to me. I know a number of you have; I've dealt with individual requests from members of this committee and other AMs, so please do refer them to me.

Specifically in relation to Banc Cambria, I think the chairman was most actively involved, so he would like to just make some points.

Yes. Thank you for that question, too. Just on Banc Cambria, as a little bit of background, I have, in a personal capacity and also as chair, simply given my background as a career commercial banker, been offering advice to Welsh Government officials on the concept of the type of community savings bank that has turned into a named potential entity of Banc Cambria. I would say, personally, Banc Cambria, as a focused deposit-taking bank that will lend to individuals and small businesses in Wales, where the emphasis is, shall we say, much less on maximisation of profit and much more on success of the businesses and other social enterprise measures, I think I and my colleagues are fully supportive of that.

In terms of the role of the development bank in that, we've been, I suppose, a mix of, I hope, expert advice and cheering from the sidelines. It's not something that we can, shall we say, get involved in in any sort of financial way; the concept of it is actually a mutual, so it needs to be owned by its depositors. But in terms of offering advice, and directly to your question about whether we would help them in terms of populating their board and other committees or groups of people to advise them, we'll do anything that we realistically can do. The one thing I would say—and I may be slightly out of date, but certainly when I last looked at it, which was only a few weeks ago—is they do actually have an existing board that I think is actually a very impressive and a very experienced group of individuals. So, in that sense, I think they've got a body of people, it seems to me, that can offer very good advice. But in terms of their progress on what they're trying to do, I think we're not close to their weekly discussions with potential shareholders and investors.

Actually, we met people who are forming Banc Cambria, so, yes, we have met them, actually, in our offices. I'm not sure they carried Banc Cambria cards; I'm not quite sure they existed at the time, but they were the people who are developing that, and, indeed, one of their current board is—

Do you think it can work, in your expert opinion? Do you think it can work? Because we've had mixed reviews. We've had some people saying—. Clearly, everybody has an interest. Credit unions have an interest, and some others have said that it's going to be a big task. What's your professional opinion, if I could put you on the spot?

Yes, you can put me on the spot. Actually, I am, by nature, an optimist, and I have every sympathy with its objectives. I think the answer is 'yes'. Early on, I think, in some of the early manifestations of the subject, in my personal view, it was trying to cover too many things—patient capital, infrastructure spend. But, in terms of community banking—saving, loans to businesses—I think it can. I would say, in terms of cost base, I think part of the solution has to be technology, it really does—it can't be manned branches in lots of different places; I think the cost is too high. And I would say—direct question, direct answer—I don't know quite what the number is. Is it 150,000 is it a couple of hundred thousand customers who will use it for their full banking? And if you think you can wash your face, in economic terms, in profit terms, on that, then that's probably worth the candle, and I think that's the test. Otherwise, it becomes subsidy.

Although, Banc Cambria's model is to have physical banks opening up and down the country. So, I just want to be clear—because it's very useful to get your professional opinion, as Bethan has asked—that you're saying, 'Yes, it's fine, but you've got to rely on technology rather than opening those physical banks.'

Yes.

That is their model, and that's what they want to do.

Yes. In fact, I was with a number of Government officials and people who are associated with Banc Cambria at the Community Savings Bank Association test site, I think they called it, where they show the technology. It's unmanned technology for collecting cheques and safe deposit of cash, which can be put into anywhere, and that's the key to lower cost, because it's actually not manned.

But their model is opening a physical bank with physical people—that's their model.

Well, if that's the case, I think that's the bit that may have changed since I last heard, or as last understood.

Okay. Well, that's really interesting.

And us, then.

Yes.

Oh, is that right?

That's not what we understood, so that's interesting. Hefin David.

I'd like to move on to staffing. Can I ask you, Giles Thorley, how tough it is to fish in the same pool of talent as the private sector?

It is harder. There are certain areas of the business where it's very hard to fish. So, for example, in equity investing in particular, we maintain a pay structure and pay protocol in agreement with the Welsh Government that is competitive, but, really, realistically, can't pay the level of incentive compensation that would be expected for equity investors in the private sector.

You actually call that a business risk.

Yes, we do. But on the other hand, we have grown the business to address the targets set by the Welsh Government and the objectives of the creation of the development bank, with people who are incredibly dedicated, who are working for the business because they see the benefit that we're providing to the Welsh economy, and so, generally, I would say that all of us, or the vast majority of the people who work in the organisation—I shouldn't talk for everybody—are doing so because they think they're doing something that is beneficial, and—

You've cornered the market in altruistic bankers.

No, not at all. Not at all. The good news is that the bankers, as we talked about in the context of the previous conversation, are leaving in their droves, and so there are opportunities for people who are coming out of the reduction in personnel in those banks who have very, very good skills to offer. So, on the lending side, I think it's got less difficult, but, on the equity investing side, more challenging.

And what's the pay differential between you and a private sector organisation doing the same thing, without going into—

Well, no, it's an important point. We actually do a benchmarking exercise. In fact, an independent, third-party organisation has done a comprehensive benchmarking exercise of some of the key roles, and, so, we know where we stand, and that takes into account regional differentials, the type of responsibilities. In terms of pay, we're trying to get to a position where we're median quartile for those key roles. However, when it comes to the incentive compensation, we're nowhere near that level, because  the incentive compensation for the equity investing is generally what's called 'carry', and that means a share of the upside. We think that, in the context of the way we invest, that would be inappropriate.

But, nonetheless, there is that differential with regard to the incentives, but you can sustain that risk.

Yes, I believe so—

It's not going to be a long-term disaster for the organisation.

No, I believe so, because I think there is—. We are putting a lot of effort into our employer brand, and our employer brand is about the altruism, to a certain extent, but it's also about everything else that we do in terms of our inclusivity, the diversity within the organisation, the flexibility in the way we wish people to work, and differentiating ourselves from the slightly macho, aggressive nature of some investing houses. I can promise you, I have worked in some of them, and they're old school.

So, you are offering something better, then. Quality of life would be—

Might I just shortly interject on that? I think, for the board, actually, your question is the one that is ever present. It is: at any time and looking forward, will this be a competitive disadvantage that means that we're not fit for purpose, that we can't actually execute on the mandate that the Government gives us? Because this is a professional services business. We are owned by Welsh Ministers, entirely public sector, but we operate wholly in the private sector, and, actually, the skills that we have are the ones that the private sector, as you say in your question, compete for. So, we have to do something different, and all the things that I think Giles has laid out there are very important. But that question is ever present, and, at some point, as it's taken us months of time—it's almost a year—to get the right person in in a key equity position, if one couldn't recruit those people, actually, that would severely curtail our capabilities, absolutely.

But we do grow homegrown talent as well. As mentioned, 600 equity investment transactions since inception—a large number of the investing individuals in our team have seen more equity transactions than people with whole careers in equity investing, and that's one area where we're very keen to continue to develop. 

There wasn't intended to be anything critical in the question.

I accept the point. It's something that we work on. 

It's a very real challenge. And with that, if we turn that on its head and say, 'Well, how do the current non-director salaries compare with the last full year of operation of Finance Wales?', has there been a big increase in order to compete?

No. So, interestingly enough, our average salary as a whole organisation is reasonably high; it's around £57,000 a year now, including pension benefits and so on as well. Back at the end of Finance Wales, the average was actually £59,000, so, as we've continued to recruit and we've gone up in staff numbers from around 138 full-time employees at the end of Finance Wales to 183 this year—so it's a reasonable level of recruitment we've tried to do, and most of the jobs have been on the slightly lower end of the investment scale, so more of the debt-side people rather than the equity side—it's lower slightly, and so we haven't had any giant leap in pay, but it's under pressure, particularly for the higher skilled jobs.

Okay. And I appreciate the qualitative nature of what you're offering, as well as the hard cash to people.

Let's talk about the wages and salaries of directors. We've seen that the wage bill has increased from £425,000 in 2017-18 to stand at £527,000 in 2018-19, which is an increase of 24 per cent. What accounts for that rise? Is it an increase in the number of directors or an increase in pay for individual directors?

It's actually an increase in pay. The prior year, one of the directors wasn't entitled to a bonus, whereas in the current year they were, and that was a large part of that. 

It was a bonus. Okay. And again, just as an aside, just out of interest, how does that compare to directors in the private sector?

It's far lower.

We are talking about a 24 per cent increase, but we're also talking about a comparison with a market that is radically different, aren't we?

Hugely. Just for example, I think part of the impact is—. So, I was eligible for a bonus at the end of my first full year at Finance Wales, but I declined the bonus at that point because my job was to create the development bank, and that hadn't happened. The organisation decided to defer it, and then they paid me that at the end, so, two years ago from now, when the development bank was fully operational and running. So, there is a timing difference in the way that it was paid, so effectively two fell in one year.

I recall Will Hutton did a piece of work for the Work Foundation some years ago that said that the appropriate pay differential between lowest paid and highest paid in a public sector organisation should not exceed 20:1. So, with regard to your highest paid director now earning £200,000, what is the pay multiplier for that in the organisation?

It's just under 10 times.

Ten to one. Okay. So, it fits with that concept that Will Hutton developed. 

Yes, and it's much less than the financial services sector in general. 

Slightly less than the Welsh Government as well. 

I wonder how it compares to universities as well, but I won't go there. I won't get into that. Okay. I appreciate that; that's clear—10:1. And that's not the median but the lowest?

That's the lowest.

The lowest, okay. Have you done any analysis of the gender pay gap within the organisation? 

Yes. This is an extremely important area for us, and it's an area where we need to continue to improve. Financial services in general don't perform well here. So, we measure our gender pay gap annually at the end of the year. So, at the end of March 2019, our gender pay gap was 24 per cent, so it's still not great, particularly compared to the Wales average, which is around 13.5 per cent, or even the Welsh Government, which is around 8 per cent. The good news is actually that's decreased from the prior year, when it was 31 per cent. So, in the prior year, we were far more in line with where actually the financial services sector is.

What are you doing to address that?

One of the key steps we've made is to join Chwarae Teg's FairPlay Employer scheme programme. So, we've been a member of that for two years now. In the first year, we were awarded a bronze award, which we're happy with but we wanted to improve. 

But what actions does that entail?

We agreed an action plan from that that really focused on areas—it gave us a list of areas to then go and focus on, particularly on training and making our jobs far more accessible to women in the workforce—females. So, as a result of that, in the last month, we've just actually achieved a silver award with Chwarae Teg as a result of the action plans we've adopted. That's the real reason that our pay gap has dropped from 31 per cent to 24 per cent. Obviously, we want to make that drop for next year.

What's your target for next year?

We haven't set ourselves a target, but we'd like to be under 20 per cent. 

Okay. 

Coming from a long way away, from the financial services sector. So, what we're doing to continue to do that is we've rolled out the unconscious bias training that has previously been mentioned, we continue to encourage and support our female staff to further their careers within the bank, we are making sure that all our recruitment processes are shaped to encourage females to apply for senior management roles, and then, finally, we scrutinise gender pay every year when we come to our annual pay review process to try to make sure that we're ensuring equality there. So, we are trying hard. We know it's an area to focus on and we want to improve. 

Just by way of comparison, we do a gender pay comparator across the financial sector, of anybody who produces the data—so, against our peers. We've included RBS, HSBC, Lloyd's, Barclays, the Principality Building Society, PwC, Deloitte, KPMG on mean pay gap, median pay gap, percentage of females receiving bonus, percentage of males receiving bonus, mean bonus gap and median bonus gap. So, we measure all of those pieces of data. 

Okay.

Okay. I've got three questions, and we're going to have to be very brief because we're over time as well, but I just wanted to touch on Brexit implications and sources of future capital, given that EU funds are coming to an end. Can you just very briefly touch on that?

Yes. We've been actively involved in discussions with the Welsh Government on the ever-evolving Brexit situation. I've held meetings with members of the Welsh Government who are specifically dealing with Brexit planning. In fact, I recently held meetings with the Counsel General and Brexit Minister to agree a course of action, and a series of actions have been put in place in anticipation, primarily in relation to a 'no deal' Brexit. They relate to our ability to transfer our funds into shorter term liquidity-type activities, because we feel that that's possibly the most likely need in the event of a 'no deal' Brexit, as people get caught up in delays in exports, imports, et cetera, or working capital. And I'm working in conjunction with the Deputy Permanent Secretary to ensure that we properly document that. We've also committed that, to the extent that there's a significant increase in the level of demand for our services, we will transfer administrative staff from other areas of the organisation to man the fort, so to speak, to make sure that people have somebody to talk to and we can field their inquiries. 

Okay. I could ask another 10 questions on that, but we haven't got time. 

By all means, if you wish to come back to us with questions in writing, we will happily respond to those. 

We might do. I think we've got to write to you on some other points, so we'll incorporate further points on that. 

Okay. And in the context of the other funds, we've already mentioned that we have been supported by in excess of £200 million-worth of additional funding. That came from a number of sources. The Wales business fund is now £180 million. We actually have worked very closely with WEFO, the Welsh European Funding Office, and we've been able to increase that fund over the course of the last three years, during the Brexit impasse. And we've also increased the size of the Wales flexible investment fund to £130 million, again, in anticipation of Brexit. 

Okay. Thank you, Giles. We'll write to you with more, because we haven't got time. I do want to just ask you as well: are you, and if you are, how are you, going about creating alternative finance providers across Wales?

Yes, we're constantly looking at that. We've talked about the environment and encouraging others to operate, but we also have specific objectives in terms of the microfinance, the third sector-type investment. Maybe Rhian could talk about some of those. 

Just be really brief, sorry, because we're out of time. 

The point that Giles is referring to is we subcontract part of the delivery of our microfunds to social enterprises, and we've doubled the amount this year. So, that's moved from £1 million to £2 million, and that's recently been awarded to two external providers to DBW. 

What kind of process do you use to assess which providers to use? 

It's a full tender process, so they apply as to whether they want to take that contract on. There's an interview process to ensure that they've got the right level of experience to do that. So, it's an open process. 

And you contend that's a fair and proper process. 

Absolutely. 

Okay. And finally—this will only need a short answer from you—when you come here next year, at this time, will we be asking you, 'Why have you met your performance target indicators?', or will we be asking you, 'Why aren't they more challenging?' Which do you think it will be? 

Well, I mean—

Actually, if I might—. I think this is one of the hardest things that the board faces, because, actually, if we come to you one year—and I've actually made a note just in this meeting of it—and we haven't made our targets, is it because we haven't done a very good job, is it because the private sector has come in with whatever and done a great job, or is it because the economy has run down for some particular reason? And I think the hardest thing is to pinpoint exactly why that is, because, actually, demand is relatively invisible. It's quite hard to find why, and it's something that we're working on quite a lot to try and understand. 

Okay. That's a fair answer. 

I would suggest—. As I mentioned earlier, with EIW, we are actually looking at a third party to assess. So, Economic Intelligence Wales, we've asked them to assess how we've performed. I think it would be unreasonable for us to say that we've performed well or otherwise—better to have somebody else to answer that question for us. 

Okay. Right. Thank you. We will be writing to you because there are a number of issues that you've promised to come back to us on, which we're going to prompt you on in a letter, but there are some other areas I think we need to write to you on as well, just because we didn't have time this morning. But thank you very much for your time this morning, very much appreciated. 

We'll take a short break, and we'll be back in public session at 11:05. 

Welcome back to the committee. I move to item 4. This is our first session in regard to looking at the foundational economy, and this particular session is looking at public procurement. We have two witnesses for our very first session. I'd like to welcome Steve Cranston—if you could just introduce yourself for the public record.

Good morning. Thank you. It's nice to be here. I'm Steve Cranston, I work for the United Welsh housing association.

Lovely. And, just to check as well that everything is working, if I can ask Adrian Johnson to introduce himself.

Good morning, I'm Adrian Johnston, I'm the managing director of commercial services for Grŵp Cartrefi Conwy in north Wales. 

Lovely. Members will have a series of questions this morning, and this session is about drawing information from you—rather than questioning yourselves, really—to help our work. But perhaps if I could just ask both of you—. If I could come to you first, Steve, tell us how your organisation is supporting the foundational economy. It's a very general question.

In very general terms, I suppose first of all I think what I'd say is that, as a housing association, United Welsh is part of the foundational economy. We manage over 6,000 homes across eight local authorities in south Wales, and really everything we do is foundational in nature. It is impossible to live a good life if you do not have good, affordable, secure housing. Everything that we do is around supporting people to get housing, and once they've got housing to be able to live a good life in those homes.

What we also realise is that, being a landlord, and being a good landlord, without strong communities where there are good jobs, where there are good opportunities for people to contribute and to feel safe and to have a strong sense of well-being—without those strong communities, actually we will fail as an organisation. Therefore, we have a duty and an obligation to make sure that we use the assets that we have as much as possible to ensure that well-being is really promoted in the communities we're serving. So, our foundational economy approach is to say that we are part of that, and we, working with all the other partners who share the common cause, have an obligation to work together to support well-being locally. 

I'll come to Adrian in a second, but just to give you advance warning, my next question to you will be 'How did you develop your approach?' But the same original question to you, Adrian. 

Thank you. Very similar to Steve, Cartrefi Conwy is the biggest social landlord in the county of Conwy, with almost 4,000 properties. And Conwy, being, in various areas, very deprived in nature with a lot of unemployment, we as a housing association really have a common cause, such as what Steve is saying, to really make a difference, and I think with the level of spend that we're doing, as a housing association, in terms of today over £65 million spent in the county, it's only right that we influence the policies that are out there, the different toolkits that are out there, to ensure that that pound is spent as productively as possible. Our experience—and I know we'll probably come to it more within this next half hour or hour—is that by working closely with the supply chain, identifying the supply chain, what is out there, you really can make a difference. And housing associations, local authorities et cetera really are integral to that, and hopefully we can give some real practical examples of what we are doing in north Wales to impact the foundational economy.  

Lovely. Steve, if I come to you, just to develop that question on how you went about your approach. 

We're an association that's been going for close to 30 years now. We probably wouldn't have spoken about the term—we wouldn't have used this term 'foundational economy' 30 years ago. But, over the years, the notion that all you can do is be a landlord and provide homes is long gone. All of us, as housing associations, have left that way, way back. How we've approached it, I suppose, is to look at the strength that we have as an organisation and to say, 'Are we really maximising those opportunities?' We have a very large development programme in United Welsh, one of the largest ones in Wales. So, therefore, we have an obligation, when we are looking to bring forward new developments, to make sure that they're the right homes in the right places, and that, when we do develop those schemes, we get as much benefit off the back of those as possible for local residents, not just for the people who are in housing need taking those properties on.

If we look at the assets we have around potential to drive environmental benefits, 800 of our homes have solar panels on them, close to one in six. So, we're looking at how we maximise the environmental benefits of the assets we've got. In terms of people, as an organisation, we actually employ directly 200 people in United Welsh, and our wholly owned subsidiary company employs just over 200 people. So, 400 people are employed by the organisation, and we have a duty to make sure that as many of those are local people and that the money that we pay them week in, week out, on good terms and conditions, is going into the local economy. And then we have the strengths and assets that our tenants have got. So, I suppose in all of this, what we're saying is, 'If you don't use these assets, you're not being a good organisation.' So, the challenge for us in terms of foundational economy thinking is to use what you've got much, much better over time. 

And Steve, do you have any analysis of how much of your procurement budget has been spent with local businesses? 

I can tell you about work we did in Blaenau Gwent. We did a very interesting qualitative piece of work in Blaenau Gwent looking at businesses we spent with based in Blaenau Gwent, and we tracked—ourselves and three other housing associations working in Blaenau Gwent—£4 million-worth of spend. And if I can, I'd like at some point—

What's your total procurement?

Well, our total turnover for the organisation is £20 million in United Welsh and our sister company—our wholly owned subsidiary—has a turnover of £15 million, so £35 million.

So, as a percentage, how much have you spent, in terms of spend with local businesses? 

Well, the biggest spend we have is salaries and only a handful of our staff live outside the areas where we're working, where we're operating—a handful of staff.  

Sure. I suppose—what's your total procurement budget, taking your staff wages out?

Yes. Okay—.  

If you don't know, that's fine. I'm trying to get a sense of how much of your procurement budget is spend on local business. 

Right. Okay. I can come back to you again with a firm number. 

That's fine. 

I suppose what I like to make sure is that we think about the year in, year out spend that we spend on staff who maintain our homes, who support our tenants, and that's a bigger number, and we've got to get that one right, as well as what we procure. 

Adrian, do you have any analysis, in terms of total procurement spent with local business? 

Yes. At this moment in time, the business has a healthy development programme of, let's say, average over a five-year period, circa £6 million to £7 million per annum. And then on top of that we have our planned maintenance budgets, and then our responsive repairs and renovating empty homes budget. So, in total, if we averaged out—I won’t say the exact amount per annum, but let’s just say £10 million to £12 million per annum. What I can say, with the models that we’ve now adopted in Cartrefi Conwy and its wholly owned subsidiary, Creating Enterprise, is that easily over 95 per cent of that spend is spent locally within the county or the boundary counties of Cartrefi Conwy. And the way we’ve done that has very much evolved over time. We’ve had a lot of knowledge transfer from maybe larger contractors over time, larger developers, that weren't local from north Wales. But we’ve addressed that from taking on those skills, understanding how you do manage contracts, and then creating our own contracting arm here in Conwy, which is a social enterprise called Creating Enterprise. Most of the work carried out now by Cartrefi Conwy is done by—sorry, procured by Cartefi Conwy is carried out by Creating Enterprise, which is as competitive as the sector is out there, but with all profits recycled to give those furthest from the job market an opportunity with paid employment. Yes, we do some volunteering, work experiences, but the main aim of Creating Enterprise is to give real work and full-time paid employment through contracts that are procured by the parents. So, to answer your question, Chair—sorry, going round in circles a bit—I would say almost 100 per cent of our spend now as a housing association in terms of labour—it can’t always be in material used, but, in terms of labour, would be local to north Wales.

Thank you, Adrian. Vikki Howells.

Thanks, Chair. I've got some questions around the Can Do toolkit and its main achievements in the housing sector. So, if I start with you, Steve—is that okay—I just wonder if you could provide us with some specific examples of the way that the Can Do toolkit has been able to increase local spend while working within the EU procurement framework.

The way we've used the template and the toolkit—and, actually, we were a very early adopter—has just been to hard-wire it into all our contracts. So, it's having an awareness that, when we go to tender, we make sure that, if we have local companies that have the capacity to tender for that work as lead contractors, they know about this work coming up, they know it's a pipeline project, so they know about it and they’re able to tender for it. If that capacity doesn’t exist locally, we, in the contract details, put as much information for companies to ensure that they look into local SME capacity. I think, over the period, what we've found is that this is—. Initially, the Can Do toolkit, when it first came in, was probably—yes, it was certainly new thinking. We’ve now hard-wired it into all of our contracts, and it has become the new normal in how we tender for work in United Welsh and across most other housing associations locally. And I think the key thing about it is—. It’s the 'can do' rather than the contractual bit—it’s us being assertive about what we want in terms of core requirements around jobs and community benefit opportunities, and it’s contractors understanding that, if they want to do business in Wales with associations like United Welsh and all the other housing associations, they’ve got to sign up to it.

And, while it’s not completely perfect, I think we have got that understanding in Wales, when we put work out to tender, that this is the deal, this is the relationship we’re looking for. So, it is standardised now, so, every time we contract, there is a core requirement around jobs, whether they are paid jobs, apprenticeships and work placements—and we get a blend often with all three—and also what that contract could contribute to the local economy, whether it’s working with schools or other key community projects. The skill is—. No two contracts are the same—the skill is understanding that contractor and the community that they’re working in, and making sure we match what they’re able to offer and what the needs of those communities are. And I think we are—. Every time we have a contract on our new-build schemes, we use the Value Wales community benefit tool. It's a contractual obligation. If the contractor gets to go at the job, they know that's a key part of contract delivery, and we hold back payment if they don't submit it. So, we are, in the contract meetings as the scheme goes through, establishing what's important to that community, what that company can offer, and then, through the various partnership arrangements we've got, to help them around looking into supply chains, business support, support to tenants from people like the Department for Work and Pensions and Communities for Work, we can get a good experience for, increasingly, our tenants who take up these opportunities. 

Thank you. Adrian, what's your experience of using the Can Do toolkit?

Echoing, really, what Steve has said, Cartrefi Conwy have been, always have been within the 10 years of operation, early adopters of the Can Do toolkit in terms of all our procurement frameworks from 2009 onwards, really. One thing I would say, without repeating everything Steve's said about the benefits of it and what it can do, what we have found as an organisation, and myself, personally, is it's a fantastic mechanism to put into contracts, it's great to hard-wire that in, and then, once you go out, you've got tools that these developers or contractors, whoever they may be, they're contractually obliged to do that work, because it's written in the contract.

So, it's great with regard to that, but, from a practical perspective, what I find is there's still an awful lot of work to do then on the ground, with the right team, the right resource: have they got the right skills to make sure that what you actually put into that tender or into that contract is actually carried out on a daily and weekly basis? I know I'm talking quite operationally there, but I do think, from a personal perspective and looking at how others do procure, they'll probably get consultants in and they'll put all of these clauses in contracts, but, unless you drive it on a daily basis, you will not get the right figures out from that—that you would expect. So, from my experience, I think there are plenty of tools out there that Welsh Government have driven forward that CHCs and the Chartered Institute of Housing have given us, enabling tools to the public sector, to those who have to abide by public procurement regulations. That's all well and good, and you put that into the contract, but you've still got to drive it on a daily basis, and that does not always come easy. And that's something, I think, from Cartrefi Conwy's perspective, we've really been keen on from day one, and, as a result of it all, we've now created our own supply chain, if you like, with our own subsidiaries to carry on that work.

Thank you, both. Those were very good answers, really useful to us. I've just got a few quick-fire questions now, as I'm conscious of time for my colleagues. Firstly, I'm wondering to what extent do you think the principles of the Can Do toolkit might be applicable to other sectors.

They've got to be. They've got to be. This is the Welsh pound being spent here. Every time we spend money, we've got to make sure we get as many benefits back environmentally, socially, culturally, economically. If we're doing it, it's criminal if we don't. It's absolutely criminal. 

And you think it's perfectly feasible to—

Absolutely right, yes. I think there are some lessons in terms of how it's got rooted in the housing sector that other sectors can learn from, but it's a no-brainer.

Okay. And Adrian on that.

I think, from my perspective, seeing how some public money has been spent here in north Wales, again, I think sometimes they think—and I'm not saying it's in an ignorant way, but I think they just put these kind of mechanisms into their contracts and think, 'Oh, we've done that bit now. We're going to have some social return on investment because we've put it in a contract', but, again, I'm reiterating what I've just said: I don't see that happening in practice. I think, until local authorities at cabinet level or more housing associations at board level truly believe in it and understand the values, then to drive it right through to grass-roots level there needs to be more training and more understanding of what those benefits are, otherwise it will not drive forward.

Okay.

I'd just say that I do think a lot of this is about relationships. The closer housing associations get to particular local suppliers and the more you understand their motivation, I think what we've discovered is the more goodwill there is out there, and, actually, these companies, especially local businesses, want to do more. It's their kids who haven't got houses, it's their employees who have got housing issues, and want decent jobs. So, I think we're pushing at an open door here, and some of the most receptive people we're pushing at are small businesses.

Thank you. And then, building on that, because it may be the same sort of answer, Professor Karel Williams has given us written evidence saying that it's only in the Welsh housing sector that the Can Do toolkit has been widely adopted. I just wondered if you had any brief thoughts on why that might be the case. Why isn't it being used in the housing sectors elsewhere? Steve.

I think the way that the Can Do toolkit was pulled together was really effective. Keith Edwards—I know you're meeting him later on, but he is of the housing sector, he's part of it, and the trusted relationships he had with the sector meant that, when he was getting early conversations going, the trust was there. I think also he was pushing at an open door in terms of us as organisations. The way we are aligned with Welsh Government thinking around long-term improvements to communities and economies is a straight fit there. I think there was a lot of trust, a lot of respect, and I think he was able—because he was independent of Government, I think he was able to try out new things and really kind of unlock a lot of the innovation that there is in the sector.

Thank you. Adrian.

Yes. I also think it came out at exactly the right time with another huge force, which was the Welsh housing quality standard. The Welsh housing quality standard obviously meant an influx of spend nationally in Wales to the housing sector, and those two bits of legislation, if you like, on employability and also getting housing standards up, dovetailed together really nicely. There's absolutely no reason whatsoever—. And we run multi-multimillion-pound contracts, and I see multimillion-pound contracts being tendered in north Wales—in terms of Conwy County Borough Council, the new headquarters. There's no reason whatsoever why the principles of the Can Do toolkit should not be hard-wired into all contract documentation going forward.

But I will say, I think, because of the Welsh housing quality standard, that drive, and the amount of investment that was going on into Wales—and housing associations were integral to that—they were resourced accordingly for it. I don't think, in all fairness to some local authorities, they—again, I'm reiterating what I'm saying, but they can put all of this in the contract documentation, but I think that they haven't necessarily then got the right resource and skills internally to drive that forward on a daily basis, because it does need that. You can't just put it in and allow the contractor to hard-wire it all and you'll gain the results; it's got to be driven daily then. But the Can Do toolkit is a huge enabler to it, because at least you have it contractually.

Thank you. And a final question from me: there seems to be a renewed focus in Welsh Government now on spreading and scaling best practice, and, Steve, you used a lovely phrase in your first answer to me, where you talked about this being the 'new normal'. So, are there any final thoughts from either of you about lessons that could be taken from the Can Do toolkit experience so that this best practice could be rolled out across the public sector? Steve.

Well, I do think we've got pockets of really rich experience within—not just in housing but in Wales, and we are not very good at sharing that. I do think—. A couple of things—. Another reason why I think that the Can Do toolkit worked very well was the principle of secondment. People were seconded into the team and then they went back to their organisations and brought that knowledge back with them.

I think, going forward, we need a culture shift, and some of the things that will help to get that culture shift are better use of secondments into organisations where there is good practice and bad practice. I'm amazed that some of the leadership development programmes we've got in Wales, particularly run by Academy Wales, haven't got procurement up there as one of their key themes. I think they should be promoting learning sets, communities of practice, to bring people together because there is so much learning, and also goodwill. Without those practical things, I think, as Adrian says, you can talk as much as you like about it, but things won't happen on the ground.

There is the issue of resourcing it as well. In Adrian's team and in our team we've got three full-time people on this. This doesn't happen on fresh air, so it's got to be resourced.

Thank you. Adrian, any final thoughts?

Yes. I totally agree with everything Steve just said there, and I think knowledge transfer in Wales—. We're a smallish country, to be fair, and there are some amazing things that we are doing, and I think cross-collaboration north and south, east and west—there's a lot more we can maybe do to get these pockets of best practice and share them, then, locally, to enable, if you like, that foundational economy to really go to smaller areas to make sure that everyone, really, is carrying out this best practice at all times. Because the knowledge transfer that we gained for the first three or four years, we've really grasped that and kept hold of real local talent, real local suppliers, real local supply chain, and we've grown those businesses now and we've grown those people within, whether it be through promotion within, whether it be through businesses operating six to 10 people, now who are operating 40-plus people. That's all done through knowledge transfer, using that Welsh pound and making sure that you're quite innovative around the way you do procure contracts. Don't be scared of it and drive it forward every single day, because there are these amazing things happening in Wales. Ask the question how they're doing it and then share it back in your own constituencies.

Thank you, Adrian. Can we move on now? Hefin David.

I'd like to consider Welsh Government procurement policy and future practice. The Wales procurement policy statement doesn't have in it specific targets for Wales-based public sector spend. With that in mind, it's going to be replaced with a new strategy document. What would you like to see the new strategy document do and is a target going to be helpful in that, amongst those things you'd like to do? Sorry—Steve and then Adrian.

I just think it should be a condition of grant that you'll be looking to maximise opportunities for as much of what you're spending to fulfil well-being, in its broadest terms, in the areas where that money is being spent.

But as we understand it, the Welsh Government has no powers to compel local authorities to do that, with their procurement arm.

Right, okay.

That's as we understand it. That's a weakness, isn't it? What other things do you think could be done around that?

I think what could help there would be, surely, the Well-Being of Future Generations (Wales) Act 2015. I mean, that's the framework, isn't it, which for me, really does bring all this together? Procurement is one of those golden threads across public policy and across practice, and if we are going to be genuinely looking to get the Wales we want, where well-being is thriving, then the spend should be promoting prosperity, health, cohesion, equality, et cetera.

So, what you're saying is there should be a stronger action to compel in the new strategy than the current, making things easier to do it.

Yes. I think so, yes. We've come to a point where—. The problem with compelling is you can get perverse behaviours from compelling people to do things. So, this is cultural stuff. For me, there's nothing in the current regulation that doesn't mean you can innovate. The current regulations aren't holding people back from innovating and doing really good things.

But they aren't.

But they aren't—yes. So, it's a probably a combination of—.

Okay. Adrian.

I think, adding to that, prior to any document, any new policy going out, we really need to understand what the root causes are why SMEs haven't been as successful as Government would have wanted over the last, maybe, 10 years. And I think with us all around the table, gathered around the table, understanding that cash flow is absolutely key to any SME wanting to be successful on multimillion pound contracts, and then it comes back down in public sector spend, the kind of risk versus reward, if you like. So, there are risks in taking on SMEs to do millions of pounds-worth of work, because they say that they haven't got the turnover or they haven't got the right accreditations or whatever it may be. And I think that is a barrier; we see that as a barrier. So, what tends to happen is a huge national company comes in because they tick the right boxes, but they then just subcontract it to tier 3, tier 4 and even tier 5 to those SMEs anyway, and, obviously, that money goes straight out of Wales. So, I think there needs to be—whether it's with the Development Bank of Wales now—some joined-up thinking that if SMEs are going to take on greater responsibility in spending, in being successful with public sector contracts, can Welsh Government support that in such a way, or Development Bank of Wales, and be able to assist with cash-flow funding as opposed to capital expenditure funding, to really join up the dots? I'm thinking around that, by default, then, if you've got your SMEs doing the work, then the training, recruitment, apprenticeships would come a lot easier, because there's a lot more money in the contract then. It's not 10 per cent, 15 per cent of the pound just going straight out to shareholders outside the country, and, again, that is something we've tried to adopt in Creating Enterprise by being that, if you like, first-tier contractor. I do understand we're not going for the £100 million contracts, and there's a lot of risk that comes with that, but if we have some sort of parent guarantee for just financial cash-flow, it would make a massive difference to getting the policies that Welsh Government want from an operational perspective to get through. Because it's a killer—it really is a killer to SMEs. I'm sure it is in south Wales as well, but it definitely is in north Wales.

Can you hear me? Adrian, can you hear me?

Yes.

Right, okay. I was interrupting you there, and I think my microphone wasn't on so you couldn't hear me—

Oh, sorry—

It's not a problem. The evidence you gave was really good. I just wanted to add a little tangent there—when you expressed the capacity of SMEs, one of the things I've found is that, in order for SMEs to be successful in acquiring contracts that are procured, they've got to work collaboratively, and sustaining that collaborative working is a huge challenge. Do you think that an ambition in the new strategy document to achieve that, and clarity of direction with that, would be helpful? Adrian and then Steve.

One hundred per cent helpful—100 per cent helpful. We've just collaborated with a local SME to form a company called Calon Homes, which has been endorsed by Welsh Government. It's a joint venture with a private sector developer/contractor, with Creating Enterprise, to look at how we can build more homes in north Wales, and more social homes in north Wales, and reinvesting developers' profit to build more affordable homes. That collaboration took time, it really did, and personalities do come into it—I get all of that—but we've taken that mantle on, and we think, on a very small-scale level, it's really created a success story.

I was going to say, it's the challenge of getting the collaborators on a contract to recognise that they may not be earning as much from the contract as someone else collaborating, but in the longer term, it would be more beneficial. That's the key.

One hundred per cent, yes. And longer term, I think I'm sure SMEs would see the benefits of that, because if they know they've got steady cash flow for the next 10 years, that's massive to any company. Public sector schemes or housing associations—they can be seen as static income companies. They know that whatever they do, they've got rent coming in each month. SMEs, private sector, in Wales—they haven't got that luxury, and there are some real quality businesses out there in both construction, in tourism, whatever it may be. I think with some kind of support, either through collaboration or financial support in such a way, if it's based on an order book—and order book is in place with a blue chip company that preferential terms can be negotiated, so they are getting paid within 28 days, not 90 days. What business can operate on the 90-day payment terms that some of these nationals put on our SMEs?

Go on, Hefin—do you want to come in there?

That's great, and I'd like to just put the same point to Steve: that long-term sustainability of procurement contracts relies on both educating the SMEs as to how to do it, and what it means, it relies on being realistic about terms of payment, as has just been mentioned. Is there anything else we think that can sustain that true local procurement and not just giving money to Kwik Fit?

I think the key thing is early, early, early—super early conversations and engagement, because that's where it all happens, for me. That's when associations—. And the challenge for us all, as housing associations, is to get to know better the SME community on our doorstep. Now, I think what we do is that we do that periodically when we know we've got new projects coming up and we're looking to get new frameworks in place, but talking to colleagues and businesses in Blaenau Gwent, when I had a chance to spend time with them, they were saying that an event every four months, where you've got people together, because that's where you share what the pipeline projects are, what the aspiration is— . It's only through coming together you actually figure out all these details around capacity, accreditation, licensing, cash flow, and all of these other things. For me, this is all relationship-based.

Okay. I'll say, Chair, I think my questions did stray a little bit away from the area I was focusing on, but I think the answers were quite organic. But I'm happy to stop there, if that's okay with you.

We can come back if there's more time at the end. Oscar Asghar.

Thank you very much, Chair. My question to you both is to understand the extent to which increasing local procurement by the public sector could create stronger local supply chains and build wealth in communities—local communities, I mean. What are the potential barriers to achieving this?

[Inaudible.] So, Steve first. I've said it three times because the mike is intermittent, probably because of the technical issues with the video footage. Steve first.

The barriers are many; they really are. I think, first of all, many local businesses are invisible to the public sector and it's very hard to get on tender lists. It's very hard because of the practical barriers that are put upon them. Adrian's mentioned them so far: accreditation, insurances, policies for this, that and the other. And I suppose one of the barriers is that, sometimes, some of these requirements are not proportionate to the work they're bidding for. That's a key area. I think, also, there's a capacity issue. Some businesses may be able to take on parts of contracts but not the whole of them. So, they're not able to say, 'Look, if that contract was broken up, we would have a good go at it.' But when the contracts are too big and complex, it's beyond their capacity. 

Adrian's mentioned the issue of cash flow. Some businesses do not want to take on contracts for fear of overstretching themselves. In conversations I've had with businesses, they've actually chosen not to tender for very actual rational reasons. In the past they've done it and they've overstretched and got into difficulties. And I think also there's the question around culture. I think, sometimes, businesses don't actually feel that the local authority is on their side. It's interesting, talking to businesses that are working in places like Preston, where this community wealth-building approach has been much, much stronger, there's all the detail of what they've done there, but actually one of the biggest benefits of what they've done is actually to say to businesses, 'You actually matter. You are a key part of our community, a key part of our economy and we need to talk to you about how you can make the best contribution you can to creating wealth for all of us.' So, it's almost that kind of confidence and a feeling that you actually count as a business, that what you do really, really matters. I think we don't often get that through. It's a very technical, cold process around getting on tender lists, but the bottom point is: you matter—if you're a business locally and you're doing good work, you're employing people, you're treating people properly and you're putting food on your kids' table, you matter, and it's really important we maximise the contribution you can make.

Adrian, do you want to come in?

Yes. Without repeating what I said earlier, I do think the barrier, in the public sector especially, is resource. There's undercapacity in local authorities, for example, to be able to really drive this forward. As a sector, you can become lazy in procurement, because of frameworks. I get the benefit of frameworks, but, again, unless you're working it every day for that four-year period, you just use it as maybe a lazy form of procurement and then you're just able to get a contractor in without having to maybe go out and get that best value from it. So, I think something around that needs looking at. But, yes, the main barrier, really, in Wales is finance. Sorry, Chair.

No, no, absolutely fine. Oscar.

Thank you, Chair. What can the Welsh Government play—a role—in supply and demand in relation to procurement?

What role could—?

Welsh Government. 

Welsh Government. Sorry. Okay. I was struck by some of the evidence that, I think, Karel Williams put into the committee around—. It does strike me that there are some key areas, some key sectors, actually, where it's possible to start and look at trying to have a focused impact. I think the ones he mentioned were construction, care and food. I think if we're looking at Welsh Government, it's looking at some of your really pressing challenges that you're facing. For example, there have been two recent reports on housing—for how we increase the supply of affordable housing, but also how we decarbonise our existing homes. For me, that's one of the areas where Welsh Government, working with partners, can make a real difference, and the foundational economy framework could be really, really helpful. 

If we're looking at making sure our new homes are zero carbon, all the stuff that Adrian's doing, and what we're doing around looking at how we build differently, this is potentially a new part of a low-carbon, high-skilled supply chain that we can genuinely say is Welsh and is going to deliver for us. If we're looking at how we actually make improvements to our own homes, and the target is pretty tough—it's reducing carbon emissions by 95 per cent by 2050—that's potentially a 30-year pipeline of work on our homes and our communities. If we get that right, then I think we've got a massive opportunity just in one of those three sectors that Karel can talk about—a massive opportunity to really make the foundational economy model work.

Adrian, did you want to come in? 

Just quickly, one of the other ways they could influence supply and demand is maybe add more performance targets on clients. I think that could help, which would influence maybe funding. And I think the work Welsh Government have done in the past with supporting SMEs in terms of how to tender or how to do the qualitative submission, I think that needs to go up to a next level now to influence supply, and especially the demand, to look at how local government can play a role in putting that extra financial support and stronger support into the foundational economy, and especially the supply chain.   

Finally, Adrian—

Oscar—. We're waiting for your mike to come on. 

Have you got any system in place so that you have local knowledge about the suppliers in procurement? 

I think we do it in a bitty way. So, I think what we do is if we know we've got a big project coming up, we'll put a call out for people to come to 'meet the contractor' events. We do these and they're very, very helpful, because once we do start talking to contractors, we get the details, we can help them get onto frameworks, we can help them with the paperwork. But I'm thinking that all of us need to get much better at doing that more often and more deeply, because we can't assume that in local communities everyone knows about ourselves. When I was talking to businesses in Blaenau Gwent, we had 99 businesses that were working with housing associations, and very few worked with all four that work in Blaenau Gwent; most only worked with one or two. Even with our own community, we're not sharing contacts, so that if you're a carpet supplier and you're working with United Welsh, we introduce you to our partners in Tai Calon, Linc and Melin Homes. Again, I go back to this thing about relationships; this is all relationship based. It's people, it's networks, it's having the chance to meet, to talk, to understand the strengths that you have, where you need to step up, and what support you can get from housing associations who can offer more, and other business support agencies. 

I'm quite keen to move on. Is there's nothing pressing you want to say, Adrian, I'll move on. 

Very quickly, Chair, regarding local government and how housing associations can gain and understand local suppliers, what we could influence is putting something in the planning. Any planning application that comes in and seeing the scheme through to fruition, there has to be something within that that holds data, and that you must do X, Y and Z, but also, with regards to the local supply chain, why can't the contractor, developers and—. And that goes up to local government then, so they can hold a complete supply chain of how that contract will be, and then is, managed. So, I think it could be key to some kind of planning submission, Chair. I'll leave it at that. 

Thank you, Adrian. Joyce Watson. 

You've already said that you think that procurement expertise in Wales is somehow lacking in local government and other areas, so I don't want to rehearse that. What I want to do is put a question back to both of you very quickly: do you share procurement officers yourselves? Because we've heard now for probably 10 years that you haven't got enough expertise, so if you haven't got enough expertise, the obvious thing that shouts to me is that you ought to share the expertise that you've got whilst waiting to grow the expertise, instead of repeating the mantra. So, does that happen?

If I can perhaps ask Adrian to come in first.

In housing associations, I think that does happen. I think the way housing associations have demonstrated the Can Do toolkit and social return on investment over the last 10 years has been good. I wouldn't say it's great, but it is good. My observation is more so in other areas of public spending—that is, in local authorities and maybe the NHS. That's where maybe skills are now lacking for whatever reason and the resources aren't there. So, if, maybe, there are tools going forward where housing associations can collaborate more—so, with the local authority or NHS—then maybe that's something I totally agree we could look at. How that happens I'm not so sure, and maybe it's another conversation again, but I think shared procurement is one way, but I do think in housing associations, in our area and Steve's area—we do tend to collaborate quite often and share best practice and share resource where needed. And if consultants come in, they tend to be the same consultants in north and south Wales, sharing that expertise as well—

Steve—

It's not so much in housing associations that it's lacking. It's more local authorities. Sorry, Chair.

Absolutely—no problem. Steve.

We could do more, but we are pretty collaborative in how we work. Where there are staff shared across organisations, which is what you might have been alluding to, I think there's probably less of that. Maybe that's something we could do more of. Just to let you know, the work in Blaenau Gwent I was telling you about, we're actually looking at employing a shared enterprise facilitator role that would go across four associations, hot desking with the four associations and the local authority, going out there building links with businesses and then coming back and then particularly making contact with the procuring officers in those teams. So, I think the idea of sharing resources is definitely on the agenda. Whether we've got to sharing procurement staff—it's not there yet, no.

So, how much longer is it going to take? Because I've heard this for 10 years now. 

I think associations do things quite differently. We don't have a procurement officer in our organisation, for example. It is actually the responsibility of everyone who is bringing forward new schemes. So, in a way, it's better for those individuals who own projects to make sure that they are well networked, up to date with best practice, can be confident in what they're doing, and they do that by being part of learning sets and being part of networks with other peers who are facing exactly the same challenges. So, they're always learning from each other to really raise our game. My chief executive isn't going to be looking to appoint a chief procurement officer. It's everyone's bag to do and it's everyone's bag to do better. 

Bethan Sayed.

Just quickly, I wanted to ask Adrian Johnson something from earlier—apologies, but I just want to clarify it. You said you had to go on site every day to make sure that people were keeping up with what you had intended in the contract. I'm just curious as to whether that means that if you don't do that that the contractors will then fall into practices of before, whereby they won't be putting local people on site or they won't be performing the word-by-word letter of the actual contract. Because not on this committee, but I sat on the equalities committee for a while, and we were looking at the fires in high-rise flats, and some of the officers from the council said, 'Unless I sit on Joe Bloggs's company and go to the site every day, then who knows what can be happening.' So, the pressure to go there and monitor that is quite a lot for your organisations, I would imagine. Is that my interpretation, or is that something that I've totally got wrong? I just wanted to clarify that.

I think you're right. I think, in terms of hard-wiring social investment on public spend, that doesn't need to be on a daily basis, in effect, on site. What I mean by operating it live and the 24/7 analogy is that once the contractor is appointed, it's very important then that you do set goals, you set targets, and in every weekly site meeting you've got different members of the team on both the client and the contacting side who are all aware of the goals that they must be achieving. So, as well as quality of workmanship and budget and time and programme, it's the social objectives that that client wishes to put forward, whether they be traineeships, volunteering, work placements, apprenticeships or local supply chain in terms of materials. That needs to be driven in. On a one-year project, a two-year project, a three-year project, as long as you're on top of that and it's on every agenda item and you're meeting every other week, which they should be, on operational site meetings, and then strategic core groups every month, that should be enough, really, to make sure that that is happening. And I don't believe, outside of maybe housing associations and maybe in some housing associations also, that that is happening as such. That doesn't need a procurement officer right at the beginning to put that into the tender; that needs operational people on the ground making sure that that is happening. And I think that may answer the question that I had earlier about, 'Why don't you share procurement practices?' I do think Welsh Government, I do think the likes of CIH and Community Housing Cymru give us enough tools to put into tenders and contracts, but you've got to manage that then from the site managers all the way up to contract managers, all the way up to boards, committees, to be able to report back to the likes of yourselves.

So, just to clarify, why isn't that already happening? What would it take to make this better, so that we don't have these issues arising at all?

I can talk for our own organisation. I think it is happening, and we've demonstrated a lot of best practice over the last 10 years. There are some fantastic figures, I think, in housing associations in general across Wales. It is happening. Do I think it’s happening then in NHS spending, in local authority spend? I can only talk about my experience and what I see. I don’t think that is happening, and a barrier to that is maybe not enough skills or not enough resource in that certain contract. We’re reliant a lot on design and build, then you think you have the contract watertight, the money’s in place, you’ve mitigated risk, you allow the contractor, then, over the border, to come in, do the work—yes, you’ll get a fantastic job at the end, the end result looks great, it’s fit for purpose, which is probably the primary goal of that contractor and client, yet all of the bits then that you could have really driven forward have just not been driven through. And I believe that probably comes down to resource and cost.

Okay. Thanks. We'll pursue it in other areas of the public—

Does that answer your question?

Yes, that's fine.

In the early days of the Can Do toolkit, we definitely knew that there were some contractors that, when they bid for work and were told it’s a core requirement to provide jobs, training and community benefits, they went, ‘Yeah, yeah, yeah’, and had no intention of doing it at all. You pretty soon find out who they are, and what you then do is you pick up the phone and talk to all the other housing associations that that contractor is tendering with and you say, ‘Look, they’re not being serious with us, how are they with you?’ And then you get different stories, and from that perspective, you start to drive—. Because, at the end of the day, it’s a core requirement. If you don’t want to do it, that’s fine—don’t work in Wales.

So, you get the intelligence then from having picked up the phone to X organisation. 

Yes. The best intelligence is from knowing the trainees, the apprentices themselves. Our guys make sure they see them regularly—'How is it for you?' It's the best source of intelligence going.

Okay. Great. And my final question is: you mentioned Preston earlier in terms of best practice—are there any other places in the UK or wider afield in Europe, for example, that are doing this and doing some amazing things that you think Wales must be doing? 

With Karel, I went to Barcelona for a couple of days earlier in the year, and we saw how they were looking at community renewal and urban regeneration. It was very, very interesting and lots of learning there, because they all start at community level there—the public sector supporting initiatives, whether it’s for business start-ups, whether it’s for solidarity projects around childcare or tenant empowerment. If you've got this active stuff going on on the ground, then the challenge is then to come and say to all the people who are investing in those communities, 'How are you going to maximise the opportunity for these groups to flourish?' and it's very interesting indeed. 

Did you make any notes when you were there that we could see, perhaps?

We did, yes, and we've got a couple of YouTube clips, actually. The other thing to flag up is that I was seconded to the Future Generations Commissioner for Wales's office for a year, and in the future generations commissioner's office, she's been working on a project called the Art of the Possible, looking at what 'good' looks like around the seven well-being goals. On the prosperity well-being goal, there's a very good resource around procurement and local economic development, and there are some very good resources in there. We talk about Preston, stuff in Cleveland, Ohio, and the co-operative network of local authorities across the UK. There are some very interesting promising projects there, and some resources. I know they just mentioned we don't need more; there are some good resources out there. 

Another thing about good practice, very quickly, is this idea of participatory budgeting to ensure that what you're doing actually matters to local people. It does strike me that if we could get some more examples of participatory budgeting going in Wales, procurement that flows from that would be more effective. It's what people want, it would be with the support of local residents and communities, and I think we can learn a lot from what's happening in Scotland. I had a good look at Dundee: £1.5 million every year is now being spent on environmental improvements in Dundee by the local authority, and is directly related to what is important to those residents, and something like 10,000 citizens have voted for those initiatives. Once you're on that, once you start with those kinds of foundations, I think the procurement is on a very, very firm base.

That sounds like a really good idea. 

So PB is a place to look at, I think.

Yes. Brilliant.

Thank you. Adrian, is there anything you want—? Did you want a question, Joyce? No. Fine. Adrian, is there anything you wanted to add at all to anything that you said? Because I know it's a bit more difficult for you to come in. Is there any other point that's pressing that you wanted to make?

I think, Chair, just on the question of good practice, it would be remiss of me not to mention our own organisation and Creating Enterprise now, which has just been nominated for the Fast Growth 50 award. We've won an award for the best social enterprise in Wales, and we've only been trading for four years. Why I wanted to say that is we really do believe in the model that we put together in terms of streamlining procurement, making sure that the knowledge transfer in terms of running contracts is now done internally, but that profit that we were giving outside of the country for maybe the first five, six years is now coming back in. We recycle that profit to give those furthest from the job market work-placement opportunities, and you can evolve that company over time to meet Government objectives. So we've now created our own modular-build factory in north Wales in Holyhead, where we're creating modular build now, not just for Cartrefi Conwy but for others. We're on site at Anglesey at the moment, building homes for Anglesey council using local labour, directly employed labour, and also giving a lot of work experience to those furthest from the job market in the town that they're building in, i.e. Holyhead. So, when we talk about best practice, good practice, there is a lot going on in the UK, there's a lot going on in Wales, but I do think the model we've got in Creating Enterprise, in targeting tenants who are unemployed—

Thank you, Adrian. Can I just bring in Bethan to ask one question?

Sorry, I just wanted to understand, and sorry if I should have this already, but would you be able to give us the facts on the repatriation of the finances, if you are now doing more in Wales than you otherwise would have? It would be really good for us to see that repatriation in financial terms.

That's to both of you, but perhaps you could drop a note to the committee team following the meeting. Can I thank you both? Particularly thank you to Adrian in the Assembly's Colwyn Bay office. Sorry if it appeared that we were interrupting sometimes, I think there's just ever such a short delay and it's a bit more difficult with eye contact, so thank you for your patience with us this morning. 

Thank you, Chair. 

And Steve, thank you for your time. This was the first session and it was a real valuable evidence session. So, thank you ever so much for your time. It's very much appreciated. Thank you. 

I appreciate the time. Thank you.

We'll just take a short break, but if I could ask Members to hang on a moment. But we'll take a short break and be back in public session at 12:15.

Okay. I welcome Members back. I move to item 5 and this is our second session with regard to looking at the foundational economy. This is a further session on public procurement. So, we've had one session earlier this morning and I'd be very grateful if our panel could introduce themselves, just for the public record. If I can start from Keith Edwards.

Keith Edwards, a background in housing, an independent consultant, but really interested in driving social values through procurement. 

Karel Williams, Alliance Manchester Business School. I've written a lot on the foundational economy and originally from Llanelli.

Kevin Morgan, dean of engagement at Cardiff University.

Thank you. So, Members have got a range of questions this morning, but I'll perhaps start off with some general questions. The Deputy Minister has said that he's not putting a timescale on the preparation for an enabling plan for the foundational economy, but rather he wants to focus on delivery instead. What's your view on that, and any opening comments you want to make? Karel.

I think the short answer is 'yes', if the procurement effort, the delivery, is focused and particularly focused on the idea of growing capable, grounded firms, and not distracted by counting invoices and postcode localism.

Okay.

I would agree as well with the general sort of sentiment, if you like. But I also think that we need to work at the issue from both ends at the same time. So, we need to be developing a very robust framework that supports rolling this out across Government, if you like, but at the same time support practice models. That's why I'm really pleased that the Minister launched the challenge fund, which I think is shortly to be announced, because we need some practice as well. 

I think there's merit in that, because the novelty of the foundational economy is so high that it wouldn't make sense to set very strict, rigid timescales. And, as Keith says, the key thing is to have a robust framework and to engage with practice, because there's so little real knowledge out there in our communities as to how to design and deliver projects, as we'll go on to discuss, I'm sure. 

Right, we'll come on to some specific questions, then. Vikki Howells.

Thank you, Chair. I'm interested in the Can Do toolkit and what it's achieved in the housing sector. So, firstly, would anybody like to provide some specific examples of the way in which the Can Do toolkit has been able to increase local spend while working within the EU procurement framework?

I won't ask you all to answer that question, if one or two of you want to answer it. Keith Edwards. 

Obviously, I'll come back on the issues. I suppose, as a general point, contextually, as I know we've given you a lot of information, in a way, the environment was ripe within housing to do something like this. We had a massive WHQS, Welsh housing quality standard, programme. We felt that there was quite a conservative approach to procurement and we established what we called 'the double default', which is that you hard-wire into the procurement process the community benefits and social value stuff; you don't have it as an add-on that can be negotiated away. And you also ask for jobs and training to be a key outcome. So the outcomes, primarily, that we know about are around jobs and training and, to a certain extent, local supply chain development as well.

So, just on the first point, very quickly, the i2i project, which developed the toolkits, which I was responsible for, between 2009 and 2014, estimated that something like 5,130 jobs and training opportunities had been created through applying the Can Do toolkits to contracts. And also, particularly in rural areas, but not exclusively in rural areas, there was a great emphasis on offering lots to smaller enterprises so that they could actually take up opportunities and deliver the main programme via that route. And, again, there's evidence that that happened in places like, for example, Ceredigion, where rather than go to a lead contractor, the local supply chain developed and was able to take a much more active role in delivering the programme.

Great. Thank you. And any thoughts from anyone on the extent to which these principles could apply, or do apply at the moment, across other sectors?

I think the short answer—and I think Keith is the expert—is they haven't been sufficiently applied in other sectors, because, in a way, Keith adopted the principle of a smart capitalist firm. And the smart capitalist firm considers legal advice on how far it can go, what opportunities it can find within a framework of regulation and law, whereas I think, in too many other sectors, people use the framework of regulation and law in procurement as an excuse for not getting involved. Although, of course, that's also tied in with the under-resourcing of local procurement, which is a theme, I think, that Kevin can develop. 

Do you want me to develop it now?

If you can develop it briefly, that would be fantastic. [Laughter.]

Very briefly, I would go so far as to say that the single most important aspect of the Can Do toolkit and public procurement generally in Wales is the poor resourcing of it. So, we suffer from a chronic skills deficit—

I know somebody's going to ask questions on this later, so is it all right if I pause you on that?

Well, let me just flag up, then, that the procurement capability in Wales is the biggest single issue. Let me put it baldly like that, and then we can discuss it in more detail.

Could I just give almost a Twitter answer to the question? The short answer is: there is no reason why this couldn't be applied across the piece, but I do think it takes that central drive from Government to make it happen. 

Thank you. Karel, you've said that it's only in the Welsh housing sector that the toolkit has been widely adopted. Why is that the case?

Because you had a key trade body, a non-governmental organisation, under Keith, that was pushing it. And you also had, on the supply side, progressive registered social landlords who were interested in taking it forward, because that I think is the other side. Kevin is quite rightly emphasising the immediate roadblock of under-resourced procurement in local government and public authorities, but you also need a responsive supply side that shouldn't be taken for granted. That means you need to connect procurement reform with business support and mentoring. 

Thank you. One final question from me. There seems to be a move within the Welsh Government now to focus more on spreading and scaling best practice. What are the key lessons that you think could be taken from the Can Do toolkit experience, so that we can spread and scale best practice across the public sector?  

Kevin's done a lot of thinking and a lot of writing around how best practice needs to be developed and spread. From my perspective, it was quite easy within the housing sector because there was an alignment of interest across the sector in delivering the social, economic and environmental outcomes. So, anybody who was doing work in that area, people were receptive to learning from it and, of course, you've got a very active trade body in Community Housing Cymru that was very good at linking people up to make sure that that practice was shared. 

I would say you've identified another key problem, not just of procurement, but of public sector innovation more generally: the fact that leaders and laggards live check by jowl with each other in Wales, and one of the key challenges for us, and which we've failed to meet in the first 20 years of devolution, is how to spread good practice. We've often said from our own work on food procurement, for example, that good practice is a bad traveller, and we need to understand why that is, because unwarranted variability in the public sector is a key challenge for us, and we've never really got to grips with it. 

Okay, thank you very much. 

Oscar Asghar. 

Thank you very much, Chair. A couple of questions to the panel. With the Welsh Government’s intended approach to increasing the amount of local procurement undertaken by the public sector in Wales, what are your views on how the principles of sustainable and ethical procurement, and the statutory goals set by the Well-Being of Future Generations (Wales) Act 2015, are currently being applied by Welsh public bodies?  

I'm sure the committee will be aware that the Future Generations Commissioner for Wales is currently conducting an inquiry under section 20 of the Act into procurement and the foundational economy. Sorry, it's procurement and the extent to which the well-being goals and the ways of working are embedded in public sector procurement. It follows on from the Wales Audit Office report of a few years ago. My personal view is that I think the Act and the commissioner's office provide a framework and a means of measuring and making sure that we embed this approach across the whole of public sector procurement. 

I think the Act is aspirational, but we're starting from a very low level if you look at the actual level of procurement. And therefore, I think one of the messages that I think the other two panellists would agree with—and people like Steve Cranston would also press, I think—is that as we're starting from a low level, we should concentrate on strategic sectors and activities—care, construction, food—and also on some interesting experiments like demand aggregation or the supply of local services, all of which could be put in the mix so that we're not, in a sense, trying to raise the level of all procurement, but to get significant change in strategic areas from the current low level towards the aspirational. 

Thank you very much. Professor, directly to you now, because you mention in your evidence that localising supply is a 'dubious objective'. That is what you wrote in your statement. What would you want to see in the Welsh Government's forthcoming new procurement strategy document with regard to local procurement?

I think simply localising supply, stopping leakage, makes sense if you have a large national economy, but it doesn't make a lot of sense if you have a small economy and relatively long supply chains. For example, almost all the manufacturing supply chains in Wales are long distance. So, I think you’ve got to concentrate on the areas where there are strategic opportunities, which are mainly service areas. And I think that this kind of focus, rather than simply concentrating on localism, and the past of Welsh Government, which has involved counting invoices, which come both from local SMEs and from local branches of national chains—. Now, buying in Asda or Kwik Fit tyres, or whatever, doesn’t do very much for the local economy and shouldn’t be included in measures of localisation.

All right. Thank you very much.

Because there's a Kwik Fit in Llanelli, for example. Is that what you're saying? Just to clarify.

Yes, because if you buy from a local branch of a national chain, in traditional Welsh—. Look, back in 2013-14, Welsh Government was announcing that they’d increased the percentage of procurement in Wales from 34 per cent to 52 per cent, and it was a huge achievement. When we asked the procurement people, ‘How are you measuring this?’, they said, ‘We are counting the invoices that are Welsh.’ As I understood it, that meant that Kwik Fit in Llanelli counts as local, whereas the share of the value added in the tyre that you capture in buying the tyre from Kwik Fit is fractional. That’s why localisation in itself doesn’t make sense.

I suspect that's your question answered.

Yes.