Y Pwyllgor Cyfrifon Cyhoeddus - Y Bumed Senedd

Public Accounts Committee - Fifth Senedd

03/02/2020

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Delyth Jewell
Gareth Bennett
Jenny Rathbone
Mohammad Asghar
Nick Ramsay Cadeirydd y Pwyllgor
Committee Chair
Rhianon Passmore

Y rhai eraill a oedd yn bresennol

Others in Attendance

Adrian Crompton Archwilydd Cyffredinol Cymru, Swyddfa Archwilio Cymru
Auditor General for Wales, Wales Audit Office
David Richards Cyfarwyddwr Llywodraethiant a Moeseg, Llywodraeth Cymru
Director of Governance and Ethics, Welsh Government
Dr Andrew Goodall Cyfarwyddwr Cyffredinol Iechyd a Gwasanaethau Cymdeithasol a Phrif Weithredwr GIG Cymru, Llywodraeth Cymru
Director General of Health and NHS Chief Executive, Welsh Government
Mike Usher Swyddfa Archwilio Cymru
Wales Audit Office
Shan Morgan Ysgrifennydd Parhaol, Llywodraeth Cymru
Permanent Secretary, Welsh Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Claire Griffiths Dirprwy Glerc
Deputy Clerk
Fay Bowen Clerc
Clerk

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd y cyfarfod am 13:16.

The meeting began at 13:16.

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

Can I welcome Members to this afternoon's meeting of the Public Accounts Committee? I also welcome our witnesses. Can I pay particular attention to welcoming Delyth Jewell, who I believe was here last week subbing, but you are now here in your own right as a fully fledged member of the committee? So, welcome to the committee, and thanks for being with us. I should point out you've replaced Adam Price. We've received apologies today from Vikki Howells. Headsets are available as usual for translation and amplification. Please ensure any phones are on silent. In an emergency, follow the ushers. Do Members have any declarations of interest they would like to make at the start? No, okay.

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

Item 2, before we get on to our substantive item today. Item 2.1: the Welsh Government's youth discounted bus fare scheme, MyTravelPass. The Welsh Government have provided further clarification on the number of 19 to 21-year-olds holding MyTravelPasses and the Welsh Government's approach to the marketing of the scheme. The response appears to address the previous issues raised by the committee, but also highlights the fact that the Welsh Government hasn't had a firm grasp on the data on the uptake of passes, which may raise questions about whether they have a grip on the data on the usage upon which repayment is based. I'd also point out that Student Finance Wales is not listed amongst the Welsh Government's marketing activities, as it might have made sense to promote MyTravelPass through that mechanism too. Do Members have any comments they'd like to make on MyTravelPass? No. Auditor general, did you want to add anything? So, if Members can note that letter, I'm minded to accept the points that have been made by the Welsh Government for now. We can return to this again, if at all appropriate. But I think, for now, it's fine. Okay. Good.

We've also got the Welsh Government financial support for business, and a letter from the Welsh Government on 23 January—that's pack page 7—in response to the committee's recent correspondence highlighting its concerns about the Welsh Government's financial support for business and requesting a full response by the summer term. The Welsh Government has written stating it will provide a full written response by 12 June 2020, and the committee is set to take oral evidence on this matter from the Welsh Government on 29 June. So, if we can note that letter.

3. Cyfarwyddyd Gweinidogol - Trefniadau pensiwn y GIG ar gyfer 2019-20: Sesiwn dystiolaeth gyda Llywodraeth Cymru
3. Ministerial Direction - NHS pension arrangements for 2019-20: Evidence Session with the Welsh Government

Item 3: the ministerial direction on NHS pension arrangements for 2019-20, and our evidence session with the Welsh Government. Welcome to our witnesses. Would you like to give your name and position for the Record of Proceedings?

Shan Morgan, Permanent Secretary for the Welsh Government.

Andrew Goodall. I'm the NHS Wales chief executive and director general. Chair, if I could also just declare an interest? I am an NHS employee, I'm seconded to Welsh Government, therefore, the NHS pension scheme applies to me. Although, not this particular flexibility or the direction.

Thank you.

David Richards, director of governance and ethics with the Welsh Government.

Great, thank you for being with us today. We've got a number of questions for you on this area. I'll kick off with the first few. This is the first time—it's a historic first—since devolution in 1999, I think I'm right in saying, that a ministerial direction has been issued. So, these are clearly quite exceptional circumstances. Permanent Secretary, why did you think it necessary to seek this formal direction from the First Minister?

13:20

Chair, as you said, this is a first. It's also a first for me. It's the first experience I've ever had personally of a ministerial direction, not just in the three years that I've been Permanent Secretary here, but previously. These things don't happen very often. I've certainly not, in this job, had to consider requesting one before. So, I took the whole process very seriously. 

It started out with us getting information from health boards through to Welsh Government officials that suggested that there was a risk of appointments and operations being delayed because senior consultants were not willing to work beyond their contracted hours, as that could trigger for them a very substantial tax liability. Obviously, that liability, as I think is well known, has been caused by successive pension tax policy changes brought about by HM Treasury. We knew that NHS England had experienced a very similar situation. There's been a lot of coverage in the media, publicised by the British Medical Association, who were very concerned.

In order to minimise any risks to service delivery during the very difficult winter period, NHS England agreed a special arrangement to refund any reduction in pension for tax charges that were incurred by consultants during the current financial year. Now, neither the NHS pension scheme nor pension tax, obviously, are devolved, so the Welsh Government wasn't able to make any changes or amendments to the underpinning pension tax arrangements that have caused the problem. Scotland and Northern Ireland have their own NHS pension scheme, so they're in a different situation. Although we know that HM Treasury has committed to undertake a review of these pension tax arrangements, it's clear that that review isn't going to conclude for quite some time, probably in time for the budget in March. Meanwhile, obviously, we're facing a very difficult time of year. 

So, colleagues looked at all the policy options and basically concluded that the Welsh Government had to take similar action to NHS England. If we had not done that, there would have been a very high risk of increasing pressures on NHS service delivery in Wales at the most difficult time of the year. And, if we had not followed what was done in NHS England, it was very clear that Welsh doctors would have been at a very strong disadvantage compared with their English counterparts. Some, indeed, might have opted to work in the English system. 

There was a fear of them crossing the border, wasn't there? There was a fear of them working in England.

That's right. So, it was an important issue. When we looked very carefully at the mechanism that had been used to introduce this new policy solution in England, it became clear that they had decided to take it forward through a ministerial direction because the arrangements raised a question about regularity of spend, even though the arrangements had actually been agreed with HM Treasury in England. Now, obviously, my top priority as principal accounting officer is that I have to assure the regularity, propriety, value for money, and feasibility of all planned expenditure by the Welsh Government, and I have to be able to assure the National Assembly—

Just to be clear, technically, on that point, it's you as Permanent Secretary in Wales who does that. 

That's right. 

Unlike in England, in Westminster, where it would be your equivalent or—

Yes, it's a slightly different system here. The difference between the English system and the Welsh system is that it's me as Permanent Secretary, as principal accounting officer, engaging directly with the First Minister. So, it was the First Minister who had to issue the direction. I think that's the key difference between the English and Welsh system, but my colleagues might say a bit more about that later on.

So, given that task, I have to be very clear about what my responsibilities are. They're set out in this document, 'Managing Welsh Public Money', and there's also a memorandum for the principal accounting officer of Welsh Ministers, which is issued to me by the head of the Treasury when I take up the job. And they both make it very, very clear that a ministerial direction is required if there is an issue of regularity. What does 'regularity' mean? It means ensuring that expenditure is within legal powers, and it complies with parliamentary authority, including the various budget ambits.

So, in this case, I asked for a direction on the basis of regularity, as the proposal conflicted with what's set out here in 'Managing Welsh Public Money' in relation to—

13:25

Just to come in on that point, because it's a very important point you've made. The previous 60 or so directions, I think, that have been made elsewhere in the UK since—was it 2017?

Yes, 2017. So, that's usually when there's a disagreement between the accounting officer and a Minister, and the Minister can overrule, but that's not the reason for this direction, is it?

Not at all. In fact, letters of ministerial directions can be triggered by a variety of different things. I think it's fair to say each case is unique. There were, in England, for example, a series of letters of direction within the last few years to provide political authorisation for anticipated expenditure on Brexit. So, they are triggered by a variety of situations. Chair, you're absolutely right that, in this case, there is absolutely no conflict with Welsh Ministers. It's simply that this document sets out very clear messages about what we have to do in relation to potential tax planning, which is what that scheme in England risked being categorised as. So, we felt that given the changes that have been made in England, for which a ministerial direction was issued, we had no option but to follow suit in Wales. 

So, my final question to you before I bring in other members of the committee: given this type of direction—although the reasons behind this direction are different to the reasons behind previous directions, albeit in the UK, and albeit accepted that many of those have different reasons—what process did you go through? This is at the heart of why you're in front of this committee today. We're looking at the value for money. What processes did you go through in weighing up that this was the correct way to go for Wales? How can you be confident and how confident are you that the taxpayer will be getting the value for money from the line that you've gone down in terms of issuing this direction, and not perhaps going down a different route in Wales?

I think the primary issue that I considered, and colleagues in the health and social care group considered, was the potential risk to healthcare delivery in Wales, and that overrode all other considerations. We could not afford any decisions by clinicians not to undertake the additional hours, which we depend on very heavily at this time of year. But they were clearly making those choices to avoid triggering really punitive tax liabilities. So, that was our primary consideration, making sure that Welsh doctors and Welsh patients were not put at a disadvantage by what was happening in England. Just to give some figures, and I'm sure Andrew will expand on that—

I didn't actually ask you for any figures, did I? But that's a good idea. That was an oversight. [Laughter.]

Okay. Well, I've just got a few that I'll give at this stage, but I think Andrew will be able to give more detail. We got information from health boards that suggested that, between April and December last year, nearly 27,000 patients were affected by loss the of out-patient, diagnostic, in-patient, or day care sessions. So, we could see a very high risk of disruption to NHS service delivery at a particularly risky time of year. So, the Minister for Health and Social Care—

13:30

And would that have had an associated cost down the line? Would that be a point that you'd be making, that there would be knock-on financial consequences? 

There would be financial consequences, but I think the overriding consequence would be impact on patients. I wonder, Andrew, do you want to elaborate on that?

Yes, just on that issue. Potentially—as, for example, a waiting list grows—we have to deploy extra sessions in the future in order to be able to recover the waiting list to improve it again. Potentially, some of the sources by which we do that—if we're not able to have our existing core medical staff doing it, you could be reliant on outsourcing work, for example, to other providers, you could be relying on locums coming in—that could be at a higher cost, actually, than using your core medical staff. So, there is a prospective cost that would be a concern at the moment, as you try to recover a position, because clearly we have a responsibility to ensure patients are treated. 

Okay. I'm going to bring other Members in now. Mohammad Asghar. 

Thank you, Chair. Good afternoon to you. My question's regarding scope and timing of the ministerial direction. Only NHS clinical staff are being allowed to benefit from this preferential tax treatment. What are the reasons for that, Permanent Secretary?

The reason is that the majority of public sector workers, including civil servants, have a fixed salary, so our tax liabilities are actually predictable and we can plan ahead. That isn't the case for clinicians. They've been particularly affected by these recent tax changes to the lifetime allowance and the tapering when they take on additional unplanned and, to that extent, unpredictable duties, to make sure that we can continue to provide the right service in the NHS, particularly over the winter period.

So, it's an incredibly complex system. It would be very difficult for an individual doctor to work out which shift or how many shifts would push them over the cliff edge of liability to additional tax. So, they had been declining to take that risk at all, so that's what we had been seeing, and that's why we'd seen changes in provision in the service.

Obviously, these kinds of tax pension rules apply across the whole public sector where they have that kind of scheme, but it is a particular issue in the NHS, where we rely on those additional shifts being undertaken by clinicians. So, they—clinicians in the NHS—are in a very different situation to others of us in the public sector, and we are very dependent upon them choosing to take up those additional hours. 

Thank you. I think you've partly answered my question, but what about other members of NHS pension schemes, or indeed other public sector workers across Wales, who may see this as a precedent with significant benefits that should be extended to them as well?

I think we are simply clear that the NHS clinicians are in a unique system. They are uniquely disadvantaged by their salary arrangements and their risk of falling off that cliff edge without actually being able to predict it in advance. It's that predictability that is particularly difficult. They could find that they'd taken on an extra shift and unexpectedly accrued that tax liability. And then they, I believe, are liable across the whole of their pension contributions. So, these sums can be very significant indeed, and we've seen the impacts. So, we would argue that they are in a very different position from others. Of course, as I said earlier, the Treasury is conducting a review of these arrangements to see what the impact is more widely. We simply felt that we had to take urgent action in relation to NHS clinicians in Wales because of the timing of the reaction to these changes.

13:35

Just also to comment, Chair, it's also important to say that, obviously, we have taken the lead and been influenced by the decision that's been taken on behalf of NHS England. So, irrespective of broadening things out, DHSC do have a responsibility to administer and oversee the England-and-Wales pension scheme. A lot of our decision making has been driven by making sure, as the Permanent Secretary has outlined, not to have any disadvantage in here. The English decision to do a 'scheme pays' arrangement was about clinical staff, so we were aligning ourselves with the decision that had been made in the NHS England system, which was to be equivalent, given it's an England-and-Wales system as well. So, that was the other context.

I just wanted to pursue this idea that NHS clinicians are disadvantaged. I think NHS doctors, once they're fully qualified, are very well paid. So, 'disadvantaged financially' isn't something I would normally associate with them. So, I just want to probe why it is we're giving a special arrangement to mainly doctors, as far as I understand, because I'm sure social workers face similar pressures in terms of winter pressures et cetera, but because their pay is lower, presumably, this doesn't apply. So, we're talking about people who are very well remunerated. I just wondered why we are using such a—. I can see the short-term problem that's been created by the UK Government's original policy decision not having been thought through, but you can see how there's an ethical problem here, that some people should be given tax advantages that others don't get, just because of who they are and what they're doing.

I'll ask Andrew to give more comment, but I think our Ministers have been unequivocal in setting out that they do not believe this is the right kind of solution for the future. This is very much a short-term response to a situation created by the UK Government and by HM Treasury. This is not where we would want to be, certainly, and I think both the health Minister and the First Minister have made that absolutely clear. So, I think they would, I'm sure, accept your points, but we're faced with a very difficult situation at the most demanding time of the year, which is why I think the NHS had to take a pragmatic response and make sure that we lined up with what the UK was doing and not disadvantage our own doctors and patients. Andrew, is there anything that you would add?

Indeed, yes. Ministers have been very clear. In fact, the Welsh Government's participation in the consultation is clear on making sure that this extends beyond just doctors only or clinical staff only, so there is a much broader take.

But the key issue here is the way in which the NHS has operated over many years. It's been reliant on teams and staff—and this includes those at the most senior level—stepping in, doing extra sessions. Sometimes, it'll be to cover unexpected leave and, sometimes, it'll simply be because of the pressure and the demand within the system. So, there's been a history of medical staff always doing additional sessions within the system—and not just always at the most senior level, but actually doctors in general terms—to maintain rotas.

Back in the spring of last year, because of the problems that had been experienced in the previous two tax years, we were just hearing across the UK of problems about clinicians therefore starting to decide that they were not going to participate in the same way. So, we had evidence and examples—both in Wales but also across the UK—of individuals choosing to no longer participate in some of the extra sessions happening. And whilst that might affect planned areas such as doing waiting-list initiatives, it was actually meaning that some services were becoming more fragile, because actually they were unable to run the rotas that were expected, because people were actually withdrawing themselves from there.

We've also had an impact of individuals deciding that they were going to have less sessions that they would commit to into the year, so basically a request to change their contract. Although a lot of the focus here can be about the hospital system, we were hearing a number of examples of GPs actually reducing their time commitments as well, in order to be within the parameters of the pension scheme. And in particular, and this is a real worry—and has been emphasised by evidence that we've had both from the BMA but also, I don't know whether you've seen the correspondence or not, the Academy of Medical Royal Colleges for the UK have actually done a really useful analysis of impact across the UK—actually seeing senior doctors and those within these thresholds choosing no longer to be part of educational activities, which is about training the doctors of the future, or indeed participating in leadership activities because, effectively, they have to reduce their sessional commitments to manage that within these parameters.

So, there was an enormous knock-on effect on all of those areas. Some of them are about our leaders of the future, I accept, but some of them are actually about leading to fragility within our services and an inability to deliver services on a safe and sustainable basis.

13:40

Okay. So, this could be a bit of a wake-up call about the way we currently run the NHS because the 48-hour working directive is clearly not being adhered to.

Indeed. And whilst I know the direction is about 2019-20 and this immediate issue, there are, however, broader and longer term issues that will need to be worked through here. This is only a direction that applies to the end of March 2020.

Thanks, Chair. I know you said that you needed to follow what was happening in England first, but there is a question about timing, because the UK Government issued their ministerial direction on 22 November, but the First Minister's direction wasn't issued until 18 December. And you, Shan, actually, I believe, formally requested that earlier the same day. So, I just wondered why was there the four-week time gap between the two directions?

Our officials had been working closely with UK Government officials on the challenges that we realised that the UK Treasury tax changes would bring about for NHS service delivery, but we in Wales were not aware of the final scheme planned for NHS England until it was actually finally announced. So, after the announcement of that new scheme in England, our officials moved very quickly, I believe, to advise Ministers on what the policy options could be for Wales, looking across all of the options and how we could best mitigate the tax changes and their impact on operational delivery in NHS Wales as quickly as possible. So, given that there are important legal and structural differences between England and Wales, we needed to get proper legal and governance advice to cover both the policy implementation as well as the process of securing a ministerial direction. And, of course, we needed as well to work very closely with NHS employers in Wales and with British Medical Association Cymru on guidance for how the scheme would actually operate in Wales. So, there is actually a lot to get right. I think the process had to be a balance of rigorous and proper whilst at the same time responding as quickly as possible to the operational demand in the NHS. I feel, having looked at what happened, confident that the staff of the Welsh Government acted properly and that they took swift and effective action to deal with a difficult situation at a difficult time of year.

One thing I should add, of course, perhaps, is that the English scheme was being developed during the pre-electoral period, so whether that had any impact on consultation with us, I don't know. But our health Minister has had a letter from Matt Hancock that acknowledges that the Welsh Government was not given prior warning of the announcement, and I think the rest follows from that. We obviously couldn't just implement automatically what had been decided for NHS England. We had to look to make sure that we were confident that it—

It was 22 November, wasn't it, the letter of direction?

Yes, 18 November was when the media statement was made about England's intentions to use the 'scheme pays' initiative.

And that was the first that you'd been made aware that—[Inaudible.]

So, we had to respond. As the Permanent Secretary said earlier, over recent months, of course, we have been working closely with officials on the general principles of the taxation scheme, but in terms of the announcement, we were responding to the announcement being put into the public domain on 18 November.

Had you, just hypothetically, actually received more notice of the type that would've been helpful to you, would you have taken—I was going to say 'a different direction', but that's too confusing—might you have taken a different route?

13:45

We might have been able to implement it faster if we'd had more notice. I feel that all the proper steps were gone through and it took that amount of time, perfectly correctly, to make sure that we were being rigorous. If we'd known beforehand, we could have started some of those steps earlier. I have to say that our engagement with the Department of Health and Social Care in Whitehall is normally very good indeed, and so I think this was a relatively unusual situation to be in.

We rely on them for their expertise and their operational oversight and administration of the shared England-and-Wales scheme, so, clearly, we have to liaise with them on a lot of detail on a regular basis.

Thanks. You were giving reasons earlier as to why this preferential tax treatment had to be done. Obviously, it's not a course of action that—it's not great, is it? It's not something that you would want to use, but it needed to be used in that way, as you see it. But there is also guidance called 'Managing Welsh Public Money', and that states that

'Public sector organisations should not engage in...tax evasion, tax avoidance or tax planning.'

Now, this situation that's arisen certainly seems to amount to tax planning and could, perhaps, be viewed as the Welsh Government and NHS Wales engaging in tax avoidance. So, under these arrangements, which will benefit the clinicians and hold them harmless from pension tax charges associated with the additional income that they're getting from the extra shifts—so, they will be held harmless from these tax changes that have been brought in. So, is the Welsh Government, therefore, in danger of contravening the requirements of 'Managing Welsh Public Money' and if it is possibly contravening these requirements, what are the implications of that?

You're absolutely right to identify that part of 'Managing Welsh Public Money' as the trigger for the action that we took. It sets out very clearly my responsibilities, which I referred to earlier, in monitoring regularity, propriety, value for money and feasibility. There is also a memorandum for the principal accounting officer that is issued by Treasury, which sets out more detail in some areas. Both of those make it absolutely clear that if we believe there is an issue of regularity, as you suggest, we require a ministerial direction, which means making sure that the expenditure is within legal powers and compliant with parliamentary authority.

So, in this instance, because it was very clear in 'Managing Welsh Public Money' and in the memorandum that there was an issue of regularity, I asked for a direction from the First Minister, as the proposal, as you suggest, does conflict with that part of 'Managing Welsh Public Money'. Ministers, of course, have a different set of responsibilities and perspectives, which is why the First Minister was able to issue a letter of direction to me. He made it very clear in that that he has fundamental concerns about the approach taken by NHS England, and, as I said before, we'd see this very much as a short-term, rather than a long-term solution, but are equally clear that Wales must not be put at a disadvantage and deny to our doctors arrangements that are available just over the border.

So, you are right in what you suggest about the message in managing public money. I have complied with my responsibilities as principal accounting officer by seeking a direction on this matter from the First Minister. Then, of course, the audit assessment of whether the expenditure is irregular will be a matter for the Auditor General for Wales when he comes to audit the Welsh Government accounts for 2019-20. But I have complied fully with the requirements in the Treasury memorandum and 'Managing Welsh Public Money'.

13:50

Thank you. Just going back slightly with regard to the period, in a sense, of notice around this, which seems extremely short, you've already asked what, potentially, we could have done better but has there been any discussion as to how NHS England could have communicated this far better, because without doubt, as far as I can see, they have put us in Wales in a very difficult position around this. As you say, it's a short-term mitigation. 

If I may just say one more little point: with regard to the consultation in April around a permanent solution, rather than this messy mitigation, have we heard anything around that?

I'll answer part of that and ask Andrew to answer the point on the consultation. We are carrying out a lessons learned exercise. As we said right at the beginning, this is the first instance of a ministerial direction in Wales. We need to make absolutely clear that we complied with everything and that the processes that we have to put in place are properly rigorous. There will, in that lessons learned exercise, be some messages to colleagues in Whitehall, which I will convey. I've already written to my counterpart in the Department of Health and Social Care. As I said at the beginning, though, we do normally have a very good relationship with them. We have to, because of so many cross-border issues and the fact that this pension scheme is a joint English and Welsh one. But there are undoubtedly lessons about prompt communication that we didn't, in this case, receive. 

Andrew, do you want to say anything about the consultation?

Yes. As the Permanent Secretary said, it would have just been an unusual context. England remain able to still make their decisions about a scheme that is England-and-Wales, of course. And just to give the balance of how the scheme works, 94 per cent of it is England and 6 per cent of it is Wales, so you can understand, in the pre-election process, that that would have felt rather unusual, maybe, about some of that process.

On the consultation, there have been a couple of starts to a consultation that occurred through this financial year. The consultation that we're currently awaiting the outcome of was initiated in September. Alongside, I know, many responses that have been made across England and Wales, not least from a number of stakeholders and representatives, we as Welsh Government have had the chance to engage with that at this stage. We are expecting that there'll be some likely announcements on outcomes of that consultation process, but probably not until at the earliest March. I would suggest it would be more associated with other budget decisions that will be made as part of the UK budget mechanism. So, we are expecting, at least, to get to an end point where, perhaps, the way forward, particularly for future years but certainly for 2020-21 would become a bit clearer. So, we will expect to be engaging with DHSC officials on those likely outcomes, but it will be linked to some of the HM Treasury announcements that will be made, we would expect, as part of the budget process.

I just want to go back to the hymn sheet, 'Managing Welsh Public Money', which I can see you've got a well-thumbed copy of. [Laughter.] Referring once again to paragraph 5.6.1, which is the one that Gareth Bennett was quoting from, it also states in the final sentence:

'It should be standard practice to consult HM Revenue and Customs (HMRC) about transactions involving non-standard approaches to tax before going ahead.'

In your letter requesting the direction, you don't actually tell us whether you consulted them, although I can see they'd be on a sticky wicket, given that England had already gone ahead with it. Did you talk to them about this, something that is clearly an artificial tax avoidance scheme—we can all agree that, it's just that we are where we are?

Well, HMRC have already confirmed directly to NHS employers that, under current tax law, if all tax and national insurance contributions are paid at the time that it's due, it is actually perfectly legitimate for an NHS employer to make a payment of the sort that we're talking about here. And, given that the NHS pension scheme is a joint England-and-Wales scheme, we felt that there was no point in asking HMRC, for a second time, particularly given the issue that we've just discussed—the shortage of time in being able to take this forward at a very demanding time of year.

So, our officials have discussed with the Department of Health and Social Care, and with HM Treasury. We talked about approaching HMRC separately for advice on what we were planning. They confirmed to our officials that HMRC would not advise on the policy proposals, as they couldn't advise—their remit doesn't allow them to advise on setting up employer schemes like this. So, we rely on the assurances that have already been secured in England. The Department of Health and Social Care and NHS England took legal advice on the scheme and the tax implications, and, obviously, our scheme is the exact mirror of arrangements in England. And our officials have confirmed, as part of this process of establishing what the policy options might be, and whether a ministerial direction was required, they established that proper legal advice had been taken in England on the policy proposals.

So, it was not necessary to approach HMRC separately, and neither did it seem appropriate to take separate legal advice from the legal advice that we knew had already been given to the UK Government, to the NHS. It would simply have delayed the implementation process further.

So, basically, we had all the assurance we needed through the assurances that had been given to NHS England. We did not have separate assurances ourselves, on the basis of the advice that we received from Treasury, and DHSC colleagues in London. They said 'There is no point in doing that; you will not get it from HMRC', and we accepted that advice, and on the basis that we had all the assurances that were necessary to take it forward, and we needed to implement the thing swiftly. Andrew, have I left anything out?

13:55

The only thing I would say is, irrespective of this particular issue, of course, we're reliant on DHSC for the range of legal advice that occurs for any changes that are happening around the administration of the pension scheme. So, whilst I know the direction itself becomes unique, and, of course, we've had to review our own governance and work our way through that, we wouldn't open up our own advice for a range of other factors that happen in terms of how the administration scheme has occurred over many years. They are the lead agency on our behalf, and they will liaise with HM Treasury on our behalf on those issues as well.

Okay. Two things arise from those answers. One is that, potentially, you ought to revise 5.6.1, because if the HMRC never gives advice on policy issues, about transactions, schemes that you might want to implement in the future, then it doesn't feel as if they're the right people to consult, because they're not going to give you policy answers. That's one. But the other is that there is also a danger of groupthink here, because, supposing the controller general for English expenditure, or whatever that person's called, was to decide that this was not an appropriate use of public money, Wales would be caught in that poor policy decision taken by NHS England. So, there are risks involved. I appreciate that legal advice is extremely expensive, and asking barrister 1 doesn't necessarily—it isn't helpful asking barrister 2 to give you exactly the same information. 

If I can just go back to the HMRC point, we are, in the lessons-learned exercise, going to be looking at whether we need to amend the 'Managing Welsh Public Money' document. But, in that case, of course, the NHS pension scheme is a joint one. We could, in other situations, be talking about some kind of initiative or programme, or whatever that was Wales-only, in which case we would have to—. So, we may need to amend that, but something like that needs to remain there as a reminder of what we have to do in certain kinds of circumstances. But I think the risks are there, but our process of going through both the policy options and the mechanism for implementing it has tried to take out as many of those risks—

14:00

The risks that Ms Rathbone was saying about whether or not we should follow the legal advice of the English department.

Well, I'm just saying that it could be that the English equivalent of the auditor general could decide that this was not an appropriate course of action. We can't say. I'm just probing. That is a possibility that this would be considered an inappropriate use of public money, because it's hard to not see it as a tax planning arrangement if not a tax avoidance arrangement. So, that was what I was just trying to probe: that the English Department of Health and Social Care may have got it wrong too, and therefore, we'll then get—

But that would be a decision—. The Welsh Government's decision, of course, wouldn't be subject to the English auditor general—UK auditor general.

No, indeed, and it is one pension system, so we're locked into that, in any case. Anyway, I think we've probably gone as far as we can on this one. So, just moving on, really, or, if you like, coming back to the way in which the UK Government decided to implement the 'scheme pays' solution. You've already told us that you heard about it in the press on November 18. Is there anything further that you want to add about the way in which—? You shouldn't be hearing about it in the press. Surely, your colleagues in England should be picking up the phone and saying, 'We're thinking of implementing this because of the perverse consequences of the very poor policy decision by the Chancellor of the Exchequer, without having seen the perverse consequences in advance'. Is there anything you want to add on this, given that that's not the way it should be happening, clearly? 

I'm sure, in normal circumstances, that would apply, and I would certainly expect, going forward at the moment with the implications of any changes, that we'll be in very close liaison and I'm sure that that will continue to occur. It was not ideal to have to respond in that way because we could have prepared differently.

It was also a factor that, at the time, would have affected the ministerial advice that we put up, because the ministerial advice was trying to get clarity on the policy intention to make sure that we were going to align to the approach that had been put in place in England. So, whilst we were aware of the 'scheme pays' issue and we were able to have some general conversations with DHSC officials, what I would say is that it was not until 27 November when we were actually aware that the NHS England system was actually going to be making the mechanics work in practice through a direction. We found out on the twenty-seventh, and there was then a discussion that took place with DHSC staff on that, and, obviously, the Minister had already given an indication that he was prepared to look at the financial flexibility that would be needed for the future and wanted to ensure that there would be no detriment to Welsh clinical staff in that way. So, probably I would just like to clarify that that's why our original advice to the Minister hadn't been clear on the direction.

As a matter of normal professional duties, of course, once a Minister has been clear on their expectations on the policy side, however, we would have to work our way through the execution and the implementation of that and what would be required. And I'm very happy to talk through some of the governance aspects that we took to work that through at this stage. Once we'd discovered that there was a direction that was being emplaced, and I know that the correspondence that took place from the Secretary of State to the NHS England chief executive and also to the Permanent Secretary was dated as 22 November, that didn't necessarily mean that that had been shared with us at that time, so we did discover it after the event—again, given, probably, the rather unusual circumstances at that time.

So, we needed to ensure that actually, our direction was going to be valid, but one of the governance questions we had to ask ourselves was, because it was an England-and-Wales pension tax scheme, it may well have been that, in administering the system, the Secretary of State's direction could have possibly been sufficient, and then maybe there wouldn't have been any need for any Welsh Government direction at all at that time. But as we just worked through the detail—and I was given advice and ultimately had to take legal advice, and I had to work through governance advice through David—it clearly got to the point where we were absolutely clear, because this was an employer's compensation scheme, rather than, if you like, the policy aspects of the administration, it actually had to be something that was going to require a direction in order to comply with all of the various clauses and guidelines of 'Managing Welsh Public Money' that Shan has outlined as well.

So, sorry for making that more technical, but there was a timing issue here about firstly, when we found out, and at the point when we realised that the English system had also, alongside it, put in the execution of the direction to make sure that there was going to be regularity within the English system as well.

14:05

All this was going on while purdah was supposed to be in place in the run-up to the general election. So, this is most unusual, isn't it, to make such a controversial decision at that time? That's not really supposed to be happening.

It's an unusual set of circumstances. It will be one of the factors whereby perhaps some of the normal communication channels didn't work as we would normally expect. We are aware, however, that what needed to happen was to ensure that any English announcement had to be compliant with NHS pre-election guidance, and I know that colleagues—and on the advice that was provided, they were content that it was completely in line with the pre-election guidance at that time. But as we've suggested through here, it was just a rather unusual environment, in terms of the nature of the decision and the way in which we would have been communicated with.

Was that because of the election at all? Do you think that disrupted the communication, or was—?

I don't know, but it is probably a factor. Colleagues in Whitehall were, from 6 November, in a pre-electoral period, and that may have affected—. We're making assumptions here, but it was an unusual factor in the policy-making environment.

Finally, on this aspect, in your opening remarks, Shan, you said that you know that HMRC has agreed to review the situation. They're reviewing a situation that was created originally by a lousy policy decision, in the sense that it doesn't appear to have—. You know, nobody seems to have looked at the perverse consequences of this prior to implementing it. So, in those circumstances, has there been any conversation as to why HMRC shouldn't call a halt to this—actually reverse the policy decision until it's been properly looked at?

I'm not aware of any discussions of that sort, because of the processes that have been gone through and the range of options that were available at this particular time. HM Treasury in London has started its review already. We're expecting that to conclude in time for the budget, but not before, and that's one of the reasons why we've had to—

On the eleventh.

Yes. That's what we're expecting, but we took the judgment that that didn't—that was too far away.

Okay, thank you. Just coming back to the impact on Wales: how severe are the clinical staffing problems that the 'scheme pays' NHS pensions solution is intended to address?

I think that the impact has only become more visible as the various pension tax arrangements have been progressively applied over recent years. This sort of started back in 2016, but certainly through 2018-19, probably the public commentary—certainly around doctors' representatives, royal colleges, the BMA—just became much more significant, with a range of professional journals expressing concerns. And, obviously, a lot of representation happening, not just in Wales, but actually across the UK about concerns.

I think there are some areas here that can be quantified. There is a great danger of us potentially understating, however, some of these, because, ultimately, you're very reliant on the individual decisions that clinicians will take about whether they are going to work extra through the year or on all of their sessions. Ultimately, they have to decide what is in line with their own salary and pension situation. The kind of impact that we've been able to work through this year was, it was pretty clear from April 2019, a growing impact, certainly in respect of planned care arrangements, were reliant on extra sessions within our system to deliver both core activity—sometimes when there were shortfalls in doctor staffing arrangements—as well as being also reliant on the fact that we can use our existing NHS staff for running extra planned sessions such as waiting-list initiatives that allow us to target the waiting times in Wales and ensure that they can be reduced.

We have actually had a pattern of reducing waiting times in Wales over the course of the last three years, but this year, as we've been tracking the in-year position month by month—and these are figures that are in the public domain— you can see that our system has had some difficult numbers, because we do see some correlation with clinicians actually not undertaking perhaps the activities that they would have done in previous years.

As the Permanent Secretary said at the outset, just simply from April to December, we've seen an impact that we can assess, which is information from health boards, having lost around 3,200 sessions across Wales. That leads to an impact on around 27,000 patients. That's a mixture of in-patients, day cases, diagnostic procedures and out-patients, but all of those would have a very direct impact on waiting lists and waiting times. And over that time, our waiting times in Wales have grown, despite the improvement that we've seen over recent years.

I think, however, there are some other factors where perhaps we're able to quantify it less. So, whilst I can't quantify perhaps an impact on patients in Cardiff, for example, they've said that they feel that they've lost around 225 clinical sessions associated with supporting intensive care between April and December this year, which just means that there is some fragility about some of the on-call arrangements that are put in place. So, they'll be managing that situation as best they can, but it simply means that we've seen a drop-off in activity.

We've had information provided that clinicians are being less flexible, that when colleagues are actually away or on sick leave, or there are unanticipated pressures, that our emergency care system is finding some difficulties with finding sufficient numbers of clinicians to support the rotas and to be physically on hand. I guess, at the very visible end of that, that will be in emergency departments in Wales, and that is another worry.

And we have also had descriptions of impact in respect of how primary care works. So, that can extend from an inability to have extra GPs working in the system who are prepared to offer some of their free time, the ability to attract locums into the system, and sometimes, actually, an inability to be attracting in interested GPs into practices on an ongoing basis. So, there is a very broad impact happening that isn't just about waiting lists and times, but about our emergency care system and also the way in which primary care operates.

Perhaps just to give you a feel, though, on other factors that are a worry for us at this stage about the impact of these policy changes around pensions: over the last three years, we've had 178 high earners retire, most of whom are medical staff. That has actually increased fourfold from three years ago. So, we had 90 retirements, some of which are early retirements, because that's clinicians determining that they no longer need to stay in a work environment. So, nearly a fivefold increase on those numbers.

Also, in terms of just participating in the pension scheme, we've also seen a very large increase in the number of medical staff who've actually been withdrawing from the NHS pension scheme or choosing not to opt into it as they arrive at a new health board, for example. And again, there's been something like a threefold increase in those numbers over the last—sorry, a fourfold increase in those numbers over the last three years or so. So, to give you a compare and contrast about those opting out: 36 back in 2017, actually 160 medical staff who've chosen to leave the scheme in 2019. And we expect those numbers, at the moment, unless there is some policy change, to probably continue to show that there is a concern about the ongoing arrangements on the pension scheme. That is simply individual clinicians making their own individual decisions about how they want to deploy.

And, as you may recall, as I said earlier, just in evidence, our other worry is that we are seeing clinicians wanting to negotiate about dropping their sessions, so their contracts change. So, in the English system, it's being described as losing as many as 20 per cent of sessions because people are actually dropping to be under 10 sessions per week. That has an impact on the system.

And also, there's simply a worry that clinicians are not taking on extra duties and responsibilities, which they have historically done over decades. So, educational support and also leadership is a real worry if we cannot get clinicians who want to be part of leadership approaches in our organisations. There's some data there about the system. I also wanted to be open with you that some of it we just can't quantify, but just to see some of the impact actually on the pension scheme itself.

14:15

I've just found out we're into the last 15 minutes and I'm mindful that some Members haven't contributed yet. Jenny, did you—

Okay, I just wanted to say—is it too soon to see any change in this, obviously, negative activity in terms of the impact on patients? Is it possible to see any change in behaviour since the December announcement?

So, one of my worries is that with clinicians having made their own individual decisions—. And it's very clear from discussions with the BMA—we were talking to them about this just last week—that there are a number of clinicians who are just deciding that, actually, some of this is about work-life balance. With a history where they've been expected to work all of these extra hours and to keep things going, actually, people are making judgments that perhaps they can achieve a work-life balance arrangement.

It's probably still too early at this stage. We've got February and March to go. But I have to say that from the feedback from health boards at the moment across Wales, and despite all of the arrangements that we've put in place, the equivalence with the English system, the take-up on this seems very low indeed. Swansea Bay, as an example, have only talked about two individuals expressing an interest to take up the 'scheme pays' mechanism, despite all of the focus that we've put on this.

Oscar, I think your question has been largely covered, but you're coming in later, anyway, so you can ask it then if you want. Delyth Jewell.

Diolch, Gadeirydd. Good afternoon. These questions are principally directed at Dr Goodall; obviously, if there are things you'd like to add, you're very welcome to add to that, though. Referring to the letter that the Permanent Secretary wrote to the First Minister on 18 December, the letter recognises that officials had provided advice to the Minister on 26 November, but they hadn't identified the regularity issue. Could you please tell us why that wasn't included in that advice? I recognise that that was eight days, I think, after you'd found out about this from press reports. I don't know if that was part of it.

The perspective of the first ministerial advice that went up was simply asking the question whether the Minister would wish to align to ensure that there was no detriment to Welsh clinical staff. At that point, we were unaware, actually, that a direction was being put in place to implement in the English system. Once we became aware of that, of course, we had to very specifically look at our situation, because, obviously, the Minister would have an expectation to have advice on how we were going to implement the policy decision that he'd made, and that was then subject to taking legal advice and governance advice, and that would have occupied some of the time in terms of the final decision, and, in the end, the Permanent Secretary's letter that went to the First Minister as well.

Okay. Thank you for that. So, presumably, the fact that the regularity issue hadn't been identified, that was down to the time constraint and the need to—

It was mainly because at the time that the ministerial advice went up, we were unaware that England itself was actually seeking a direction, and once we were aware of that, we had to ask ourselves the question whether that direction was actually covering the Welsh situation, because it was a shared pension scheme, or whether we then needed to look at whether that was actually a Welsh Government area for our own action and governance. And, of course, we decided it was the latter.

Okay, thank you. And then, looking at costs, in the correspondence that's been copied to us, the letters between, again, the Permanent Secretary and the First Minister don't specifically identify how much this move will cost. The finance Minister, I think, has said it could be £20 million in this year—obviously, you've referred, and I'm sure that other Members will come back to the fact that we don't know what's going to happen after that year. But could you tell us, please, how that cost—if the finance Minister is correct there—has been identified and how confident you are in that figure?

So, although there is data that we can use about impact within our system, actually, this was quite a straightforward arrangement, because we simply went off the figures that the Government Actuary's Department had calculated and worked through on behalf of the English system, and with the range of calculations that they put in place, basically, we were able to identify that which should be apportioned to the Welsh system. So, the £12 million to £20 million—the £20 million figure, effectively, is our proportion of the calculations that have been undertaken through the Government Actuary's Department.

The extent to which that actually translates in reality is, obviously, a separate question, but it probably gives you the level that we could be exposed to, if we expected to have the maximum take-up in Wales from all of the clinicians who are able to take advantage of this 'scheme pays' mechanism. My judgment, not least on early experiences, would be that it would probably feel that we're not at that peak level and, in fact, at this stage, we may be well within that. But, obviously, we're still having to rely on the fact that there are still two months to go in this financial year. 

14:20

And in terms of where that cost will be borne, it's been made clear that it's going to be fully funded by the Welsh Government. Could you clarify whether that's going to be taken from within your own department's existing budget or is it going to come from extra costs from the Welsh Government elsewhere?

It's really important in terms of our oversight of employers in Wales, not least from my own oversight of the NHS Wales system, that we had to be really clear that we would, as Welsh Government, pick up the costs, and that allowed organisations to properly broker this and discuss it at this stage. There are some technicalities about this, and if I could say that, whatever I share as what may happen, it will ultimately be subject to ongoing conversations with the Wales Audit Office on its application in Wales. And I know that the Wales Audit Office itself will, of course, be engaging with the English system and the National Audit Office so that there is a consistency of application.

We will be probably expecting that it will be more of a contingent liability that will need to apply to the annual accounts, but that will be subject to negotiation. The reason for that is that we are currently concerned that we will not be able to satisfy the requirements for a reasonable estimate. Because this is a judgment that individual clinicians make, we're very reliant on them tracking through their own personal tax arrangements and the decisions that they'll be making as part of their self-assessment process, and also whether they will choose to have an application for the pension scheme to do a 'scheme pays' initiative. What this means is that, basically, doctors who may have taken advantage of this wouldn't be submitting their self-assessment declarations until January 2021, and they don't actually need to make any request of the pension scheme for 'scheme pays' until July 2021.

So, whilst we'll make judgments and I think we can work with health boards on some of the underlying assessments and who seems to have taken up this flexibility or not, it will be about whether we can satisfy ourselves and then satisfy the Wales Audit Office as to whether we can make a reasonable estimate or not. So I would probably expect a contingent liability to be disclosed, probably with some estimate that needs to go alongside that. It's probably more relevant to the 2020-21 financial year. We would think, by that time, a reasonable estimate could be made, even though I've just said that there'll still be some clinicians going through, but we'll have to use subsequent years for a way of genuinely determining what the level of impact is.

I'm afraid this is also complicated by another factor: whatever arrangement we make, or provision, ultimately, this will have to track the next 25 or 30 years to when people actually retire. So, if you're a 35-year-old consultant and you've wanted to take some advantage of this and you retire when you're 65, it's a provision that will only get drawn down in 30 years' time, and there'll be retirements that occur every single year. 

Rather than it be from the delegated budgets, we would expect it to be provided through the annually managed expenditure limits in that budget. We've already put in a request to Treasury about the principles of using that, should it need to be applied as early as for the current financial year, but certainly if it needs to be applied for 2019-20 and 2020-21. Because that will allow us to cover off possible variation in some of our assumptions, that would probably be the best way to locate it at this stage. I'm just speaking about the internal reviews we've done at this stage and how we would probably look to use this at this stage, but it will all be reliant on needing to work with auditors and clearly to have consistency with application within the English system as well. 

Hang on, no, I'm wrong. It's Rhianon Passmore. My mistake.

Thank you very much, Chair. That's as clear as you probably can be with regard to that range of estimation, but in terms of the scale, you mentioned £20 million earlier. It's not an exact science, but do you feel that is a maximum or a minimum? Is there a range between that, because obviously between one financial year and 25 or 30 years' time, we are talking about a potentially massive unknown, it seems to me. So you can't refine that commentary any further?

It's very difficult to do it, because ultimately it will be what do individual clinicians, medical staff members themselves, decide that they want to do. We're in their hands. It will also be about some complications—that they have to look at their income from a variety of sources, which aren't perhaps only from the NHS.

14:25

Okay. I understood that from what you said. I'm just—

But, in terms of the range, I think, probably £20 million feels like that would be a real maximum exposure, and, given that that's been driven through the Government actuaries department, I think the reality feels that probably the number will feel much lower than that, if experience over recent weeks is highlighting to us the level to which this will be taken up. I think it's going to be much lower, if we maintain the feedback that I've had from the health boards to date. There seems to be very little wish to engage from doctors and medical staff at this stage. I sense that they're looking for a longer term solution. 

So, that brings me on to that. In regard to the permanent solution that we discussed earlier, we are no further forward in terms of knowing what's occurring with that in terms of the conversation with London. Is that correct?

Yes. As you were asking earlier, we'll be waiting for the outcome of the consultation, any reflections that may be decided by HM Treasury. We think, probably, that will be aligned alongside the budget process during March. 

So, you're hoping for more clarity on that towards the end of— 

We're hoping for more clarity. The extent to which it addresses the issues that people have concerns about, and whether it changes the behaviour that we've seen over the last nine months, that's a different kind of question. But we'll have to see the detail first. 

Okay. Which brings me on to my second question first then, if I may. So, in regard to the process of what has occurred, and this being the first time that this mechanism has been used in Wales, obviously it's given us some potential risk outside of the aspects of putting all of this into place in regard to the worries around HMRC. So, the mechanism of how this has got into the situation that we are in, how is that going to be improved as we move forward, because we're all in agreement, I think, that nobody should be hearing things from the media in this regard? It's obviously unsatisfactory in terms of how it's left us to be able to pick up the pieces and come up with an immediate rabbit out of the hat. You've mentioned that there was discussion of the themes of this earlier on, and that there was knowledge of the issue, and then this suddenly occurred. I suppose I am seeking assurance that there will be some sort of firmed-up mechanism around this type of unusual event, granted, in the future, and that this isn't some sort of precedent for the future. 

Our Ministers have made it absolutely clear that they think that the solution and the approach are not acceptable. They've conveyed their views very strongly. We will have to await the outcome of the Treasury review, and what comes out in the budget, but, I think, also, from our own lessons learned exercise, there will be some messages about how we can try and intensify the engagement with Whitehall departments. 

But there are also other triggers as well. So, irrespective of the consultation that's been happening, the Office of Tax Simplification reported to the UK Government on 29 October, and it was recommended that the Government does review the annual allowance impact and also the lifetime allowances impact, because it was concerned about some of the distortions, particularly those that have been visible within the NHS specifically. So, we do know that there has been alternative advice about the need to review this properly at the UK-wide level. 

Okay. Thank you. You've talked—. Going back to the issue, you've talked previously about intended beneficial impacts on the shift patterns, going back to the actual outcomes, and hence the performance. So, in that regard, in the evaluation of such, what plans are there for a full cost-benefit assessment of the effects of these temporary—of this mitigation at this current time, at the end of this tax year? I presume that's in play. 

So, on the impact on the system, positive or negative, obviously we'll continue to track the feedback from within the system, the data that we've been collecting to date, that allows me to talk about 27,000 patients affected. As I said earlier, I still feel that even some of those numbers probably understate some of the impact from more individual decisions that clinicians have made by themselves, rather than actually through the lens of the pension tax arrangements. 

We will have a sense of that impact in the system, of course, by the time we get to the end of this financial year. To do the cost-benefit analysis, it needs to link itself to the information that we have available through the annual accounts process. I've already indicated that I'm concerned that we may not have the accuracy of a reasonable estimate. And, ultimately, I think the only time we can do the proper cost-benefit analysis will be when we've got clinicians actually putting in their 'scheme pays' applications, which is by the end of July 2021. So, I think, unfortunately, although we can some reasonable work along the way, we probably won't be able to the definitive piece of work until after that 'scheme pays' decision has been made. It may be as late as after July 2021. 

14:30

And in regard to the—I don't like the words, but—the permanent solution that's being sought around this issue, both in England and in Wales, if that doesn't happen, as has been indicated, in April 2020, how satisfactory or otherwise are these current mitigative and transitional arrangements that we're having to put into play, bearing in mind all of the ambiguities around it?

Again, to give you my own view on this, it's a very significant action that's been taken to put in these arrangements in-year and in this way. If we were simply to repeat that mechanism for another year, for another series of years, I really don't feel that would be satisfactory. We can make it work and implement it, of course, but even the distribution of the arrangements that have to track through 25 to 30 years of retirements to come seems a very complicated way of dealing with things. 

So, in that regard, assuming a very heavy legislative timetable in both Parliaments, have you yet thought of a cut-off period of when, if there is nothing in place, there will be an in-house solution, bearing in mind it's an England-and-Wales pension scheme? 

That is the issue: we cannot amend unilaterally the England-and-Wales pension scheme. But just to highlight that, in the discussion at the Finance Committee in January, the finance Minister said that:

'Our intention currently is that this arrangement wouldn't go any further than April 2020'. 

That's the intention, but there are obviously still a lot of unknown factors yet.

No, it's not far away.

It's a matter of just waiting a few weeks, I think, at this stage, and, hopefully, there'll be an outcome that—

So, my question would be: if that point passes and we are no further along the road, plan B would be what?

That point will come with the budget, we think, on 11 March, and, given the situation that Andrew outlined right at the beginning, that 94 per cent of the NHS pension relates to England in the scheme, I think there is considerable pressure on both England and Wales to resolve the situation, to come up with a sustainable solution. You rightly said this is immensely complex. It's very hard to estimate because of the individual decisions that need to come into play, but from—. Once we know how HM Treasury plans to respond to this, we can work through the options. So, between 11 March and the end of April.

Thank you very much, Chair. Before I ask my question—. Is it because it's a first phenomenon here, bringing forward this ministerial direction—do you think there's some sort of bypassing or discord between the First Minister and the Secretary of State for Wales? 

Sorry, do you I think there's some—?

Discord and/or bypassing the Secretary of State for Wales. 

Sorry, Oscar, what's—? I don't understand what the Secretary of State for Wales has got to do with it. 

My question is—. It's not—. It's just to satisfy myself, Chair. Was the Secretary of State consulted in this issue?

No. 'Managing Welsh Public Money' sets out very clearly the process that we have to go through, and it is the First Minister of Wales who is required to issue the ministerial direction.

And there's no consultation between the Secretary of State for Wales—

It wouldn't be anyway, Oscar. It wouldn't be anything to do with the Secretary of State. 

All right. Thank you very much. What changes, if any, do you think could carefully be made to requirements set out in 'Managing Welsh Public Money' for the handling of any future directions?

Well, we're thinking about that at the moment. David, do you want to highlight the things that you've got in hand at the moment?

Well, we're going to revise 'Managing Welsh Public Money' in the wider sense, so we'll look particularly at this section. We did notify the relevant committees about this direction, but that's not in 'Managing Welsh Public Money', so we'll put that in, and Shan is going to notify the board that there has been taken a direction, and that's not in 'Managing Welsh Public Money' at the moment, so we'll put that in. And it's all because—. You know, a direction is a big thing. You don't want to give a lot of them, and there should be—as there is here—a degree of formality and process around it. So, we'll make sure that that goes in. We'll think again about how you look at the tax changing stuff and the relationship with HMRC. And I think we'll think again about handling directions where we're effectively mirroring a parallel direction in England, and whether we need to consider that in a different way, learning after all that, and then any issues that come out of the committee's thinking or the Auditor General for Wales's thinking. And just the other observation I think I'd make: we set these direction arrangements up 20-odd years ago. It's a relief to find that, from a technical point of view, they actually work.

14:35

[Inaudible.] Sorry. I was having a private discussion with the auditor general.

Yes. Unless anyone else has got any further questions, I'll ask the last couple. Okay. What should we read into the fact that this is the first direction ever issued to a Permanent Secretary of the Welsh Government, and does this perhaps indicate reticence on the part of officials to challenge Ministers over spending decisions that might be questionable in terms of value for money?

I would argue that our experience in this shows that we have a strong and rigorous system for examining any decisions that are not in line with 'Managing Welsh Public Money', and that our normal policy development process is where those kinds of issues come to the fore, where officials are advising Ministers on the different issues that they need to consider on any kind of policy area. That should normally come out during the policy-making process. I believe the fact that this is the first one that has been taken to a ministerial direction demonstrates that that is working.

I've been in this job for three years, and, as I said at the beginning, I have not come across a situation, since I arrived, where it felt as though we were heading towards that kind of process. This is the first; this is a very clear-cut one. It's actually been, if you like, a good test case of how the process works, because it's been relatively clear cut, it's been quite technical, as a process. And I think it shows that the way that we operate is rigorous, it's transparent and, very visibly, the process of ministerial direction underlines democratic scrutiny of decision making. So, I feel confident that the standard policy-making process is already surfacing those issues. This has been a test case on ministerial direction. There are always things we can do to learn from it; David mentioned some of them. I'm going to be writing to all of our senior civil servants to remind them about the process, and bringing it to life with this example.

We've got a meeting planned with WAO colleagues and my officials, and PAC clerks, as well, to make sure that we've learnt the maximum from this process— are there things that we could have done better that we should have?

That was going to be my last question: is there anything do you think you would, at this point in time—I know you're going to review this, but—anything that you would look back and would have done differently now that you could highlight?

I think, because it was the first one for the organisation, and because it was my first one, we really stuck to the letter of the process. There are some changes, small changes, that we would make to 'Managing Welsh Public Money' to bring those out; David mentioned some of those. I found it very worthwhile discussing this with the board of the Welsh Government, and there will be a discussion at the ARAC—the audit, risk and assurance committee—before long. Those aren't in this at the moment, I think, and we'll add them. So, I think there are things that we did in order to try and make the system as rigorous as possible that we've learnt from and that we will incorporate as standard practice for the future.

Just briefly, in regard to the issue itself, and in regard to the fact that you are aware of the context of this issue and, in fact, you mentioned this earlier in different inferences: could there have been a better red flag that this issue was going to become a very live topic? And, if it were to be the case, is that something that at this end should have been better flagged, or is it something, or both, that should have been better flagged in England through themselves? And, finally, in regard to the issue about taking advice legally in Wales, I know that you were told you didn't need to, and you'd think that that would take precedence or superiority, but I would hope that that, again, is something that is going to be looked at in the reckoning after this situation. So, it was just really the first point in terms of red flags on issues that could be potentially—

14:40

We'll consider all those factors in the lessons learned, and I'd be really grateful for comments from this committee and from the WAO about your perspective and the perspective of the Auditor General for Wales.

Could we have seen a red flag earlier? I think, as Andrew said, we were aware of the issues; what we weren't aware of was either the policy choice or the mechanism. So, I think we were in good working contact, as always, with colleagues in Whitehall, but the final choice that they made to go for a particular policy option and to progress it through a ministerial direction—that would have been, I think, very hard to predict.

So, outside of that—that mechanism around communication from Whitehall, I presume, will be on the agenda.

Just following on from that, when we asked about whether you thought it was the election that might have contributed to the breakdown in communication, or not the normal communication that you would have expected, and you think that it's very possible that that was a factor but you're not sure, will there be a follow-up when you'll be examining that in greater detail in order to iron that out and make sure that it wouldn't happen again?

We will look at all of the factors concerned. It was a particularly difficult time, it's a difficult time of year, there are a lot of factors involved that will have affected the decision-making process, and we will look at all of them to learn for the future, because, as we were saying earlier in the committee, we will need to move very quickly once the Treasury has come out with the outcome of its review, presumably incorporated in the budget. We'll need to move very, very quickly to take forward a response for Wales, so we need a very clear understanding as soon as possible.

And finally, finally, from the Chair, on a more general issue and not specifically this issue, but on direction, the principle as a whole, we've had it mentioned earlier there have been 60 in the UK over a number of years now, but this is the first in the Welsh Government. Is it odd that we haven't seen this sort of situation arise within the Welsh Government since devolution in 1999, or is it the case that, actually, the civil service within Wales has been challenging Welsh Ministers over a considerable length of time on value for money and, perhaps, Ministers in Wales are more likely to have backed down because of the newness of devolution and newness of this institution? I don't know, I'm just asking you whether that could be an aspect of why we've not seen these directions.

I think it's reciprocal engagement. I wouldn't say it's the civil service highlighting these things and challenging Ministers who've backed down. I wouldn't say that at all. I think there is good, close collaboration, and regular, constructive challenge between officials and Ministers at all stages of the policy-making process. I'm, obviously, very close to that, I see the discussions and submissions that go to Ministers on a very wide range of very controversial issues, potentially, and I have always been really impressed by the rigour of that policy-making process and the engagement between Ministers and officials. It's very positive, close engagement.

So, it's less likely here that we'd have that sort of situation, or that it looks like it; that we don't have that situation where you have that conflict with an accounting officer.

To me, it does seem to be the case.

All to be looked at in the future, I'm sure. Thank you. Can I thank our witnesses, Shan Morgan, David Richards and Dr Andrew Goodall for being with us today? 

Diolch yn fawr. We'll send you a transcript of the proceedings for you to check for accuracy. Thank you.

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

Cynnig:

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

Motion:

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

Cynigiwyd y cynnig.

Motion moved.

Item 4. I move Standing Order 17.42 to meet in private for the following business: item 5.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 14:44.

Motion agreed.

The public part of the meeting ended at 14:44.