Pwyllgor yr Economi, Seilwaith a Sgiliau - Y Bumed Senedd

Economy, Infrastructure and Skills Committee - Fifth Senedd

10/03/2021

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Hefin David MS
Helen Mary Jones MS
Jack Sargeant MS Yn dirprwyo ar ran Joyce Watson
Substitute for Joyce Watson
Russell George MS Cadeirydd y Pwyllgor
Committee Chair
Vikki Howells MS

Y rhai eraill a oedd yn bresennol

Others in Attendance

Darren Millar MS Yn bresennol fel aelod o'r Pwyllgor Cyfrifon Cyhoeddus ar gyfer eitem 4
Present as a member of the Public Accounts Committee for item 4
Huw Morris Cyfarwyddwr, Sgiliau, Addysg Uwch a Dysgu Gydol Oes, Llywodraeth Cymru
Director, Skills, Higher Education and Lifelong Learning, Welsh Government
Ken Skates MS Gweinidog yr Economi, Trafnidiaeth a Gogledd Cymru
Minister for Economy, Transport and North Wales
Lee Waters MS Dirprwy Weinidog yr Economi a Thrafnidiaeth
Deputy Minister for Economy and Transport
Russell Roberts Dirprwy Gyfarwyddwr, Masnach a Buddsoddi, Llywodraeth Cymru
Deputy DIrector, Trade and Investment, Welsh Government
Simon Jones Cyfarwyddwr, Seilwaith yr Economi, Llywodraeth Cymru
Director, Economic Infrastructure, Welsh Government
Sioned Evans Cyfarwyddwr, Busnes a Rhanbarthau, Llywodraeth Cymru
Director, Business and Regions, Welsh Government
Steve Vincent Dirprwy Gyfarwyddwr, Seilwaith yr Economi, Llywodraeth Cymru
Deputy Director, Economic Infrastructure, Welsh Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Andrew Minnis Ymchwilydd
Researcher
Ben Stokes Ymchwilydd
Researcher
Gareth David Thomas Ymchwilydd
Researcher
Lara Date Ail Glerc
Second Clerk
Phil Boshier Ymchwilydd
Researcher
Robert Donovan Clerc
Clerk
Robert Lloyd-Williams Dirprwy Glerc
Deputy Clerk

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

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

Cyfarfu'r pwyllgor drwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:52.

The committee met by video-conference.

The meeting began at 09:52. 

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

Croeso, pawb, i Bwyllgor yr Economi, Seilwaith a Sgiliau.

Welcome, everyone, to the Economy, Infrastructure and Skills Committee.

I'd like to welcome Members to committee this morning in what is the last public session, actually, of this committee in this Senedd. I've surprised myself even saying that, but that is the case, and we'll say a little bit more about that at the end of the meeting. So, if we also move to item 1,  we have a few housekeeping issues. We've had apologies this morning from Joyce Watson, and Jack Sargeant will be substituting for Joyce in the second part of the meeting. We've had apologies from Suzy Davies, and Darren Millar will be joining us, representing the Public Accounts Committee, in the second half of the session, with regard to Cardiff Airport, as the PAC also takes an interest in the airport, as we do.

And let me see what else I need to be saying this morning. Obviously, under Standing Order 34.19, we've determined that the public are excluded from the committee meeting in order to protect public health, but this meeting is being broadcast live on Senedd.tv. And it has previously been agreed that Helen Mary Jones will stand in if there is a problem with my connection this morning. If there are any declarations of interest, please say now. Thank you.

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

In that case, we move to item 2, and there are a number of letters to note, all from Ministers, either updating us on something or responding to us on something. They're all there in the public pack, so I'd be grateful if Members can just note those. Thank you, Helen Mary. Thank you.

3. Craffu Cyffredinol ar Waith y Gweinidogion
3. General Ministerial Scrutiny

In that case, we move to general ministerial scrutiny, and this is the last, of course, ministerial scrutiny of this committee, and I'd like to welcome Ken Skates, the Minister for Economy, Transport and North Wales, and Lee Waters, the Deputy Minister for Economy and Transport. Thank you for joining us this morning. I'd be grateful if officials could introduce themselves for the public record. Sioned, would you like to go first?

09:55

Yes. Diolch yn fawr iawn. Bore da, bawb.

Thank you. Good morning, all.

Good morning. I'm Sioned Evans. I'm director of business and regions.

Bore da, good morning. I'm Russell Roberts, deputy director for trade and investment in the Welsh Government.

Bore da, good morning. My name's Huw Morris and I'm the director for skills, higher education and lifelong learning.

Lovely. Thank you for joining us as well this morning. So, right, we'll kick off. The first hour is generally going to be more economy related, and then we'll move on to some areas around transport this morning. So, first of all, if I could ask Minister Ken Skates perhaps to give us an overview of what further plans the Welsh Government has to support businesses in the coming weeks, and any particular grants that are going to be announced in the coming weeks as well to support business.

Thanks, Chair. It's a pleasure to be able to join you again at committee. I can say that, pending the outcome of the next review, £150 million in grants could be made available through the non-domestic rates system. That's a system that's worked very well to date, and businesses will know about this on Friday when the First Minister is able to give details of the latest review. We've also put aside £200 million for the next financial year to support businesses, and we'll obviously continue to review our options for how we go about supporting them. And then, further, we're currently working on a second round of the culture recovery fund, and also we recently announced a second wave of support for freelancers—a further £8.9 million will be made available to freelancers. And then, of course, there's the additional support that we announced through the Development Bank of Wales—a further £270 million for the Development Bank of Wales to support businesses.

Thank you. That's helpful to know. So, just to confirm, what you're saying is it's depending on what is going to be announced on Friday, but you're expecting to also announce on Friday a further package in regards to the non-domestic rates or business rates system. That's correct.

Yes, basically, the outcome of the review will then determine whether we need the £150 million to support businesses if they are clearly forced to stay closed after this review.

Yes. On that, what if, on Friday, there is an opening of non-essential retail? I ask the question in the context of—. Because my constituency postbag—. I've got businesses saying, 'Hang on, I've had the money for the firebreak, I've had some extra funding in terms of the December lockdown, but this has continued longer than I thought.' So, even if non-essential retail is to open in the coming week or two—if that were to be the case—are you saying, then, there would not be that additional support for the rates system?

So, if businesses are able to open and choose to open, then they shouldn't require, therefore, support through that system that's been in place. I'll bring in Sioned just to outline some of the thinking behind this final phase—hopefully that will be a final phase of NDR-linked support. Sioned.

The context of the question was that many businesses believe that one block of grant was for the October lockdown, and there was a second one paid in December for that period, and that period has gone on a lot longer than perhaps was expected. So, I suppose the expectation for businesses was that if they're forced to close, yes, further funding would be appreciated, but what about the period between December and now? They would see that as a missing gap.

So, we'd already announced the support for the period from December to now, and that's what we've been getting to businesses in the past few months. So, that support is there, for the most part, already in bank accounts. And on the sector-specific fund that we've been operating, I think already around about 1,000 applications have been made. So, again, that support will be getting out in the coming weeks. Sioned.

Thank you, Minister. I think what we've been able to demonstrate over the last year is how we're trying to respond to every twist and turn of what's been happening in terms of the restrictions, and indeed in terms of announcements coming from UK Government and the money that comes through to us in addition to the Welsh Government support. So, depending on what happens on Friday, there is likely to be—. There will be some support available to businesses if the decision is made to extend the restrictions, and, indeed, if the decision is made to the contrary position, or something that isn't quite as black and white, we will be able to look at the funding that we have available to adapt it to support businesses in the best way possible.

I just wanted to pick up, as well, the point around the money that's gone into the development bank and the £270 million that was recently announced. That actually puts a total of £500 million that the Welsh Government's put into the flexible fund, and that, with the match funding, puts £1 billion into the Welsh economy. That's a critical amount of money, plus, indeed, the fact that it makes that fund an evergreen fund. So, in terms of future funding for businesses, that enables us to have a great deal more flexibility than we had before this current pandemic, in order to support businesses longer term and with a more sustainable and resilient model, really. So, that's a positive take-out from all of this. But we are looking at this and adapting really flexibly to all the announcements that are coming at us from various directions.

10:00

Thank you, Sioned, for that explanation. I notice as well that you've decided to extend the business rates holiday for retail, leisure and hospitality businesses with a rateable value of up to £500,000 until the end of March 2022. What's the additional cost of that for the Welsh Government, additional to what you've received from the UK Government to support that kind of scheme?

Correct me if I'm wrong, Sioned, but I think it's in the region of £21 million, the gap.

We're putting in an extra £21 million or so to support them.

That's fine. And what was the logic behind making that decision?

Well, it would be difficult to carve out £21 million of support from businesses. It was either apply that support to all of those businesses with a rateable value of up to £500,000, or find a way of restricting it based on the rateable value, but that, we felt, would have been unfair. So, the decision was do we support all businesses or not. If we do, then we have to find the additional money, and so we've allocated that additional sum.

Thank you. And the sector-specific fund—I think I've got this right—opened yesterday at 10 o'clock and it closes tomorrow at 8 p.m. So, a very short time frame. Why the short time frame, and what are you doing to promote the fund to businesses to make sure that they know about it?

So, it is a relatively short window. However, through all of the work that's been taking place to highlight this particular fund, we're confident that businesses within the sector are able to apply in that period. We've gone to great lengths to make sure that we work with representative bodies. Our social media activities have been pretty exhausting. The eligibility checker has been live since, I think, 3 March, so businesses have been able to go online, calculate what they're going to get in advance of actually making the submission. I believe that, as of right now, around about 1,000 applications have already been submitted. So, that's a very considerable number in a very, very short space of time. So, we're confident that any business within the sector will be able to apply within this period, and will be aware of it. But, as we reach Friday, we are going to be driving an even more intense campaign on social media to make sure that businesses are aware of it. We also sent out, obviously, a press notice along with a newsletter to all businesses registered on Business Wales, and that's a huge number of businesses in Wales.

Yes, thank you. Just picking up on the Minister's point, really, correctly, there was just short of 1,000 applications in at 8 o'clock this morning. We estimate there are about 1,500 businesses that will be eligible. So, of those 1,000 applications we've had in, they account for about £21.6 million-worth of support, so that would indicate that we're on track, based on all the evidence we've gathered from doing this over the previous years. So, that gives us quite a bit of confidence in terms of us being able to support the businesses that are eligible for the support that we have to offer.

Thanks for that, Sioned. I suppose, so far, we've talked about funding to help businesses through the pandemic, specifically now as a result of being closed. In terms of helping businesses to open up, I can see that in England there's a scheme to help businesses restart. Have you got a similar package or funding package here for Welsh businesses in that regard, to help them open back up again?

10:05

That fund in England will only apply from the new financial year. So, in the coming weeks, it wouldn't be applicable. We've set aside £200 million for the next financial year to support businesses, but we're considering how best to utilise that money. And it's worth saying as well that, even when you factor in all of the latest announcements concerning business support, our offer is still more generous, on the whole, than England, and businesses are able to choose how they use the grants that have been paid out to them—whether to use them to cover some existing overhead costs or whether to use them in preparation for reopening, it's down to each business owner to determine how to use that public investment. 

I suppose a business operating in Wales would say, 'Well, it would be useful to know what kind of finance is available and what schemes are available to help us reopen now, rather than in the next financial year—to have that detail'. When would you expect the details of that scheme to be made available for Welsh businesses?

Well, that £200 million will be available throughout the next financial year, and we'll be monitoring, obviously, infection rates, how the vaccine is being rolled out and therefore how we might be able to utilise those funds for various means. We're not going to be providing financial support specifically for reopening in the coming weeks. As I said, I think it's down to business owners themselves to determine how to use the grants that have been paid out from the public purse, rather than have a specific fund alongside a non-domestic rates scheme, as is the case in England. I think it's better just to give that discretion, the ownership of that matter to business owners themselves. 

Okay. I suppose the next question—I'll roll a few in one—is really about some businesses not being able to be supported through various schemes because they don't meet criteria. The sector-specific fund is one where businesses will be looking at that, were looking at it yesterday and looking at that today and tomorrow, only to find that they're not eligible because they're not registered for VAT or they weren't incorporated by a certain time, or they're not a limited company. And I roll that into that question generally into the discretionary funding that's available as well to local authorities. I know that you've said that, I think, you're going to have a review of that—I think I'm right to say that—in your letter to us. I certainly would advocate far more discretion being provided to local authorities to make some discretionary decisions on a more discretionary basis. I'd appreciate your views on that, Minister. 

Yes, absolutely. It's a really important point. Firstly, I should highlight that, whilst it was the eligibility for the discretionary fund that was set by us in Government, the actual formulation and implementation of the scheme was put in place by individual local authorities. And so, local authorities have administered the scheme, and obviously the decisions to provide grants ultimately lies with them. I don't think it would be appropriate for Welsh Government to intervene in individual cases, so disagreements between businesses and local authorities should be raised directly with the local authority. But we have spoken with local authorities, with the Welsh Local Government Association, just to re-emphasise the discretion that they have in assessing and awarding the discretionary fund grants that are available to them.

But you're right, Chair, we're keeping the guidance and the eligibility criteria under active review. We're taking account of feedback from local businesses, from employer organisations, particularly from the Federation of Small Businesses. It's always challenging, I have to say. It's always challenging to consider every single individual case that comes into our mail bag and then to respond to it in a way that offers a good degree of understanding and compassion but, ultimately, it's for the local authorities to apply the discretion that they've got, and we've reminded them, as I say, that they do have that discretion. 

The policy intent throughout this period has been to ensure that we fill gaps that are left by other schemes, such as the job retention scheme and the self-employment income support scheme. And the discretionary fund, I think, by and large, has been very successful in plugging some of those gaps. Obviously, based on correspondence that you get, that other Members get, that we get, there are still concerns. Businesses can take concerns up directly with their local authorities. Potentially, they could take a concern up with the ombudsman, but we also have to balance the application of criteria, and local authorities do too, with ensuring that the public purse is protected. So, there is a very, very delicate balancing act there.

10:10

Thank you, Minister. I think I've exhausted this particular section, so I'll come on to Helen Mary Jones.

Thank you, Chair, and good morning, everybody. I've got some questions about the new economic resilience and reconstruction mission, and in a sense, it's almost unfair to be asking the Minister and Deputy Minister these things because they're probably things for the next Welsh Government to do, so what I'm asking is in the context of what are your intentions, and what would you be expecting the next Welsh Government to do? Obviously, we don't yet know who or what that's going to be, so put that in that context.

If I could just start with some questions about how you got to where you are with this, I want to begin by asking: when you were developing the reconstruction mission, how were the well-being goals and the well-being of future generations Act considered—how did the well-being goals inform that? And I ask that in the context, Chair, of Welsh Government talking about moving towards a more well-being based approach to economic policy, which isn't always easy to do. And I also would be interested to know what considerations you gave to the Welsh Government's priority for mainstreaming issues relating to the Welsh language. I'm thinking particularly about the importance, in economic terms, of supporting communities where Welsh remains a community language. 

There are some really, really, really significant questions there. First of all, with regard to mainstreaming support for businesses that, in turn, support the retention of skills amongst Welsh speakers, the foundational economy challenge fund has been hugely important in that regard, the Arfor scheme as well, and our sharper focus on the foundational economy on supporting places will, without a doubt in my view, have benefits in terms of growing resilience within communities where there is a high proportion of Welsh speakers, giving people an opportunity to start their own business, to stay in business within their community, not having to move out to the cities or larger towns.

I'm pleased to say that the future generations commissioner has been hugely, hugely helpful in assisting us, both directly and through the Ffenics group that was put together, as we considered the mission, and the Act has been right at the heart of our deliberations and considerations. Indeed, we've said that, as we move towards creating a well-being economy, we want to move away from a small number of indicators that have traditionally been used—primarily gross value added—and actually focus more on the well-being indicators that really define the sort of country that we wish to see Wales become.

So, those indicators have been really important in considering how we're going to measure success in the future. And I don't think that the mission can be viewed in isolation from some of the other strategies that have been developed, for example, the Wales transport strategy, which has been basically designed off the back of the Act, and with transport hierarchy, for example, that is designed specifically to meet the goals of the Act. And then there are other strategies regarding land-use planning, energy and the manufacturing plan—again, they all respect and build on the Act. I think, as a package, therefore, we'll be able to demonstrate how the Government is taking very, very seriously our obligations under the Act, and how we are taking forward our obligations in terms of some specific areas of work, for example, creating a more equal economy and creating a greener economy—the focus on decarbonisation I think runs very strongly through the mission.

You're absolutely right, Helen Mary Jones, that some of the big decisions that need to be made with regard to the mission are going to be made by individuals in the next administration, but I'd hope that we've set, with the mission, a pathway. And we've also made the provision through the investment that's been allocated in recent times, for example, £270 million to the development bank to make sure that we can grow back fast and that we can grow back fairer.

There are some really big challenges that need to be contended with early in the next administration, for example, the steel and the aerospace sectors continue to suffer from multiple challenges. There'll be a need for UK Government to ensure that the job retention scheme and the self-employment support scheme are phased in a way to ensure that the growth of the economy is fair and rapid, and is secure. Obviously, we hold the view that it's through growing the economy that you're actually best going to deal with the fiscal debt that COVID-19 has created. So, that's some of the thinking about what will face the next administration in the short and medium terms, but certainly the mission, I think, highlights how, for the longer term, we're going to be even more focused on those big challenges that we went into the pandemic facing, and we've emerged from it with an even greater degree of determination to take on, principally, decarbonisation, fair work and a more equal economy. 

10:15

I'd say, Minister, you can see that in the targets that have been set—that you are setting targets that are beyond purely how many jobs are created, or—. We've got targets, and we've had a lot of discussions about some of those and the ways they might be adapted, but we don't have much in the document about milestones on the way to those targets, about how you're going to measure getting there. Can you tell us a bit more about why you decided to present the document in that way? Is it down to the fact that it's designed to be high level, and there will need to be plans underneath them? And can you give us a bit more of an idea about when we'll see those milestones, so that our successor committee can measure the next Government's success against those? What's the process by which the milestones get set and then the resources are allocated to deliver on those milestones, to support the delivery of the milestones?

Yes. Again, that's a really important question. First of all, the mission can't be seen in isolation from some of the other plans. As you say, there are other strategies that flow from the mission, and some of those are already now in existence. The manufacturing plan is one, the Wales transport strategy, which we've been consulting on, is another. The mission itself was designed to be, as you say, a high-level vision and ambition document, and it'll be for the next administration to determine some further milestones. I think it would have been unfair of me, of us, to bind the hands of future Ministers, and instead I think a degree of flexibility is required for an incoming administration. 

I think that obviously makes sense. You wouldn't want to create work for officials in creating milestones and then for a new administration to come in and there be different ones. That is, I think, understandable.

I also want to ask a little bit about the economic contract. So, the mission document says that you want to evolve, expand and strengthen the economic contract with businesses. Can you tell us a bit more about what sort of changes you think that evolution and expansion and strengthening might lead to? What are you looking at there?

I'll bring in Sioned in a moment, if I may, regarding the work of the task and finish group. She's been monitoring that work very closely. What we're hoping to do is obviously drive up the number of businesses quite considerably that are signing up to the contract. And as a result of the support that we've been providing to businesses during the pandemic, around about 13,500 organisations have either signed up to the contract or have signed up to the principles of the contract with the full contract to come.

Through the work of the task and finish group—and again, Sioned will be able to clarify if I'm mistaken on this—basically, the focus has been on a number of objectives for the refresh. One is updating the pillars so that they better reflect the flexibility that's needed to deal with the twin challenges of EU exit and coronavirus. Secondly, we're going to be, in all probability, introducing new development pledges that enable businesses to actually describe what they're going to do in the future as a result of signing up to the contract, so that it's not just a box-ticking exercise, it is actually a proper development scheme, and continued engagement with Welsh Government officials and with social partners will be part of that. And then, the third major change that will take place is that we're going to be developing some long-term ideas such as a self-assessment tool for businesses, and I've said in the past I really want businesses to embrace this, to own this particular agenda. So, there could be a role for peer review, business to business, and for sharing information in a safe way that doesn't compromise confidentiality of organisations. But I'll bring in Sioned. 

10:20

Thank you, Minister. You've covered many of the main points there. I think the objective for us for the economic contract is that there's a something-for-something relationship developed here. If we as a Welsh Government are supporting businesses, there's an expectation that those businesses support the ambitions of the Welsh Government around key areas. In doing this, what we've tried to do is to use the really broad database now and the sign-up to the principles of the economic contract that we've been able to establish over the last year, in particular, as we've been supporting businesses, to ensure that we can build that into the refresh, that businesses better understand the nature of the economic contract, and that we can build on the agreement to the principles into an agreement for action. And also, that we have something that we can help to monitor and support businesses through that, and, I think critically, to make it proportionate. We would not expect businesses to respond in the same way across the piece; some businesses have particular strengths and particular interest in developing one of the elements of the contract, whereas others might be stronger in another area. So, it's about ensuring that we have a more hands-on approach, but, essentially, it's that something-for-something; if we are supporting businesses, what can businesses do to support the ambitions of Wales. 

That's very helpful. Thank you. In your answer, Minister, you referred to the idea of peer review, and I will hold my hand up to being slightly sceptical about that; I think we need poachers and gamekeepers in this field, and setting two poachers to monitor one another isn't necessarily the most effective way. That's just me being a bit cynical. But I'd like to hear a bit more, and maybe, Minister, you might want to bring Sioned in—she may know more detail—about how you're thinking about peer reviewing within the economic contract, how that might work. I suppose I'm very conscious that asking businesses to commit to the contract and deliver the contract themselves is quite a lot of work for a business. Asking them then to get involved with reviewing how another business is working, possibly, and bringing in each other, that's additional work. So, I wonder how you see it working in practice, really, and what's in it for the businesses if they decide to—. What's in it for the businesses if they sign up to economic contract is clear; that's what they must do to get support, and I would wholeheartedly support that, as you know. But getting involved in the peer review process is perhaps asking a bit more of them. So, what's the incentive for them to do that? What's in it for them? 

A lot of businesses are really passionate about the pillars that are contained within the economic contract and the principle of having a contract—the something-for-something relationship. Many employer organisations and business leaders have told us they don't actually need an incentive to actually contribute to this agenda; they are genuinely passionate about it and they want to help. And they want to help other businesses be as responsible as they possibly can be. So, whilst I would share some of your scepticism and cynicism about whether a peer review could operate in isolation and without any form of, if you like, encouragement from Government and from trade union partners, in many instances I've already come across innovation that's being driven by businesses and then shared with other businesses, particularly in some of the areas concerning mental and emotional health within the workplace; there's some great innovation. So, that's why I was thinking that a peer review may be valuable in spreading that innovation, encouraging innovation and driving it, but a peer review alone would not be sufficient in driving up the quality of economic contracts and the work that comes from them. 

That's really helpful. Thank you. Did you want to add anything to that, Sioned? 

I think it's important, when we look at the peer review, that we're not looking at this through the lens of an audit, scrutiny or criticism-type peer review; it's more about like-minded businesses coming together, sharing best practice, friendly competition and just trying to develop it through that lens, certainly initially, because that, I think, is the healthiest way for us to ensure that we are bringing businesses along, rather than alienating businesses. 

10:25

Thank you, Chair. Good morning, Minister. I've got some questions on the foundational economy, which, as you know, is an area that I'm really passionate about. It's been good to follow the Welsh Government's progress on this over the past almost five years, now. Looking at the mission document, that states:

'As part of our work supporting the foundational economy all categories of spending by the public sector in Wales are being analysed for the potential to redirect to support local and regional economies.'

Can you tell us a bit more about what stage that work is at, and also what the timescale is for completion?

Thank you. We've been working with clusters of public services boards to do this in the first instance, and we've been working with the Centre for Local Economic Strategies, who've been doing the work in Preston and Manchester and elsewhere on it. They are halfway through their work, so they're 12 months into their contract and it's a further 12 months to go. They're working through with different clusters sequentially, and they're analysing the spend to identify what they call 'supply void'—so, where money is being spent on goods by a public services board that is being spent outside of the region that could in fact be spent by firms inside the region. They're doing that line-by-line analysis with each cluster of boards now, and they're halfway through that.

Thank you. The document also states that the Welsh Government is intending to strengthen the procurement profession, which is a key part of the jigsaw, really, isn't it? What exactly will that entail, and how might it differ from past initiatives that had a similar intention?

This is a deep piece of work, to be honest. We've published this week, with the finance Minister, the new Wales procurement policy statement, which is an important piece of work. It's strongly aligned to the future generations principles. You will have noticed that the future generations commissioner has published quite a critical review of procurement over the last five years. We are working with her, and, separately, with a panel that we've set up, led by Liz Lucas from Caerphilly council, who has been reviewing the procurement-related projects from the foundational economy challenge fund, to draw some lessons from their initial experience. Because as we've said, we're interested in both success and failure, and learning the lessons for where things are struggling and drawing policy conclusions from that. So, they've done a separate panel report, which we're studying, alongside the future generations commissioner's report. Both recommend a centre of excellence for procurement be established, and that is something we're now working through the detail with them on. I'm quite attracted to doing that on a similar basis as we've done with the Centre for Digital Public Services, where we went through a discovery phase, we went through a beta and alpha phase, and we're working now on the detail of can we do something similar for procurement. Because this isn't just a Welsh Government thing; this is a Welsh public service function and there needs to both a general raising of the status and of professional standards capacity and capability across the board, with social value at its heart, and that's what the new policy statement shows. So, that work is ongoing.

Just to clarify on that, then, the purpose of that would be to recruit more people into the procurement profession and to retain them within the public sector as well.

Well, I guess that's what we need to look at, understanding where the capacity currently is in different pockets. Because we know from a lot of the previous work you'll be very familiar with, Vikki, that there are pockets of excellence in Wales on procurement, and there are pockets of mediocrity, let's be honest about it. And that's not just true of Wales; that's true everywhere, clearly. So, how can we spread and scale the good practice and help develop the weaker areas? This is a really complex cultural issue, and there are lots of different drivers at work here, sometimes in conflict with each other. Because we do want public bodies to spend as little as possible so that we can free up resources where it's most needed. We don't want wasteful spend, but equally we want spend that has social value, not just lowers cost, and there's a tension there.

We've seen this, for example, in PPE procurement recently, where we want Welsh firms to step in to provide PPE, but sometimes—. The cost of producing in Wales is five times higher than the cost of buying from China. Now, where is the balance there to be struck between getting local resilience of the supply chain and social value? How much is too much to provide social value? These aren't straightforward judgments and we're working that through. So, in that work we're doing, the discovery phase as we're calling it, for the centre for excellence in procurement, these are the sorts of judgments we want to make—how we upskill the whole profession in Wales and, in doing so, raise its status, assign extra value to it and then look at how, collectively, we can achieve our common goals.

10:30

Okay. Thank you. I'll just finish with one reflective question for you, Deputy Minister, and I know that you're well known for your straight answers, so I'm looking forward to your answer on this one. What do you think the most important lesson is that you've learnt from the process of trying new approaches to supporting the foundational economy?

Well, I think the thing I've learnt is that it is as much about culture change as it is about structural change. As we know, culture eats strategy for breakfast—it's the famous old phrase—and I think that has been, perhaps, some of the most frustrating experience I've had. This is not going to be a quick win. But equally, if you're going to change culture, which you can, you need to communicate well and you also need to bring people with you and see it as a change process, which takes time. I think we've made some good progress in two years, but we've reached base camp, I would say, and whoever forms the next Government needs to go up into the mountains.

Thank you, Vikki. I suspect my next question is to the Minister, Ken Skates. What was your thinking, Minister, behind your decision to allocate an additional £270 million to the Wales flexible investment fund? And what analysis was that based on in terms of what kind of funding business requires?

Thanks, Chair. I'll take this question; you're right. First of all, it's quite interesting that, in spite of the pandemic, demand for products from the development bank has remained strong. In fact, I think around £10 million more in general business loans were administered during the current financial year than in the previous financial year, demonstrating the appetite and demand for products from the development bank. The £270 million is being placed in the most flexible fund that is operated by the development bank. It offers a range of deal types—equity and debt—and there are no geographical restrictions. The fund can support businesses over a period of 15 years, so it helps manage the cost of debt over a more significant length of time. So, the demand that we're aware of, that the development bank is aware of utilising their intelligence unit, was what informed us of this decision.

In addition, committees since pretty much devolution have been recommending to Government to support businesses with a greater degree of equity and loans, rather than grants. As we look towards the recovery and the need to generate an evergreen fund, it made perfect sense to take the opportunity now to invest heavily in the flexible investment fund to create that evergreen opportunity and to ensure that we're meeting the demand that the intelligence unit within the development bank and, indeed, our own assessments have led us to believe will be there.

Can you just tell us a little bit more about that assessment that has been done within the Welsh Government and within the development bank, just to help us, I suppose, to understand what the logic is behind those decisions?

Sure. I'll bring in Sioned, but the development bank itself has an intelligence unit where it looks at trends within business, within the economy, and demand for products that it offers and that are available also on the high street. That helps to shape policy instructions and policy development. Then, within the Welsh Government itself, obviously, through our regional teams, through our account managers, we're able to ascertain what it is that businesses require in terms of financial support, and then we can shape our offer accordingly. But we really did want to create an evergreen fund of considerable magnitude, because the recovery is, in all likelihood, going to take several years, and therefore, we're going to have to rely on an evergreen fund rather than just grants that could become unaffordable in the longer term. Sioned.

Thank you, Minister. We were really keen to make sure that we can ensure that the development bank is sustainable. It's hit, as you know as a committee, a number of its targets, it plays a really important role in the market in terms of its positioning, normally coming in when there's a gap for business support. So, we're really keen to make sure that the bank is affordable—sorry, is resilient—as we go forward. And we've had a lot of money this year from UK Government and the Welsh Government has used a lot of its own finances to support businesses. And we're really clear within that envelope about how do we make sure that we can provide something that is longer term to support businesses. So, we've been looking for a while at the sorts of figures we could use to perhaps support the bank moving forward. And there was an opportunity this year, having identified the businesses we could support within the year, having then identified the need within the development bank, to calculate a figure that provides that long-term sustainability for SME businesses in Wales moving forward. And they will benefit from that longer term view and more strategic outlook on the economy as we come out at the other end of the current crisis. 

10:35

Thanks, Sioned. And I suppose it would be useful to have your thinking around the second round of loan support, in the context of some schemes, UK Government schemes, coming to an end. Perhaps it would be useful just to detail thinking around that as well.

I was just going to clarify specifically which grants you meant—in terms of the job retention scheme and various things like that?

I was thinking of the bounce-back loan, loans that are available through the UK Government bank, in the context of the second round of loans from the Development Bank of Wales.

Okay. So, really, the—. We introduced through the development bank the coronavirus Wales business loan scheme as a response to the difficulty that the UK Government-backed schemes had initially in gaining traction. And since they've gained traction, they've been of great value to businesses in Wales. We don't therefore envisage a further round of the development bank coronavirus loan scheme; instead, we'll be placing the focus on the flexible investment fund instead. We never want to stray into an area that can be accommodated by high-street banks, or UK Government-backed offers, and the DBW wasn't there to compete with what the UK Government were offering. We were there—the development bank was there—to step in right at the initial point when loans were required but they weren't particularly attractive through the coronavirus business interruption loan scheme.

Right. Okay. That's—. Okay. No, I think I'll leave it there, because we're short of time as well. Thank you, Minister, for that. Hefin David.

Can I ask some questions about the impact of the pandemic and the end of the European Union transition period on Welsh exports and the Welsh Government's approach to selling Wales to the world? And particularly, can I ask about the export action plan, which highlights the role of the Welsh Government's international trade advisers in advising businesses in relation to exports? And how effectively have they been able to support businesses through the changes in trading arrangements, following the end of the EU transition period?

I should just say as well that, sometimes, Hefin has bad connectivity, so it's not unusual that we can't see him on the screen.

Thanks, Hefin. I think the advisers have played a really, really important role. I'll bring in Russell, just to give his assessment of how effective they've been. They've obviously not been operating in isolation from support from other areas, such as the Department for International Trade, but they are proving to be crucially important in supporting businesses, now that we've exited the single market and customs union and we've got the trade and co-operation agreement in place. And they've been valuable in providing information and advice on a range of topics, but those areas of greatest concern to businesses include customs procedures, questions around VAT and understanding whether tariffs apply, regulations and standards, and a general lack of preparedness of EU customers. And they've responded, I think, really rapidly as well. That said, there have been a small number of cases where advisers have not been able to resolve queries and concerns, and that's due to some of the shortcomings within the TCA. And I think we can probably give one particular example and that's medical products, where there's no mutual recognition of additional regulatory areas, such as batch testing or indeed qualified person release recognition, and so we're already hearing from Welsh businesses that the lack of mutual recognition for medicinal products is causing pretty significant difficulties for their operations. Russell, do you have any other examples that could highlight how the advisers have proven to be particularly helpful, and indeed any areas where they haven't been able to assist?

10:40

Minister, thank you; it's just as you say, really. The advisers have been really busy over the past six months or so in the run up to and after the end of EU transition and, of course, the international trade advisers are a key part of the delivery of our expert action plan, which was put in place to help companies with the shorter term challenges with COVID and EU transition and then the longer term goals, if you like, in terms of growing export supports in Wales. And, as you mentioned, Minister, lots of those queries around customs procedures, VAT tariffs—all of those issues we've been able to mostly deal with, really. So, since October, the international trade advisers have had over 500 meetings with exporters in Wales, so they've been hugely busy, and this week, again, is another example, if you like, of how we've been trying to address some of those issues and concerns that companies have had with the end of EU transition. We are holding, at the moment, our annual export conference, which is focusing specifically on some of those matters that we've mentioned. So, that's happening—it started yesterday—today and tomorrow. So, we've got lots of companies engaged in having discussions about some of these key issues that they're facing.

Thanks. Chair. Can I also ask about the rules-of-origin requirements in the UK-EU trade co-operation agreement? How do you think that Welsh businesses are adjusting to it?

It's mixed, to be honest, Hefin, depending on the sectors. Some sectors are saying that they're pretty well able to understand and deal with the requirements; others are saying that it's causing significant challenges. So, in terms of automotive, the Wales Automotive Forum has said that its members are dealing with it pretty well. In contrast, food and drink—there's been confusion within that particular sector, and it's particularly focused on the level of processing that is deemed sufficient to be able to re-export produce in order to qualify for zero tariffs under the new TCA. And then you have manufacturing, where the rules of origin are really quite complex and difficult to understand. Some businesses are telling us that, rather than attempt to adapt to the new law, they're actually just paying the tariffs, and that's not good in terms of their competitiveness. I don't know whether there are any other areas that Russell's able to identify with regard to rules of origin that are a particular cause for concern in specific sectors.

No. Just to add, Minister, that, as part of the export conference this week, we're actually holding a webinar this afternoon specifically on rules of origin for businesses in Wales. So, again, we know that this is an issue that a number of our companies have flagged up to us as causing some issues. Although, having said that, some companies talking yesterday on the export conference were saying, actually, they've managed to get to grips with the rules of origin. So, the picture is quite mixed. But, having said that, for us, our focus is on supporting companies to understand the requirements around rules of origin and the webinar this afternoon is part of that.

Okay, and how well are the arrangements you have in place with the Department for International Trade to promote international trade working, and to what extent do the UK and Welsh Governments specialise in particular areas to avoid duplication of resources?

I think that we work really well with DIT and certainly our export team works closely with DIT officials, both at strategic and operational levels. They operate in a very complementary manner and businesses are able to draw down support from each in different ways. For example, Welsh businesses can access DIT national services, such as the trade show access programme and also in-country support, but we remain the first point of contact for businesses to get information, to get advice and signposting from.

10:45

Okay. And the Welsh Government's international strategy included a target to grow the Welsh economy by increasing the contributions exports make to the Welsh economy by 5 per cent. Is this target still in place, given its absence from the export action plan?

So, exports have been absolutely hammered as a result of COVID and, of course, that target was created pre pandemic when we couldn't envisage the economic fall-out from coronavirus. We've seen—, I think it's a 20 per cent fall in exports as a consequence of coronavirus. That said, exports are a very, very key feature of the economic action plan, and are contained with the mission as a driver of growth, sustainable growth, and competitiveness. So, the figure of 5 per cent, whilst it is now not present within our plan—we published it in December as a result of reflecting on coronavirus—we obviously do wish to see exports grow rapidly again. Setting a 5 per cent target against a 20 per cent drop in just one year would, I think, personally, lack ambition. We want to grow back rapidly in terms of exports, so raising export figures by more than 5 per cent annually as we recover I think is probably the right thing to do, and it demonstrates a greater degree of ambition as well.

Can I just very briefly add that one of the important features of the emphasis on the foundational economy in the recovery plan is to create export-capable businesses? We want SMEs to be capable firms that not only can benefit from a different procurement policy domestically, but then can build to a critical mass to export beyond Wales, and then, crucially, that we retain ownership within Wales. So, that's the whole part of the foundational economy agenda. It's not a public procurement focus; it's building a cohort of capable Welsh firms that can export.

Thank you. Diolch yn fawr. Okay, with that, I think we'll take a pause, and, if it's okay with you, Ministers, if it's sufficient time, can we have around about a seven- or eight-minute break and come back about 10:55? Thank you. So, we'll do that, and Members can be back just before 10:55.

Gohiriwyd y cyfarfod rhwng 10:47 a 10:58.

The meeting adjourned between 10:47 and 10:58.

10:55
4. Craffu Cyffredinol ar Waith y Gweinidogion
4. General Ministerial Scrutiny

Hello. Welcome back to the Economy, Infrastructure and Skills Committee. We move on to item 4, which is continuing general scrutiny of Ministers Lee Waters and Ken Skates. In the first section this morning, we looked at aspects around the economy and business, now we're moving on to some areas around transport. I should say that, since the beginning of the meeting, Jack Sargeant has joined us, who is substituting for Joyce Watson this morning, and Darren Millar has joined us, representing the Public Accounts Committee, as they take a keen interest in Cardiff Airport, as we do as well. And I should just ask officials just to introduce themselves for the public record.

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

Morning. Steve Vincent, deputy director within economic infrastructure.

Bore da, good morning. I'm Huw Morris, director of skills, higher education and lifelong learning.

Chair, I'm sorry to interrupt. It may just be me, but I'm having trouble hearing Simon Jones and Huw Morris.

No, no. Just in between perhaps Simon coming in, if we can just have a look and make any adjustments that are needed. Right, okay, with that, the first set of questions is from Helen Mary Jones.

Thank you, Chair, and good morning to those we haven't met already today. Can you give us an assessment of how the end of the Brexit transition period affected Welsh ports to date, particularly Holyhead, Fishguard and Pembroke Dock, the roll-on, roll-off ports? I think we've seen various stories in the media, but what assessment have you made, as a Government, about what's happening?

Well, I think things have been very bumpy, and there remain to be very troubling signs that this may be more than just friction as we move from one trading arrangement to another. There might be some more deeper-seated changes at play. The routes between Wales and Ireland are still seeing something like a 40 to 60 per cent decline in trade. Now, the UK Government is saying the overall position—our volumes are back up to where they were in 2020, so that does suggest that the Welsh ports have been disproportionately disadvantaged by the movement into a new trading environment. 

11:00

I think that was the answer that we expected, Deputy Minister, and it is obviously very worrying. What assessment are you making of the long-term implications of these new arrangements for ports? Are you able yet to say what you expect the longer term impact will be on the ports themselves, and their communities, and therefore the wider Welsh economy? 

Well, I think it's still too early to say definitively. I would say that these are more than teething problems, though. I've seen the Wales Office Minister David T.C. Davies quoted as saying that this is just a matter of companies needing to develop a new expertise, but from the round-table discussions I've had with the haulage industry, it does suggest there's more going on here than businesses simply needing to get used to different practices. For example, they were telling me that in the old system you simply just booked a place for your wagon on a ferry, now you need to spend four hours and deal with five different entities on the Trader Support Service. Now, that is, clearly, a different set of arrangements, and you can't then see how training or expertise is going to make that any quicker. They also said, to give an example, it used to cost £100 to send a palette to Germany, and now the paperwork alone for that palette costs £80. So, that is considerable trade friction that is going to cost businesses significant amounts of money, and therefore viability, and therefore jobs.

The firms were telling us that they think the palette network system in particular is broken. It used to be the case that you generated—. Sorry. Now you have to generate the paperwork first and then organise the load, and it used to be the other way around, and their systems just simply aren't designed for it. They also pointed out that there aren't enough customs agents, and the ones that are there are often not trained. And they painted a very clear picture that the hauliers were simply voting with their feet. They found it easier to drive to Scotland than go through the Welsh ports, and I guess that is illustrated also from another change that they point out: that the number of direct sailings from Ireland to mainland Europe used to be three per week, now it's 16. So, it does seem to be something deeper going on—that the way that this very thin trade deal has been introduced does cause us particular disadvantage in terms of our trade with Ireland, and obviously the future viability of the ports is a significant concern. 

Just so that I understand, I presume that they're going via Scotland because they then arrive in the north of Ireland, and they don't have the same issues, and then they can drive down to the south.

That's right; they don't have to go through the two sets of checks. 

So, this is obviously a pretty worrying situation. Can you tell us a bit more—and you've already touched on this; for example you've had your meeting with the hauliers—about what steps you're taking to try and address some of these issues? How is the UK Government responding, and how are the ferry operators themselves responding? Again, I accept it's early days.

Well, I'm just going to ask Simon Jones to come in here to update on the conversations we've been having.

Thanks, Minister. So, we speak on a weekly basis with operators, hauliers, and others concerned with this, but we don't have many of the levers in this regard. The border infrastructure is not a devolved matter, so we are observers of this to an extent. We are trying to bring things together. In terms of the operators—the ferry operators—they're commercial entities. We've seen them redeploy assets to serve some of the routes that the Minister was talking about. So, they have got portable assets that they can use elsewhere. I think the operators have indicated they would like to continue operating from the Welsh ports, but they operate in a commercial world, so they need to make a return, and if the volumes are down, they will make commercial decisions accordingly in the long run, I suspect.

And can I just ask, to follow up on that, Chair, if I may, what discussions is Welsh Government having with the UK Government about this? Clearly, the levers are not with you, but the implications for our economy are pretty serious, aren't they? Is there a dialogue going on, or are you not really getting that?

11:05

Clearly, as Simon has outlined, there are regular, frequent contacts at an official level. At a political level, we have had some dialogue; we have been part of the regular Cabinet committee meetings held. They have fallen away now somewhat, and this was a point we consistently raised. But my sense is that the UK Government is focusing largely on the short straits, and less on the links between Wales and Ireland, and, as I quoted the Wales Office Minister earlier, they seem to be suggesting these will all work themselves out in time, and, as I say, that is not the picture the industry is painting to us.

Sorry, it might just be worth mentioning that, yesterday evening, the Minister spoke with Sir Peter Hendy on the back of the union connectivity review that was published yesterday. This issue was mentioned to Sir Peter, so it would be very interesting to see whether Sir Peter is able to look at this as part of that wider review of connectivity, because, as you point out, this is not just a Wales issue.

No, quite. Well, thank you both for that. The Minister's previously said that he was open to discussions, but cautious, about a UK Government proposal to establish one or more free ports in Wales, and I have to say I ask this question as a free port sceptic. Could you provide an update on the current state of those discussions with the UK Government and Welsh ports? What are the issues that are being considered and particularly what do you see as the risks, for example, to a port like Holyhead of the introduction of free ports, or of becoming a free port itself?

I think the overall advantages of free ports are still unclear. The position we've taken is a pragmatic one. If there are to be free ports across the UK, then we'd look to play our part in that. It's not a policy we've come up with ourselves, and I've discussed with our Scottish counterparts the concerns they share too.

On a practical level, we have said to the Government in England that they need to provide us with the same level of funding as they are providing the free ports they're creating in England in order for us to be able to compete on a level footing. That is something that we've not been able to resolve. Our understanding is that the free ports in England are being funded to the tune of £25 million per free port. We are being offered a Barnett share, which is coming out at something like £8 million for a free port. So, I really don't understand how, on a UK equity basis, we are going to be expected to have a free port for £8 million, and the English free ports are being priced at £25 million, and we've not really been able to have a satisfactory answer on that, but conversations are ongoing.

We've also said we do want safeguards in terms of employment standards and environmental standards. We don't want free ports to be seen as a way of short cutting good social regulation, and, again, that is something that we haven't really been able to resolve yet, but conversations are ongoing, we don't want to be obdurate. As I say, this is not a policy choice we'd have chosen ourselves, but we're happy to see if we can make it work, but it takes two to tango.

That's really interesting. I suppose I'd make a case for a bit of obduracy around this, to be honest, but that's just me. But you mentioned, Deputy Minister, that you were talking to Scotland and that you shared some concerns. Can you just put on the record for us a little bit about what some of those concerns are? You've mentioned the potential risk to social and environmental standards, and those are certainly things that I would share your concerns about. So, can you just tell us a bit more about what those concerns that you and the Scottish Government have are about the whole free port system?

I think the Scottish Government have published an alternative proposal of green ports, I believe they're calling them, which is something we're interested in as well, and we are having dialogue with them on a number of matters. But I'm not sure there's a great deal to add, to be honest, Chair, to what I said. We just don't want this to be seen as a way of cutting regulatory corners that are there in good place, and employment standards and environmental standards are an important part of the way that we want to do business, and simply seeing a tax dodgers' charter is not something we would support. 

11:10

Thank you, Chair. I just wanted to take a look at the issue in relation to Cardiff Airport, if I may. The Welsh Government obviously announced a significant package of support for Cardiff Airport on 3 March. Do you want to tell us the basis on which that support has been offered and how you arrived at the significant figures of a grant of £42.6 million and a write-off of the debt that's currently owed to the Welsh Government of £42.6 million, because there's been scant information about that in the public domain to date?

Yes, of course. Well, clearly, all public transport has faced enormous challenges during the pandemic and, through no fault of their own, passengers have stayed away. So, the Welsh Government has stepped in to save businesses right across the public transport ecosystem. We've provided £165 million of support for rail services since last April, £140 million of bus support for private operators this financial year, and a £42.6 million grant for the airport and a similar level of debt write-off. We didn't do this lightly. We've been in ongoing dialogue with the airport, which continues to operate on a commercial basis, and we have a system of checks and balances in place to make sure that the support we do offer is done on that arrangement. 

We essentially had three options. We could do nothing, which would see the airport go into voluntary liquidation. So, let's just be very clear about that, if we hadn't taken action, the airport would have gone bust; it would have closed. We know that there are 2,400, roughly, aviation-related jobs that would have been directly impacted by that and, in total, over 5,000 indirect jobs supported by the airport. And that would have meant a loss to the Welsh taxpayer of around £115 million. So, we didn't think that that was a terribly smart thing to do, not least in the context of the broader interventions we've made. The second option was a 'do minimum' option, which would have been a 12-month £10 million loan, but that would have resulted in an impairment of our investment of, again, a similar £115 million. So that would have been not good value. And then, we looked at rescue and restructure, and that actually turned out to be the best value of the options we looked at. So, that's a rescue grant of £42.6 million and a write-down in the loan of a similar level. And again, that is based on a detailed restructuring report prepared by independent consultant Oxera Consulting, which was then corroborated by a further external report by Duff & Phelps, who provided a second opinion, and was scrutinised by Welsh Government lawyers and backed up with advice from a QC who is an expert in competition and subsidy control law. And the rescue and recovery plan has been scrutinised not only by Welsh Government officials but by Holdco and, as I say, these independent firms. 

Will you be able to publish the independent firms' reports that have been paid for by taxpayers' money? I think the public deserve to have the opportunity to have a look at those. 

Well, these are commercial matters, aren't they, Darren, so what we can't—

It's easy to hide behind commercial matters, though. We're talking significant sums of public money here. I mean, I don't think that there's another business in Wales that's been offered that kind of financial support. I remember Ministers telling us, when initial loans were offered to Cardiff Airport, that they were being offered on a commercial basis. Have you written off £42 million-worth of debt for any other business in Wales?

So, as I said, we'd be happy to send a note to the committee that sets out in detail the type of support that we've offered and the processes we've gone through. I don't think it is permissible for us to publish commercially confidential information provided in these reports and you certainly wouldn't expect that of us for any other business that we've supported. So, I think you need to put these on an equal footing as well—

I asked you whether you'd publish the information; you've answered that. Can I just ask you—

You asked me other—. Chair, I was asked a series of questions, I'm very happy to answer them. There's no need for an adversarial tone here. I'm more than happy—. We've got nothing to hide. 

I'm very happy for Members to interrupt. You've always previously said that you're happy if you're not quite getting to the point. I'm happy, though—

I'm happy, Minister, for you to make a little bit more progress, and I'll ask Darren just to allow you to make a little bit more progress. 

Okay, and I don't accept the characterisation that we haven't offered similar support to other businesses. I've just set out exactly the support we offered to other public transport businesses, where we have directly intervened to save them from going bust, and again, had we not done this, not only would Wales lack a piece of critical infrastructure, but the investments that we'd made to date would have been lost. And the whole purpose of our intervention here is a five-year rescue plan, so that initial taxpayer funding we've put in place is safeguarded, and we'll have an airport that can recover, because the airport was doing well pre COVID; there'd been a 50 per cent increase in passenger numbers, there'd been a turnaround on a series of indicators, and through no fault of the airport, coronavirus interrupted that.

11:15

It was never doing as well as the Welsh Government predicted when it made its offer price, which, of course, was predicated on significantly increased passenger numbers well in excess of those it actually achieved pre COVID. Can you tell us why Cardiff Airport needs so much financial support? I'm looking at the figures here for England, they can receive up to £8 million in grants per airport. In Scotland, airports received £17 million and the two Belfast airports received just £10 million. Why does the Welsh Government feel it necessary to give a grant of £42.6 million to Cardiff, and to write off a further £42-odd million as well?

It's important to be accurate about that, isn't it? Because our loan is a five-year loan. The support you've just quoted by the other Governments, which are also intervening to help airports operating in their territory, is a one-year loan. Now, I think there's going to be a large question mark over the loans they've given. And as I say, in the context of also giving support to the bus industry and the rail industry, whether those loans are going to be sufficient—

Forgive me, Minister, I was asking about the grants; the size and shape of grants.

Sure. There are grants—. Apologies, I should have referred to the grants that the UK Government are giving, rather than the loans; they are, in fact, grants, you're right. The Airport Operators Association has announced losses, saying that UK airports saw losses of £163.8 million, and the UK Government have capped their grants at £8 million, which lasts around 13 days—

So, I wouldn't be surprised if they have to go back and offer further support.

Sorry, can you just clarify this? You suggested that your support, your grant support, may have been over five years. This is a one-off grant of £42.6 million, isn't it?

To last five years. It's based on a five-year rescue and recovery plan that has been independently corroborated by two separate analysts.

So, that's a £42.6 million grant on top of the other financial support that you've given in the form of a loan, which is yet to be drawn down. Because I would have assumed that the loan was the thing that was going to be drawn down, because I know that, in February, when the director general attended the Public Accounts Committee, he told us that, to date, Cardiff Airport had drawn down £54.6 million-worth of loans. So, you've written off at least £42.6 million of that—yes? Does that mean that the loan facility, which was over £70 million, is still available for the airport to draw down?

No, and to be fair, this is a very complex patchwork of loans and different conditions—

I am.

—which we'll be happy to set out in a note so that it's available for you to scrutinise properly. Why don't I ask Simon Jones to just talk us through some of the detail to satisfy that answer?

Of course. So, there has been the original equity investment of £60 million, and if you remember, that includes an element of additional equity that was bought two or three years ago. And then, there were a number of existing loans that the director general talked to you about in the Public Accounts Committee a little while ago that you referred to. And then, on top of that, there is this new grant. The value of the loans, the pre-existing loans, and the equity, have been written down as an accounting treatment, because the value of that investment has reduced. We're doing this as the shareholder of Cardiff Airport. It seems unlikely—but we don't know, because these are commercial matters—it seems unlikely that other airport owners aren't also having to follow a similar accounting treatment as far as the value of their own assets are concerned. The valuation that we've put on the airport is at the bottom end of the range of likely values were the airport to be liquidated.

So, there's an upside to this; this is kind of a worst-case scenario that we've done, which is a prudent way of dealing with this issue given the current situation with COVID. The rescue and recovery plan allows for the value of that equity to increase in future, so this is not a one-off reduction in the value of the equity, and it's like that forever. If and when the recovery plan works, the value of that equity will increase.

11:20

Sorry. So, what is the current value of the airport as far as the Welsh Government is concerned, then?

£15 million is the equity value of the airport.

So, to date, then, according to the published accounts, which, of course, we've only got available to 2019, because we haven't seen the 2020 figures yet, which I assume you've seen—I assume you've got an idea of the performance of the airport over the past 12 months, or certainly up until the pre-COVID period back in 2020. But the losses to date were around £40 million cumulatively over the period since the airport was acquired.

There were significant grants as well that were given, much smaller than the £42-odd million-worth of grants that have recently been awarded, but certainly in excess of £1 million. The loans were, at the point of the last financial statements or certainly at the point of last month, £54 million, plus then the purchase cost. This is over £0.25 billion that's been invested, effectively, in our national airport.

Well, we'll happily give you the full breakdown. The total investment to date, according to the figures I have, is £130.2 million.

It's £130.2 million. Well, I'm looking at losses, grants, loans and purchase price. If you add all of those up, up until the recent grant—this is prior to the recent grant—they were £148 million. So, add the grant on top of that, £42.6 million, and then the write-off of £42 million, and we're looking in excess of £0.25 billion pounds. Can I just ask: did the Welsh Government consider what the opportunity cost of potentially investing this money in other businesses would be, and how many jobs that that might be able to protect? So, for example, if you gave £1 million to 40 businesses over the next five years rather than sinking £42 million into an airport, do you not think that that might have had a better bang for the buck?

We considered these things very carefully, and we've been—

Minister, we're just a little bit over time, but on the points Darren raises about the numbers, I know you've very kindly committed to providing us with some information, which we can also share with the Public Accounts Committee; is it possible that you could do that by the end of next week, because there are some pretty tight deadlines here that I'm looking at. I wonder if you could commit to that.

And then, if you could make some final points in regard to Darren's wider point.

As I say, we'll set out the figures in detail. With respect, I think Darren may just be adding up figures that are mutually exclusive and that doesn't give an accurate picture, but we'll address that in writing to make sure that committee has a full picture.

In terms of the opportunity cost point, I think it's a very reasonable point. As I said, we have offered significant help to other public transport sectors: £165 million to rail, £140 million to buses. Because had we not done that, there wouldn't have been a public transport infrastructure to return to once COVID restrictions are lifted, and that's the same with the airport. I guess the in-principle decision, Darren, is: does Wales need an airport? Do we want an airport? That, ultimately, is the judgment. Now, you've said consistently that you support the airport, but every single time the Welsh Government has done something to help the airport you've criticised it and opposed it. Now, this was a very stark choice for us. If we didn't do this, the airport would have shut, and that would have had significant knock-on economic effects that I've already mentioned, including 2,400 direct jobs and a significant GVA hit. So, you're right, these are choices, and that was the choice that we made—to preserve the investment that we'd already put in the airport, to support the growth we'd seen to make sure that that continues once effects that have hit the whole world have been felt—

[Inaudible.]—Minister. I appreciate your answer. I know that perhaps you're dealing with some points that were made earlier, which is absolutely fine, but we do need to move on. Darren, a very, very brief question and a very brief answer from the Minister. I can't hear you, sorry, Darren Millar.

Pardon me. Just one thing that hasn't been responded to there, Minister. I did ask: what is the current loan facility available to Cardiff Airport? I don't think you've clarified what that is. I appreciate that you've written down the loan, but of course, the loan facility that was previously available was in excess of £70 million. Is that still the loan facility that is available to Cardiff Airport on top of the cash that's been written down, the grants that are available, the purchase price, et cetera?

11:25

Unless it's a brief answer, can you include that in your note unless you can provide us with a brief answer, Deputy Minister?

I think we'll clarify it in the answer, but elements of the loan were also written down, but we'll set that out in the answer.

Thank you. And Simon, are you happy and content that you'll be able to provide the information by the end of next week?

Yes, sure. Of course.

I appreciate that. Darren, you might want to—. You're welcome to remain, but I appreciate you might want to leave because you've completed your section on behalf of PAC. So, thank you, Darren Millar.

Thank you, Chair. I want to ask some questions about the new arrangements for the rail franchise and some questions about the metro, and I do this from a position of having supported, as you know, Deputy Minister, the steps that the Welsh Government has taken. The key elements of the new service agreement between Welsh Government and Transport for Wales, now that the operation has been finalised—how do those final arrangements differ from the previous agreement in terms of output, in terms of what you expect from it?

In terms of the passenger experience, there will be no changes that people will see from day 1. That has been a deliberate choice. This is about business as usual—as usual as it can be, given the COVID situation. In terms of management of the arrangement, we've put in place a set of new performance measures that I think we discussed in a previous committee. So, there's a set of key performance indicators that will be published. We're gathering that data now. The first round of that will be ready in April. I think the pre-election period may mean that we may not be able to publish that immediately, but the performance indicators will be ready from that point. 

They cover a wide range of different areas, from service provision through to customer service effectiveness, cost efficiency, safety and how TfW and the rail services get on with strategic deliverables. We've agreed with the company that the achievement of the performance indicators will be part of the performance regime for both the chief exec of TfW and the incoming managing director of TfW Rail. So, we've got a number of measures in place that we've changed as a result of this service now being brought into TfW.

That's helpful to know. I'll come back to money in a minute, Chair, if I may, but since you've mentioned key performance indicators, Simon Jones, can you tell us a little about how those are different from the ones that the Government had with KeolisAmey?

So, the management arrangement and the oversight arrangement previously were between TfW and KeolisAmey. We're very conscious, as we've discussed in this committee before, that we don't want it to be seen for TfW to be marking its own homework, so we've now brought some of this operational stuff into our area. In a way, what we've been trying to do is for TfW to deal with a lot of the operational management. We need to put something in place, but we don't want to undermine the principle that TfW is our delivery agency, and we're here to make sure that they're achieving their policy objectives. So, the performance regime that we've put in place is pitched at a level so that we can see clearly whether they're achieving the things that Ministers are keen to see delivered, and the public of Wales expect to see delivered, without getting too far into the weeds of managing operational delivery.

That's helpful. Thank you. If I can return to finance, then, we weren't quite clear after our budget scrutiny session about what the cost of the transfer to more direct control has been, and whether there was a requirement for any additional subsidy over and above what would have happened in the pandemic if the private arrangement had been able to continue. I think you've been pretty clear that the private arrangement couldn't continue because it was impossible to make a profit. Was there an additional cost to the transfer other than, of course, people's time?

My understanding is that James Price from Transport for Wales has written to the committee setting out those issues around cost. I think that letter—. I saw a version of it yesterday, I think, so it will have only just landed, I guess.

Okay, thank you. That's helpful, too. So, can you tell us—? Obviously, Transport for Wales provides services in England as well. What arrangements have been reached with the UK Government in that regard, in terms of those services? Particularly, is there a service agreement in place? What's the funding? What's the performance management? How's that going to work?

11:30

The pre-existing suite of arrangements has rolled over into the new arrangements, so the performance management and the funding arrangements have stayed the same, albeit obviously the issues around COVID make the funding stuff more complicated, because there are Barnett consequentials coming in for the shortfall there.

Thank you. Just finally, Chair, from me on this section, can the Minister provide an update for us on the current state of progress in relation to the metro development, particularly in terms of the key deliverables expected for 2021-22? To what extent has the COVID crisis impacted on the likelihood of those deliverables being met?

There has been an impact, inevitably, but I'd say we're broadly on track. The diggers are now in the ground on the £750 million smart electrification of the core Valleys lines. Work has been going on over the last couple of months on the lines north of Radyr as well. There's work started on the new depot at Taff's Well. There is activity still ongoing and our plans are broadly uninterrupted, I would say. I don't know if Simon wants to add to that.

Yes. There's work on the fleet as well, so there are some changes to the fleet happening over the next little while, so people may have seen—. I think we've talked in this committee in previous years about something called a 769 train. Those trains have now entered service and we're seeing those in service and we'll be seeing more of those. There are new trains—. Beyond the south-east Wales metro, there are new trains that are coming into service on the Wrexham to Bidston line as well. So, there is work across Wales on the metros.

Thanks, Chair. I'd like to discuss the Burns commission recommendations. First of all, could we just have an update on the work of the delivery unit set up within Transport for Wales? Has the steering group been established and when is the appointment of a chair likely to take place?

Yes, the steering group has been established. We've signed a memorandum of understanding with the council and the steering group is meeting. As I say, we've said before we want to turn the steering group into a delivery board with an independent chair, and we are well advanced in identifying a chair and are in conversations with Newport council to agree that, so hopefully we'll be able to make an announcement soon.

And just today, the UK Government's interim report of the union connectivity review has been published, and identifies south Wales as a corridor as an issue in the context of the Burns commission report. The UK Government has announced a number of things in response, including £20 million of funding to explore a number of issues raised by the review. One of those is rail improvements in south-east Wales, building on ideas from the Welsh Government's Burns commission. Have you had dialogue with the UK Government about that, and what's the state of play at the moment?

So, as Simon has already mentioned, Ken Skates met with Sir Peter Hendy briefly last night. We had the report ourselves yesterday afternoon. On first glance, it looks relatively positive. It certainly notes that devolution has been good for transport, where delivery has been devolved, so that was a positive statement we took comfort from, and it is positive about the Burns commission report, so that is encouraging. Obviously, it's important the UK Government plays its part in implementing that report, so we do need to see upgrades to the Ebbw Vale line soon.

Sorry, I can't hear you. I can see you're trying to interrupt me.

I've got awful connectivity here. Were you aware of the £20 million that they were going to announce that they've announced today?

Sorry, the connection's a little bad. I think, Minister, you may just have been able to work that out.

Yes. Personally, I wasn't, but that's maybe because I was thinking about other things. Simon, were we aware?

No, we weren't aware of it. We have been talking to officials in the Department for Transport over recent months, and we've set out what the requirement for Burns is in the long term, as set out in the report. There are several hundred million pounds' worth of rail works required over the next few years. So, we've set that out clearly to Department for Transport officials, but we hadn't been notified about any figure being announced today.

11:35

So, is that going to be sufficient to be the contribution that the UK Government makes, or do you think—[Inaudible.]—contribution?

I think that we've made clear before that our analysis of the next 10 years' spend is that Wales is short of £5 billion of rail infrastructure investment. So, there's an awful long way to go to match the rhetoric of union connectivity with investment that allows that connectivity to take place.

It just seems to me that if the Welsh Government didn't know about this announcement—and as you say, it's a relatively small dip in the pond—there are still some concerns about the commitment of the UK Government to working with the Welsh Government on this issue.

In terms of their reviews—the Williams review before this and the Hendy review—I think that we have been well engaged. So, I think that, on a policy level, with external people brought in, there has been good dialogue. But, it's the delivery that matters and that is the scepticism that we have. A lot of what is in Burns is about addressing historic underinvestment in a modern public transport system and a modern rail system. So, I think that until that is backed up by funding and a pipeline of schemes, then it will just be rhetoric.

Okay. And you said yourself that people would see change within 18 months to two years. What are the concrete steps that will be taken to get to that kind of change in that timescale?

Well, as I previously mentioned, there is now a development unit within Transport for Wales, and they have broken down the 72 recommendations in the Burns report and are drawing up a delivery programme to deliver all of those. Some of those we have responsibility for; some of them will need to be done in partnership with the UK Government.

Work is already beginning in the planning stages, for example, on new stations in St Mellons and in Llanwern. We are talking to the council about accelerating active travel interventions within the next couple of years. We are very keen to see if we can get a route between Cardiff and Newport for medium-distance commuting, for example, to ease pressure on the roads. So, we are at the early stages, I think, of looking at the delivery mechanisms.

With regard to the Welsh Local Government Association and local authorities' role in establishing which specific transport functions could be transferred to joint committees, the CJCs, what's the plan with that? What is the outcome, and which functions do you think CJCs would undertake? 

Well, I think that the issue with the CJCs is that, because we weren't able to take our public transport Bill forward, we didn't get to the point that we really wanted to get to, which was the CJCs. So, although they will have some transport functions, they won't have all of the transport functions that we hoped they would have because of the pressures that we've outlined before. Officials are planning future legislation for the next Welsh Government to look at for a further public transport Bill.

But, also, we want to try and reach agreement by consensus with the local authorities that the CJCs can be more than the sum of their parts. So, for example, just to talk about active travel again for a second, active travel isn't formally part of the CJCs. But, we would like that to be a footprint where local authorities collaborate at a regional level. So, I think that there is a lot more that the CJCs can do than is set out in the legislation. The exact division of labour is something that we are doing in the spirit of co-production with them as we speak.

With that in mind, with the Bill not happening and with the plans kind of pulled together as best you can in the absence of a Bill, do you think that Transport for Wales has the capacity to meet that gap, in the absence of CJCs in the function that you would envisage?

Well, it's an evolving picture, isn't it, to be honest? We are asking a lot of Transport for Wales over a short period, and they are so far proving up to the tasks that we've asked of them. If you had asked, a number of years ago, whether or not they had the capacity and capability to do the railways, then there would have been similar, legitimate question marks raised, and they've done the job remarkably well and have now taken on board the running of the franchise. So, I've no doubt about their capability of doing so. Are they fully up to speed, as of today, with where they need to be to take on these functions? No, they're not, but we've set out in the remit letter what we expect of them, and we're working very closely with them to make sure they're able to follow through on that.

11:40

Thank you, Chair. Good morning, Ministers and officials. Minister, you mentioned earlier, in response to Helen Mary's questions about the metro and the rail franchise, but I think it's important to note, in north Wales in particular, that bus services and bus networks are going to play an incredibly important role in delivering the north-east Wales metro. So, with that in mind, I'd like to focus my questions on the support for and the future of bus services in Wales. 

Can the Minister provide an update on the bus emergency scheme, the BES 2 agreement? Is this now in place, and how long does that agreement last for? And perhaps, in response to that, you could state which specific obligations the agreement places on operators, and how is the Welsh Government supporting smaller operators to ensure that they are able to fulfil these obligations?

Okay. I'll start on that, and Simon can pick up. So, BES 2 will be in place from 1 April. We've got contracts in place with around 65 bus companies, and we've had agreement from all the local authorities in Wales to sign up, so we're confident that we're on course to meet the beginning of that contract on 1 April. The contracts will last until July of next year, but the partnership that goes alongside those contracts will, we hope, extend way beyond that. And this goes back to the sort of public transport, bus environment that we are aiming for, and you'll see more of this when we publish the Wales transport strategy next week. The overall policy position is around modal shift, how do we achieve our climate change objectives through transport, and that involves a shift to public transport and active travel, and buses have got an enormous part, the largest part, to play in that. And we can only achieve that through partnership.

So, as I say, we're hoping, and it's so far, so good. This is an opportunity that has arisen from the crisis, that we have had much better relationships with the companies, and there is the emergence of a shared vision of where we all want to get to.

Can I come in on the specifics? So, you asked about what are the differences. So, this version of the contract builds on two previous iterations. So, the big differences here: we're asking for additional data from every operator who's in receipt of public money to help us with planning networks in the future; we're aiming to create a reference network, which means that we're not just focusing on individual routes, we're focusing on the whole of Wales, so operators in receipt of the funding can't pick and choose which routes qualify for support and which ones don't; operators are expected to commit to the economic contract as part of the BES 2 thing, which is a really important policy objective for us in the wider economic landscape; and, as the Minister said, there's a commitment to work in partnership for the long term.

Thank you for that, both. I think it's important to look back at why we're doing this really. And I always point to the dreadful deregulation of bus services. We've got to get back to a better place, haven't we? But it's also important to remember that partnership is key, and for the record, I'm not sure whether they have signed up to it, but I've written to Arriva, and I'm yet to have a response, calling for them to sign up to it. So, I'll just note that for the record. 

Minister, can you provide some more detail on the review of bus services by Transport for Wales, and can you specify what the review is considering, how the industry is being involved within that review, and when the outcome of the review is likely to be available for all to see?

Well, likewise, I'll start off. So, I think the principle, as Simon has already mentioned, is we're looking to design a whole network rather than just individual corridors, and that network will not just be about buses—it'll be about taxis; it'll be about active travel; it'll be about an end-to-end user journey. That's the important thing here—that we put the person at the centre of this, rather than the providers of the means to get around. So, it should be more diagnostic in that sense.

So, TfW have been commissioned and they're working closely with the local authorities, who obviously have the local knowledge, to analyse the data sets, and TfW have developed their own analytical and data capacity and capability for this. And the data they're generating from that is fascinating in showing where the gaps are and where we need to, for example, focus our road space reallocation programme. We know from bus use, for example, and this committee's taken evidence for a number of years from bus operators who say that the main impediment to people shifting to public transport is the issue of congestion. So, for example, in Newport, there's been very interesting data generated, showing where minutes are lost by bus passengers on the route in through central Newport. Well, if we can use that data to design bus priority measures, bus lanes, priority traffic lights and so on, that can then target in a very smart and surgical way an end-to-end user journey that makes bus use more attractive than driving. So, that's the sort of work that's going into coming up with these networks. Simon, is there anything you want to add?

11:45

Yes, it's probably just worth saying that, as part of the BES agreement, we're establishing a strategic group with industry and local authorities to consider all of these matters. So, we have a forum that can look at things in a strategic way in a way that we haven't been able to before. So, network design will certainly be one of the areas that we'll be discussing, but there's a whole load of other areas: so, integration so that passengers can travel between modes and operators; the decarbonisation of the fleet, which is another policy priority for the Government; fares policy and infrastructure in a way that the Minister was talking about. So, there are some big subject areas that we need to work through with the industry in order to be able to come up with the right kind of solutions.

Okay, thank you, Simon. The Minister mentioned evidence that we've had from operators in the past and it's quite timely really because that's where I want to move on to. Operators have told this committee in the past that their priority, following the BES 2 agreement, 

'is building back a commercial network, and not having a reliance on public funding'.

How do you respond to those comments, Minister, given the Welsh Government's ambition to give public authorities more control over services and your comments that Transport for Wales could run services directly? Are the Welsh Government and bus operators in agreement on the purpose and the long-term future of the BES?

[Inaudible.]—just try and get through the questions. Sorry, to interrupt, Deputy Minister.

I think it's just worth noting that most bus routes were reliant on subsidy before now, so the idea that there were somehow these buccaneering companies out there, out of the way of the state, making a profit and we've interfered in their daily business is just not borne out by the facts in most cases. The truth is that we want a something-for-something relationship with business. We've said that in the economic contract; we're saying it through our bus support. So, the reality is that most routes are not able to operate purely in commercial terms, and that is fine—it's a public good. But this is delivered in partnership with the private sector, and where the private sector is able to operate a route without a subsidy, great, but we don't want them just to cherry-pick the profitable bits and leave the rest of the network. The whole point of our strategic approach is that we create a network and, necessarily, you need to cross-subsidise the profitable with the not profitable, and that's why we're moving to the system that we're moving to, and the bus operators will need to play their role in that—they can't simply take the money and run. And I think, to be fair to them, they recognise that and the conversations we're having are mature and hard-headed. We're not in the business of being Bolsheviks, we're not going to stop them running commercial services, but equally, we need to make sure that we get best value for the public funds as well.

I welcome that strategic vision, Chair. I'll leave my questions there. 

Yes, thank you, Jack. Vikki Howells, for the last set of questions.

Thank you very much, Chair. I'd like to talk about youth unemployment and skills. Clearly, it's a really important area as we emerge from the coronavirus pandemic. So, firstly, can the Minister explain what analysis Welsh Government has undertaken on the potential for a scarred generation of unemployed youth, what the analysis actually shows around that, and what additional actions Welsh Government feels need to be taken?

11:50