Y Pwyllgor Cyllid - Y Bumed Senedd

Finance Committee - Fifth Senedd

10/03/2021

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Alun Davies MS
Llyr Gruffydd MS Cadeirydd y Pwyllgor
Committee Chair
Mark Isherwood MS
Mark Reckless MS
Mike Hedges MS
Rhianon Passmore MS
Sian Gwenllian MS

Y rhai eraill a oedd yn bresennol

Others in Attendance

Andrew Jeffreys Cyfarwyddwr, Trysorlys Cymru, Llywodraeth Cymru
Director, Welsh Treasury, Welsh Government
Dai Lloyd AM Yn bresennol fel aelod o'r Pwyllgor Materion Allanol a Deddfwriaeth Ychwanegol ar gyfer eitem 5
Present as a member of the External Affairs and Additional Legislation Committee for item 5
David J Rowlands AM Yn bresennol fel aelod o'r Pwyllgor Materion Allanol a Deddfwriaeth Ychwanegol ar gyfer eitem 5
Present as a member of the External Affairs and Additional Legislation Committee for item 5
David Rees AM Yn bresennol fel aelod o'r Pwyllgor Materion Allanol a Deddfwriaeth Ychwanegol ar gyfer eitem 5
Present as a member of the External Affairs and Additional Legislation Committee for item 5
Debra Carter Dirprwy Gyfarwyddwr Cyllid Strategol Llywodraeth Leol, Llywodraeth Cymru
Deputy Director, Local Government Strategic Finance, Welsh Government
Gawain Evans Cyfarwyddwr Cyllid, Llywodraeth Cymru
Director of Finance, Welsh Government
Geth Williams Dirprwy Gyfarwyddwr Cyfansoddiad a Pholisi, Swyddfa Cymru
Deputy Director of Constitution and Policy, Wales Office
Huw Irranca-Davies AM Yn bresennol fel aelod o'r Pwyllgor Materion Allanol a Deddfwriaeth Ychwanegol ar gyfer eitem 5
Present as a member of the External Affairs and Additional Legislation Committee for item 5
Marcella Maxwell Dirprwy Gyfarwyddwr Caffael Masnachol a Strategaeth Grŵp, Llywodraeth Cymru
Deputy Director, Commercial Procurement and Group Strategy, Welsh Government
Nick Ramsay AM Yn bresennol fel aelod o'r Pwyllgor Materion Allanol a Deddfwriaeth Ychwanegol ar gyfer eitem 5
Present as a member of the External Affairs and Additional Legislation Committee for item 5
Rebecca Evans AM Y Gweinidog Cyllid a’r Trefnydd
Minister for Finance and Trefnydd
Simon Hart MP Ysgrifennydd Gwladol Cymru
Secretary of State for Wales

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Bethan Davies Clerc
Clerk
Georgina Owen Ail Glerc
Second Clerk
Leanne Hatcher Ail Glerc
Second Clerk
Martin Jennings Ymchwilydd
Researcher
Mike Lewis Dirprwy Glerc
Deputy Clerk
Owen Holzinger Ymchwilydd
Researcher

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 09:03.

The committee met by video-conference.

The meeting began at 09:03.

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

Croeso cynnes i bawb i gyfarfod Pwyllgor Cyllid Senedd Cymru. Mae'n dda gen i weld pob un ohonoch chi. Yn unol â Rheol Sefydlog 34.19, dwi wedi penderfynu gwahardd y cyhoedd o gyfarfod y pwyllgor er mwyn diogelu iechyd y cyhoedd. Yn unol â Rheol Sefydlog 34.21, fe gafodd rhybudd o'r penderfyniad hwn ei nodi yn yr agenda ar gyfer y cyfarfod. Mae'r cyfarfod, wrth gwrs, yn cael ei ddarlledu'n fyw ar Senedd.tv, a bydd Cofnod o'r Trafodion yn cael ei gyhoeddi, fel sydd yn arfer digwydd. Ar wahân i'r addasiad gweithdrefnol sy'n ymwneud â chynnal trafodion o bell, mae holl ofynion eraill y Rheolau Sefydlog ar gyfer pwyllgorau yn parhau.

Gaf i ofyn, felly, cyn mynd ymhellach, a oes gan unrhyw Aelodau fuddiannau i'w datgan? Nac oes. Iawn. Gaf i nodi hefyd, fel byddwch chi'n gwybod erbyn hyn, dwi'n siŵr, os byddaf i'n colli cysylltiad am unrhyw reswm, fod y pwyllgor wedi cytuno'n flaenorol, yn unol â Rheol Sefydlog 17.22, mai Siân Gwenllian fydd yn cadeirio dros dro wrth i mi geisio ailymuno?

A warm welcome to everyone to this meeting of the Senedd Finance Committee. We're pleased to see you all here. In accordance with Standing Order 34.19, I've determined that the public are excluded from the committee's meeting in order to protect public health. In accordance with Standing Order 34.21, notice of this decision was included in the agenda for this meeting. This meeting is being broadcast live on Senedd.tv, and the Record of Proceedings will be published as usual. Aside from the procedural adaptation relating to conducting proceedings remotely, all other Standing Order requirements for committees remain in place.

Could I ask, therefore, before going any further, whether Members have any interests to declare? No. Okay. Could I note for the record also that if, for any reason, I lose my connection, the committee has previously agreed, in accordance with Standing Order 17.22, that Siân Gwenllian will temporarily chair the meeting while I try to rejoin?

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

Mi symudwn ni, felly, at ail eitem yr agenda, sef y papurau i'w nodi. Mae yna set o gofnodion o 3 Mawrth, ac mae yna bump papur arall i'w nodi. Mi wnaf i eu cymryd nhw gyda'i gilydd, os yw Aelodau'n hapus i'w nodi nhw gyda'i gilydd. Ie? Dyna ni, iawn.

We'll move on, therefore, to the second item on the agenda, namely the papers to note. There are the minutes of the meeting on 3 March, and five other papers to note. I'll take them together, if Members are content to note them all together. Yes? Fine.

3. Gwaith Gwaddol y Pwyllgor Cyllid: Sesiwn dystiolaeth
3. Finance Committee Legacy work: Evidence session

Ymlaen â ni, felly, at yr eitem nesaf, sef i edrych ar ac ystyried gwaith gwaddol y Pwyllgor Cyllid yma. Dŷn ni'n falch iawn i groesawu unwaith eto atom ni Rebecca Evans, y Gweinidog Cyllid a'r Trefnydd—croeso cynnes. Ac yn ymuno â hi mae ei swyddogion. Mae gyda ni Andrew Jeffreys, sy'n gyfarwyddwr Trysorlys Cymru; Gawain Evans, cyfarwyddwr cyllid, a fydd yn ymuno â ni mewn munud; Debra Carter, dirprwy gyfarwyddwr, cyllid strategol llywodraeth leol; a Marcella Maxwell, dirprwy gyfarwyddwr, caffael masnachol a strategaeth grŵp. Croeso cynnes i chi i gyd. Mi wnaf i, efallai, gychwyn y cwestiynu, os caf i, Gweinidog, drwy ofyn os ydych chi'n teimlo bod y Pwyllgor Cyllid, a phwyllgorau eraill y Senedd, a dweud y gwir, wedi mabwysiadu agwedd mwy strategol wrth graffu ar y gyllideb ddrafft ers datganoli pwerau trethi ac o dan brotocol y gyllideb. Efallai y gallech chi ddweud sut mae hynny wedi effeithio, os ydyw e, ar ddull Llywodraeth Cymru o gyllidebu a'r modd yr ydych chi'n ryngweithio gyda'r pwyllgor yma.

We'll move on, therefore, to item 3, which is to look at and consider the legacy work of this Finance Committee. We're very pleased to welcome once again Rebecca Evans, the Minister for Finance and Trefnydd—a warm welcome to you. And joining her are her officials, namely Andrew Jeffreys, director of the Welsh Treasury; Gawain Evans, director of finance, who'll be joining us in a moment; Debra Carter, deputy director, local government and strategic finance; and Marcella Maxwell, deputy director, commercial procurement and group strategy. A warm welcome to you all. I'll start the questions, if I may, Minister, by asking whether you feel that the Finance Committee and other committees in the Senedd have adopted a more strategic approach in scrutinising draft budgets since the devolution of tax powers and under the budget protocol. Maybe you could tell us how this has affected, if at all, the Welsh Government's approach to budgeting and its interaction with this committee.

09:05

Thank you, Chair, and good morning, committee. Yes, I think that there have been great changes over the course of this Senedd in terms of our budget processes, and I think that many of those have been a direct result of the scrutiny provided by the Finance Committee and other scrutiny committees in the Senedd. Just over the past couple of years, you'll have seen that we publish a much greater range and depth of information now alongside our budget—for example, the new work that we've been doing on distributional analysis, the new work that we've been doing on understanding the carbon impact of spend, and also the gender budgeting work, which was in response to some of the issues raised by both this committee and others. Alongside that, we've tried to corral all of this over the last couple of years through our budget improvement plan, and that has been, I think, a particularly important central point, really, for us to gather all of these new innovations that we're developing, but also to do so with a sense of focus and purpose, looking always five years ahead as to what more we need to be doing in terms of understanding the impact of spend, but also in terms of the engagement work that we do to develop our budget in the first place. I think that the work that the committee has done and the relationships that we've positively established with committees have been very useful in that.

Thanks. Yes, I think one thing I would add is that I the co-ordination between the roles of the different committees in scrutinising the budget has improved quite a lot during this term, particularly since 2017, with the new protocol. Prior to that, I think there was quite a lot of overlap between the types of questions that committees, particularly Finance Committee and subject committees, were asking either the finance Minister or the relevant portfolio Ministers. I think that shifted quite a lot, and now the angles that the Finance Committee explores are different from the kind of angles that the subject committees are exploring in their budget scrutiny. They are more strategic and, I suppose, macro level about the strategic choices that are being made around the budget as opposed to the portfolio-specific issues that tended to crowd in quite a lot in scrutiny of the budget for the finance Minister in the earlier period. So, I think that's quite a big step forward in terms of making the process more effective and more comprehensive.

Yes, it's always a temptation to stray into other committees' remits, but there we are—we'll keep working at it. The other feature, of course, in the last couple of years has been the strategic debates we've been having, the budget priorities debates, which have happened, I think, before summer recess in the last couple of years. I'm just wondering whether you have any view on how that has worked, or how it could maybe be improved, and maybe more widely as well in terms of wider public engagement in the budget—how, maybe, we as a committee, and you as Government, I suppose, could improve our work on that front.

Again, this is an area where I think we've seen real improvement and steps forward over the course of this Senedd. I personally have found the debates early on in the process, before the summer recess, to be extremely useful in understanding colleagues' priorities for the budget ahead, and I think that kind of early engagement and opportunity to discuss things in a very open way has been really useful, as has the work that has underpinned those debates, which committee has undertaken in terms of your public engagement. I recall a couple of years ago you had sessions in Aberystwyth, where members of the public were able to come and share their views with you, and I thought that that kind of very open engagement at an early stage was really important.

More widely in terms of engagement, we've been always keen to see what more we can do to engage with stakeholders on the budget. So, I have a round-table with all of our statutory commissioners, for example, and we do have the budget advisory group for equality, which we're continuing to improve the focus of. We're also trying to explore what more we can do to engage with young people on the budget. So, we have our young people's budget leaflet, which I think lots of people actually use because they find it quite accessible and easy to understand the information. But also, recently, I've been doing some work to engage with economics students in Wales—so, a series of question-and-answer sessions with the chief economist where we talk to students and they are able to ask us any questions that they want. I think that that's been really useful as well. So, we've had a range of these kinds of activities, which are always seeking to develop and improve what we do.

And alongside that, the work that Jeremy Miles led on the recovery plan has this year in particular been extremely important in helping shape the budget. That work was informed by over 2,000 responses and six round-tables with leading experts. So, that was a huge piece of work and really useful in terms of helping us focus our minds on the budget ahead. So, the more we can engage, the more we can listen, I think the better chance we have of getting things right. 

09:10

Yes. The other thing I would say is that every time we discuss finance these days, we caveat it with, 'These are very difficult times', and we're always finding ourselves, maybe, in some sort of uncertainty in relation to funding, particularly when we look at funding events on a UK Government level. Now, that does have an effect, obviously, on your work, but it trickles down to us in that we have very often shorter periods for scrutiny, which is something I highlighted yesterday in our Plenary session. And that is a concern for us. I know maybe some of it is outside of your control, but I'm just wondering whether you feel that the timings that are in the agreed protocol are still appropriate, given the current UK Government's likely timetabling of UK fiscal events, going forward.  

I think the fact that we have been able to move in such an agile and flexible way this year is a positive reflection on the protocol that we have, and it hasn't been unduly affected in terms of the increase that we made to the eight weeks of scrutiny, although I appreciate that when you're having several of those weeks across Christmas recess, for example, it's not ideal by anybody's standards. But I think the protocol has served us well thus far. Of course, we await the long-expected comprehensive spending review and, when we are able to take that longer view of public finances, I think we will be in better shape to have more of that regular, reliable rhythm, dare I say—the First Minister's mantra. But I think that, as you say, these past couple of years in particular have been extraordinary. 

Just looking at the year ahead now, with the current uncertainty about fiscal events, the timing of fiscal events and, as the Minister says, we're expecting a spending review but when exactly that will be and what its scope will be remains to be seen, I think those are key issues for the new Finance Committee next term. In light of that, how do they want to start off their process? What's the first thing that they want to do in respect of looking at future fiscal prospects for Wales and for the Welsh budget? What kind of position will we be in in June, July for that pre-summer debate in terms of fiscal prospects? Might it be better to have that debate later on in the cycle, perhaps once we're a bit clearer about what the timing of the spending review might be? So, I think there are some important early questions for the new Finance Committee to consider, where perhaps your advice to them about those kinds of issues would be helpful. 

Okay. Yes, thank you. Right, we'll move on to Mike Hedges. 

Diolch, Cadeirydd. Some years, we've had the outturn and detailed budgets at the same time; other years, we've had the second supplementary budget and the draft budget for the following year at the same time. Do you think that is good practice? Personally, I'm fairly neutral on it, but is that just events causing that to happen, or is that a conscious decision of the Welsh Government? 

No, it is events, if you like, causing these things to happen. I think that there is an important job to be done in scrutinising the outturn reports and looking back at the financial decisions of previous years. I think that having that document published in the autumn is arguably timely, in the sense that it allows the committee to look back whilst also considering the budget moving forward as well. So, there is potentially some benefit, but it's not a deliberate timing issue. I can see Andrew wanting to come in, Chair.

09:15

The ideal timing, I suppose, is that you'd have your first supplementary in July before the summer recess, draft budget in October, completed before Christmas, and then the second supplementary budget in February to finish off the year. We just haven't been able to do that because of the timing of UK fiscal events, but that's the kind of cycle that we would ideally operate with, and that's what the protocol expects, I suppose, but we just haven't been able to hit any of those, particularly for the draft budget, because of the spending review issues.

But this has not just been a 'this year' problem, has it? It's been something over several years. I can't think of a time when your ideal situation actually occurred. Perhaps you could tell me which year it did.

I think we had—. We've had a couple of years in this term when it has happened, but the majority not.

Thank you very much, Chair. Just a quick question around that being an ideal framework in respect to those events. Where do you see that this is implemented, in terms of other legislatures and Parliaments, that you feel is an optimum model? Do we have that understanding as of yet, bearing in mind that this has occurred previously within the Senedd in terms of these events?

I think that's a really good question. Every country does this a bit differently, unfortunately, and I suppose our context is unusual in the sense that we're so highly dependent on the UK Government's fiscal events for doing ours, so we don't have that autonomy to stick to our own timeline. We're relatively unusual in doing two supplementary budgets a year. Most people do one. UK Government does one. So, that—. I think there are good reasons why we do that here; I think it has some advantages. But, yes, we need to keep on looking at what best practice looks like in this space. But I think the fact of our dependence on UK fiscal events makes it a bit difficult for us to really control our destinies, as it were.

This gives you a chance to say some nice things about us. How helpful do you think the committee's scrutiny has been in terms of concentrating the mind of Government? My view of scrutiny is that scrutiny committees achieve mainly one thing, and that makes people take a closer look at what they're going to be scrutinised on before they actually come in and are scrutinised on it. So, it makes you—and I don't mean you personally; I mean you as a Welsh Government, whichever issues you're being scrutinised on—actually have to really look through it, because you're wondering what questions we're going to ask. Leading on from that, and you might not want to answer this as finance Minister, and I might need to ask you this as Trefnydd next week, but why do we have such a short debate on the final budget? Our debate on the final budget, for anybody sat on a council, is about a third or a quarter of the length of time a council would take to set its budget. I just find it—. We're spending a huge amount of money in Wales and yet we have such a very short debate—the debate on it. Now, I don't think the debate is going to change anything, but there are advantages in publicly having this full debate, and the Finance Committee and the other committee should be informing that debate.

Yes, the Finance Committee has been invaluable in focusing our minds on how we can improve what we do. So, when Finance Committee reports come out, the first thing we do is grab those recommendations and see if there are things there that we can learn from and what we can agree to. I have to say, almost all of the recommendations that Finance Committee comes forward with we are able to agree, because they genuinely do move us forward, in terms of what I think we both want to achieve, and that is a budget that meets the needs of people in Wales, but also is understandable and transparent and drives forward the kinds of things that we talk about in our budget improvement plan. And that plan is a direct result of the work that this committee and others have asked us to do. I mentioned some of the other innovations that we've introduced to the budget over the last couple of years as other examples of things. So, yes, the work of committee is absolutely vital, and I think it's good for Government to be scrutinised so publicly on our spending, just for pure reasons of democracy, really—that we need to have this public forum to ask the questions.

09:20

Thank you. You neatly side-stepped the last question. That's okay; I'll ask you next Tuesday, when you're doing a different role. Because I think that is a key a point. I want to get it on the record here, but I think it is a key point that we have such a very short debate, in which we all have five minutes to discuss how we're going to spend £17 billion or so, and I think that is fundamentally wrong. That fits into your other role, so perhaps I want to ask you that next Tuesday.

Chair, did Andrew want to comment on that point particularly?

Well, I think one thing on that point about length of debate—we do have a lot of episodes. The episodes are not very long, or not as long as they could be, but there are lots of opportunities for the Senedd to debate the budget. We have a statement when the draft budget's published. We have a debate on the draft budget. We have a debate on the final budget. Maybe it would be better to have fewer, longer sessions, rather than—.

Actually, I see no problem with having the three debates. I just think that, when you come to a final decision on how you're spending the money, managing it in an hour does seem to be appearing to the public to not be taking is as seriously as an institution as we ought to. But I'll leave it there, and we can discuss it again next Tuesday.

The other point I was going to make is that you have described a more centralised approach to budget and budget prioritisation. How will I see that? Because what I see is health being given a huge chunk of money—roughly half the budget. They then distribute it around the health boards, and they keep a portion of that back as a heath reserve in order to fund all the overspends that are going to occur in the health boards. Where would I see this more centralised control?

The more centralised approach was taken in response to the pandemic, so largely in relation to the additional £6 billion that we received in respect of COVID, and that was where I took the decision to make specific allocations to the various strands. So, we had the public services response, the transport response, the local government response, the response to the economy and also the third sector. So, it was those individual allocations that I made that was the more centralised response in that respect. And that was really helpful in the sense that we were making decisions on large amounts of money very, very rapidly and having that central point to corral those requests for funding to make sure that it was coherent and to make sure that we were doing so in a way that was still driving value for money, but also in a way that we knew would be affordable across the financial year. So, having that kind of central approach specifically in relation to COVID was important.

But there was a balance to be struck. So, even within that, I didn't think that it would be appropriate for Vaughan Gething, for example, to be coming to me every time that he needed money to fund a various part of the response from the health service. So, we worked with officials within the health department and also individuals within the health boards to understand what they thought the additional funding that they would need across the financial year would be. And that's how we got to that £800 million figure. So, there was some latitude and flexibility within that then for the health Minister to respond to the health crisis. So, I didn't micromanage that in any way. So, we felt that that was an approach that was proportionate, but also allowed that fast-moving decision making to be taken.

09:25

Thank you. Good morning—bore da. Budget prioritisation and allocation has been happening at a time of major change, such as the pandemic, climate emergency and the Well-being of Future Generations (Wales) Act 2015. To what extent do you believe that arrangements for approving budgets of directly funded bodies need to change or be improved to reflect this?

I think, in general, the processes that we have for the directly funded bodies work well. I'll be interested to see the outcome of your legacy report to see if you think that there are improvements that can be made. I think that some of the things that occur that work actually happen outside of Standing Orders, so this might be an area to look at, and that's—. Standing Orders require the directly funded bodies to provide the explanatory memorandum at the time of the supplementary budget motion being tabled. But actually I know that, in practice, they provide more information ahead of that, and that does obviously allow then you, as committee, to consider those issues before the Welsh Government tables its supplementary budget motion. I think that's been a helpful development, but it's not reflected in Standing Orders, so that might be something to be considered as an improvement for future years.

To what extent do you believe that timing or other issues need to be overcome in terms of approving and incorporating budgets and supplementary budgets of directly funded bodies to your budgets?

I think, again, the system that we have works well. I think it's important that there is that separation and that the committee has the space that it needs to do its work there. We have the statement of principles, which sets out what the Welsh Government has to provide to committee in terms of information. Now, it is often really challenging to provide that information, particularly an accurate picture of the prospects of funding in the year ahead prior to the summer recess. But still we've tried to provide as much detailed information as we possibly can to committee, but I realise that that is an area where there is some difficulty, and that's because of the constantly uncertain path of public finances. But, again, within the context of a spending review, there's a potential for providing much more certainty to committee to aid your deliberations. But, again, this is an area where, if committee has recommendations for ways in which things could be improved, I'm sure that the incoming Government would be keen to explore those. 

Well, to help a future finance Minister, can you suggest—and, if so, what—any changes to Standing Orders or timetabling of committee business that could help overcome any issues that could be improved?

At the moment, I think that the protocol that we've developed with Finance Committee works well; it does have that flexibility built into it. I think this Finance Committee has been extremely understanding of the difficulties that we've faced as a Welsh Government, and we've been very grateful for that, and I think that the way in which you've been able to agree the extensions to our budget timetables, for example, has been very welcome. So, I think we have, at the moment, the right balance between what's set out in Standing Orders and what can be agreed through sensible relationships.

How useful do you believe the committee's statement of principles for directly funded bodies has been in setting expectations of these bodies in preparing their annual estimates?

Again, I think that that's been very positive and very useful, but with those caveats that I've described in terms of the kind of information and the depth that we're able to provide before the summer recess. But, again, if there are improvements that need to be made from the committee's perspective, in discussion with the bodies themselves, then I'm sure that the next Government would want to put in place any improvements necessary to aid your work.

What merit do you believe there might be in considering the case for reviewing the legislative budget process and how this could be achieved early in the sixth Senedd in joint working between the Welsh Government, the committee and sector experts?

09:30

I think this is an area where committee and Welsh Government have come to different conclusions in terms of a legislative budget process, but I have said that I'd really be open to a review process such as the Scottish budget process review group and the work that it undertook in terms of exploring what kind of improvements could be made to the budget process overall. When we had the debate on whether or not a specific legislative budget process should be put in place, our view was very much that the system at the moment has enabled us to act rapidly and flexibly and that a legislative process such as the one in Scotland wouldn't have brought us any additional benefits, but I realise that this is an area of ongoing debate with the committee. Potentially, the place to have that debate and those further discussions would be through that budget process review group that the next Government might be inclined to introduce.

Do you think your Scottish counterpart would agree with your statement about Scotland?

You can't argue that our process here in Wales has been inferior in any way to that which is in Scotland in terms of allowing us to respond quickly to the changing situations that we've had over the past couple of years.

Two things. Firstly, we've put the process under a huge amount of stress over the last couple of years since agreeing it. We've had very, very unusual circumstances—well, hopefully, unusual circumstances—and I think the protocol and the related Standing Orders have worked very well in enabling both the Government to do what it needs to do, but also ensuring that there is proper scrutiny of all of that. And I think the other point I would make is I think we have the benefits of the approach they have in Scotland without the downsides of the rigidity that comes from a more explicit legislative process. That flexibility, I think, is valuable, so in looking at this in the next Senedd term, what we're really looking to do is to try and get the upside without the downside if we can. It there are things that we can do to change things that will improve matters, then great, but I think trying to retain that flexibility has a lot to be said for it.

Rhianon has indicated that she'd like to come in as well.

Very briefly. In regard to what you say about the ability to be agile and current Standing Orders and protocol, and that ability to be flexible within our current system and processes and protocol, why is that? Just a brief response, please. Why is it agile, because it seems to have been?

I think that we've been able to work very flexibly with the agreement of both the Business Committee and Finance Committee in terms of changing the date of our budgets, for example. That's a big and serious thing to do, but, actually, having been able to do it in discussion and in agreement with the Senedd has been important in terms of maintaining the integrity, really, of the system.

Fine. Diolch yn fawr. Well, we'll move on now to one of those who's been agitating for a legislative budget process. Alun Davies. 

Yes, I always worry when Ministers and officials agree that the scrutiny system is working well. [Laughter.] I'm disappointed with the Government's approach to this, because I think the Government has found itself in an exceptionally difficult situation over the last year and has handled it well. I've got no criticism to make of either the transparency or the way in which the Government has operated. But, there is a requirement for proper democratic scrutiny as well. I understand the point that Andrew is making about the need for flexibility and to be agile, I think that is important, but you're spending my money, bluntly. It's not your money. If it was your bank account and your money, you could go and do whatever you liked with it and we wouldn't in any way seek to offend you with asking you beastly questions. But it's not your money, it's my money and it's my constituents' money, and they have an absolute right to know what you're doing, to know what your plans are, to know what your objectives are, to know what you're doing, and then to understand how that expenditure is being authorised and accounted for. We've seen the Public Accounts Committee in England today doing exactly that with the failed track and trace system in England, and we would expect our parliamentary democracy here in Wales to perform the same function. I think there are real problems when Government decides what scrutiny works and what scrutiny doesn't work.

Minister, you said you were looking towards the review process, which will happen after the election. It will be a matter for the new Government to submit its views to that, but in terms of your experience and taking on board Mike's, I thought, very good point about the amount of time spent on the budget debate yesterday, do you believe that you have—? How would you seek to have the safeguards and additional flexibility that you might require in the future to resolve urgent matters or urgent questions? We've got the pandemic at the moment, but there could be other issues. I think it's absolutely right and proper the points you've made about the ability of Governments to move quickly, but how would you build in those flexibilities within a process where you had to seek the consent of our Parliament in a more fundamental way for expenditure?

09:35

Well, several points there. The first is that I don't disagree with Alun Davies at all on the importance of scrutiny, because I am always really, really conscious that it's not my money, it's constituents' money, it's Welsh people's money, and that's why we've been so focused on driving value for money in the decisions that we've been making—you mentioned contact tracing and the very different approach we've taken here. So, that is at the heart, really, of all of our decisions, that need to be responsible with Welsh people's money. But scrutiny and how the Senedd scrutinises Welsh Government is a matter, really, for the Senedd, and Welsh Government is subject to that, and I'd be happy to be subject to scrutiny as the Senedd sees fit.

What I will say is that we've had three supplementary budgets during the course of this financial year, more than anywhere else in the UK, and provided opportunities for committee to scrutinise each of those, again providing a level of scrutiny that hasn't been allowed anywhere else in the UK. So, I think that having that flexibility to bring forward our spending plans and decisions for agreement by the Senedd so frequently, I think, has been a demonstration of good scrutiny and good transparency. But I'm keen for scrutiny to be good because, as I say, it's Welsh people's money. It's my money, it's your money, it's all our neighbours' money, so I see things from both sides, definitely.

I'll accept that. I accept it's not a personal issue, and you will also appreciate and understand as a Minister, as I have in Government, that scrutiny improves Government. You get better Governments from better scrutiny, frankly. And it's important that you have the balance there. It would be useful, I think, for our deliberations if we were able to understand the flexibilities that the Government believes it would require in a legislative process, because I think, to date, the Government's approach has simply been, 'This is a bit too much hassle for us, we don't really want it, let's carry on doing things the way we're doing things.' I haven't seen a defence of the current unacceptable process that is convincing in any fundamental way. But I won't go all the way down that route today, everybody in the committee will be pleased to hear, but one area—

Can I just respond to that briefly? Just to say, from my perspective, what we haven't seen is a demonstration of what the benefits are that committee thinks that we would achieve from a legislative process that we don't have with the current process. So, I think that there's some way to go yet in understanding each other's positions.

09:40

I think our report was very clear on that, as it happens, and I'll sum it up by saying a more structured and deeper view of the Government's finances, together with a more structured means of seeking and gaining public consent for expenditure plans. But I don't want to offend Llyr by spending all morning discussing these matters.

If there's one area where I think we've collectively failed—Government and the institution—over the last couple of years, that is the debate around income. Because when I was first elected back in 2007, the Finance Committee was a spending committee, and the Government finance department was a spending department; all we talked about was spending money. We never talked about raising money at the time. Of course, we had more money to spend as well, so the debates were a bit less fraught, shall we say. Today, we exist in a different world.

You have, or we have as a Senedd, powers over taxation as well as powers over spending. The powers over taxation seem to be—. You and I have a difference in how they should be exercised, but that's not the purpose of my question this morning. There seems to be a coyness in Government to debate taxation, and there seems to be an unwillingness on behalf of the institution to accept that we have to take as much responsibility for raising money as we do for spending money. Whenever I listen to opposition parties, for example, talking about the budget, they're always talking about where they want to spend more money, and every opposition party has got a pound that can be spent a dozen times, and it is spent a dozen times every time there's a speech made. That is unrealistic and frankly immature politics, I accept that, but there must be a focus on taxation policy. To what extent—? And I think the Government has improved the level of information it provides on taxation policy. I think that's one of the things that committee should recognise that, over this Senedd, the information on taxation has vastly improved. How do you believe, Minister, we can continue to enrich our debate over taxation and income generation policy, rather than simply continue the focus on expenditure?

I think providing the correct data and information for people to make informed choices is an important start, and we're doing that. Annex 2 of our tax policy contains a detailed analysis of the income tax base in Wales, and we've also done some work with HMRC, which has been tested by the Office for Budget Responsibility, which shows what the impact would be of raising or lowering the different rates of income tax in the bands that we have responsibility for in Wales. And I think having that set out transparently allows politicians and others to come forward with ideas as to how they would use those powers to either increase funding and specifically for what, or decrease funding and what the impacts would be on public spending. So, I think having that level of data available to make those transparent choices is important, and then of course you don't get to those points where you're having long shopping lists of things that people would spend money on without actually having that flipside of the coin where you show how much it would cost to do so. So, that kind of more rich data, I think, is important.

My concern is that that's a very passive approach. I think you're right and let me tell you that I think it's vastly improved—I don't seek to criticise the Government on this—but it's a very passive analysis, isn't it? Because the impact on the tax base is certain decisions taken by you and the finance, Treasury departments here in Cardiff, but also decisions taken by the United Kingdom Government in London, but also decisions that other departments in Cardiff can take, and what I would like to see, I think, more of is that wider Treasury view of policy in a richer way, because I see the spending decisions taken by the economy department—although we don't scrutinise them in this committee at all—and it seems to be a world away from the tax base descriptions and analysis that you're doing, and there doesn't seem to be any linkage between the two. Surely, if you're looking towards growing the tax base organically through interventions and the tools you have available to you, then there should be a read-across from the expenditure in the economy department or the education department, or whatever it happens to be, through to what you're doing, and I don't tend to see much of that.

09:45

I agree with what you're setting out in terms of what you would like to see. I have asked officials to explore how we can strengthen those processes and structures that facilitate the engagement between the Welsh Treasury and policy colleagues during policy development. Those discussions were had early on. I might ask Andrew to say a few more words about that. But also, more generally, we are seeking to continue to improve our understanding of how the Welsh Government's policy levers, and those, of course, of the wider public sector here in Wales, influence the tax base, and as part of that work we're exploring the development of metrics to assess the impact of policy proposals on the Welsh tax base. So, again, we're taking important steps forward in this regard. This isn't just the responsibility of the finance Minister and the Welsh Treasury, to look at where we can raise money, but actually it's how we can improve the tax base more widely through our wider policy levers. But that work is happening. I appreciate there's a lot more to do there. I don't know if Andrew has any reflections on that.

I'll call Andrew in, and then Mark Isherwood has indicated as well, so he can come in afterwards.

I think it's a really good challenge. I think we have made progress on this in the last three or four years, but there's still quite a long way to go across the Welsh Government, I think, in terms of thinking about growing the tax base. The impact on the tax base of policy as a key consideration is still a relatively new thing for us as a Government. But when we're looking at policies to help people secure good-quality work, for example, to develop their careers, part of the justification for that is the impact it will have on the tax base going forward, and that should be an important consideration. Of course, there are many other considerations, like making Wales an attractive place to live and set up a business. These are all things that have all sorts of reasons for doing them, and one of them is growing the tax base. I think, yes, that's something we're still working on, and need to make progress on. I think it's really helpful to have that challenge from the committee.

The OBR modelling tool that you found useful, to what extent—because I'm not familiar with it; I don't know if other colleagues are—does that reflect potential behavioural changes alongside simple mathematical trade-offs between rates and revenues?

It includes a number of factors. I'm wondering if Andrew might be able to describe it further, or one of the other officials who have been working alongside HMRC and the OBR on this.

Just a plug for the tax policy report that was published with the final budget. There's a lot of what I would describe as fascinating stuff in there about trying to understand the potential behavioural effects of changing tax rates, particularly on decisions on where to live. It's quite a well-developed literature on the impact of income tax rates on propensity to work, and that kind of thing. But certainly in a UK context, it's relatively new to be thinking about the impact of tax on location decisions that people make about where to live, and so we've done a lot of work on that over the last few months, and that's summarised in the tax policy report. We'd be very interested in views from the committee, obviously, but also the wider interested public, academics and others, about the way that analysis has been done. So, that's a kind of contribution, I suppose, to building knowledge and understanding in that area going forward.

Thank you. Just a final, quick question. I hope it will be quick, at least. The question will be; it's up to you, Minister, about the answer. It's on the assessment of cost of legislation. In Government, I have to say, I was always very cynical about the accuracy, frankly, of some of the costs associated with legislation. I always thought there was a lot more guesswork involved in that. As a member of the committee, I continue to share that view. I think that one thing where the Senedd has got to learn a level of maturity, actually, is trust in Government to get on with legislation in the way that it chooses. It's a matter for us then to scrutinise it, and scrutinise the consequences of it. I think a lot of time is wasted on some of the analysis that we attempt to do on the cost of legislation.

To what extent is Government continuing to work on this? Because I was responsible for the additional learning needs legislation—the code will be going in front of the Senedd either next week or the week after—and I spent a great deal of time labouring away on the costs of some of those things. Now, that was nearly five years ago and those costs were five years hence, and the legislation is still to be commenced. I'm interested in to what extent the Government is analysing these matters. I feel that both Government and the Senedd itself needs to take a longer and perhaps more mature view of these areas of work. Because I wouldn't want officials to be, frankly, wasting a huge amount of time on things that are guesswork—there's no point dignifying it—and then the Assembly making very emotional, impassioned speeches on guesswork. Whatever the emotion that is put into a speech, it doesn't mean that the speaker knows what they're talking about. So, to what extent is the Government spending time on this, and to what extent is the Government able to publish work on this? 

09:50

I think a number of steps have been taken to improve the presentation and the accuracy of the regulatory impact assessments during this Senedd term. On two occasions, officials have strengthened the RIA guidance. That, on the first occasion, reflected on the work of the fourth Assembly and the experiences there, and then again, part way through this current term, to incorporate the recommendations that the Finance Committee made in their inquiry into the financial estimates accompanying legislation. So, twice the guidance has been improved. The RIA for each of the Bills during this term has included a summary table that clearly sets out the financial implications of the legislation, and also now it's standard practice for a consultation on proposed primary legislation to be accompanied by a draft RIA. That allows, then, stakeholders particularly to sense check that and provide any challenge to what we would expect the costs to be. So, I do think there have been improvements over the course of this Senedd term. Again, there's always more to do. Looking back at the accuracy of the expected costs is important. That could potentially be done through some of the work through post-implementation reviews, and so on. So, I think that there is scope to do more there. But there have been improvements; I think that we should recognise those. 

Diolch yn fawr iawn. Diolch, Alun. Ymlaen, felly, at Siân Gwenllian. 

Thank you very much. Thank you, Alun. We move on to Siân Gwenllian. 

Diolch, Gadeirydd. I bigo i fyny ar y pwynt yma ynglŷn â'r craffu ariannol, yn fwy cyffredinol na'r hyn roedd Alun Davies yn ei godi, mae yna broblem wedi amlygu ei hun yn ystod y cyfnod diweddar yma efo Biliau yn cyrraedd y Senedd heb y wybodaeth angenrheidiol tan Gyfnod 2, neu mae'r wybodaeth mewn meysydd sylweddol o'r Bil mewn isddeddfwriaeth sydd heb gael ei chostio. Ydych chi'n meddwl bod hynny yn dryloyw, ac oes angen newid hynny yn y Senedd nesaf? 

Thank you, Chair. To pick up on this point about financial scrutiny, more generally than what Alun Davies raised, there is a problem that has become evident during the recent period with Bills reaching the Senedd without the necessary information until Stage 2, or the information in significant areas of the Bill is in secondary legislation that is uncosted. Do you think that that is transparent, and do we need to change that in the next Senedd? 

The legislation handbook is clear that an RIA for a Bill should, as far as is practicable, include the assessment of any costs of secondary legislation. So, I think it's set out that that should happen. But, as you say, there are sometimes significant changes made at Stage 2 to Bills. Where that does happen, the costs are reviewed and then the Finance Committee is alerted through correspondence, as is the committee that is charged with the oversight of the scrutiny of the particular piece of legislation. But again, if there are things that Finance Committee or other committees think need to change, in terms of your recommendations for the next Senedd, then I'm sure that the Government at that point will be keen to explore those.

09:55

Os caf i ychwanegu, efallai, dwi'n meddwl mai'r brif rwystredigaeth i ni fel pwyllgor yw bod yna Weinidogion yn dod o'n blaenau ni yng Nghyfnod 1 Bil yn dweud y bydd yna newidiadau sylweddol a bydd yna oblygiadau cost sylweddol, ond y byddan nhw'n delio â'r rheini yng Nghyfnod 2. Wrth gwrs, i ni fel pwyllgor, mae ein craffu ni wedi gorffen erbyn hynny. Dwi'n meddwl mai dyna'r rhwystredigaeth i ni—ein bod ni'n craffu gan wybod mai dim ond hanner job rŷn ni'n ei wneud, ac wedyn mae hynny'n cwestiynu, yn ein meddyliau ni wedyn, pa mor werthfawr yw ein rôl ni o fewn o broses. Felly, dyna'r rhwystredigaeth, dwi'n credu.

If I could add something, I think the main frustration for us as a committee is that there are Ministers appearing before us in Stage 1 of a Bill, saying that there will be significant changes and there will be significant cost implications, but that they'll deal with those at Stage 2. Of course, for us as a committee, our scrutiny has finished at that point. I think that's the frustration for us—that we scrutinise knowing that we're only doing half a job, and that raises questions in our mind, then, on how valuable our role is in the process. So, that's the frustration, I think.

Ie, a'r rhwystredigaeth bod y tueddiad yna i'w weld yn digwydd yn amlach, yn enwedig erbyn diwedd y tymor presennol yma. Dwi'n gwybod eich bod chi, Gadeirydd, wedi tynnu sylw at sawl enghraifft o hyn dros y misoedd diwethaf yma. Felly, jest nodi hynny ar gyfer y record, dwi'n credu, a gobeithio y gwelwn ni welliant yn y ffordd fydd hyn yn cael ei weithredu yn y Senedd nesaf.

A gaf i droi at y Ddeddf Archwilio Cyhoeddus (Cymru) 2013? Mae'r pwyllgor wedi gwneud gwaith sylweddol ar y diwygiadau, ond dydy Llywodraeth Cymru ddim wedi ymateb i'r ymgynghoriad ar Fil diwygio drafft. Fedrwch chi egluro pam, ac a fedrwch chi ddweud ydych chi'n cefnogi'r cyfeiriad sydd yn cael ei argymell yn y maes yma?

Yes, and that frustration that that trend is emerging more often, particularly towards the end of the current term. I know that the Chair has drawn attention to several examples of this over recent months. So, just to note that for the record, and I hope we'll see an improvement in the way that that is implemented in the next Senedd.

Could I turn to the Public Audit (Wales) Act 2013? The committee has conducted significant work on amendments to that, but the Welsh Government hasn't responded to the consultation on a draft amending Bill. Can you explain why, and could you tell us whether you support the direction that is being recommended in this area?

The reason why we were unable to respond to the consultation at the time was essentially a timing issue, because it was in that period when we were expecting to leave the EU, and all of our efforts were focused, then, on potentially preparing Wales for a 'no deal' scenario. So, unfortunately, it was related to timing, but there were meetings that took place to explore this issue further, and the Welsh Government did provide feedback to Audit Wales on the proposed changes, and I know officials had a number of opportunities to discuss the potential implications.

We're in agreement with some of the proposals, but did feel that further discussions were needed on a number of issues, and our concerns were shared with the committee, so that you were aware of them. We also expressed some doubt as to whether or not it would be possible to legislate during this current term of Government, just given all of the pressures of the other legislation, and of course this was before COVID came along as well. So, that essentially sets out where we are. We see merit in some of the proposals, but have some concern that there should be further discussions around, for example, the interim report, the laying of the Audit Wales accounts, and some of the other areas that were being proposed.

Felly nid ymdrech i gladdu'r diwygiadau oedd y diffyg ymateb i'r ymgynghoriad. 

So the lack of a response to the consultation was not an effort to bury the amendments.

No, it was the pressure of potentially leaving the EU with no deal. It was the timing, essentially, of that. But as I say, meetings did take place to discuss the issue further. I think Gawain might have been involved in those discussions; I don't know if he has some reflections on them.

As the Minister said, it was very much a timing issue. We did discuss this with Audit Wales. I recall being in at least two meetings with Audit Wales, going through some of the questions we had. Ministers outlined the areas, I think, where we were in agreement, and we just felt there were some discussions needed and we never really finished those. But at the end of the day, in talking to Audit Wales, we did discuss the issue that with such a busy period then with Brexit, and subsequently with COVID, we just didn't think we'd have time to address all the issues during the current Government term.

Diolch yn fawr, Siân. Rhianon Passmore.

Thank you, Siân. Rhianon Passmore.

Diolch. Where am I? I've lost my screen, unfortunately, Chair. Do you want to go on to the next question, and I'll come back in?

We'll go on to Mark Reckless, then, and we'll come back.

10:00

Thank you, Chair. Finance Minister, could I refer to the committee's recommendation that Welsh Government review the level of expertise it has in place in contract management and ensure that it has the necessary capacity and skills? We looked at this with the mutual investment model, and I know it has come up with the A465 improvements. And also, there are just challenges in terms of civil service pay skills and abilities and experience, compared to some of the people the private sector will have negotiating very expensive contracts. What have you done and what more, perhaps, can we look to do over the next term to improve the Government's capability and capacity in that area?

Yes, we have taken on board the committee's recommendations in terms of ensuring that we do have those skills available to us within the Welsh Government, particularly with regard to the mutual investment model, which I know is where the issue was first raised. Obviously, different stages of the projects will require different resource complements. We've used our holding in local partnerships to bring commercial experts into the Welsh Government, ensuring that they have the skills necessary to develop and procure those MIM schemes. And I'm very mindful that active contract management is going to be the key to the success of these schemes. It's something I think the committee was keen that we were putting in place to ensure that we got that value for money. And there are different options as to how we do that.

On the education MIM, we continue to use our holding in local partnerships in the short term, alongside looking at and examining more longer term solutions. And for transport, we're working currently with Transport for Wales to ensure that the effective contract management during the construction phase of the MIM project is in place. So, we're looking to bring in expertise to the Welsh Government but also to make use of the expertise of our partners as well.

One point I think of more general relevance, potentially, that has come out for me, at least, from the supplementary budget is that the UK Government, for research and universities in England, and with the Reid review, is looking to concentrate even further the emphasis on research-intensive universities with a desire to drive economic growth by putting that money where it may get the most return.

In the supplementary budget, you have a line for £44 million for Higher Education Funding Council for Wales research, and when we spoke previously, we explained that this was more about kit and a focus on the green estate, decarbonisation and digital and so forth, rather than research. I've since checked and there are four institutions with about 40 per cent of the students and the money has been allocated on a proportionate-to-student basis, yet those four institutions with about 40 per cent of the students have just less than about 4 per cent of the research funding. So, I just wonder whether you're putting that research funding according to number of students rather than how much research funding and contracts they currently have, whether the funding is becoming even less focused on the research-intensive and economic growth potential, particularly compared to England. Do you think that's a valid criticism?

Well, a couple of points. First of all, just to reflect on the fact that Kirsty Williams leads on this particular area, and it's her department, then, that comes forward with the proposals for areas of spend, so it's not done on a per capita kind of basis; it's done on the basis of the projects brought forward. But I'm happy, of course, to share more information from the education department with committee if that would be helpful.

Secondly, in every letter I've written to a Chancellor or head of UK Government budget since I've been in post, it's always included a section asking for our fair share of research and development funding, and we have yet to see that coming to Wales. It's one of the two big areas—so, R&D and rail are two areas where we feel particularly that we haven't received a fair share of UK Government funding. And, again, it's something that we're seeking to push with UK Government to ensure that we do get the funding that we need.

For clarity, Minister, the proposal that the sector received from HEFCW was to allocate that £44 million extra purportedly for research between Welsh universities, based on full-time equivalent student numbers. I mean, that's the proposal. I think, for me, for the legacy report, one thing I find quite striking—and this is just one example—looking at, positively, the level of discretion and freedom that you give to departments as a finance Minister, is that I'm struck by just how much more frequently I receive answers from you and your predecessors and team that, 'This is for the department concerned', whereas Westminster, the Treasury, would have been all over these things, and the degree of detail that we don't have. I'm not saying which is right or wrong necessarily, but I do think that should be a focus for the extent to which that should be done.

But can I move on to ask about the—

10:05

Mark, before you move on, Andrew wants to come in, and Mark. 

Before you move on to possibly another subject area, we might invite Rhianon. 

Yes, I just wanted to just go back to this point about the allocation in the supplementary budget, which I think came up in the session on the supplementary budget a couple of weeks ago, that there was a mis-description in the document about that allocation. It was actually an allocation for broader asset maintenance and other capital spending by HE institutions. It wasn't specifically for research, and so perhaps that was a little bit misleading in the document. And so that's why it was allocated in that methodology, because the need to spend was more to do with the size of the institution, number of students, et cetera, rather than research intensity. 

Thank you. That's very helpful. I'm happy to accept that. 

Thank you, Chair. Apologies, my screen just went blank. I don't know if I did something, but it just disappeared.

In regard, then, to areas of improvement and the work of this committee, in terms of the range of areas and resulting reports that we have made, and the recommendations from that, all but one of those recommendations and reports were accepted or accepted in principle. So, in regard to the work of this committee's inquiries, how has that driven improvement in your view, Minister?

We talked earlier about the legislative budget inquiry. Even though we took a different view on the fundamental point of a legislative budget and whether or not it would enhance what we're able to do, it did make us think more generally about the budget process and the option of a review process, such as the Scottish budget process review group. So, I think that was helpful in terms of exploring what more we can do in this area, potentially to achieve the same outcomes in different ways. So, that was really helpful.

The work that has been done on local tax arrangements has also been particularly useful in terms of helping us focus our minds, really, on areas of interest to people in Wales, and the work that the committee has done setting out the importance of support for business, for example, through non-domestic rate support has been reflected in the fact that we've made our small business rate relief scheme permanent. And we recently announced bespoke support for the leisure, retail and hospitality sector. So, I think that the shared areas of interest and priorities have been useful in terms of helping us consider what options are available to us. 

Thank you for that response. 'Gender sensitive parliaments', in my view, is poor terminology. It gives an incorrect vision of what the outputs could be. And it's one, obviously, as you know, which is in common parlance in some legislatures who are at the forefront across the world in terms of, roughly, as we all know, an audit—in plain speak—of the impact on some of the poorest and most deprived segments of our communities, who, as we know, are often in poor, part-time employment, with little job security and little linear job progression, and caring responsibilities, and we know that's women. How have the second gender review and your work with Chwarae Teg impacted in terms of our current budgeting processes?

It's been really instrumental, particularly in helping us develop the approach to gender budgeting. So, we had the Nordic exchange. We looked to see what was happening elsewhere, looking for best practice that we could potentially adopt or adapt here in Wales, and that's been important in terms of helping us develop our personal learning accounts, which have been tremendously successful in supporting people to upskill. And that takes us, I suppose, full circle back to that discussion earlier on expanding the tax base, ensuring that everybody has the chance to fulfil their earning potential. Looking at that piece of work and how successful it's been led to a decision to increase that funding in the budget for next year. So, you can see that linear progression, really, between identifying the issue of gender budgeting, using it to inform what Welsh Government was doing, and then making an analysis of how successful it's been, and reflecting on that and doing more of it in future. So, I think that that's been really helpful.

10:10

Thank you for that. So, if you could just, briefly, answer this next question: how useful—I think we've been here, actually—has the committee's report into the Welsh Government's capital funding sources been in your considerations and policy development also?

Again, that's been really useful. We accepted all of the recommendations in that report, and it's been useful to us in developing the successor to the Wales infrastructure investment plan. So, those detailed response that we gave to the committee in response to the recommendations have shaped the strategy as we have it. And you'll remember that, in December, I published a written statement that sets out the development and where we are with the next steps in terms of the WIIP, and it says,

'we will deploy our capital levers to ensure the delivery of our strategic outcomes',

for example, through the use of capital borrowing powers and innovative finance mechanisms. Those were recommendations of the committee. Also, on our response to the climate emergency and our commitment to net-zero on tackling biodiversity, again, those are things that I know committee has wanted us to use our capital levers to drive forward as well. So, it's been really useful in that regard.  

Thank you. In regard to your responses to the committee's report on the impact of variations in national and sub-national income tax, and the research that Welsh Government has been undertaking with Her Majesty's Revenue and Customs's knowledge, analysis and intelligence division—I'm not going to use the acronym—about estimating the behavioural impact, and we have touched upon this a little, from tax divergence, you reported that Welsh Government was exploring with HMRC the feasibility of a longitudinal database research study. I note your comments about the lack of research and development finance to Wales. But, in regard to that data set being able to enable more sophisticated research, how important will this data be for future impact on Welsh policy decisions, and how should Welsh Government keep us as the Finance Committee updated across the next Senedd in respect of those points?

So, the first part relates to the ready reckoner, which was published as part of a tax policy report, and the work that we did with HMRC and the OBR, and there are major uncertainties with this work, because it is new and there are lots of estimates involved with it. You know, the migration response—none of that is certain, and I know that committee's done work on that, which just shows all of the levels of uncertainty that surround making projections in terms of behaviour. But then, also, the longitudinal data set of income tax payers, which you referred to, would provide us with a really valuable new data source. It is a long-term project, and there are still some uncertainties about the extent to which it will yield useful results. So, at the moment, we're at the very start of that particular road.

Thank you. And finally, if I may, what is your assessment of how effective Welsh Government has been in driving improvements in Welsh economic spending and revenue data over this Assembly/Senedd term? And finally from me, what do you anticipate as the main priority in this area for the sixth Senedd?

I think we've seen huge strides forward in terms of data over the course of this Senedd term. The Office for National Statistics, for example, is now publishing country and regional public sector finance statistics on an annual basis, and our Welsh Government officials have played a really important role in the methodology, presentation and the quality assurance of those statistics. So, that's new and important. HMRC data from its real-time information systems is now a major component of our monthly suite of labour market statistics, and it provides a really timely source of data to help us monitor the Welsh income tax base. I think that, again, is an important development.

Closer to home, the Welsh Revenue Authority is publishing timely and comprehensive statistics on the revenues that it receives from land transaction tax and landfill disposals tax, and, alongside that, we've introduced the trade survey for Wales. Welsh Government introduced that in 2019, and that captures a great deal of information to help us understand trade flows from businesses and into businesses located in Wales. And, of course, within the context of leaving the European Union, that will be absolutely critical. We've also been involved in the development of the fortnightly business insights and conditions survey, and that's carried out by the Office for National Statistics, and that gives really good information on the views of businesses about both the pandemic and leaving the European Union.

So, looking to the future, I think that there is more to do again, and that's one of the reasons why we've added funding, in the next financial year's budget, to boost the Wales sample of the family resources survey, and that will help us have some further understanding, then, of the impact of the pandemic on families here.

And, of course, in another part of my portfolio, which relates to statistics and data, I'm responsible also for the Welsh response to the census, which is taking place this year, and that will prove to be a useful source of information for us in future years, and, obviously, I encourage everybody to take part in the census. It's the first time it's happened online, so it'll be an interesting experience to see to what extent people do participate online. But, again, so much information, and I think all of it helps us to make good decisions.

10:15

Thank you very much, Rhianon. Back to Mark Reckless, then. Thank you, Mark.

Thank you. Minister, to the extent that new trading arrangements with the EU involve greater friction, there should be opportunities, as well as challenges, from that. Particularly given the extent of the UK trade deficit with the European Union, that should open up opportunities for import substitution. Just yesterday, there have been announcements of several hundred jobs, from Oatly, in Peterborough, for a large plant-based dairy factory, and from SBD Apparel Limited for a clothing machinery factory in Rotherham. Are you seeing—? What work are you doing to try and attract manufacturing, particularly those who may previously have manufactured in the EU but may now be looking to set up manufacturing in the UK to the extent that trade frictions may be greater? And, of course, for the UK, we're only really planning to bring in those checks at scale from next month, rather than having done them in January.

Well, we absolutely recognise the importance of the manufacturing sector here in Wales, and we'll always look for opportunities to expand what we produce here in Wales. And, to that end, my colleague the Minister for Economy, Transport and North Wales recently published a manufacturing strategy for Wales, which sets out how we will look to identify sectors where we think that we can do more and what kind of support we can offer to those businesses wishing to set up in manufacturing here in Wales. So, I think directing committee to that strategy would be an important starting point in terms of better understanding the opportunities for Wales in terms of manufacturing.

The Welsh Government's made some complaints and has some negative views at least about aspects of the shared prosperity fund and how that's being developed. Going forward, though, for the next term, would it not be more sensible to have a constructive approach of trying to maximise the investment for Wales coming from that? And the UK Government's put a lot of stress—at least rhetorically so far—on UK transport initiatives, today suggesting perhaps cutting air passenger duty on domestic flights. But they have—or at least there's been some suggestion that they might be willing to pay for an M4 relief road, which we said we hadn't sufficient capital to build. The Conservative manifesto in December 2019 said that it was going to improve the A55 for north Wales. Given these promises, shouldn't we be working with them to try and get some of that money spent in Wales, rather than complaining that it's an attack on devolution, when most people would support having more money for transport projects in Wales?

10:20

I think the point is that we shouldn't be trying to get more money spent in Wales, because we should be trying to get—or we should be having—the money that we were promised that we would be having in Wales. I think the fact that, even with the levelling-up fund, we were told just a few months ago that Wales would be receiving a Barnett share, then, all of a sudden, that was reneged upon and that this will just be a UK Government-led project—. It was said very clearly that the United Kingdom Internal Market Act 2020 wouldn't be used in order to deliver the levelling-up fund, and again we have seen a u-turn on that. We have worked really hard over the last couple of years to set out what we think the future of regional investment should look like here in Wales. We've worked with the Organisation for Economic Co-operation and Development on our proposals for the future; we've had huge engagement exercises to find the kind of system that would work for us here in Wales. And that was predicated on the promises made to Wales being kept. Clearly, they haven't been thus far. I do not trust that Wales now will be receiving the share of funding we would have received had we stayed in the European Union.

Hang on. Mark Isherwood needs to mute himself, I should say, because I've called Mike Hedges.

The question is, of course—. And I listened to Mark Reckless; it's almost as if the last year has not existed. I don't think that we're going to go anywhere near the level of transport movement that we had 12 months ago, in terms of planes, in terms of going to meetings in Edinburgh and London, in terms of travelling back and forth to work. And also something that hasn't taken off yet, but is still making baby steps and is likely to take off, is the use of 3D printers in home manufacturing. Is the Government looking at these, rather than building additional roads for cars that will almost certainly not be on them?

So, you'll see in our budget for next year the largest ever investment in active travel. So, we've increased that investment up to £50,000 [correction: £50 million]. You'll see funding for things such as remote working hubs, recognising that people will not be going into the office in the way in which they have done in the past, but, at the same time, working from home isn't a comfortable or viable option for lots of people. So, it's about ensuring that we have much more flexible ways of working. I do think that these things are reflected in the budget moving forward, but I completely agree with Mike Hedges that there will be major changes in the way that we live our lives as a result of the pandemic, and we need to be ensuring that we're enabling the best of it—the active travel, the remote working and so on—by the budget choices that we make.

Thank you, Minister. I know others want to come in; I'm not going to allow it, because we're running out of time, I'm afraid. I was just going to ask you one other question before we move on to another matter, briefly, at the end of our session. We as a committee like to give you our advice; I'm wondering—you know, now maybe it's probably time for you to give us some advice as well, but particularly on a related issue, really. And I'm just wondering in what ways we in the Senedd can support putting forward the case for retaining an equivalent level of funding for Wales to what we've previously received from the EU, given, of course, restrictions on this committee, for example, in terms of calling witnesses from the UK Government. I'm just wondering how do you think that we as a committee could effectively play our scrutiny role, when, obviously, people are unwilling to come before us.

I think it's tremendously powerful when a cross-party committee says something, and when all members of that cross-party committee have an agreed position. So, Finance Committee has supported strongly our calls for additional flexibilities for example, and that's been echoed by the Wales Governance Centre, the Institute for Fiscal Studies and others, but the fact that you are from all parties and that you're speaking with one voice I think is very powerful, and it adds a different dimension, I think, to Welsh Government requesting something.

When I'm invited to attend UK Parliament committees, I always say 'yes' to those opportunities, because it gives me the chance to set on record things from a Welsh Government perspective, to hear their areas of interest; I've appeared before the Welsh Affairs Committee, the International Trade Committee to do that. And I think it's a sheer matter of courtesy, really, that Ministers from the UK Government should make themselves available to our Finance Committee in particular, and to do so, because, as we've just been discussing, it's so simple. Ministers don't have to come all the way from London now to give evidence to the Finance Committee; they just have to spend an hour of their day answering your questions, and it shouldn't be a hardship for them to do that.

10:25
4. Offeryn statudol ym maes treth: Sesiwn dystiolaeth
4. Tax statutory instrument: Evidence session

I'll move on, if I may, straight away to the next item on our agenda, because we are looking at the Land Transaction Tax (Temporary Variation of Rates and Bands for Residential Property
Transactions) (Wales) (Amendment) Regulations 2021, which rolls off the tongue, really, doesn't it? But, really—. They were laid, of course, earlier this month, and I'm just wondering if you could explain the process for authorising the recent extension to the land transaction tax reductions and the net forecast effect on Welsh Government revenue after changes to block grant adjustments have been taken into account. [Interruption.]—yesterday, I think, didn't you?

The regulations were made using the affirmative procedure, which is set out in section 25(2) of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017, and, as with all other affirmative regulations, they're made by Ministers and can come into force immediately, but then, once they've been made, they have to be laid before the Senedd and will have temporary effect until they're voted on by the Senedd, and that vote has to happen within 28 days. We have tabled that debate for the Senedd, which will take place in the coming weeks—I'm looking at my business statement—. But it will happen, anyway, before the end of term in order for the Senedd to have the opportunity to ratify those.

And then, just in terms of the implications for the Welsh Government budget, compared to the OBR's LTT forecast used for the final budget, the extension means that there will be a reduction in revenues by £8 million in 2021-22. But that's less than the £26 million additional that the Welsh Government will receive as a result of the UK Government's decisions on stamp duty land tax, so there is a net benefit to us here in Wales.

Okay. Any other Members wishing to pick up on any of that? No. Okay, fine. Okay. Well, can I thank you then, Minister, for again appearing before us, with your officials? This is now the last time, I think, that you will be appearing before the Finance Committee, so I would like to just put on record again our thanks to you for the constructive way that you've always been willing to engage with this committee. I think we've had a very positive relationship with yourself and your officials, and I think that interaction in that spirit has held us in good stead as we scrutinise your work, obviously, but also, hopefully, that you pick up from some of the advice that we wish to offer now and again. And I think it demonstrates the way that the Senedd and Government can actually work in a positive and constructive way, and I think a lot of that is down to the way that you've chosen to engage with us. So, with those words, can I thank you very much, and your officials, not just for being with us this morning, but for being with us very, very regularly over the last few years? Diolch yn fawr iawn.

Thank you, Chair, and thank you to you and committee, again, for the really positive way in which we've established our working relationships over the past few years. So, thank you very much.

Diolch yn fawr. Okay, so, just to let Members know, we will now be taking a 30-minute technical break, and the Secretary of State, of course, will be joining us for our next scrutiny session at 11 o'clock. If I could I ask Members to rejoin about five minutes before, but, in the meantime, there is a request that we all switch our videos off and mute ourselves, because you will be aware as well that members of the External Affairs and Additional Legislation Committee will be joining us, so it's going to be quite a crowded Zoom meeting, and I think it's easier if there are fewer faces on the screen. Iawn. So, we'll take a technical break. Diolch.

Gohiriwyd y cyfarfod rhwng 10:29 ac 11:00.

The meeting adjourned between 10:29 and 11:00.

11:00
5. Ysgrifennydd Gwladol Cymru: Sesiwn dystiolaeth
5. Secretary of State for Wales: Evidence session

Bore da a chroeso yn ôl i gyfarfod Pwyllgor Cyllid Senedd Cymru. Rydyn ni'n symud at eitem 5 ein cyfarfod y bore yma, sef i gael sesiwn dystiolaeth gydag Ysgrifennydd Gwladol Cymru. Jest i roi ychydig o gefndir, rŷn ni wedi gwahodd Llywodraeth y Deyrnas Unedig i roi tystiolaeth inni fel rhan o'r ymchwiliad i weithredu Deddf Cymru 2014 a'r fframwaith cyllidol. Yn anffodus, dyw Prif Ysgrifennydd y Trysorlys ddim wedi bod ar gael i roi tystiolaeth inni, ond rydyn ni yn ddiolchgar i Ysgrifennydd Gwladol Cymru am fod yn barod i roi awr o'i amser inni y bore yma, ond wrth gwrs ar y ddealltwriaeth y bydd ein cwestiynau ni yn ymwneud â'i gyfrifoldebau fe fel yr Ysgrifennydd Gwladol.

Mae yna nifer ohonom ni yn rhan o'r cyfarfod, fel y gwelwch chi, oherwydd mae aelodau'r Pwyllgor Materion Allanol a Deddfwriaeth Ychwanegol yn ymuno â ni, gan fod ganddyn nhw ddiddordeb penodol yng nghronfa ffyniant gyffredin y Deyrnas Unedig. Awr o amser sydd gyda ni, felly byddwn i yn gofyn yn garedig i Aelodau fod yn gryno ac, wrth gwrs, i'r Ysgrifennydd Gwladol hefyd i gadw hynny mewn cof wrth ymateb i'r cwestiynau. Mi wnes i ofyn ar gychwyn y cyfarfod os oes gan Aelodau unrhyw fuddiannau i'w datgan, ond gan fod yna Aelodau ychwanegol wedi dod atom ni, a gaf i ofyn yr un fath hefyd i chi? Huw.

Good morning and welcome back to this meeting of the Senedd Finance Committee. We're moving on now to item 5 of our meeting this morning, which is to have an evidence session with the Secretary of State for Wales. Just to give you a word of background, we have invited the UK Government to give evidence to us as part of the inquiry into the implementation of the Wales Act 2014 and the fiscal framework. Unfortunately, the Chief Secretary to the Treasury hasn't been available to give us evidence, but we are grateful to the Secretary of State for Wales for being willing give us an hour of his time this morning, but on the understanding that our questions will be on his responsibilities as the Secretary of State.

There are a number of us at this meeting, as you can see, because members of the External Affairs and Additional Legislation Committee are joining us, given that they have a specific interest in the UK shared prosperity fund. We only have an hour, so I would ask Members kindly to be succinct and, of course, also ask the Secretary of State to bear that in mind in responding to the questions. I did ask at the outset of the meeting if Members had any interests to declare, and given that there are additional Members with us, could I ask them as well whether they have any interests to declare? Huw.

Chair, thank you very much. Just to declare my standard interest in three groups that I chair for the First Minister with European interests, but for today's matters, particularly chairing the regional investment Wales steering group over the last 18 months.

Iawn. Ocê. Diolch yn fawr. Dyna ni. Felly, awn ni'n syth i mewn i gwestiynau, ac mi wnaf i wahodd David Rees, Cadeirydd y pwyllgor materion allanol, i gychwyn.

Okay, thank you very much. That's it. Therefore, I'm going to go straight into questions, and I'll invite the Chair of the external affairs committee, David Rees, to ask the first question.

Thank you, Chair. Good morning, Secretary of State. Can I thank the Finance Committee also for allowing us to join you today to ask some questions? Because I know we've had an opportunity to invite the Secretary of State and because of a change in his diary, I think this matches quite well to do the two aspects.

Clearly, we have an interest in the structural funds and the replacement of structural funds, and how that works for Wales, and with the shared prosperity fund in particular, we still haven't got the details yet. We are still awaiting that detailed content of the shared prosperity fund, and I'm sure some of my colleagues will want to explore that a little bit further. But you've indicated in a letter to our Minister for Finance and Trefnydd that the total domestic UK-wide funding—I use the words 'UK-wide funding'—will at least match EU receipts on average reaching £1.5 billion a year. We know that structural funds returned for Wales were in hundreds of millions of pounds a year, and that £1.5 billion is shared across the whole of the UK. I understand that, in fact, the additional money to the levelling-up fund, for example, would have worked out at about £50 million a year for Wales. So, in a sense, are you still in a situation where you agree with that statement? And do you have confidence that actually we will get the money we were promised as part of the whole deal, that the shared prosperity fund and other funds will match up to what we would have had under the EU?

If I can—. Yes, I'm unmuted now, thank you. Thanks for the invitation to attend, by the way. You will have noticed Geth from the Wales Office is sat alongside me, and I've also got that useful opportunity to basically not answer the really difficult questions by saying that they're questions that you should really address to Treasury, but I will do my best within the limitations that the Chair set out just now.

To answer your question directly, I am completely content to reaffirm what I think I probably said in front of this committee and elsewhere about the funding being made available to Wales in whatever form that comes, whether that's a replacement for EU structural funding, the not-a-penny-less guarantee that has already been much talked about and much publicised. We were talking earlier, before the meeting, about the—. If you look at the level of the block grant, if you look at the EU structural funding, if you look at the community renewal fund, the levelling-up fund, the community ownership fund, the accelerated growth deals, to name but a few, all of which provide opportunities for Wales to do even better than it has previously done in terms of funding streams. Now, some of the models around that are different, absolutely, and always were likely to be in a post-Brexit world, and now a post-COVID world, hopefully, too. So, a combination of all of those funding opportunities underpinned by the not-a-penny-less guarantee I hope will give you a sense of my optimism that we're not looking at a rather bleak period of underfunding or reduced funding. I would like to think quite the opposite.

11:05

Okay, thank you for that answer. I appreciate your comments in relation to what you can answer and what is a Treasury issue, but clearly these are issues for Wales, and as Secretary of State for Wales I would be expecting you to be able to ensure that Wales gets its appropriate share of funding—what it would have had under the EU regulations. Therefore, I would expect you to fight to make sure we get that.

Now, without the details of the shared prosperity fund we don't actually have a knowledge of how that's going to work, and how the model will work, and how the distribution will work. But based upon the example of the levelling-up fund, it gives an indication that funding will be allocated by Westminster, and not necessarily in consultation with Welsh Government. We obviously hold Welsh Government to account for the funding allocations. It's very difficult for us, therefore, to hold Westminster to account—our colleagues in Westminster should be doing that, will be doing that—but we need to understand where that money is coming from, what it will be used for, what criteria will apply, and I suppose it's part of a consultation expectation, and communications with the Welsh Government are part and parcel of all that. How much communication and engagement have you had with the Welsh Government to ensure that the replacement for the funding—? The promise of not a penny less, by the way, was given by all those advocating Brexit, including the Prime Minister.

It is important that we expect you to live up to that promise. So, how will you ensure that the promise is lived up to, and the engagement you've had with the Welsh Government reiterates that, and that the modelling is not one that is based upon a decision in London but is based upon a decision in Wales?

Right, I'll try and deal with the various questions contained within that. First of all, we have absolutely every intention of ongoing consultation. There has been a number of conversations over the last two months. Of course, we're in the community renewal fund period at the moment, not SPF—that gets launched later this year. We were on a call the day before yesterday, I think, with Robert Jenrick, the lead Minister in the Ministry of Housing, Communities and Local Government, with Jeremy Miles and Rebecca Evans on this very topic, in which he offered them an assurance that we have every intention of consulting as far as it is ever practical to do, but consult we definitely will. But it won't obviously be exclusively with Welsh Government. There will be other stakeholders that I'm sure you would approve of. We want to make sure that this process involves local authorities in a way, perhaps, that they've never been involved before, at a level of detail. Other local stakeholders like the university sector, the third sector, we do want there to be a more comprehensive engagement in this than perhaps has been the case.

In addition to that, a really important part of your question is the Whitehall-centric approach that I know spooks everybody to some extent, including us, by the way, and that's why Robert Jenrick was able to confirm on the call on Monday that the official element of this is going to be based in Wales. It will be recruited in Wales for Wales, and it will be an extension, in his words, of the Wales Office, and therefore if we get the recruitment and secondment process right, we hope very much these will be people who are familiar to you anyway, and who will be able to understand the particular needs, challenges, opportunities and geography of Wales in a way that perhaps Whitehall has not necessarily always been famous for, and so this is absolutely designed to get to the heart of the problem, to the heart of the opportunities. And, yes, I very much hope that Welsh Government will be part of that process, but this has got a few months left to run yet.

11:10

Okay, thank you for that. I won't hog the session because my colleagues have other questions. 

It's just we're not about spooking people, it's about actually making sure that we understand and we get the right funding to the right places for the right reasons, and those are the concerns we have. And I just wonder whether your identification of employing people in Wales, why aren't you using the Welsh Government who already have a very effective operation to deliver this? They've been doing it for years—

That is not—. That's a matter for discussion, and Rob Jenrick is very open-minded about the practical elements of this and I'm sure there can be numerous—. We can have lots of conversations about how best this is deployed without duplicating or overlapping efforts. So, I'm completely content with that. 

By the way, just on the how and where and your very good points about how this actually will be rolled out in a way that gets to the nub of the, if you like, challenging areas of the UK—some of those difficult thorny problems we all wrestle with—that is precisely why we want a much greater role for local government—you know, democratically accountable local government—in this process. And it's not instead of, but it's as well as the expertise that Welsh Government at official and at MS level can provide.

I've talked to every local authority in Wales about this in the last few days, let alone the last few months. I don't profess, sat here in the centre of Whitehall, to have all of the answers. I don't necessarily know each and every challenge that each and every area of Wales is confronting, any more than I suspect, in all honesty, Members of the Senedd necessarily would know that. So, we know a bit and we're accountable to our voters, we know a certain amount, but local authorities I think often do have a very intimate feel for exactly what's going in their areas. So, I don't think we should be afraid—I'm sure we're not afraid—of bringing in local authorities and soaking up their expertise in a constructive way. I'm very happy to submit myself to that process; I just hope that everybody else will join me in that. It won't always work, but I think it's a step forward. 

Okay, thank you. It's interesting, your take on the meeting with Robert Jenrick, because we took evidence from the finance Minister earlier this morning and she characterised the meeting as an information sharing or a briefing event, where the Welsh Government were told what it would be as opposed to maybe that sort of open discussion around what it could or should be, but, you know, I mean—

I think that's being unnecessarily paranoid, I really do. I don't want to sound as rude as that, but I really don't think that the Minister needs to be quite so worried about that. This is about getting large sums of money into Wales to the places that need it as urgently as possible. I really think this is something around which we can unite, I really do.

Yes, good morning, Secretary of State. Not withstanding your answers to David Rees's questions, are the Welsh Minister for finance's comments in response to the UK Government's budget for 2021 a concern, given that the Welsh Government has not been consulted on the prospectuses for the levelling-up fund or indeed the community renewal fund prior to publication?

Two things. First of all, these are UK-wide initiatives, and so it is not unsurprising that they're announced in a UK-wide context in the budget by the Chancellor. So, I don't think that there is anything unusual or untoward about that. But there have been—and I've been privy to some of them—quite a lot of conversations over the months and, to some extent, the years—I'm trying to think back the exact timeline—around replacement funding, around the guarantees, around what we might be able to do by way of collaboration. So, the suggestion that all of this has suddenly appeared out of the sky by complete surprise—I don't think that's what you're necessarily implying—but it's certainly not the way that I see it, and it's not the way that I think the history books will recount it. I think there has been a significant degree of co-operation, collaboration and information.

I don't expect, by the way, in my position, the Welsh Government to come to me and discuss policy areas over which you have some statutory competence, but if there's a degree of collaboration that's great, and the opposite is also the case. We don't necessarily—and never have—talk to each other about every single policy announcement that is ever made. Otherwise, what would be the point of the devolution settlement, in some respects. Again, I know I'm coming across as quite mystified about all this; this is all positive news. The response from local authorities has been really warm to this, not because they want to take a political side—they don't—but they just see this as actually new funding streams into which some of our most challenged areas, or our areas of great opportunity, can now directly apply.

11:15

But, Secretary, surely—do you think in hindsight that increased collaboration could have allayed some of the concerns raised by devolved administrations about these replacement funding schemes, and provided more opportunity for scrutiny of those proposals? Because these are very, very important funding schemes and strategies that we're now engaged in. 

You can always look back and say, 'Well, what could we have done differently?' That's a perfectly legitimate question. And you've got to also ask yourself the question, I think, of, 'What difference would it have made?' One of the difficulties, I think, that I have encountered a few times is that it's not about a lack of consultation; it's about a lack of agreement. Sometimes, I think those two things get a little bit conflated in the debate. I have noticed with one or two bits of commentary around this that the nub of the problem appears to be more about principles and whether the devolution settlement has been encroached upon in any way, and whether the long-standing arrangements under which we operate have been disturbed in some manner, rather than the actual meat of the proposals themselves. And so, quite a lot of the media commentary has been about assaults on the devolution settlement, power grabs, and all of that, and not actually about the policy matters that are in hand. So, we're talking about trying to get jobs and prosperity, trying to create the right circumstances for post-COVID economic recovery, trying to maximise on the advantages a post-Brexit world might offer Wales. That's my thrust, and what I'm sometimes getting back from colleagues—present company excepted—is actually about constitutional issues and power, which is a slightly different argument. So, I think we sort of need to be arguing about the same thing, which I don't think we necessarily have been.

Thank you very much. Secretary of State, have you read the final reports of the Objective 1 programme?

I would never be able to say that I've read every single word of any report. There will be bits of it that I've read, but if you're going to ask me to quote from it, Alun, I'll probably disappoint you.

I'm not asking you to quote from it. You'd be disappointed if you asked me the same question as well. But I understand the lessons of it. I was the Minister back in 2011 who published the final reports on Objective 1, and I think what you're confusing about power is actually about investment. Everything I've heard from you and from your colleagues over the last few weeks and months tells me that you are repeating the mistakes of Objective 1 and not learning the lessons.

Could you expand on what those mistakes are?

What we were told by Objective 1 and what we've learnt from the Objective 1 analysis was that smaller projects don't have the co-ordination, the collaboration, to make bigger impacts, so that the money you spend doesn't have the biggest impact it possibly can; that the bringing together of people is important and that didn't happen in the same way during Objective 1. The lessons of Objective 1 were applied in the second round and in the third round, and Huw Irranca-Davies is now leading the groups of people who are delivering these programmes. The groups that he chairs are the consequences of lessons that were learnt at that time. It appears to me that, whilst I wouldn't have expected you to have read everything—you're the same as me; I don't—I would've expected you to have officials who have read it and understood it, but it doesn't appear that that is the case either. Because everything I'm seeing from UK Government at the moment, from the Wales Office and other departments of state, tells me that you haven't learnt the fundamental lessons of Objective 1, and that is really profoundly disappointing.

11:20

I would contest that and I would contest it for this reason: I think it's a matter of opinion that we might be divided on this, not a matter of fact. Of course, officials in the Wales Office and other Government departments read and take very seriously lessons that have been learned. One of the reasons we are doing what we're doing is in exact response to those lessons. And let's face it; not that I want to necessarily rake over the old arguments around Brexit, but one of the reasons that 55 per cent of voters in Wales opted to leave the European Union—I wasn't one of them, by the way—

One of the reasons why 55 per cent did was because they had run out of confidence in a system about which they knew a great deal and that they felt was remote to their daily lives, whether that's as a family or a business or an aspiring entrepreneur or a public sector employee. There was a view that, actually, somehow, this institution wasn't working for them, and that vast sums of money were swishing about a system over which they were unfamiliar with the accountability and didn't see, necessarily, benefits in their own area. That's why the vote was 55 per cent to 45 per cent in favour of leaving the European Union. If the system was as perfect as it is sometimes made out, I think that referendum vote might have gone a different way, but there was a significant feeling—a sufficiently significant feeling—of unease that it forced, pressurised, persuaded people into thinking that, actually, there's a better way of doing it. So, that's one reason why I think we disagree.

The second reason is this: I think the suggestion about bringing people together is precisely why we are doing this in a different way and seeking the collaboration and input of a much wider group of people than has ever been the case before. And the response I've had from local authorities of all political persuasions in the last few days is one of welcoming the prospect of actually being involved in this process in a manner that they haven't previously been involved. And the fact that we are talking to third sector, we're talking to individual businesses, we're talking to local authorities, we're talking to universities, and we're talking to all of these people who make the economy and social and cultural life of Wales what it is—they are being brought together in a common endeavour. So, I disagree with you on the second point.

And on the third point, which is a bit more general, I think that, as we all know, sometimes, under existing formulas, large-scale, big-ticket capital expenditure, if it's left, for example, to Barnett—not exclusively Barnett—always leaves us at a disadvantage. So, the creation of some of these schemes and the creation of things like the infrastructure bank give us an opportunity to be able to always compete on equal terms for the big-ticket infrastructure projects that will help drive the economy, and others too. So, I think we interpret the lessons of Objective 1 slightly differently.

Secretary of State, we need to move on more quickly. It's useful to hear your views, but we do need to move on more quickly. Can you tell me, then, where you think the framework for regional investment has gone wrong?

I don't, necessarily. This is not an exercise in criticising existing regimes. In some cases, and I've said this before to this committee, I think, there are plenty of examples—plenty of examples—where these regimes have worked incredibly well, have brought prosperity and job creation in a very successful and accountable way, and it is not our intention to necessarily unpick all of the initiatives that have been so successful over the years. It is, however, absolutely our intention to fully, in a sense, audit, if that's the right word, a lot of these measures and a lot of these established regimes, to be able to assess which ones work and which ones don't. Yes, they might look a bit a different, and sound a bit different, and their branding may be a bit different in the future, but if there are systems that work well, it's not our intention necessarily to scrap them just because we can. 

11:25

Alun, sorry, you've had three opportunities; we've really got to push on, I'm afraid. So, I'll move on to Nick Ramsay. 

Diolch, Cadeirydd. Thanks for moving things on. Afternoon, Secretary of State. Can I ask you about the community renewal fund? It commits to funding a series of pilot programmes to help local areas prepare for the introduction of the shared prosperity fund. What will you be doing to support the 14 Welsh local authorities listed on the priority places to access this fund? It follows on very much from the last set of questions. 

Thanks. By the way, just on the 14 local authorities point, every local authority is entitled to, and indeed encouraged to, get involved in these schemes, but we have prioritised, and we've tried to prioritise on the basis of need. We don't pretend, by the way, that it will necessarily be the absolutely most accurate measurement, and that's why we've allowed provisions in all of this for local authorities to join with other local authorities, and, indeed, have cross-border applications in this, and other schemes, as we go forward. So, to give as much flexibility while recognising that you can't necessarily define deprivation purely on local authority boundary areas. We're trying to be as flexible as we can on that.

As we know, it's a small fund for this financial year—£220 million between the four nations. The exact allocation of that is obviously down to the bidding process and further publication of criteria. It is a pilot scheme of the shared prosperity fund, more details of which we will be privy to as we get closer to the spending review in the autumn. What we're trying to do here is to get local authorities to join with stakeholders, to join with their MSs, Welsh Government officials, with MPs, actually, for that matter, too, and come up with really innovative ideas, either as individual authorities or joint with other authorities, and bid for the available money. We will then, obviously, learn some lessons from that from this year, and that will form the basis of the shared prosperity fund, which is a much larger packet of money from the end of 2021 onwards. 

As you know, Nick, we couldn't do the multi-year spending review last year, which would have set all of this out, because of COVID, so we had a temporary one-year spending review. A multi-year spending review will be, hopefully, fingers crossed, coming up this autumn. 

Great. Thanks for that, Secretary of State. Moving on to understanding the communication between the Welsh and UK Governments, there's been a lot of discussion about this, and some concern. The Minister for Finance and Trefnydd has raised concerns that the financial assistance powers from the United Kingdom Internal Market Act 2020 could lead to a situation where the Senedd's funding is top-sliced because of devolved spending decisions being made in devolved areas. Is that a concern that you think is valid?

It's not. I don't think it is valid, and I've not heard that anywhere. In all of the conversations I've had with the Treasury, and this applies to other territorial offices as well, that has never been on the table. In fact, it has never been necessary to be on the table because that's never been something that has been proposed or even considered. So, I don't see that as a part of what we're proposing here. 

So top-slicing is something that you wouldn't envisage happening under—

It's never been raised with me. It's never been raised with the Treasury. You are the first person to have raised it with me. 

So, I hope that gives you a little bit of confidence in that regard. 

I will stop the line of questioning then, otherwise I'll actually create the issue. Thanks. Diolch. 

Thank you, Nick. We'll go next to Huw Irranca-Davies, and then we'll come to Rhianon afterwards. 

Diolch, Cadeirydd. Secretary of State, good morning. We go back a long way, so I know you'll be frank and direct with me in the questions that I have. I know you'll be aware of the work of the regional investment Wales steering group. Eighteen months of work—academics, businesses big and small, social enterprises, and hundreds of people have co-produced a piece of work that not only looks at learning the lessons, as Alun was saying, about previous iterations of funding in Wales, but streamlining it, getting the right balance between getting that funding in with local and regional input into it within the national framework, but getting it to the front line to make a difference. You're aware of that work.

So, Secretary of State, there's big agreement around this. Everybody is agreed that this is a good way forward and it matches with the policy framework here in Wales. It's a good basis for partnership. Do you want to see the UK shared prosperity fund dovetail with the work of the regional investment steering group, or to run independent of it? And if the UK shared prosperity fund doesn't intend to dovetail with the framework, how do you ensure that the UK Government, that the funds you have, do not indeed run counter to the agreed regional and local priorities of the economic partnerships in Wales, and do not run counter to the policy framework that is democratically agreed in Wales? It's an offer to you, Secretary of State, to work with us. 

11:30

Yes. I don't remember being part of that consultative process, Huw. So, there were a lot of people involved. But, actually, just to deal with the point that was made earlier about the spirit of collaboration, I don't remember that collaborative spirit being extended to the Wales Office as part of that process. Maybe I missed something. So, it's a two-way arrangement, collaboration, and so maybe some of these issues could have been ironed out if us, the Ministry of Housing, Communities and Local Government and the Treasury had been in the room at the same time as some of those other organisations. But be that as it may, you goaded me into being direct, so I was direct.

I think, as far as the comments that you make otherwise, it is not our intention to reinvent the wheel. And as I indicated in my answers to Alun Davies, there are plenty of examples of some very good and evolving innovative investments, which you've referred to, and I don't have a—. When we last met in person, I think I said it's really not our intention to detonate any of those. But this is going to be different. I'm not going to try and say to you, 'Look, nothing's going to change.' One of the reasons we're doing this is because we have been lobbied quite extensively, and ironically by quite a lot of the people who you've just referred to, that change and improvement and an evolving attitude to this is necessary. So, we're hopefully responding to that.

But, as I say, I repeat my suggestion or offer—call it what you will—that I think that as we climb out of COVID, there will more opportunity for us to talk very frankly about how we can collaborate practically and in policy areas around this, but within the context that levelling up is a UK-wide initiative; it's not just a Wales-wide initiative. My job, as I think I answered when I was challenged earlier on—it might have been by David I think—is to get out of this not only what—. I'm quite a 'cake and eat it' person; I want definitely what we're due, and I want quite a lot of icing on top of that as well for Wales. Our job here is to strike a really good deal for Wales, and that's what I intend to do. So, I just hold out a hand of friendship again. We will collaborate about this, but that doesn't mean we will necessarily agree. But you know that.

Okay. Thank you, Secretary of State. The second question for you is in respect of European funding. It's been touched on already. Now, European funding was previously delivered by and administered by and monitored by the Welsh European Funding Office in Wales, with close engagement with Welsh Government and other partners right across Wales. If you are, as you've explained, to some significant degree, taking back control of the funding and the decisions on funding to Whitehall and the UK Government, then how is that not a clear centralisation of power and funding, which you have the ability to argue for, of course? It's also, more fundamentally, a reversal of the principles and practice of devolution and of subsidiarity.

11:35

You touched on a point I touched on earlier on, which is how this discussion often becomes one about power and constitutional arrangements rather than outcomes, and it does frustrate me; I don't mind admitting it does frustrate me sometimes, and I don't think that's where the debate should lie. I'm very happy to make sure that the co-operation between us and what has previously been the WEFO, which dealt exclusively with EU structural funds. The EU has stepped out of the picture now, courtesy of the referendum outcome and the voters in Wales. They opted for a different system, and so that is what we are now honouring, and you know that. It doesn't mean that getting the relevant sums of money and not a penny less—and, hopefully, quite a lot of pennies more—into these areas of greatest need isn't going to continue, and I think the assumption is, just because we are in a different regime, that somehow the existing benefits of it are going to evaporate. I don't get that; in fact, I get the opposite, which is, these funds are now going to have a greater degree of local input, just as accountable, but it's going to involve, Huw, your former colleagues in the House of Commons, as well as Members of the Senedd, as well as local authorities and their elected structures, as well as others, in a way that hasn't been the case before. And I don't understand—

—why that doesn't appeal to you.

I do get that, and it's an argument that you've put and you've put coherently. But I think everybody is wondering: why is Welsh Government not a part of that?

Well, it is. I don't see why you reach a conclusion that it won't be.

Because of the direct reach—sorry, Chair—you're doing to local authorities as opposed to regional consortia and Welsh Government. I'm just surprised that they're the missing piece of the jigsaw.

Well, maybe we are defining devolution in a more literal way than is captured. It's interesting sometimes that people talk about this as an assault on the devolution process; this is actually an extension of the devolution process. This is actually doing what devolution is defined as in the dictionary, which is getting to the source of the problem and dealing with locally elected decision makers. And, as I say, Welsh Government will absolutely be part of that, but I don't profess to know all of the answers, and I don't think Welsh Government should, or does, and therefore the more of us who are involved, I think the better the outcomes will be. This is not a threat, it's an opportunity.

Okay. I think the risk is that people will see it as picking and choosing devolution for what suits. I think that's the danger here, isn't it? So, we'll move on to Rhianon Passmore next.

It's not a danger at all.

Thank you very much, Chair, and it's good to see you here, Secretary of State for Wales, actually appearing before this joint committee, and, obviously, we'd like to repeat that process. I'm very interested in your responses to Huw Irranca-Davies, and I'd just like to put to you: how do you not see that having a UK Government department in Wales does not undermine devolution?

Was that an argument for separatism? Are you arguing for independence?

A UK Government election—a general election—gets a 66 per cent turnout; a Senedd election gets a 46 per cent turnout. Wales is part of the UK, and its citizens are proudly unionists, and the idea that, somehow, UK Government—if that's what you're suggesting—shouldn't have a place in the lives of people in Wales is—. I'm afraid we're a long way apart on that.

So, just to be clear, Secretary of State, before I move on to another point with regard to the internal market Bill, you do not see that having a rollback to pre-devolution times of having a UK Government department, whether it's in Cardiff or in Aberystwyth, is not a rollback of devolution? You feel that's—.

We have—. I have to say, that's one of the most remarkable suggestions I've heard. We have Her Majesty's Revenue and Customs in Wales, we have the Department for Work and Pensions in Wales, we have the Ministry of Defence in Wales, we have crime, justice, Home Office. UK Government is absolutely front and centre and part of everybody's lives. You may not like it, but it's part of everybody's lives in Wales. And the idea suddenly that we've reached a moment where we have to raise a question mark about UK G having its flag on a building is—. I'm sorry to say, we are nowhere near on common ground here.

11:40

So, you just don't recognise that fact. Thank you. I'm going to move on. In regard to comments that have been made by the Counsel General in regard to concerns about financial powers that could undermine devolution, and the fact that it's been clearly articulated they are being reneged, the discussions around the ability to use the Barnett formula around the shared prosperity fund, what I would like to ask you really simply, then, is, again: how is that not a clear statement that the authorities that were within Wales and the functionality that was within Wales is now being transplanted back into Westminster for Westminster control?

Well, as you know, because I've made this point before, I don't believe the proposals undermine devolution—quite the opposite—and I think that they actually go beyond where we currently are on devolution, and involve more people, more accountably in Wales than has been the case for many years. So, I start from a fundamentally different position. I would also—. I've been unable to identify a single power that the Welsh Government and the Senedd were able to exercise before this that they won't continue to be able to exercise after it or during it. So, there hasn't been, to my knowledge, a single piece of existing statutory influence that the Senedd is currently entitled to exercise that has been removed. Indeed, there is an argument for suggesting that, with the passage of the transition period, there are additional powers, which weren't previously held by Welsh Government, which now are. And as far as Barnett is concerned, we are currently working to a system that was agreed by Welsh Government, and it's therefore, in our view, unnecessary to revisit. What we're able to do with some of the funds and initiatives that we've been talking about this morning is basically have a lot more on top of what Barnett provides, and, again, I see that as a really positive step forward for Wales. 

And finally, if I may, Chair, why has it not gone through Barnett? It's a simple question.