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Y Pwyllgor Cyfrifon Cyhoeddus

Public Accounts Committee

05/11/2018

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Adam Price AM
Jenny Rathbone AM
Mohammad Asghar AM
Neil Hamilton AM
Nick Ramsay AM Cadeirydd y Pwyllgor
Committee Chair
Rhianon Passmore AM

Y rhai eraill a oedd yn bresennol

Others in Attendance

Adrian Crompton Archwilydd Cyffredinol Cymru
Auditor General for Wales
Andrew Slade Cyfarwyddwr Cyffredinol—Economi, Sgiliau ac Adnoddau Naturiol, Llywodraeth Cymru
Director General—Economy, Skills and Natural Resources, Welsh Government
Jason Thomas Cyfarwyddwr—Diwylliant, Chwaraeon a Thwristiaeth, Llywodraeth Cymru
Director—Culture, Sport and Tourism, Welsh Government
Matthew Mortlock Swyddfa Archwilio Cymru
Wales Audit Office
Mike Usher Swyddfa Archwilio Cymru
Wales Audit Office
Tim Howard Dirprwy Gyfarwyddwr Eiddo, Llywodraeth Cymru
Deputy Director of Property, Welsh Government

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Claire Griffiths Dirprwy Glerc
Deputy Clerk
Fay Bowen Clerc
Clerk
Katie Wyatt Cynghorydd Cyfreithiol
Legal Adviser

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

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

Dechreuodd y cyfarfod am 15:21.

The meeting began at 15:21.

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

I welcome Members to this afternoon's meeting of the Public Accounts meeting. Can I welcome our witnesses as well? Headsets are available for translation and sound amplification. Please ensure that any phones are on silent. In an emergency, follow directions from the ushers. We've received one apology today from Jack Sargeant; no substitutions. Do Members have any declarations of interest they'd like to make at this juncture? No. 

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

Okay, item 2: some papers to note. First of all, the minutes from the meeting held on 22 October. Are Members happy to note that as an accurate record? Good. Secondly, the scrutiny of the annual report and accounts and correspondence from Clare Pillman. Clare Pillman has written advising how much—this relates to Natural Resources Wales—of the timber produced in Wales was processed in Wales in 2017-18. That was in response to a question that was asked during the committee. Are Members happy to note that letter?

3. Perthynas Llywodraeth Cymru â Pinewood: Sesiwn dystiolaeth gyda Llywodraeth Cymru
3. The Welsh Government’s relationship with Pinewood: Evidence session with the Welsh Government

Okay, item 3, the substantive item on today's agenda: the Welsh Government's relationship with Pinewood, and we have an evidence session with the Welsh Government. Can I welcome our witnesses? Would you like to give your name and positions for the Record of Proceedings? 

I'm Andrew Slade, director general for economy, skills and natural resources, and I'll get my colleagues to introduce themselves. On my right—

Prynhawn da. Good afternoon. I'm Tim Howard, deputy director of property. 

Prynhawn da. I'm Jason Thomas, director of culture, sport and tourism. 

Great. Prynhawn da, and thanks for being with us. I'll kick off with the first question. In terms of wider lessons learnt, what do you see as being the lessons that have been learnt by the sector team and across Welsh Government as a whole from the Pinewood deal and how will any changes or improvements be implemented as a result?

Chair, I think it's worth, just in terms of context, saying that the creative sector is hugely important to Wales. It's worth just under £2 billion to the economy annually at the moment, and the sector's grown by half in 10 years, and a critical part of that has been the work that we do in support of film and television and other screen-related enterprises. And in entering into the agreement, which we'll, no doubt, come on to talk about in more detail, with Pinewood, we were partnering up with a globally recognised brand, a very proven operator in this space, and I think that that relationship has borne fruit. We'll come on, I've no doubt, to talk about some of the specifics there, including in relation to the auditor general's report and the letter from the culture committee Chair, but I think the important thing here, by way of a point to make at the outset, is that this has been a productive relationship and it has brought benefits to Wales plc as a whole.

Now, in respect of the collaboration with Pinewood, I think there are a number of lessons that we have drawn from experience to date. Some of them are brought out in the auditor general's report; others have come through other elements of scrutiny, including from the committee Chair, by Bethan Sayed. But I think there are a number that I would signal to the committee. The first is I think we need to be very clear about the balance between financial returns and economic ones. So, something here in the relationship with Pinewood is about the money made back from the proposition, along with the economic value to Wales in terms of the amount of money spent with Welsh companies and in terms of Welsh productions and other work that's going on in the wider economy. And I think, at points, we've not been sufficiently clear about which we were going after. I think there's something about the three components of the original deal with Pinewood that were around sponsorship, around the operation of the studio, and then, also, around the delivery of the media investment budget. I think, probably, we would look in future, if we were operating a similar arrangement, to make those very clear and distinct, because I think there has been confusion along the way in relation to different parts of the collaboration agreement and what we were and weren't contracting with Pinewood on.

15:25

I think because the fund was run separately from the studio enterprise, but I think people came to the conclusion—some—that there was a direct link between the two, and that, therefore, may have had some impact or bearing on how people related to Pinewood and the general proposition. And the fact that we had a five-year arrangement that brought everything together kind of reinforced that perspective.

I think there's something about the studio operating model. I wonder whether we looked too much at what was happening in London and in and around the M25 when we were looking at pricing and when we were looking at some of the other arrangements that were in play. We should've been very clear from the outset that other production services like lighting provision could be done outwith Pinewood's own service provision, and I think that could've been made clear from the very get-go. A number of companies I think found themselves using, or said to us that they were using Pinewood's lighting arrangements when they would've preferred to use their own or other arrangements.

On the fund, I think probably at the time that we were putting it into practice, money was relatively cheap in the marketplace. I think the fact that we were insisting on being the first port of call for any recoupment, and the fact that we were saying we wanted vast, or very considerable sums of money spent in and on Welsh businesses meant that we were seen as somewhere to go for higher risk enterprises, possibly, or productions, because lower risk ones could be financed elsewhere in the marketplace, and I think there's something there. The management of the fund, with the due diligence that Welsh Government has to apply, and the timescales for decisions reached, meant that the arrangement that we had was quite complicated, and in places quite clunky, and I don't think we would do that the same again.

And then, lastly, probably, by way of opening lessons, I think increased transparency across everything that we were doing from the get-go would've been helpful. Then, I think people who were potential competitors or others could have seen what the nature of the arrangement was, and precisely what Pinewood were doing in particular areas. I think that that is something that we will probably come back to in the context of the rest of this session.

Sorry, you also asked about how these things will be driven forward. So, some of these lessons have already been learned and are being applied to how we think about Creative Wales, which is the next phase of our approach to dealing with the creative sectors, and one of the reasons that Jason is with us is because Jason will be leading that work internally. Therefore, it was important that we learned the early lessons from our experience with Pinewood, among other work that we've done with the creative sector. We have an arrangement and a range of governance mechanisms within the group, within my part of Welsh Government, and all of those are picking up the lessons as part of the normal course of business now, and those are reported, in turn, to our audit and risk committee on a quarterly basis.

Thank you, Chair. So, you've already referenced some of the themes that we're going to be drilling down into, so, obviously, that commitment to the creative sector is recognised across Wales, and no-one can argue that there's not that drive. Nonetheless, the original estimates in terms of Pinewood's healthy projection, in terms of that more effective due diligence, what more could Welsh Government officials have undertaken to be able to perhaps drill down more into information around the Isle of Man fund? I believe that that information wasn't made available to Welsh Government.

Well, we certainly learned from the Isle of Man experience, as best we could. I think it's worth remembering that the Isle of Man fund got going in about 2012, so it was only a year or two ahead of us. We had talked with colleagues in the Isle of Man in terms of what they had done with Pinewood and we've continued, where we can, to monitor what's happened in respect of the Isle of Man, both from an initial due diligence perspective but also just seeing how the fund has performed. That arrangement I think has now come to a close, and, of course, our specific arrangement with Pinewood has also now finished in respect of the original investment budget.

The circumstances are not the same. The Isle of Man is essentially—I don't think I'm being unfair to the Isle of Man—a locations-based enterprise. It's not so much about big-studio space, not so much about a very strongly established base of cinematic productions and tv productions, as we have here in Wales. So, I think the comparison is not a complete one, but there were lessons learned, or there were points taken from the Isle of Man at the beginning and we have continued to watch what they've done since.

15:30

So, with regard to what more could've been done in terms of due diligence around that particular issue, I believe that Pinewood denied information with regard to that commercial confidentiality aspect of the Isle of Man fund, or was that not probed more?

I'm pretty confident that the team will have pushed Pinewood hard on the information that was available from the Isle of Man experience. The problem at that stage was that it was relatively in its infancy, and I'm not sure that there was a vast amount we would've gleaned from the Isle of Man that has a bearing now. I'm sure, in the light of experience, what's happened with the Isle of Man fund and, indeed, what's happened with our own fund, as I've already referenced, we might do certain things a bit differently, but I don't think there was an attempt not to pay due regard to what was happening with the Isle of Man. What information we had available to us from that jurisdiction we did apply to the creation of our own media investment budget.

Okay. So, in that regard, was there anything more at the time that you felt could've been done with regard to that due diligence?

I think that lessons—. History has taught us that there were elements around the transparency of the deal at the very outset that we could've been clearer with Pinewood on. We're looking for these types of information. I'm not sure, though, as I say, that the Isle of Man experience would've been terribly helpful, particularly in that regard, and I think there's something around that disaggregation of the different components of what became a three-part collaboration agreement that I think we would want to take into account from the get-go in the light of experience.

Okay. With regard to the media investment budget, I believe I'm correct in saying that this wasn't exclusively for Pinewood. How is it faring now and what are its projections?

The Pinewood, or the fund was initially—. Activity was signposted through Pinewood and they provided the sort of structuring of deals, which then in turn came to our independent and independently publicly appointed media investment panel, project by project, for sign-off. I think that we have to take account of that up to about the middle of last year. At that point, Welsh Government took on the administration of the fund, or the management of the overarching fund directly. At no point was the money in Pinewood's hands; it was always in Welsh Government's hands.

At the moment, taken across the two administrations of those funds, so Pinewood's work and our work, about £15 million has been invested and we've seen just under £5 million of that come back in terms of recruitment. For some of the productions, it is still relatively early to say whether we'll get money back. Some of them are in very early phases anyway, particularly the ones that we put money into through the Welsh Government administration—the fund in the last year or so—and they're not yet, many of them, in a position to provide us with any return. For a number that have been through the system and with the original ones from Pinewood, some have completely covered their costs. Some, including Their Finest, which was a very successful film, have more than returned the investment. A number of others have performed less well. I think Take Down—one of the early projects that was funded—has not done very well, certainly in comparison with what we hoped at the outset, and I think one of the lessons we learned from that was that there was quite a lot of risk involved in that particular production. It was at the higher risk end of the scale and we haven't seen a return along the lines that we were expecting.

So, with regard to the dichotomy between being bold and ambitious and wanting to invest in this very important sector for Wales, there is that element, in terms of this particular sector, of a gamble. But in terms of that projection, based on Pinewood's very own figures at the very beginning—I'll go back to my original point—do you feel that more could've been done at the start to be able to test rigorously Pinewood's projections, bearing in mind they are a global entity?

15:35

We had quite detailed, independent advice from specialists in the field, including from the likes of Shipleys, who are a very well regarded media advisor and accountancy firm based in London, on the sorts of projections that were in play. I don't think we had anything back that suggested we were being overly ambitious, but I think it's fair, and it's been recognised in the auditor general's report, and it's picked up in all the correspondence I've seen since, that the fund has not performed as rapidly as we'd hoped, either in terms of original investments or in terms of what we've been able to recoup to date. The caveat I would apply to that generally is it's pretty early in the day for some of the things that the fund has invested in, in terms of the key productions. Some have performed well to date. Others have not performed very well at all. Others are slightly in abeyance, and others have yet to get going, really, and we don't know how they will perform. But there is an element, clearly, of risk in this process, when you're investing in things of this sort. 

There was a perception that, in the deal with Pinewood, there was an in-built potential conflict of interest between their role as a studio operator on the one hand and marketing the media investment budget on the other. Certainly some of their competitors felt that this was a potential problem because it gave them a competitive advantage in marketing their own London-based services to the industry, and hence restricting the potential for what we might call home-grown companies in Wales. When you gave evidence to the Culture, Welsh Language and Communications Committee, one of the officials—I can't remember which one now—said that this potential conflict of interest was covered in the original agreement. Well, the audit office has looked at the contract and has come to the conclusion that that is not the case. Do you now accept that this wasn't covered in the original agreement and is one of the lessons that you might draw for the future—that such potential conflicts of interest should be flagged up at the start, and some form of mitigation put in place then to try to prevent those conflicts from materialising?

I think it's a fact that the MA in question, the ministerial advice or the submission folder, did not contain a specific reference to conflicts of interest in that regard, so I think that point is fairly made. There would have been a lot of correspondence, I think, with Ministers at that time, including meetings with Ministers about how funds would operate or how the relationship would work. I'm sure when colleagues gave advice to the culture committee they had that in mind, but I think on your specific point, 'Is the information in the submission?', the answer to that is 'no'.

It's worth remembering that, from the very get-go, we anticipated that the three elements of the collaboration agreement would be run separately. This goes back to the point I was making at the beginning: it wasn't enough for them to be run separately. There was the appearance that they were brigaded, and because they all ran as part of the same timetable I think that then did, exactly as you describe, give some people the sense that this was all part of an arrangement that had to be funded through Pinewood, using Pinewood services, and so on. There was no bar in the collaboration agreement to Pinewood using its own people. We've been very clear about that. We never had a formal complaint from anybody about the relationship, but we did get a lot of—as I say, whether you want to call it noise in the system, or informal comments, from a number of players in the creative sector in Wales that this was an issue, and that was one of the reasons why, among others, the collaboration agreement was eventually brought to an end. But on your specific point, I think it is clear that we didn't say that in those terms in the original submission. 

Good. Thank you for clarifying that. The evidence set out in the auditor general's report suggests that the Welsh Government reacted after the event rather than having identified the risk up front. So, for the future you're satisfied that you'll be able to identify such potential conflicts of interest and make whatever provision is necessary in order to try to avoid the potential becoming a reality.

The central question over how will this fund be administered, where's the money sat, who's actually going to be taking the decision on these things, I think, was always flagged up as an area where there could be a potential conflict of interest, which was why we introduced the media investment panel, which went through the public appointments process. And on each and every project that came through by recommendation from Pinewood, the media investment panel took a decision. And that's part of the reason why I say I'm pretty sure that, in conversations with Ministers around the wider suite of issues associated with Pinewood, there would have been discussions with Ministers about potential conflicts.

On the point about Pinewood using their own services or London-based services, or the extent to which that was a concern for the sector, I think that did emerge increasingly over the subsequent two-year period. And, as I said, that's one of the reasons why we revisited and eventually ended the arrangement. But there were others, not least the fact that Pinewood wanted to get out of third-party fund management in its own right.

15:40

I just wanted to be clear about the level of underperformance that you accept is the case here. So, the original business plan had a target of a Welsh spend. There are two relevant targets, I suppose, which is the leverage of spend and then the recoupment. So, just with the level of Welsh spend, the original target was £90 million.

The original view was that it would be roughly 1:3. So if you had a media investment budget of £30 million, you would be looking to see economic activity of the order of £90 million.

Right. And are you able to project the eventual level of Welsh spend now, the forecast that you—?

I'm not about to make a different forecast provision, because I think that would be risky and probably not terribly helpful, but it is clear that we were expecting to invest more annually than we have done to date. So, by definition, if we've not invested in lots of things, i.e. we haven't already spent the £30 million or invested that, we're not necessarily going to get the full return.

The other thing that's at play here is that we entered into the sponsorship arrangement with Pinewood to try and get more introductions of companies coming into Wales and that does appear to have been very productive for us in terms of spend in Wales.

I don't want to hold you to another forecast figure that you might also undershoot—I can understand why you might be wary of that—but I just want a sense, in order of magnitude, of the level of the gap. So, £90 million was the target; are we talking, right at the end of the process, £30 million, £40 million, £50 million, £25 million? In order of magnitude, are you able to give us a figure? What's the current level of Welsh spend, then? Shall we—

So, from money associated with the media investment budget, we have to date invested about £15 million, as I mentioned earlier. So, that's a combination of through Pinewood's stewarding of the structuring of the deals and then what we've done since. To date, we've got quantified Welsh spend of just over £18 million. But that doesn't take into account the money that's going to come back from a number of these productions, some of which have barely got going. Ones that we've invested in in the last 12 to 18 months are not, some of them, yet in the production phase. So we wouldn't expect to get returns.

Okay, but in terms of the original target of £90 million, you've got £18 million.

That seems ambitious now in the light of what we know, that's for sure.

Yes, because you've achieved 20 per cent of that target, currently.

As of now, that is correct.

And really, the recoupment issue is separate, really, because you can't net—. It was a stand-alone target in and of itself.

Yes. And the leverage—. Admittedly, you've invested less, but even if you take that into account, the leverage ratio, you've massively undershot that. 

The leverage ratio is not as impressive as the one, two, three on our figures. If you take the wider collaboration agreement, I think we've now got pretty good figures that suggest, to date, that the work that we've done with Pinewood has brought in to Wales productions that have spent—spent, this is, rather than projected spend—to date, about £24 million. So, that's over and above the £18 million. So, if you take the two together, Welsh spend is at just over £40 million—£42 million.

But the media investment budget element you fully accept was—. The point that you've just made would have to be classed as probably—. There are few other programmes where you achieve just 20 per cent of the target. In a traffic lights system, that would be a flashing red, wouldn't it? 

15:45

There will be money still to come through from the legacy projects stewarded originally by Pinewood, and there will be money to come through from the ones that we have managed the fund on since. What I don't know—and it would be unwise for me to give you a figure—is quite what those look like, but it won't look like £90 million. 

I just want to bring Rhianon Passmore in before Oscar. 

You've partially answered what I was going to ask you. So, in that regard, there is no real projection about those that are in pre-production. Is there any wider figure attached to that, because when Pinewood was asked this type of question, they seemed hopeful that there would be a lot more in the pipeline? 

I think there's lots of stuff in the pipeline; I don't think Pinewood are wrong to give you that impression, and they're much closer to it than I am. All I can do today is give you the figures that I've actually got in front of me. And for reasons that I've already outlined to Mr Price, I'm reluctant to get into further speculation about what might come down the track, save for this point about the delay both in recoupment and in terms of the amount of money that is spent on productions, because if you've put investment into something that isn't yet on a stage or in a sound lot, or whatever—you're trying to pull the thing together and you've got people on the ground working—you won't have the Welsh spend any more than you'll have the recoupment.

But is that not in the very nature of this particular sector, that there is a longevity attached to this and, in the future, moving forward and learning from this experience, a way of building that in, or is it just impossible to do so? 

I think we need to look at that in the context of what Creative Wales picks up from next year onwards, but as you say, Ms Passmore, the life cycle of a major film will probably be a decade, and by the time you've licensed through DVD or online sales and a whole range of other outlets, you've got a long lag before you start to see some of that money come back in. But, of course, by that stage you will know roughly how much money has been spent on the production in Wales, so you'll have a better idea about Welsh spend.  

Could you provide the committee with a note as to how the £42 million was compiled? Is that possible? 

Yes, of course.

Thank you very much, Chair. Andrew, thank you very much for giving us all the brief, but I know that Welsh Government officials recognise that the budget did not represent good value for money, which is there anyway. My question is related to estimated revenue. In the light of the Cabinet Secretary’s assertion in oral evidence to the Culture, Welsh Language and Communications Committee that Pinewood Studio was 'operating at capacity'—those were the words used—how does this compare with Pinewood’s reference to an occupancy rate of just over 44 per cent?

I think there are a number of things happening here in terms of language used. In the late spring and early summer, the facility at Wentloog was completely full. There were several productions going on. There was a lot of ancillary work going on. The offices were full, and we may come on to talk about this. There were a number of what are described as 'licencees'. These are smaller companies based on the site. They want to be based there because Pinewood are there. I think they're now, Tim, on an annual lease basis—is that correct? So, you've got a range of activity going on in the studio.

Then, when I went around it a few weeks ago, the place was almost empty, and this is because partly the nature of the sector. Productions come in, they come, they go; the space is used in interchangeable ways. In Pinewood, there are two sound-dampened studios, and then a very considerable production space. Right now—I don't think I'm giving away too many secrets—some of that production space is being used by Bad Wolf, the production company, in respect of their His Dark Materials series, which is going to be a very substantial investment not just generally, but in the context of Welsh productions. So, that particular bit of space is being used at the moment.

Is it 100 per cent used all the time? No, it isn't. I think probably Pinewood's original projections of the amount of money they would get in terms of revenue were based on an occupancy rate of about 70 to 75 per cent over the whole year. At the time that they were responding to you or the culture committee—I can't remember where that figure came from—they were estimating or they assessed that they were running at about 50 per cent occupancy for the time that they had been managing under the new management services arrangement. So, I think different terms are used to describe different things. If we had all gone on a visit there in late May, I think, early June, we would have found the place absolutely awash with people, trucks coming and going, lots of people, productions being made on the, or in the, stage areas, and lots and lots of things going on in the production space, the 30,000 space that sits between the two studios. Now, if you went there, you would find a lot of people doing work on background stuff for His Dark Materials for another company operating down the road because they're at capacity in the Wolf Studios. So, I think that's the point I'd want to make in terms of occupancy and the other terminology that you described. 

15:50

Just before you go on, Oscar, Rhianon, did you have a brief supplementary?

Just a point of clarity really, and it comes down to the generic definition of 'occupancy'. So, are we speaking in terms of—? When we say these statements of 100 per cent or less—half—is it purely studio space, or is it studio and the office space?

I think it's everything when we talk about it. So, it's the use of the offices, which are spacious, and people I've talked to say—

So, the studio could be full, technically speaking, but nobody in the offices.

No. It's very unlikely that would happen because of the nature of production—

No, but I'm just trying to understand what we're saying. 

—but, in principle, yes. 

So, it's the production space, it's the studios, it's the offices, and then, to my mind, the companies who are also in and around, the ancillary companies, that are also operating in that physical environment. 

Can I just come in briefly on that one, Andrew? If, at that point of time, thinking of that spring sort of period, a producer came to that studio and said, 'Can we come and film in the studio next week?' they wouldn't have been able to because each stage would have been occupied, so I think it was right to have said it was at capacity at that point in time. 

Okay. But, technically, the offices could be empty, so your studio then would be full. 

Yes, in theory. 

Thank you very much. Does the Welsh Government accept that the Pinewood occupancy rates suggest that there is around 56 per cent—you just mentioned 70 per cent—spare capacity there that is not being used, and that, as a result, important sources of revenue are being lost to the public purse?

I don't think I'd put it in those terms. So, as you and I were just discussing, I think the fact is that, at certain points in the year, it's flat out, and, at other points, it's relatively quiet. It's hard to imagine what other things we would have being done in the space because it's designed for production companies to use for film and television, and then the ancillary work that goes with that. So, I don't think it's a matter of us going out and saying, 'Well, for the next three or four weeks—', or Pinewood going out and saying, 'For the next three or four weeks, it looks like this studio's going to be free; does anybody want to use it?' and come in to construct something that wasn't linked to the sector or the industry. So, I don't think I would say it's 56 per cent not occupied. But I think the question is a fair one in respect of the 100 per cent. I wouldn't say that the Wentloog facility was ever really going to be 100 per cent full. That's not in the nature of the business. Productions come and go, and sometimes it's flat out, as I say, and other times it's a lot quieter. So, I don't think the studios, for example, are being used at the moment. There was some studio space being taken up, I think, last month, or possibly the month before, but, at the moment, it's the production space that's being used in the facility, not the stages. 

Can I—? This is away from this question now, but is the capacity of our studios not enough or—? Listening to you, it looks like a seasonal business there. It shouldn't be, really, because, you know, Hollywood and Bollywood, they are 24/7. They are so much engaged, it's unbelievable. Why don't we have some sort of lesson learned from them?

Well, I certainly think there is something for us to learn in terms of the occupancy rate over the year, both in relation to what's happened under the management services agreement, but also, just in terms of projected revenues and what we can expect to come back, because running the building costs money, and I think that it's important that we have as good a line of sight on who's coming in as possible. It is, I think, in the nature of the sector that you do get fluctuation. I don't think it's possible—or it would be unlikely anyway—to get a completely full slate of productions in there every week and every bit of space being used. Some productions come in and they want to use a studio and part of the production space. I think some others come in and they want more than one studio. And that, inevitably, means it's quite difficult to let out the space to other people. But if there are lessons for us to learn from elsewhere, or from other elements of the industry, we should definitely be doing that. I think that's a perfectly fair point. I don't know if Jason wants to come in, partly from a Creative Wales perspective.

15:55

Thanks, Andrew. Just briefly, I guess. I was struck by the evidence that Ron Jones gave to the Culture, Welsh Language and Communications Committee, when he said, actually, there's a positive to having some unoccupied studio space, because, when you go out to market to meet with producers, you can point to them something that is actually readily available. So, I thought he made a really compelling case there. So, not to say that we've got the occupancy issue solved, but it's just something that we've got to take note of when we design an offer in going forward, I think.

Do you have really the most—[Inaudible.]—people running, or leadership, or enough there in the sector?

Do we need more skills generally in this sector? Yes, I think we do. We would readily accept that, not just—that's a Wales point, as well as a Welsh Government point. The important thing to remember here of course is that, under the management services agreement, this is Pinewood running things for us. We own the facility, but the management of the facility, actually—you know, spaces let out—is in the hands of one of the best film production studios in the world. And they're all over the world—they're in the United States, they're everywhere. And I think we have got one of the best players in the world leading that process for us.

All right. Thank you. Given the statement in the Welsh Government evidence paper that projected revenues have now dropped, what are the latest revenue projections for Pinewood Studio Wales, and how do these compare with the figure of £714,000 set out in AGW's report?

The £714,000 I think was Pinewood's figure about what they expected in terms of occupancy. I haven't got the very latest figures, but the last that I looked at suggested that we had had about £450,000-worth of revenue. But I'm not sure whether that was all the way up to the end of the year, and it may be that that's something on which I could write to the committee with, once we've got the full year's position.

And finally now, does the Welsh Government still consider that the management services agreement does not represent value for money, and what is the latest position regarding any progress in securing a new tenant?

Right. That's a good question, because I think if I were to say anything other than we are always talking to potential other tenants for facilities of that sort, I might get into difficulty. So, if I may, I'll stick at that answer. We, for a range of reasons, which are set out in the AGW's report, concluded that entering into this three-year arrangement with Pinewood, in terms of management services, did a number of things. It secured us a world-class player, still—and I have talked to people elsewhere in the UK, and indeed further afield, who refer to the fact that Pinewood are working here. So, that has lodged in the consciousness of the sector, and I think that that is, and has been, important. But then you've got the use of the space, the value of the asset, and you've also got, as I say, a top-end production company helping us manage that facility. So, those are the upside benefits. The downside is the cost, and we're going to have to think about things for the longer term. For now, that arrangement seems to be working okay with Pinewood. And, as I say, I'll get the detailed figures on revenue for you for the year. We of course have the facility now, and I think we are either at or—yes, I think we're just at the first year of the agreement, that either side can give six months' notice on the current arrangement. But, as I say—I think it's fair to say, Tim—with all of our properties, we keep a weather eye on others who might come in and take them on, as a contingency basis; I wouldn't say anymore than that.

If you could provide us with that information regarding revenue, that'd be really helpful.

Thank you. Having purchased this former energy centre at the end of 2013, you were obviously keen to get on with concluding this agreement with Pinewood. However, paragraph 1.28 of the auditor general's report highlights that VAT had been omitted from the original sponsorship agreement. So, I think what we want to know really is how could that possibly have not come to light in the due diligence that needs to have been done on anything of such a reasonably substantial agreement.

16:00

I think this was brought out in the Chair of the culture committee's letter to the Chair of this committee, and I asked the team to look at it. As it turns out, it was a bit of a seminal moment for us in terms of how we operate things within what's now the economy and transport part of Welsh Government. I think it's worth saying at the outset that, on the whole, I think my teams are pretty good at saying, 'We think VAT treatment will be the following—', and they work quite closely with colleagues in the centre of Welsh Government who are experts on that, on the Treasury and the financial side.

I think that, in respect of the submission that went forward, Miss Rathbone, I think your question is a fair one and I think there was an omission. I think the general operating principle up to that point had been that we would include figures that were exclusive of VAT. Whether that was because the individual preparing the advice thought there would be supplementary advice on how this would be treated or it would be recoverable, I don't know. I don't think the record shows that. What the record does show is that, in the light of this particular episode, advice went out from the centre of our group saying, 'Look, from now on, when we're putting advice to Ministers, we've got to be very clear how we think VAT is going to be treated, whether or not it's going to be recoverable.' So, this committee frequently, and rightly, asks me, 'Have lessons been learned?', and I think, actually, what you have there is an example of where something didn't go right and there was an oversight, and it's then forced a system change in terms of how we frame advice to Ministers. So, there's a note that says something to the effect of, 'Following the recent advice that wasn't right on Pinewood and how VAT would or wouldn't be treated, we now need to make sure that, in any of our key submissions to Ministers on matters of this sort, we are clear how we think VAT will be treated and whether or not it will be recoverable.'

No. I think that what happened was that colleagues' hopes that—. Because the rules about VAT, they're pretty tricky anyway, but they're pretty tricky in the context of Government operations. I think there was a view taken, possibly, that some of the categories that apply where you can reclaim VAT, including things like certain aspects of publicity—that those might have covered the sponsorship agreement that you describe. I think, when we went and looked at it again and we got advice from colleagues who are more expert, as I say, at the centre of our organisation, they said, 'No, actually, we think this is probably a services matter, and therefore we will not be able to reclaim VAT.' So, there was an oversight in the advice put forward. That has, effectively, brought with it a cost of about an additional £80,000 per annum over the three years or so that that arrangement ran—remember, that's now come to an end. But there was a system change in terms of governance as a result of that episode, which now means that advice coming forward to the economy and transport Secretary says, 'We think this is how VAT will be treated'.

Sometimes we don't know, and sometimes we have to go and get further advice. And, sometimes, we have to take a hunch, because what we think as Welsh Government and what HMRC think might be different things. But we've now—

But you're never able to clarify this in advance with HMRC.

You can get a general sense, but they always reserve the right to come in and say, 'We've concluded it's this'.

Okay. So, it was obviously unsatisfactory that the Minister was asked to sign off—

Yes, it was—

And there was then a subsequent piece of advice. Indeed. 

—then it turned out to be £525,000 per year. 

Okay. There was obviously quite a lot of haste involved in the purchase of this property. The vendor was demanding exchange of contracts within a month. So, the Government never actually did a proper building survey; they just did a valuation, which, when you're spending £6 million, seems—. If a member of the public was spending a tenth of that, I'm sure they'd do a survey.

I'll bring my property lead in on that in just a moment. I think there are a range of reasons in the context of this purchase that probably led us to the conclusion that either a full structural survey wasn't needed or it wasn't worth spending the money on. But Tim can set out some of the reasons for that.

Yes. So, I'm not sure that the—. It may well have been pressure at the end, but I think the negotiations took place over a reasonable period of time. I think the circumstances in this case that perhaps made it different from some other purchases were that we knew a good deal about the history of the building. So, it had been procured by the WDA in the late 1990s. We knew its history. We knew from the relationship with the company that had occupied it from mid 2000s, G24 Innovations, who were an account-managed company for the Welsh Government, so we knew something about how they were getting on with the building. It was being sold by an institutional investor as well, which is another indicator. It's not a guarantee, but it's an indicator that the building has probably been maintained to a reasonable standard. We also have the report that indicated that it was in reasonable condition for its age and that there were no major issues to report.

I think the one other factor that probably comes into play is, at the time of purchase, there was an ongoing discussion with Pinewood about the possibility of raising the level of the roof. So, it was a better than 50:50 chance at the time that we bought the building that the roof that was there wasn't the roof that was going to be there in the fullness of time, and we actually went to the extent of getting advice on the costs of undertaking that work. So, I think all of those factors combined give some reasoning as to why we didn't think a roof survey was necessary in this instance.

16:05

Okay, so if you had decided to go ahead with raising the roof to make it operationally more convenient for any film makers, who would have paid for that? Would it have been Pinewood or would it have been the Government?

I think those were the discussions that were going on until, in April 2014, Pinewood decided not to progress with that option. 

Okay, but had they decided to progress with it, they would have then been paying for the raising of the roof.

I think there was a discussion ongoing about who would have paid for what.

Okay, but clearly the lack of a proper survey meant that although the building was deemed to be likely to be in a good state, it actually leaked, which clearly, if you're trying to shoot a film, is a bit of a problem.

Yes, and that's partly what informed the decision that we arrived at, the recommendation that we arrived at to undertake the additional work. So, you buy a building in a particular state of repair and you pay a price that's appropriate and reflective of that condition, but you also take account of the fact that, going forward, you have to make some provision for annual maintenance.

We had responsibility under the agreement for lease for making sure the roof was repaired. We took the view that with a roof of that age, which was 15 or 16 years old, with a probable life of 20 to 25 years, rather than look at an annual cost and an uncertain annual cost, it might be better to try and roll that up into a single payment to undertake some capital works that would futureproof the roof and at the same time considerably reduce our reputational risks from having a studio that was vulnerable to leaking.

I think buildings of that sort of—. Older buildings—not that this was an old building, it was a relatively modern building, but with a roof that had a life probably of 20 to 25 years and so within the term of the lease you might reasonably expect some deterioration in some elements of the roof, it was a better investment decision to make an investment in the asset, which would become more saleable in the future if we ever had to sell it, but also to reduce the reputational risks of having a leaking building, which would have perhaps disproportionate effects given the use proposed. 

Okay. So, having decided to do a proper, complete repair of the roof, which cost nearly £1 million, what proportion of that cost was met by Pinewood?

None, because the responsibility under the agreement for lease for making good the roof sat with Welsh Government. 

Okay, but, nevertheless, the heads of terms for the lease referred to Pinewood making a contribution towards the cost of improvements to the building and the auditor general mentions a figure of £800,000. So, why did all that melt into nothing?

16:10

So, the heads of terms, as I understand it, were issued subject to contract. So, they are not binding; they are subject to negotiation. The heads of terms set out two alternative scenarios for undertaking improvements to the building, and there were two sets of improvements. There were what were deemed the tenant's improvements, which were creating the sound stages and undertaking some works to the roller shutter doors. That was the £1.5 million-worth of work that was referenced in the heads of terms. I think the choices were: either the Welsh Government would undertake those works, or they would be undertaken by Pinewood with a contribution from Welsh Government towards the cost. So, those were the tenant's works. Separate to that, under the agreement for lease, there were the landlord's works, which were making sure that the roof was sound, and also recommissioning the mechanical and electrical equipment within the building.   

So, with the benefit of hindsight, do you think it was an error not to get a full survey of the building you were taking on—that you thought these institutional investors were going to have properly maintained?

I don't think it was, because the surveys that we had indicated that the works that were required immediately, mainly associated with the gutters, could have been undertaken for a relatively modest sum—around £100,000. The decision that we took was more about balancing the potential for future repair liabilities on the roof, because part of the problem with roofs is that you go up to repair one particular item, and you can disturb other elements and create other problems. Obviously, we didn't want that. So, I think that the surveys that we had done afterwards that indicated the cost of works supported the decision that we took not to do a survey of the roof before we bought it. The expenditure was more an investment in the asset than a response to a want of repair. 

Okay, but obviously, the warm words in the valuation report,

'No urgent or significant defects or items of repair were noted',

had that been written by a surveyor, you would have been able to get some compensation, wouldn't you?

Well, the terms and conditions of a valuation report set out the basis on which they make their assessment. A roof survey or a building survey would have different conditions. We certainly didn't consider that there were any grounds for action against the valuer who undertook the valuation for us.  

Okay. No, I can see that there is a difference between a valuation and a survey. But, had you undertaken a survey, and they'd said, 'There doesn't appear to be any noticeable defects or items of repair', then you could have had recourse to—. If a survey had said that, and then you'd found that the roof leaked—

If there had been—. But, I think that what I'm saying is, there wasn't a significant issue. There was a normal maintenance requirement for a roof of that age. So, you could have assumed that you would have had to have spent—it's very difficult to predict, but £20,000 or £30,000 a year, possibly more, on planned and reactive maintenance to roof surveys, and that's accounted for in the valuation. I think it makes a reference to nothing beyond the normal wants of repair that would be identified. That was confirmed in the surveys of the roof that we had done subsequently to undertake the repairs. But, as I say, we took the view that it was a better investment to make a longer term investment in the asset that more closely mirrored the term of the lease, and also ensured that the building would be watertight, and not run the risk of interfering with any productions.    

But, at no point was Pinewood required to make any contribution towards this, even though it was obviously increasing the usability of the premises. 

No. It was part of the negotiation of the agreement for lease that it would be the responsibility of the landlord, in letting the building, that they would let a building that was with a sound roof and with mechanical and electrical equipment brought back into operation.

Thanks Jenny. Rhianon, did you have a brief supplementary—

Sorry, Chair. Bearing in mind the importance to Wales, and the net value to the public purse, and as demonstrated by the VAT issues, do we now have the correct capacity and skills mix within Welsh Government officials to be able to correctly advise Cabinet Secretaries and Ministers with regard to this sector, because this does seem to be an ongoing theme?

16:15

We have a team of chartered surveyors of mixed disciplines, construction experts and civil engineers and project managers, and it's obviously a— 

Wider to the actual valuation point, I'm talking in terms of the sector.   

Well, I think—and Jason might want to come in on this—we have a relatively small team who will form the core of Creative Wales. Is it about 25?

Twenty people. And, within that, we've got quite a lot of experience of dealing with the sector and quite a lot of relevant expertise. Are we, across Welsh Government, equipped with all the skills we're going to need for the future? Probably not. It's something that's been recognised by the Permanent Secretary in terms of the capability plan. It's a big focus of the management team and mine in terms of the work of the group.

Tim, very fairly, refers to the specialists that we've got within the Welsh Government. We've got some fantastic expertise within the organisation, but in pockets, it is just that: it's relatively small numbers of people and one of the things that we have to look at—and Tim and I have had this discussion relatively recently, not in the context of Pinewood—is making sure that we've got a pipeline of people who are going to come in behind our specialist surveyors and our buildings experts and so on, some of whom are nearing retirement age and I think are looking to take their retirement rather than hang on, and we need to be ready to both replace and, in places, supplement some of that expertise. But I don't think in this case—back to the survey—that that's a relevant factor in this. 

Okay, because there does seem to be an ongoing theme in terms of advice to Ministers and Cabinet Secretaries. 

Did you want to come in on that? 

I think the team will certainly be more experienced as a consequence of the experience of going through this arrangement. The evidence that you'll be preparing and what we've had from prior committees has been enormously beneficial. We need to draw upon all of that as we move forward. I think it's very important to recognise that the sector, more broadly, is in a very strong place in Wales; it's growing faster than any other sector. So, we're coming from a good place. But we do need to learn lessons from what we've been through on this and I'm extremely confident that the team is able to do that. I've met with them very briefly since I took over this division, and I think I've been met with a team with enormous passion and skill set for this sector. But I think it's the experience that they would have gained through this that would be most beneficial for the next few years. 

Thank you very much, Chair, and thank you. The ministerial advice referred to in the Auditor General for Wales's report was dated September 2017. Pinewood had occupied the studio, at that time, for at least the previous two years. The advice related to the termination of the existing lease and collaboration agreement not the granting of the tenancy. My question is: why did a Welsh Government official therefore tell the Culture, Welsh Language and Communications Committee that the work would not have been done at the time of the advice to the Minister because the recommendation was for Pinewood to be granted a tenancy on the property, and therefore it could not have done any tenants' improvements at the time of that advice?

I don't know. I suspect that may be in part a terminology issue again in the committee. Tim may well want to come back in again. I think it in part relates back to who was going to be paying for what works and the difference between what was in the original heads of terms agreement, which were not binding, and what subsequently ended up in the contract. But I don't believe there was any intent on the part of colleagues to mislead in terms of the culture committee. The sequence of events is set out in the auditor general's report. We don't now have a lease relationship with Pinewood; it's moved on, as we were discussing a few moments ago, to the management arrangement. But I think that we were probably trying to square off the different—sorry, I'm talking about colleagues here—components of the heads of terms arrangement and what subsequently ended up in the contract. Is that fair? 

I think it is. I think possibly the explanation is in those two options that were set out in the heads of terms, as to whether the Welsh Government undertook the fit-out works or whether Pinewood undertook the fit-out works. I think that, if I remember rightly, in the instance that Pinewood undertook the fit-out works, the reference to the further investment that they would make was specified as being over the term of the lease. So, obviously, that was a 15-year term. At the point that the evidence was given, we were only two years into that lease term. So, maybe that's what the official was getting at, that there was a long period following that in which the investment could have been made.  

16:20

I'd like to start by going back to this point about the tenant's improvements. The scheme that was contemplated in the heads of terms—which, as you rightly said, was subject to contract—was that if the improvements were carried out by the Welsh Government, then Pinewood would make a contribution of £800,000. If the works were to be carried out by Pinewood, then the Welsh Government would, for its part, make a contribution of £1.8 million. When ministerial advice was prepared in September 2017, Welsh Government officials said, quite boldly, that Pinewood had carried out works and investment in equipment at around £800,000, as though that were a matter of fact. But did you actually have details of what Pinewood had done and the value of the work that had been done at that point?  

Shall I take this?

So, the works that were actually carried out as the tenant's improvements, as defined in the lease [correction: in the agreement for lease], which were the works to create the sound stages and the roller shutter doors—and I think there was some work to create the offices as well—. Those were undertaken and recorded, and the landlord's contribution was applied to that. The £800,000 that was referenced in the heads of terms was not included within the agreement for lease or within the lease itself.

Yes, but was that advice given to the Minister accurate at the time it was given?

I don't think we can verify that figure, I think, is the fairest answer to that. It is clear that Pinewood had done, and did do, a number of works that would improve the site and the value of the facility, but I'm not aware of any schedule of works that sets out what those things were. It's possible that the official, in making the advice to the Minister, was going back to the original heads of terms arrangement and carrying that forward. In which case, if that was so, that would have been misleading or inaccurate. 

Yes. So, again, it was a confusion, really, deriving from those figures that I quoted a moment ago, because you didn't actually have a schedule of tenant's improvements that had been carried out at any stage. 

No, I don't think so.

There is, in the agreement for lease, a schedule of tenant's works relating to the fitting out of the sound stages and relating to the roller shutter doors, and, I think, relating to the offices as well. What there isn't is anything relating to the £800,000, but, as I say, that's perhaps not surprising because it never transferred into the lease itself as an obligation.

One of the things that Pinewood were supposed to do was to spend a significant sum of money on a suite of offices that were occupied by sub-tenants—I think about 34 people were employed there. Why weren't officials able to provide the audit office with a schedule of the improvement works that Pinewood had completed? 

We didn't have it and I don't know—

I don't know that we had asked for it. I'm not aware of that.

As I say, there are, in the agreement for lease, terms and specifications for the tenant's improvement works. I think, again, it may be a confusion of terminology. The tenant's improvements specified in the agreement for lease are those that were funded by contribution from the Welsh Ministers. The £800,000 of tenant's improvements were separate and, as I say, it never transferred itself as an obligation into the lease itself. 

16:25

Because, obviously, when one is considering value for money in the context of such negotiations and the outcomes, one ought to be pretty clear about one's expectations on the one hand, and what you think reasonably might give rise to a provision financially for doing these works, because that might have a significant impact upon the deal that you would cut with the other contracting party. But the structure of this didn't seem to make adequate provision administratively for asking those questions and doing the calculations that might have produced a slightly different outcome in terms of taxpayer value for money. 

As I say, I think ultimately the reason that there is no specification for the £800,0000-worth of works is because there was no requirement within the legal documentation for those works to be—  

In the negotiation it didn't translate from heads of terms into the final deal. We understand there have been other improvements, in telecomms and one or two other areas. 

Yes, I think Pinewood have undertaken work on the telephony system and they've invested in certain elements of kit they need to run their business. But I think it may be the case that the use of the term 'tenant's improvements' for that original proposal in the heads of terms is easily confused with the tenant's improvements as defined in the agreement for lease. 

I know it may appear that we're nit-picking here in the context of a deal, which obviously has long-term potential advantages if it succeeds, but then that's our job isn't it, to pick nits, and, for you, therefore, to evaluate your past performance and, where necessary, improve it for the future? 

Yes, I entirely accept that point. We understand that you're here to pick nits among other things. 

Just going back to the failure to get a survey, one of the liabilities you took on at the time of purchasing this former energy centre was this grade II listed farmhouse, which looks, as far as we are aware, at the moment like a significant liability. The Minister, in his evidence to the culture committee during the summer, said that there was no work planned on the farmhouse unless the local authority or Cadw insisted on it. So, isn't there a reputational risk here? It's a grade II listed building, and if the Welsh Government isn't maintaining listed buildings, then how can we possibly expect others to do so?

So, Jason, may want to come in on this. We are, at the moment, maintaining the building in terms of keeping it safe and secure as an owner. We have liabilities as a property owner so we're trying to keep it safe and secure. But the original approval was for £300,000 to refurbish the building without any specified purpose, although it was felt at the time that it could be used— 

Three hundred thousand to refurbish this building—the farmhouse? 

The farmhouse, yes, without any specified purpose. But I think it was thought it could be useful for some aspect of Pinewood's productions, whether it was as a location or as something else. But the budget for that was held by the sector team. So, we recognised—

That's right, yes. So, we recognised our liabilities as the owners of a listed building. But the impetus to actually undertake some works there would either have come from a request from the sector team to say, 'Yes, we've found a use that Pinewood can put to this or put this building to' or that we'd had a notice served on us by the local authority. I don't know, Jason, whether you want to make a more general comment. 

I guess I can speak to the Cadw perspective on this, because that's within my directorate. So, I'd never refer to a listed building really as a liability, but I do totally get the sentiment that you make there. I agree with your statement, in that I think there's an opportunity for us, as the Welsh Government, to showcase really what a responsible owner of a listed building would do with the property within its portfolio. As Cadw, we publish guidance to the owners of listed buildings on how they can make best use of them. So, I think it's incumbent upon us to do the same with a property that's within our portfolio. So, that's something that we're going to be looking at, going forward.

16:30

Okay, but it's difficult to see how you could actually use this building except as a period set, or possibly accommodation for technicians while they were working on the Pinewood site, simply because it's in the middle of an industrial estate. Nobody's going to want to live there as there are no amenities and it's a pretty isolated place—

There could be a certain charm.

—but the idea that you could sell it separately, I've yet to be convinced. Convince me.

Well, it could be a certain charm—I mean that. With Cadw, I don't envisage a situation where we would bring this property into the Cadw portfolio, I don't think it would necessarily fit in the sort of trading side of Cadw. But I think we can learn from experience elsewhere and, by making the building good and bringing it up to a very high standard, I think it could have use. It could have use for the film industry, but also it could have use as a short-term let. We've found, with our own experience with our own properties within Cadw, that some that are in strange places attract a market. I don't want to say with surety that this would do so, but I think, for certain, we won't be able to know that until we make the building good and look at the business case for doing so very robustly.

Okay, but you've now owned it for the best part of five years, so at what point are we going to find out what possible value it could have and what amount of work is needed on it?

From my perspective, this is something that we need to look at urgently, because you've picked this up, quite rightly, through this committee, and it's actually sat there, the building. As Tim mentioned, we've put in place procedures to make sure that it's not deteriorating very quickly and it's safe, but I think whilst it sits there dilapidated, then I think—

Yes, people break in, a fire is caused and all these sorts of things.

Yes, absolutely. It's something that I'm going to see as a priority, moving forward, because I think actually, with creative sitting alongside Cadw in the same directorate, there are synergies there that we can exploit, going forward.

Okay. So, at what point do you think you're going to be in a position to announce what you're going to do with it?

I'd like to look at the actual detailed condition of it myself first, before answering that. I think I'd like to come back to you with more advice on that, if I could.

Okay, well, perhaps you could write to us because I think it is an outstanding liability. It could become an asset, but it's going to have to have some money spent on it before that happens.

Thank you, Chair. I was one of a number of Assembly Members who asked a series of questions about some of the details of the Welsh Government's agreement with Pinewood, and I was met with a stony silence and the excuse of commercial confidentiality as to why the Welsh Government or Ministers couldn't share that information with the Assembly and, indeed, with the public. 

With just one exception, all of the information that we were asking for on the floor of the Assembly, Pinewood subsequently agreed to release, having had a discussion with the auditor general. Did the Welsh Government ask, in response to it being raised on the floor of the Assembly, serially, it has to be said, by a number of Assembly Members—? Did the Welsh Government have a similar conversation with Pinewood asking if they would be prepared for that information to be released?

There have been a number of conversations with Pinewood about release of information, but I think the point you make is a powerful one. I was talking it through with WAO colleagues last week—that it seems odd that, ultimately, the company was prepared to release all bar one bit of information, which I think both we and the auditor general are satisfied is something that should be kept confidential, because it would have an impact on the company were it to be released, but that it's come to that and why that process worked and our own discussions with Pinewood didn't is something that I've asked the team to look at.

Just to be clear on that, they asked and Pinewood agreed. You asked and they refused. Is that what you're saying?

I don't know in terms, but I suspect a conversation was had—. When we deal with any company, we explain that we are Government and there are certain requirements on us in terms of releasing information. Whether the company said, 'We're terribly sorry, we can't do that. It's commercial in confidence', or whether, from the conversation that the team had with Pinewood, that's what they concluded was the most sensible way to proceed, I don't know, and that's one of the questions that I've asked the team.

16:35

So, the collaboration agreement, the original agreement—that had a blanket commercial confidentiality clause in it.

There were general provisions in respect of commercial confidentiality, although we did push the company quite hard on the arrangements in respect of specific deals. That was one of the sector issues that came to the fore in coming to the end of the collaboration agreement and the move to a different approach.

What's the general Welsh Government policy in relation to commercial confidentiality? Is it your presumption to publish in all cases until the company actually raises an issue of confidentiality with you, for example?

There is a general presumption that we will release as much information as we can. That's consistent with our obligations under the Freedom of Information Act 2000 and a number of other provisions in respect of data protection and FOI and so on.

Yes, I understand that, and you've signed up to the open Government principles and open data, so let's pursue this a little bit further. Is the general presumption that everything will go out until the third party actually raises concerns that they have over specific examples? Or do you assume that anything that has numbers attached to it and anything in relation to business doesn't go out?

I think we are cautious because we don't want to be in a position where we're prejudicing the interests of companies, and I think in this wider conversation about transparency, we've got to be mindful of what other people are doing in other parts of the UK and further afield, because I wouldn't want us to get to a position where businesses were saying, 'We don't feel we can operate in Wales because too much of what we're going to discuss is going to end up released.' But I do think that, where public money is being spent, we should be as open as we possibly can, particularly in respect of grants. There may be a slightly different arrangement in respect of commercial dealings, where Welsh Government is working alongside a particular party, and it may sometimes be a question of timing, so maybe we can't release information now, but we might be able to at a point in the future. I think we should be more upfront, probably, in our dealings with companies about that, and when might be the point when we can release more information.

Because in this particular case the sequence of events—it wasn't just that the content of the collaboration agreement was opaque; there was then a change in the relationship that we also only found out subsequently through, it has to be said, a lot of digging by Assembly Members, and then we weren't told about the content of the change relationship. So, at every stage, to be honest with you—. Look, I can understand there are always exceptions to every rule, but this didn't feel, as far as somebody who was on the other side of this, like a presumption to publish. It was the opposite. It was a presumption to actually frustrate at every stage the legitimate desire for information about how public money was being used.

I don't think it was about frustration of attempts to find out what's going on. I think, as I said right at the outset of this session, we've learned a lot of lessons, including a general one around transparency and being clearer with all parties what we're doing. I think, as I say, I draw a distinction, but it'd be one that I'd be happy to explore further, and indeed I think it's worth saying, isn't it, that under the economic action plan, the new EAP, where we look to tie companies to a greater set of returns for the money that we invest in them, both in terms of how they behave and the things that they offer, the economic contract, where we want to go next with the economy futures fund, and indeed with the WAO's own review of business finance—these things come together, I think, in a way that means that we should look at the wider question of what we need to say to companies at the outset the stuff that they can readily accept will be made public versus things that are actually going to impede their ability to operate in the marketplace, and indeed our own ability to operate in the marketplace? Because there are some arrangements that we have with companies where, if were to make those very widely available, it would give others an opportunity to come in and try and undercut what we're doing, for example.

But in terms of the economic contract, it isn't currently the Welsh Government's position simply to say, 'If you're going to be in receipt of fairly large amounts of public money in one way or the other'—financial assistance comes in different forms, we understand—'then as part of that economic contract, be aware that the public will have an automatic right to know the amount of public money that is being offered to you.'

16:40

I think for grants the situation on the whole is pretty clear and we do make information available. It's for other types of financial assistance, where we—

Well, it wasn't in the case of Aston Martin, though, was it? You had to be forced.

Well, the amount of money made available to Aston Martin, I think, is now—well, we know it is now publicly available. 

You were compelled, with respect. I don't want to be argumentative here, but it's a matter of record that you were forced to publish that by the Information Commissioner, the initial grant. Is that not the case?

Well, okay, I think the risk here is that we dive into lots of specifics. The general point about what should our approach be through the economic contract, what should our approach be in response to the findings of the WAO report that is due shortly in respect of business finance I think is something that we are already beginning to consider internally and we will need to look at further in light of some of the specific examples that you and others have drawn to our attention. But what I don't want to say today is that we will absolutely go for an automatic presumption of X, Y and Z if that's going to compromise companies or, indeed, Welsh Government's position to operate in the marketplace in certain areas. What I think is completely correct is to say that we should be very, very specific about what those sorts of things are and that we should minimise those areas. 

Finally, Chair, do you accept, though, that, in making your evaluation as to whatever you decide to do in response to the auditor general's forthcoming report on this issue of transparency, one of the costs, if you like—the wider costs—of not being automatically transparent and comprehensively transparent is that it makes it very difficult for us as Assembly Members to conduct a proper cost-benefit analysis in each individual case? If we don't have the figures as to how much public money has been expended in a particular project or investment, then how on earth can we do our job of holding the Government to account?

I accept the challenge and without prejudicing what we might want to do in the future or what comes out of the conversations in respect of the business finance review, I think we do need to look at means of allowing you to do your job most effectively while protecting positions of companies or the Welsh Government. For example, I don't know: the opportunity to discuss things privately with you as a committee so that you can see what's going on, but that isn't necessarily stuff that is shared more widely. But I would want to consider that more fully, I think. 

Thank you. We are completely out of time. Can I thank our witnesses, Andrew Slade, Tim Howard and Jason Thomas for being with us today? We'll send you the transcript of today's proceedings for you to check for accuracy. 

Diolch yn fawr, Chair. Thank you, committee. 

[Inaudible.]—formally ask for for an update on the cost of renovating the farmhouse. 

Yes, I've logged several points of action there, and I think Jason and Tim have as well. 

There were a couple of items through the course of the meeting, weren't there?

Yes, and I'm sure colleagues supporting the committee will let us know.

If you could send us that information, that would be great. Diolch yn fawr.

Diolch yn fawr.

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

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 5 a 6 ac ar gyfer eitemau 1 a 2 o'r cyfarfod ar 12 Tachwedd, yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from the meeting for items 5 and 6 and for items 1 and 2 of the meeting on 12 November, in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

I move Standing Order 17.42 to meet in private for items 5 and 6 today and items 1 and 2 of our meeting on 12 November. The ayes have it. 

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 16:43.

Motion agreed.

The public part of the meeting ended at 16:43.

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