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Y Pwyllgor Materion Allanol a Deddfwriaeth Ychwanegol

External Affairs and Additional Legislation Committee

03/06/2019

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Alun Davies AM
David Melding AM
David Rees AM Cadeirydd y Pwyllgor
Committee Chair
Delyth Jewell AM
Hefin David AM Yn dirprwyo ar ran Joyce Watson
Substitute for Joyce Watson

Y rhai eraill a oedd yn bresennol

Others in Attendance

Ben Cottam Federation of Small Business
Federation of Small Business
Jeremy Miles AM Y Cwnsler Cyffredinol a'r Gweinidog Brexit
Counsel General and Brexit Minister
Liz Lalley Llywodraeth Cymru
Welsh Government
Simon Brindle Llywodraeth Cymru
Welsh Government

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Alun Davidson Clerc
Clerk
Claire Fiddes Dirprwy Glerc
Deputy Clerk
Gareth David Thomas Ymchwilydd
Researcher
Gwyn Griffiths Cynghorydd Cyfreithiol
Legal Adviser
Rhys Morgan Ail Glerc
Second Clerk

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

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

Dechreuodd y cyfarfod am 13:33.

The meeting began at 13:33.

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

Good afternoon. Can I welcome Members and the public to this afternoon's meeting of the External Affairs and Additional Legislation Committee? Can we do some housekeeping before we start? Can I remind Members and the public that the meeting is bilingual? If simultaneous translation from Welsh to English is required, that's available on the headphones, via channel 1. Also available on the headphones, via channel 0, is amplification, if that is required. Can I please remind Members to turn their mobile phones off, or on silent, and any other equipment that may interfere with broadcasting? There is no scheduled fire alarm this afternoon, so, if one does take place, please follow the directions of the ushers to a safe location. Do any Members wish to declare an interest in the items that we will be discussing this afternoon? There are none. We've received apologies this afternoon from Huw Irranca-Davies and Joyce Watson, and I welcome Hefin David, attending as a substitute for Joyce Watson.

And just to remind Members, clearly, that, following decisions of individuals to leave their respective groups, we now only have two Members from the opposition side. I can't remember his name—. Mark Reckless is no longer a member of this committee, and Michelle Brown is no longer on the committee. And we await decisions by the respective groups, and the Assembly, as to the replacements for that.

2. Sesiwn graffu gyda'r Cwnsler Cyffredinol a'r Gweinidog Brexit
2. Scrutiny session with the Counsel General and Brexit Minister

We now move on to the next item of business this afternoon, and our scrutiny session with the Counsel General and Brexit Minister. Good afternoon. For the record, Minister, would you like to introduce your officials for us?

I have Simon Brindle, who is involved in the policy side of Brexit, and Liz Lalley, whose focus is on the preparedness side of Brexit for Welsh Government.

Thank you for that. And, obviously, since we last met, there have been substantial changes in events that have been taking place. Perhaps the first one is—. The withdrawal agreement Bill, we understand, is no longer being presented to Parliament, but can you just confirm as to whether the Welsh Government had sight of the version that would have been laid or not?

13:35

Well, there were draft versions that we saw, and I think I've said before that, in relation to the development of that Bill, we had been much more involved and engaged than we had been with the EU withdrawal Bill, which became the Act, and there had been very substantive discussions between the Governments in relation to devolution aspects in particular. So, we had much more involvement in that Bill than we had had in the previous legislation.

But, just to confirm, the final version that might have been laid today or discussed today you have not seen?

Minister, good afternoon. Now that the Prime Minister has announced her resignation, everything seems to be in a state of disarray and almost stasis because people don't know what is going to happen or who will be taking over. With a number of the candidates for the Conservative leadership saying that they would possibly favour a 'no deal' exit, could you comment on what impact that's having on Welsh Government's preparations and what plans you're putting in place to possibly mitigate for that?

Well, I agree with your analysis. Clearly, the contenders for the leadership of the Conservative Party—it's my judgment that they're likely to be looking for a harder kind of Brexit certainly than Theresa May. We've been very clear throughout, I think, that a 'no deal' Brexit is unacceptable, and we would want whoever is the new Prime Minister to rule that out, as we asked Theresa May on a number of occasions to rule that out.

Obviously, what we've had since the end of March, with the extension to October, is a period over the last few weeks where we've been able to take stock a little bit, to do a lessons-learnt exercise, if you like, identifying where we were in the days before the previous intended exit day, what more could we have done, what better arrangements might be put in place with the UK Government—all those sort of things. We've been undertaking that exercise, but, clearly, now that the prospect of 'no deal' Brexit has loomed back into view with the resignation of the Prime Minister, we are now ramping back up our preparations in relation to no deal.

Obviously, the sorts of things that might have been relevant considerations with the planned exit date in March need to be looked at afresh with a potential exit date of October. The kinds of things that you might guess we're looking at—we talked about food supplies and the more limited choice in relation to some kind of food supplies in March. Well, that may be different in October. Warehousing capacity may be different in the period leading up to Christmas. So, those sorts of things. We've been exploring what different steps need to be taken for an autumn departure from a spring departure. 

Thank you. Moving on to questions about the change in Welsh Government policy about a second referendum, please, the First Minister, earlier last week, had said that the Welsh Government policy would be seeking a confirmatory referendum because of the prospect of us now facing a hard Brexit. Then I think someone from Welsh Government had clarified, saying that actually the policy was for a confirmatory referendum come what may. Could you please clarify if that is the case? Or if someone wins the Conservative leadership who actually might not favour a hard deal Brexit, would that then mean that Welsh Government policy wouldn't be to seek another referendum? 

No, our policy is in relation to any deal. Just to be clear on that point, we had been obviously looking to find a way of acknowledging the 2016 referendum result and finding a version of Brexit that did the least damage to the Welsh economy and communities consistent with the 2016 result. It's evident at this point, it seems to me, that we've reached the end of the road in relation to that, with the Prime Minister's resignation and the breakdown of the talks between the two front benches, and it's clear looking at the results of the European elections that the country remains very divided in relation to how best to resolve the situation. It's our view that people should be asked again in a referendum how to take this forward. 

Thank you, Minister. Finally, I think you were the first person to tweet about the change in policy of the Welsh Government. Could you comment on what discussions you'd had with the First Minister before putting out that change in policy, please?

I tweeted on the morning of the Monday, I think, that I thought the policy should be revisited, and that was the First Minister's view as well. 

13:40

But you had discussions with the First Minister prior to your tweet, I think the question is. 

So, the First Minister agreed with you that that was the change of policy. He had discussed that with you on the Monday morning.

Well, it was evident the circumstances had changed, hadn't they? As I say, the morning after the close of the poll, the Prime Minister resigned. It was evident at that point that our previous preference, which was to find a soft version of Brexit, had reached, if you like, the end of the road. There was no prospect in Parliament of that—no realistic prospect in Parliament of that coming to pass. 

You tweeted at 07:57 on Sunday morning saying it was clear that the policy on Brexit needed to change, and I think that is where those of us who watch these things had an idea that there was a significant change taking place and that there was a change in policy going to happen. I think it was at 14:22, then, that the First Minister actually made a statement later that day. So, I'm presuming that the conversation you had with the First Minister was overnight on the Sunday night. 

I can't recall exactly when it was, but it was before I'd expressed that opinion certainly. 

So, you were actively seeking a change in policy prior to the news of the vote, of the election.  

The circumstances in the days leading up to the election— 

—well, leading up to the vote, in fact, as it happens—were changing, weren't they? The First Minister himself said in the Chamber, I think about a week before the polling day, that the time for looking at the question of another referendum was fast approaching. It was evident in the days before that the talks had broken down between the two front benches, which was obviously the opportunity to seek some kind of agreed version of a soft Brexit, and then, of course, the morning after the election result—the morning after the poll—the Prime Minister announced she was going, and whilst it had been difficult, it seems to me, to reach any kind of soft version of Brexit with Theresa May, it seems absolutely clear that, with whoever may be her successor, it's less likely to be possible. 

So, the conversations were between you and the First Minister. It didn't go through Cabinet, it didn't go through a sub-committee or anything like that.

Well, as I say, I made a call that morning in relation to changing policy. Clearly, the Government's policy previously had been in relation to a focus on seeking a soft Brexit, and, in the absence of that, as you well know, another referendum is the alternative to that. 

I welcome the change in policy. I don't wish to appear churlish in any way at all. I'm just trying to understand the machinery of decision making within the Government, and it appears to me that, despite your rather equivocal response, it's a matter of conversation between you and the First Minister, rather than a formal decision being taken through Government. I'm not saying that's necessarily a good or a bad thing; I'm trying to understand what exactly happened there. 

Well, I can only vouch for conversations that I've personally had, obviously, and the point I'm making is that the Government's policy of two alternatives had been clear for a long time. The possibility of a soft Brexit being closed off as a consequence of those events—. The referendum, we had always said, was an alternative, and indeed had—. I have, and the First Minister has, advocated for that, for preparations to be made in relation to a referendum. In discussions with the UK Government—. I've had that conversation with David Lidington on the phone, in person, and, I think most recently, I had that conversation with Stephen Barclay, the Brexit Secretary, when he came to Cardiff a few weeks ago. 

So, the First Minister was also quite clear, when he appeared here on the last occasion, that the Welsh Government had been making active preparations for a referendum, or I think it was a public vote he described to us. Returning officers had been contacted and local authorities were made aware of the Welsh Government position and were seeking to make arrangements for that to take place. So, it was clear that the Welsh Government was moving in the direction of that, whether the policy had formally changed or not, but the Welsh Government's emphasis, I felt, over this, say, last six weeks had been changing, and, as I said, I very much welcome that. I'm interested, therefore, in the position that you will be taking now in your conversations with the United Kingdom Government. Now, I recognise what Delyth Jewell said about the somewhat chaotic situation in London, but you will, I presume, still have a structure of conversations ahead of you, across the summer months, with the United Kingdom Government. And I presume that the issue of a public vote or a referendum, or however you want to describe it, will be more centre and front of those conversations than perhaps it would have been a few months ago. 

13:45

Yes. Absolutely. We're calling for the UK Government to bring forward legislation to make a referendum—to lay the ground for it, essentially. But I just want to be clear that that has been something, as I've just indicated, that we have, in our engagements with the UK Government, pressed for. But, plainly now, that will take on a new focus and new urgency. 

Before I bring Hefin David in, can you tell me how meaningful any future meetings will be over the next immediate few weeks, because we have a Prime Minister who has indicated she will resign as Conservative leader on Friday, and a party leadership contest will commence next Monday with expectation of maybe a Prime Minister by the end of July? Now, will Ministers actually be able to make commitments during the next four to eight weeks that we can rely upon? And will those discussions, therefore, be meaningful discussions? 

Well, I mean, Chair, if I may say, that's a good question. In this period, clearly, when you have a Prime Minister who's leaving and a new leader coming in, that question's a legitimate question. From our point of view, for example, at the next JMC(EN), we had pressed for and achieved agreement about looking at the question of common frameworks, based on the conversations I've had before with committee and others about the need for moving forward; a process of scrutiny, for example; a discussion on the inter-governmental review; discussion on the ministerial forum and the role of that in the future. So, all of those things are intended to be discussed at the next JMC(EN). From our point of view, clearly what we want to have is a set of arrangements and mechanics that can function well and effectively regardless of the individuals sitting around the table. Obviously, in a political context, clearly those relationships are always going to be important. But, from our point of view, we want to make sure that we have robust machinery, if you like, to sit alongside those good relationships. And we will certainly be taking every opportunity to continue pressing that, notwithstanding, as you've indicated, the broader political context. 

Because we've had Ministers before us before indicating that, clearly, the personnel at those meetings has been crucial. I think it was when David Lidington took the chair, it became a more meaningful set of discussions. So, the question, I suppose, is, if we have a change of personnel, will those discussions be actually effective and meaningful. Are you confident that the structures in place now will be appropriate in respect of who is in the chair the other side? 

Well, we're looking for changes in the structures that are currently in place.

So, we don't regard the structures currently in place as sufficient for the task even today. I think we just need to be clear those relationships are very important, and I have myself said to you in previous sessions how important we regard them as a Government, and that will continue to be—. The quality of those relationships will always have a very clear bearing on the nature of those discussions. But, as I say, that's exactly why we should have in place the strongest and most robust possible mechanisms and mechanics, so that they bear the weight of the decision making rather than those relationships bearing as much weight perhaps as they do from time to time now. 

Can I just be clear about the Welsh Government's policy then—is that unequivocally for a second referendum, whatever happens, before the deadline?

Yes, and that we will campaign for 'remain' if there is a referendum. 

Okay. And that's even if Prime Minister Rory Stewart is there and is meeting the objectives he had previously. 

Well, as I say, I think it's evident that the country's divided about the way forward, and we think that, in that context, the best way forward is for there to be a referendum. 

So, therefore, Welsh Government policy is a referendum, and we have a referendum the Welsh Government would like to see. What would the questions be on that referendum ballot paper? 

Well, it depends at what point in time that arises, doesn't it? As of today, there isn't a Theresa May deal, is there? So, as of today, it would be a hard Brext or 'no deal' Brexit, and 'remain'. But I don't know what—. At the point in time when discussions allow it, we would need to see what the state of discussions are with the EU. I have no confidence that the withdrawal agreement is going to be reopened, but, if there are discussions, then we would need to look at it at that point. From our point of view, it's important that 'remain' is an option on that ballot paper, because that's what we would like to campaign for.

13:50

I understand the 'remain' position, but 30 per cent of the public who voted, voted for the Brexit Party, and the Brexit Party position was clearly 'no deal'—they say, 'Leave today, no deal'. That's 30 per cent of the public who voted. If 'no deal' isn't on the ballot paper, then that 30 per cent of the public are disenfranchised. 

I'm not suggesting that it won't be on the ballot paper. I'm just suggesting that if there is another alternative at that point, that may also be on the ballot paper.

Okay, but 'no deal' should also be on the ballot paper?

Well, I don't think it's likely to get through Parliament without some kind of concession, but that's a political judgment.

Okay. Clearly, since we last meet, also the European election results across Europe have changed the political dynamics within the European Parliament. And I understand the First Minister is intending to go to Brussels next week. What's the Welsh Government's thinking at this point in time as to how we can help influence or discuss with the new Parliament, because they will still have to ratify any deal, if a deal comes forward? So, where is Welsh Government on its meetings and discussions with key stakeholders in the new Parliament? And we have to accept that there's a change in the Commission as well as a consequence of this.

Well, I think, as you've identified in your question, Chair, one of the issues is who those personnel are. There hasn't been any indication that even the current cast list—if I can use that term, respectfully—had any appetite for looking at the withdrawal agreement again. It seems to me that, in the context of a new Parliament and a new Commission with the new presidents of the Parliament, Commission and Council, that becomes even less likely. The principal question it seems to me is what the make-up of the new Parliament is, what effect that has on who fills those roles, and, at this point in time, obviously, we don't know that. But, clearly, from our point of view as a Government, we will continue to, as we have for the last weeks and months, engage with partners in the European Parliament and elsewhere to press our case. 

As we understand also, the Commission will change, because a new Commission president is due to take post on 1 October. Commissioners will change. The mandate for the negotiations and negotiators might change as a consequence. Who knows? We understand that the negotiating team is also changing because Michel Barnier's deputy has now become director general for trade, so there's been a move there. It is possible that we're going to have no opportunity to have further discussions until after 1 October, which leaves us 30 days. Do you think the UK Government should now be pressing for actually an extension from 31 October? Because 30 days of discussions—isn't that a very tight time? It is tight and very difficult. Considering the situation we are in is likely to be a 'no deal'—that's what some may be going for—is there a point in time when we should be pushing a button now to say, 'Extend it—31 October is going to be too tight by the time the new personnel in Europe will be in place and the new personnel in the UK Government will be in place.'? 

Yes, I think the new Prime Minister—whoever he or she may be—needs to rule out 'no deal', needs to bring forward legislation for a referendum, and needs to start discussions with the EU27 about an extension. I say that not lightly because people hearing that will think, 'Well, that is a prolonged period of uncertainty.' The EU were very clear in March that the period up until October should not be wasted, if you like, and the breathing space which that period of time ought to have provided has in fact been, and will now be, taken up by party political processes and further delay. So, there's a very serious risk that we come back, as you've indicated, and we are weeks away from a 'no deal' departure unless that is extended again.

Does the Welsh Government believe that, actually, all those changes are more likely to create a 'no deal' scenario?

I think there's an increasing risk of a 'no deal' scenario at this point, yes, certainly.

I presume, from listening to what you're saying, Minister, that the Welsh Government would also be supportive of a revocation of Article 50 in those circumstances.

Well, a revocation is a very significant and serious step to take in the context of the current referendum result that we have. So, our preference is for there to be an extension, which would enable a referendum to take place and for that decision to be taken democratically by people in Wales. 

13:55

Yes, that would be cleaner. But in the circumstances that you have yourself described, which I don't think there's any disagreement with across this committee, it's difficult to see how any reasoned change can take place over the summer months. It's difficult to see how the structures of the European Union will be in place to enable a reasoned conversation to take place with the Parliament or with the Commission at any point between now and at least the beginning of October—possibly later. It's difficult to see with whom a negotiation takes place and with whom an agreement can be made, legally, going through the structures of any changes that would be, presumably, agreed.

So, in those circumstances, the United Kingdom has only one option that it can use itself without the consent of the European institutions, which is to revoke article 50 to enable a fresh negotiation to take place or to enable other actions to take place. My presumption is that were that to happen, and I know I'm pressing you on this, Minister, then the Welsh Government would prefer to see that happen than to see the UK exit the European Union without any agreements in place. 

Clearly, the last thing we want to see is the UK exiting the European Union without a deal, but I will just take issue with your premise, if I may. It isn't available to the UK Government to revoke in order to renegotiate. The court was very clear, in discussing the question of revocation, that it needed to be an unequivocal and unconditional act following a democratic event. So, in the circumstances you describe, it would not be available to the UK Government. 

Indeed, it would be a vote of no confidence in the Government, wouldn't it, if it were revoked? It's impossible to see a Government surviving under those circumstances.

There are many circumstances in which a Government ought not to have survived in the last few weeks and months.

I'm very aware that we've been discussing many possibilities because of the uncertainties in Westminster, and we are discussing hypothetical scenarios at this point, other than one, and that is 31 October, the deadline on which we are currently facing a 'no deal' departure. My deep concern is, clearly, that it's already two months since the extension was granted and we have five months left, of which many months will be taken up with identifying personnel to be involved in those negotiations. We will continue to, perhaps, press the Welsh Government's view and actions in relation to that as time moves on.

Can I move on? You talked about 'no deal' preparations. Because of all those factors, is 'no deal' the only scenario you are now preparing for?

There is preparation for a 'no deal' scenario that would be of benefit, if you like, in other forms of Brexit. That's the basis on which some of our preparation has already been undertaken. Some preparation is useful, as it were, whatever the form of Brexit. Indeed, some preparation is useful whether or not we leave the European Union.

But, as I say, we have been looking at what a potential departure in October might look like, in terms of preparation, and how different that might be in March. We've spent the last few weeks doing a kind of lessons-learned exercise, both from the point of view of how the Welsh Government has put in place those preparations, but also in terms of the relationship between the Welsh Government and the UK Government and how we can improve some of those relationships and processes as we move towards the end of October—things that you've heard me talk about before around information sharing, timeliness and those sorts of things, but also opportunities to, perhaps, look at—. I'll give you an example.

We've been doing a piece of work around what I'm calling backbone sectors—so, parts of the economy that, if there were to be difficulty or problems with their resilience, it wouldn't simply be limited to that part of the economy but to other parts of the economy as well. Perhaps an obvious example of that is haulage. Obviously, there's an issue around haulage companies and the availability of permits and so on, but, clearly, well-functioning haulage arrangements are important for the economy at large and public services at large. So, there's been an opportunity to look at some specifics like that in more depth, having had a snapshot of where we were at the end of March.

14:00

So, it sounds as if that is the hottest show in town at the moment—the 'no deal' scenario. That's what you're preparing for, regrettably. Can you therefore give us an indication as to whether you've stepped up your discussions with local authorities, public bodies, to see what they're now going to be doing for that process, and perhaps the discussions they're having with their supply chains?

Yes. I'll ask Liz to say a little bit more about that in a second, if I may, but we have had and continue to have frequent and detailed conversations with all parts of public services in Wales, and indeed different sectors, through our stakeholder engagement processes. One of those areas of focus has been around supply chains, for example, food supply to schools and care homes, but also Transport for Wales has been doing some work around the supply chain of parts to their rolling stock, identifying how much of that is exposed to EU markets, how much is UK. So, you know, there's a significant amount of work that's been going in.

And in relation to local government in particular, the Minister for local government made an announcement a few weeks ago of additional funding to local government to enable them to recruit staff in each of the authorities to better co-ordinate the work of Brexit preparedness in their area, and also some further money to the WLGA to build on the very helpful, useful work they've been doing to identify best practice and to enable that to be shared. There's additional funding that has gone into that piece of work. Liz, do you want to supplement that?

I would only add that the WLGA chair a local government EU advisory panel, which are meeting about every five to six weeks at the moment, which is a useful forum. It brings together chief executives that represent all of local authorities across Wales, where we share learning on preparedness. We use it to cascade messages and to take learning back from them about how we can improve what we're doing, and that's been a very useful forum.

And they are engaging with their supply chains as well.

Yes, I would just add to those points that, in effect, we're having to start triple running in the sense that the 'no deal' planning continues, and building on the 'no deal' action plan, preparing for the negotiations and actually participating in those if a deal was to come through, and actually those discussions did start. Any further extension brings into prospect the participation in future EU programmes and other EU activities. So, we have to prepare for those three things and they are, to some extent, running at the same time.

Okay, and on preparation, obviously, there's also legislation. We know that a huge demand on secondary legislation is coming through, but also there is still primary legislation—the Agriculture Bill, the Fisheries Bill. What's the Welsh Government's proposals and position in relation to those two in particular? Will we have Welsh versions of those before the end of this Assembly? Because clearly there'll be UK overarching ones, but there will be some specific areas that the Welsh Government should be producing their own Bill for. When can we expect to see Bills in agriculture and fisheries?

I'm not in a position to confirm that to you, Chair, I'm afraid, but in relation to the fisheries legislation, obviously as you will know, the UK legislation extends the competence that we have in Wales in the fisheries space. So, it's important that we have that better base on which to build our own arrangements in the future, and clearly we're dependent upon, in the short term at least, the UK agriculture legislation to provide Ministers here with powers in relation to farm payments and so on. So, we want to see those, obviously, progress.

Have you had discussions in relation to the UK Government as to what progression is, because some of them are basically at Report Stage, and we're still a way off some of them actually being completed? Do you know when those Bills might be actually processing through Parliament?

Agriculture, fisheries, immigration—they'll all impact upon us.

Simon, perhaps, can give you some more detail on the dates, but there is ongoing discussion in relation, for example, to the most recent Fisheries Bill. There are powers in that Bill that we have been in negotiation with the UK Government on, to ensure that there are arrangements for Welsh Ministers to be engaged before those powers are exercised. Those discussions have been progressing, I think, pretty positively. But in terms of when the dates are, I'm not sure that I have them in my head.

We haven't had clarity from the UK Government on when they would seek to introduce those Bills. In addition to the ones you mentioned, the Trade Bill is also yet to go back to the Commons. 

14:05

Yes. Well, that's about to start ping-pong, I think, isn't it?

Obviously, if Parliament's prorogued of course, there's a threat to that legislation, which we're obviously very mindful of.

Okay. If we move on to some questions on the common frameworks. Thank you for your response of 24 May to the questions we raised with you, but we just seek some further clarification. David.

Yes. There was an update on common frameworks at the last JMC, and from reading your response, it seems that you were fairly content with where we are and your co-operation with the UK Government. There are a couple of exceptions, which I'd like to come on to separately around state aid and geographical indicators. Was it fair to say that where we are with frameworks at the moment is a fairly orderly place, and one that's been predicted and you've had an input, and, so far, you think it's a reasonable performance, then?

Yes, I think that's a fair assessment. The UK Government's progress report in May, which you will have seen, obviously, we're broadly content with that. There are a couple of issues that you've already just highlighted in relation to disagreements about the devolution boundary, which fed through also into the SI programme, and I had exchanges with the Chair of the Constitutional and Legislative Affairs Committee in relation to the difference of opinion, if you like, between the Welsh Government and the UK Government about where that boundary lies.

But it is correct to say that the common frameworks discussions are the area where there's been most progress and most productive working. And I think that's important because in this second phase, which has now been ongoing since April of last year, it has become clear over that period that there are a number of interconnections between the work on the common frameworks and the broader work around inter-governmental relations generally, as perhaps you would anticipate. So, I think it's important, as we seek to get a better set of broadly based, non-Brexit-specific set of relationships to demonstrate what a well-functioning set of arrangements and relationships works like in practice, and there has been an opportunity, I think, in some of the work around common frameworks to demonstrate some of that. 

That's very helpful. On issues like state aid and geographical indicators, how are you taking forward your objections, presumably, to what is the current direction of travel? 

Well, in one sense, that's the sort of bread and butter of the JMC(EN), that sort of issue. It came up during the course of the SI programme to transpose EU law into the law of Wales—England and Wales—and what became clear there is, for example, in relation to state aid and also the geographical indicators, we may share the same policy objectives—in fact, in those two areas, broadly speaking, we do—but that isn't to say that the process by which those objectives were settled upon and agreed was right. Our view is they are devolved, and, therefore, we should have been engaged in a different way. The UK Government takes a different view, and because of the fact that we have a shared view about how state aid should work, the practical means of doing that was to register our difference of opinion, to indicate our clear view, which is at odds with the UK Government's view, but to accept the overall policy outcome, if you like. So, we dealt with it in that way in the SI programme, and then in relation to the frameworks programme, I've written in fact to David Liddington at the end of May, saying, 'We need to look afresh at how we resolve these issues in terms of where the boundaries lie', and it requires, at the very least, as a starting point, a much better dialogue. The truth is, in particular on the legislation, that was happening at such a pace and such a scale that there wasn't sufficient room for that dialogue. That's the truth of it. But we must make sure that doesn't become a benchmark and settle the boundaries in a way that we don't think is in the right place on those issues. 

And you say that things have been done at pace, but certainly state aid, that is a very fundamental issue, and I think we'll probably go on to that separately in a moment, but in terms of how a disagreement is resolved, there is no dispute resolution mechanism as such at the moment, or at least not an independent one. So, how frustrating has this been? And in your experience of the common frameworks—and you've said that it's broadly been constructive—do you think a dispute resolution mechanism could extend to the common frameworks, or do you think that would just be overkill?

14:10

Well, I think that they relate to each other in one sense, but they're separate in another. Many common frameworks will have within them a means for resolving disputes around process or policy boundaries—you know, official level discussions, ministerial portfolio level discussions and so on. Now, the UK Government has actually, on the question of dispute resolution—. Well, take a step back: if you had said to us a year ago, 'Do you feel you would be making progress on dispute resolution?', it felt like an area where progress was least likely to be productive, in a sense. But the truth is that the conversations have been pretty creative. It's been led by the Northern Ireland Executive, and they have, obviously, particular experience in this area. So, we aren't in a place where we have agreement, but the conversations are exploring a range of options, including the sorts of things we've been talking about here, which is an independent element in some of that.

So, for example, on a specific basis, if you look at the agriculture Bill, there was discussion around how the WTO clause might work, and there's an element in that where independent advice can be sought and, if a decision is taken in defiance, if you like, of that advice, then there's a consequence to that. So, that was quite an important principle for that to be conceded. So, obviously, we would like to see that sort of idea of an independent element more broadly available. But as well as there being a mechanism within the framework for disputes to be resolved, one of the themes of the broader intergovernmental review, which obviously extends beyond Brexit, is also how we can move forward our dispute resolution mechanisms.

Okay. I think that's a very interesting answer, and I'm sure it'll interest other committee members as well, and it's something we'll want to follow. I appreciate your balanced approach in indicating where you do think things are promising, even if not yet fully developed. I wonder if you've got anything to tell us at the moment about the policy teams that are considering developing the 78 non-legislative policy areas. When are we likely to see some of that fed through and your involvement in that?

The context of that for this whole set of judgments is that our starting point, if you like, is that we in Wales should have at least the same level of policy flexibility that we have as part of a member state and obviously to extend that policy flexibility wherever that is achievable. So, the baseline is, if you like, no constraint conceptually, and then you look at what's next, which is a non-legislative set of relationships, and then you look at, I suppose, areas that require a stronger framework, and that may take you to a legislative path.

The truth is that, at the moment, the focus has been on what might require legislative intervention, and I'm sure it's right—and perhaps Simon will give some more detail—to say that there are areas that, currently, we anticipate may require legislative underpinning, which, on more analysis, may not require that, or it may be a different kind of underpinning. And, bluntly, the focus, I think, has been on those areas, because of obviously the demands of legislation. So, I think in terms of non-legislative intervention, probably those areas are slightly less well developed at this point. Is that fair, as a summary?

That's absolutely right. Each and every framework, if established, would include a significant element of non-legislative joint working arrangements formalised with something like a memorandum of understanding, a ministerial forum or a kind of Council of Ministers structure to co-ordinate and make political-level joint decisions on matters. The work of working through this timescale to have frameworks operational by the end of the transition period—so, that would be by 2021 onwards—is moving at different paces. I think the early priorities were on those areas where legislation may be required, and a focus on those, and even those, actually, were what, in the first instance, were thought of as being legislative. That was whittled down and there were issues thought of where, actually, that could be handled through co-operative mechanisms rather than legislative mechanisms. And there will be—. We're entering a phase now where some of this stuff is being tested with stakeholders. For example, there's a live consultation, which is joint between Governments, on a replacement carbon trading scheme. That will be a framework that will operate where the Governments see having a common system to do that, but actually, it's respective—it's a devolved function that would operate in those areas. That's something that's being tested now. Others are in the slightly earlier stages, but I would expect more of this work to be exposed and tested with stakeholders and legislatures over the next period of months.

14:15

So, all the non-legislative policy areas are themselves within a framework model of governance—they just don't need a legislative vehicle at that point.

And I think if you think of them in terms of groups of policy areas, you quickly get to a point where you've got portfolio-to-portfolio relationships and some of those are more significant than others in terms of the volume and depth of the joint working required. So, in effect, that would be kind of a Department for Environment, Food and Rural Affairs and Welsh Government memorandum of understanding to cover quite a range of frameworks. A Department for Business, Energy and Industrial Strategy one would be really important on energy and economy policy et cetera.

And, Minister, you very coherently said that you do not think these areas, just like a full legislative framework, if I may put it that way, should be engaged unless there's a demonstrable need for it, and also, if engaged, it should allow as much policy flexibility to the devolved level as possible—more, I think, than the EU level, which is I think a very strong statement. Do you feel that there is support in the UK Government for that approach? 

I think that's fair to say. As I say, those are the sorts of principles that are common in that framework discussion, but clearly, there's quite a lot more work to be done. So, I wouldn't want to indicate that these questions are all settled; there are some frameworks that are much more mature than others, but others require much more engagement down the line. But what's clear is—. You mentioned at the start of your question the discussion at the last JMC(EN). That was just a very short point to flag up how important that we and the Scots felt it was to say there is an understandable and perfectly legitimate set of questions and concerns coming from scrutiny committees in our legislatures about engagement and scrutiny generally, and so we recognise the need to press on with that and to enable legislatures to engage from a scrutiny point of view. So, that was the reason for raising it specifically at the last JMC(EN) and we will, I hope, come back to it at the next JMC(EN).

And, rather appropriately, we lead on to the next area I was going to press you on. The UK Government, again, welcomes the scrutiny of the legislatures, but that's fairly underdeveloped at the moment in terms of really getting some detailed policy areas to examine. Now, I realise that we're still dealing with the meta issue of are we going to leave and under what form, but it's very important that the new frameworks operate in an effective way that's seen to have had appropriate scrutiny and is accountable to the elected representatives, isn't it, otherwise it's not going to have the level of legitimacy that we are seeking. So, do you hope that the pace of the work there is going to increase? What sort of role do you think this committee would have directly?

Well, there are two aspects to that. I think the next phase is principally focused on stakeholder engagement to kind of refine some of the thinking before ministerial engagement takes place. And then, there's a stage after that when it's useful and more meaningful, I think, from a committee's point of view, to engage with what the product is of that process. I'd be interested in the committee's reflections on how you think it might work from a scrutiny point of view. You might say, for example, that where you've got individual frameworks in a particular policy portfolio, it might make sense for that to be seen as part of the post-Brexit policy development across that portfolio by a subject committee, with a committee like this taking a kind of cross-cutting view. But obviously, that's a matter for the Assembly. I'd be interested in your reflections on how that might work.

14:20

Okay. You mentioned the wider stakeholder engagement and, again, that's mentioned by the UK Government. It's slightly frustrating not to know where we are in this whole process, but then when you're talking about the outcomes of the framework discussions, then being presumably scrutinised by us, but also undergoing stakeholder engagement—. What's your feeling for the consultation that's going to follow the various framework agreements? Do they have the status of a Green Paper or White Paper? I know they're neither, but where are they in terms of their ability to be amended at that stage? A Green Paper could be profoundly amended in terms of emissions, for instance.

So, the point is for them to be developed with stakeholder involvement. It's not simply a kind of rubber-stamping, it's a genuine engagement. There's a pilot about how to do it, as it were, how best to look at engagement that's been run in relation to hazardous substances, I think, just to look at how you might get players in that field involved in how that might be developed. So, there's a need, not least because, if that isn't the product, then it'll fail at scrutiny, obviously. So, there's a clear understanding of the need to engage stakeholders genuinely.

By the way, I should say, as well, that I spoke at a Public Law Project meeting a few weeks ago, and it was clear then that, in the context of the legislative programme, where there have been different but comparable challenges for stakeholders, engaging at pace, and having capacity to do that and the context for doing it is a significant challenge for some stakeholders in some sectors. So, that's also recognised.

Time is moving on, Minister, and I want to move on to the shared prosperity fund. I think it's an important aspect. I'll come back to any other matters we have if we have time then. Alun.

I'd simply like to know where we are at present, because it seems to be a very opaque process.

Well, where we are at present is that we have no clarity from the UK Government about the content or timing of a consultation. Plainly, in the context of the Prime Minister's resignation on Friday and the question mark, to say the least, over a comprehensive spending review—I mean those are two very big variables in terms of content and timing, obviously, in this area. You'll know from our previous exchanges in this committee that I and the First Minister and the finance Minister have made it very clear what our expectations are as a Government, and I suppose what one gets in response a pretty pro forma response, which is, 'We respect the devolution boundaries, we'll engage with the devolved administrations.' But, bluntly, that doesn't happen. So, the time is way past to move beyond those general blandishments into a proper set of arrangements that genuinely do respect the devolution boundaries, and we certainly don't have those at the moment.

I'm grateful for your candour in that response. You will remember previous conversations that you and I have had with UK departments of state, where they would define devolution somewhat differently to those of us sitting in this room, whereby, for argument's sake, you remember the Ministry of Justice talking about devolution to police and crime commissioners, rather than to this democratic institution. I understand that the First Minister shared some of his concerns in April, where he highlighted the concerns that the Secretary of State for Wales is seeking to bypass the National Assembly in relation to the fund. Is that what you feel is happening at the moment?

Yes. I think the issue is that we are in a period where there needs to be more collaboration and more co-operation to deal with the challenges that we are all facing as a consequence of Brexit, and there appears to be less. So, if you were to look at a consultation that genuinely respects the devolution boundary, the post-common agricultural policy consultation happened on an England basis and entirely differently and separately on a Wales basis. That's how you do it, bluntly. So, we don't have that in relation to the shared prosperity fund and, bluntly, that is what we should have.

I'm grateful to you for that. I was interested in a comment made by Jake Berry, who glories in the title of Parliamentary Under Secretary of State for housing, communities and local government, when he was speaking in Westminster Hall last month. He criticised EU structural funds, because they do not target many of the UK Government's priorities. Now, I was involved in the discussion around those EU structural funds, and I have to say that the UK Minister at the time was David Lidington and he made some very important interventions in that. So, I don't know if his colleagues' criticisms of him are entirely justified. But certainly the impression given by Mr Berry is that he wants the new shared prosperity fund to reflect the UK Government's priorities. Is that the view of the Welsh Government as well?

14:25

No. He, I think, is speaking actually in his capacity as a Minister for England in this regard, so it's entirely up to him in that capacity to determine how this will operate in England just as it is entirely up to Welsh Ministers in that capacity to determine how this will operate in Wales. This isn't about the UK Government's priorities; it's about respecting the devolution boundaries and commitments that have been made and enabling decisions to be taken in Wales by the Welsh Government on behalf of the people of Wales, and with access to the same level of funding that otherwise would have been available. 

I have been seeking the opportunity of meeting with James Brokenshire to have that very discussion with him and have not yet succeeded in securing a meeting. 

Okay. And finally on this point—I recognise time is against us—is this a matter that the Welsh Government has been in conversation with the Scottish Government about, and could you say to us whether you've discussed this matter with colleagues in the Scottish Government and whether they share your concerns?

Yes, there's a shared concern, I think, in this area around making sure that devolution is respected in the way that it doesn't appear to be currently. It's not too late, by the way, to reverse that, so I hope that will happen over the summer months. 

Thank you, Chair. This is partly a supplementary to Alun Davies's question there. The former First Minister, Carwyn Jones, put up on Twitter—I keep on quoting Twitter today—on 29 May that he questioned whether the price of a hard Brexit could be the break-up of Britain as we know it. Is preparing for something like that part of any inter-governmental plans or negotiations at the moment? 

We don't want that to happen. What we want is a well-functioning union, which is why we are engaging fully in relation to the inter-governmental review, and so on. But clearly there is a risk from a hard Brexit of different paths being taken in Scotland and, I dare say, in Northern Ireland, which would put us in a very different context. But, as I say, our priority is to make sure that we reform the UK constitution, the union, in a way that respects the parity of the nations and introduces a well-functioning, well-funded constitution. 

Can I just ask one question there? You say it's a risk, obviously, that might happen, but you don't want to see a break-up happen. I understand that. You want a fully functioning union. But is there also a risk if we take too long with the JMC review that we could be in a position where we haven't actually been positively taking action? Because that review is over 12 months. We know the structures haven't worked. We talk about future structures. If there isn't a set of strong future structures, is that also going to be a risk to the future of the union?

I made that point directly to Government Ministers in the UK Government, Chair—that we need the JMC structures to work in a very different way from how they work now, and to have a UK council of Ministers with a fair funding formula and all the other things that we've described in Brexit and devolution. We think that is a necessary step in order to protect and preserve the union and to make it a well-functioning union into the future, and to bear the incredible weight that Brexit or the change demands will bring to bear.

Alun wants a short one on this and then I'll go back to Delyth. 

I would just like some guidance, Minister, as to whether, in those conversations with UK Ministers, there has been any timetable for this conversation to be concluded.

Thank you for that. We had hoped, actually, for us to have something to report substantively to the JMC(P) around about this time, but progress hasn't been as rapid as the First Minister and I had hoped, and that is partly, obviously, because of the 'no deal' preparations. Also, the Governments involved have slightly different perspectives on what should happen to the constitution of the UK, but the bigger challenge now, if I may say, is that there doesn't feel to me a realistic prospect of a JMC(P) meeting until into the autumn, with the change of leadership in the Conservative Party and new Prime Minister. And, obviously, in the autumn there'll be a range of conflicting demands on people's time and focus. But, absolutely, the point of pressing for this to be on the next agenda of the JMC(EN), even though that forum can't make the decisions, is at least to continue the pressure of making progress in this discussion. 

14:30

But there's not going to be any realistic process for this calendar year, from what you've just said. 

Well, this is a political judgment. We can all reach our own judgments, but it seems to be pretty unlikely there'll be a JMC(P) until the new Prime Minister is in place and will have had some time for reflection. That feels to me like not before the autumn, but even that might be optimistic. 

And I appreciate the arguments about the 'no deal' preparations, but one would have expected this to be a major factor. If a 'no deal' happened, you would want to have these structures in place to ensure that there is fairness across the UK. And whilst I appreciate there's also a resources issue, I would hope that you would continue to press the fact that this is an issue that has to be resolved. It cannot be left to go on and on and on. It's rhetorical, so I'll leave it to you. 

Delyth. 

In our final—. Well, I was going to say, 'In our final minute', but we're just over time. I'll be brief. Looking at arrangements that are being negotiated on a UK level that will have an impact on devolved fields, specifically with health and its impact on future trade deals, the US ambassador has said that he would want access to the NHS to be on the table in any future negotiations. What actions will Welsh Government be taking to make sure the NHS isn't sold off, because that would be anathema to the Welsh public?

Well, it puts at the heart, doesn't it—if I may make a political point—the world view of some of those people pursuing Brexit in the way that they have been, which is that these things should be in play in a way that I'm sure none of us would want to see. Just to be clear, we have been focused very keenly on how to ensure that the Welsh Government has a role in the discussions and negotiations leading up to the sorts of international agreements—in a range of areas, by the way, across all sorts of issues: agriculture, healthcare, and so on—and finding the best means for giving us a voice in those negotiations and settling the mandates for the negotiations and being part of the negotiations. And, for example, in the trade space, those discussions have been very well advanced. I know that you're seeing the Minister for international relations next week and she, perhaps, can give you an update on the latest in relation to those, but that is an example where the Department for International Trade has been more inclined to include the Welsh Government in agreeing mandates and being even part of the negotiations than perhaps the Wales Office has been.

Can I ask, is that simply down to departmental views at this point in time? Because there is no formal process that you have to be involved, is there?

Well, trade is a new area for this sort of ministerial level of engagement. You will know, Chair, from my previous visits to the committee, that we've been seeking to put in place across the portfolios ministerial quadrilateral fora. Some are very well established, but there are new ones in departments including business, for example, and the trade department. And the point of those is to enable policy engagement between the devolved administrations and the UK Government and, in relation to specific legislation—the Trade Bill, the Healthcare (International Agreements) Bill, the Agriculture Bill—that has led to particular agreements about how the Governments across the UK are engaged in the process leading up to discussions around negotiations with international partners. So, that's a set of discussions that have been going on. 

Thank you for that. I still have some reservations, but I'll keep those for the moment. Can I thank you for your time, Minister? It's very much appreciated. As you know, you will receive a copy of the transcript to check for any factual inaccuracies. If you find any, please let the clerking team know as soon as possible so they can be corrected. 

3. Cynnig o dan Reol Sefydlog 17.42(vi) i benderfynu gwahardd y cyhoedd o eitemau 4 a 7 y cyfarfod hwn
3. Motion under Standing Order 17.42(vi) to resolve to exclude the public from items 4 and 7 of this meeting

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o eitemau 4 a 7 y cyfarfod hwn yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from items 4 and 7 of this meeting in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

The next item on the agenda is a motion under Standing Order 7.42(vi) to resolve to exclude the public for items 4 and 7 of today's meeting. Are Members content to do so?

Therefore, for the next item, we will now move into private session and we will return at 14:45.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 14:34.

Motion agreed.

The public part of the meeting ended at 14:34.

14:50

Ailymgynullodd y pwyllgor yn gyhoeddus am 14:53.

The committee reconvened in public at 14:53.

5. Gwaith dilynol ar barodrwydd ar gyfer Brexit—sesiwn dystiolaeth 3
5. Follow-up work on Brexit preparedness—evidence session 3

Can I welcome Members back to this afternoon's meeting of the External Affairs and Additional Legislation Committee? The next item on the agenda is our continuation of looking at the preparedness within Wales for Brexit. And can I welcome Ben Cottam from the Federation of Small Businesses Wales to this afternoon's session, and can I put on record the apologies that we've received from Andy Richardson of Food and Drink Wales, who was going to be attending? He is unable to join us today, but he has indicated he will provide a written submission to the committee for consideration.

We move on now straight to ask questions of Ben in regard to, perhaps, the preparedness in the small business world, and, Delyth, will you start off? 

Thanks. Could you please give us an indication of how your members are preparing for different scenarios in relation to what might happen with Brexit, particularly in light of the Prime Minister's announcement that she will be resigning and the uncertainty about who will take over, and the very real prospect that we could now have a new Prime Minister within a few weeks' time who would be looking actively for a 'no deal' scenario to come about?   

The extent to which our members are really factored in around the various scenarios of various, different potential outcomes of Brexit is very limited. I think what we've had is almost two scenarios presented, one of which is possibly the ideal scenario whereby you have a transition to Brexit that allows for that transition period, avoids 'no deal', allows for that certainty as to the future relationship—something akin to what we at FSB would like to see. And then, of course, in the run-up particularly to 29 March, when there were concerns about the possibility of 'no deal', there has been a conversation about planning for 'no deal'. What we found in the work that we undertook in the run-up to that was that very, very few businesses were actually actively undertaking preparations for 'no deal'. Part of the problem was that they weren't really sure what they were preparing for. 'No deal' doesn't affect you the same way across the board, and so, understanding exactly what they'd need to prepare for has been a real problem, particularly for the smallest businesses that are less likely perhaps to bring in sort of expert help that would allow them to figure out a way ahead.

Now, certainly, the resignation of the Prime Minister throws more uncertainty into the environment at the moment. I don't think we have an assessment from our members at the moment as to how that's impacted them, but inevitably, that means that an already uncertain picture has become yet more uncertain, and yet more difficult for businesses to understand where they will be in six months, let alone a year. So, we are in a very, very muddied muddy picture and we are concerned about the ability of businesses to divine their way forward. It's been something akin to the boy who cried wolf, where we've been encouraging business to plan for something and then sort of pulled them back, and then, it may well yet be the case that 'no deal' becomes a reality.

14:55

Thank you for that. Andy Richardson, who can't be with us today, had said that lots of SMEs in Wales find it difficult to put resources in place to prepare for scenarios if they're given information at very short notice. Can you comment on whether you think that the Welsh and UK Governments have given enough notice in the circumstances about things like how scenarios are changing, what might come about if a 'no deal' situation does happen?

Our relationship with Welsh and UK Governments on this has been really quite productive. I think we've had, particularly, a lot of input into things like the design and roll-out of the Brexit portal, which we had felt very clearly was a tool that was going to be very practical, and, actually, in any circumstance, if you look at the portal, which basically assesses your approach to risk, your exposure to different scenarios, in any scenario of Brexit or not, that's probably a good way to help businesses plan for any likely scenarios.

I think though that it has moved so quickly—the debate has moved so quickly—that it's been very difficult for Governments to move their advice at a similar pace, to a point where they can understand business need and they can engage with business in a practical way. So, it has been very, very difficult to keep up, and I think there has been—. That's led to a fatigue by businesses. When you talk to our members, some of them just switch off from the debate and wait until something becomes solid. And that's a real concern, because that may come upon them very, very quickly, and they won't be able to have had the time to plan for that scenario.

Thank you. And then, finally, learning the lessons from the first cliff edge that was avoided because we had an extension granted, do you think there's anything more that Welsh Government could be doing to help your members in the lead-up to a potential 'no deal' happening at the end of October?

I'm not sure there's a great deal we learned from the first cliff edge, because, from our assessment, a lot of the preparation wasn't taking place anyway. So, while we were relived that that didn't happen, I'm not quite sure we learnt enough from it. I mean, bear in mind that for those businesses that did plan for a 'no deal' on 29 March, those businesses are now at a competitive disadvantage to those that didn't. They've put time, effort, resource into planning; it might be warehousing; it might be any number of different scenarios, and they now find themselves at a competitive disadvantage. And, so, the likelihood and the possibility then of getting them to that point, potentially in another 'no deal' scenario, whereby they are going to put aside that resource, that time, is going to be a very, very difficult conversation to have with them.

I think if you look at it from the perspective of warehousing for stockpiling, for instance, if you've engaged a warehouse with an agreement to hold stock, then you've got to decide now whether you wind down that stock and then sign a new contract or a new agreement for additional warehousing capacity in the run-up to 31 October, or whether you decide just to hold that until 31 October. So, these are quite material decisions for businesses that, in some cases, are on really quite tight margins. 

So, I assume there would be issues about turnover, just in order to—income cash flow—in terms of these decisions. I'm interested in what you were saying in answer to Delyth, in the sense of businesses not quite understanding what they're planning for, and then not understanding what that reality might be. Because that implies two different things in some ways, doesn't it? Usually in risk planning, you plan for an event, something happening, whatever it happens to be, but it's an event, recovery, moving on forward. And here you're trying to plan for two things, aren't you? First of all, an off-the-cliff new trading environment, immediately, which is the event, but then you're trying to plan for a new reality, which isn't about recovery from that event, but it's actually trading in a very different economic or operating environment. So it's two different things. Are you confident that you've had the sort of support—through Yellowhammer, or through other sources—from either Government, that will enable you, as a business organisation, and then individual members to actually understand those two quite different scenarios, and to enable them to plan in a realistic way for both?

15:00

When we talk to officials, I think we can see and feel the pain that they feel. I don't think that there is any greater detail within Government available to—. I wouldn't suggest that, either at a UK Government or a Welsh Government level, there is any reluctance to withhold detail. The detail just doesn't exist. Although I'm not convinced that, necessarily, sufficient planning has been done.

If you look at it from a business perspective, and one of the scenarios we were chatting about as a team was if you are a florist—we picked a florist in Cardiff—that florist has two trucks coming from the Netherlands twice a week, and now you're almost entirely dependent on that supply chain. So, the impact of a disruption to that supply chain, brought about particularly by 'no deal', is very, very tangible. When we talk to members who aren't either importing significantly or exporting, the problem is that the impacts of 'no deal' are far less tangible. And that's where the conversation with Governments and officials gets a little bit more woolly, because it depends on so many hypothetical scenarios. If there's disruption to a supply chain, where does that disruption take place, what sorts of supply chains are likely to be most disrupted?

Certainly in terms of the conversations around stockpiling ahead of 'no deal', we have felt some very real consequences there. There's an outfitter shop—effectively an office outfitter—that mentioned that the ability to get something like plasterboard is more difficult than it was, because the bigger businesses are stockpiling supplies of plasterboard, and that's obviously really quite fundamental to the sort of work that they undertake. Another business, an IT business, told us that the ability to get work-grade laptops, which we would never have guessed at, but the ability to get ready specced work-grade laptops for sale is very much more difficult. So that is quite intangible, and I think, in fairness to either the Welsh or UK Government, it would be difficult to anticipate that. It certainly would have been very difficult for us to have anticipated that, ahead of that actually happening.

I don't disagree with the analysis that it would have been difficult for any Government to anticipate all of those different impacts, but, having had that knowledge now, through this process, the onus on Government then is to respond, isn't it, so that you can respond? I'm interested in the example of a florist in Cardiff, or wherever, because there are two issues, aren't there? First of all, there's the truck being stuck in Dover—or wherever it happens to be stuck—and flowers no longer saleable, and the rest of it, so that has to go back to wherever they go back to, and the rest of it. And then, of course, there is the following week, and the week after, and the next month, and six months down the road, when you need to plan for different things and, potentially, increased costs of getting the materials. So, to what extent is that experience that is being gained through this planning being communicated to Government, and are you seeing Government being able to respond on the basis of having that information?

Yes. We're communicating these examples into Government. In fact, we've got a meeting later in the week with the Minister, when we'll be updating as to where various organisations are on Brexit. We feed these into Government, and they, hopefully—. I think we have seen the feedback link, particularly around the Brexit portal, where they've used that intelligence just to maybe hone the portal and the signposting service that it provides.

So, in the example of that florist, the questions are: in the event of supply chain disruption, do you have finance facilities enough to supply for three days, three weeks, or whatever else it might happen to be? And the reason that that is a good example is because it is a perishable commodity. So, what we have been saying to businesses is: understand your exposure, understand what safety net you have, whether it be finance or others, and then we will feed that into Welsh Government to try and hone the Brexit portal. And the portal is a very tangible tool.

15:05

I'm just looking at the Brexit portal on my phone now, if anybody's wondering why I'm on my phone so much, looking at it. So, you had quite a big input into the development of it.

Yes, we had some feed in initially into the development of it. I should declare an interest: I sit on the strategic board for Business Wales, which obviously oversees the Brexit portal. I know that other organisations are also invited to input into the portal. I think there have been pretty regular—certainly, that will be the subject of the conversation later this week—pretty regular conversations with the Government as to what that looks for. It'll be interesting to get an update as to how many businesses have (a) accessed it and (b) undertaken a profile within it, because of course it asks you to create a profile. 

Yes. I think it's one thing to log in and it's one thing to have a nose around the portal, it's another thing to complete a profile, which then will help you be signposted to the relevant services or areas of support. 

It's actually quite good practice regardless of Brexit. 

Yes, I think in any other circumstance—. I think these things provoke you to think differently. In any other circumstance, we would say to business, no matter how small you are, to understand your risk and your exposure to different scenarios. This came certainly in 2008 in the financial crash. We had these similar sorts of conversations: understand your exposure to risk.

So, I think that's where practical tools like the portal have come into their own. It is very difficult beyond that to anticipate where the support should come from next. What I would say is that in the event of 'no deal' then certainly Welsh Government needs to, I couldn't put a figure on it, but, hold funds sufficient enough to create a safety net for businesses, certainly in the short term, to allow them to continue to operate should they be adversely impacted in the eventuality of a 'no deal'.

So, have you had feedback from your Federation of Small Businesses members on how useful the portal has been?

When we've sought that, the response has been that it's been a useful experience. On a number of occasions, people have related exactly what you've said—it's quite a useful exercise anyway and they hadn't been compelled to think about their business in that way. So, the feedback we've had so far has been generally positive. We only get a certain proportion of that feedback anyway. What we've looked to is obviously the Business Wales service to feed back to us, through the collaborative relationship that we have as a business organisation, where the—

No, we haven't surveyed, for instance, how many of our members have gone through the Brexit portal.

Okay, but where you've had feedback it's been generally—

Yes, we invited—. So, through our development managers on the ground, when we have a run-up to meetings with Welsh Government, we do a list where we ask people as to their experience generally on business support, but also particularly around support around Brexit. 

Yes, I'd just like to ask if the FSB Wales has any views on how the shared prosperity fund is going to operate, because obviously it's a key economic policy and fills a big gap in terms of when we leave the EU and the availability of regional aid. But, obviously, it's a UK prosperity fund. That's what's proposed. There are many questions arising from that. I just wonder if FSB Wales has had any input into the formulation of the policy around this.

No, not into the formulation of policy. Our position is clearly we were primed, as many others were, in November to consult on the shared prosperity fund, but that didn't happen and hasn't happened subsequently. So, we are no more enlightened as to what the shared prosperity fund will look like. Our position on the shared prosperity fund is that Wales shouldn't be any worse off as a result of Brexit.

We know that particularly business support is quite heavily leveraged by European funding. We produced a report last year that assessed the quality of the business support that was actually delivered through Business Wales, the Development Bank of Wales, and what we found from that is actually (a) those services were relatively well regarded, and (b) if you look at a cost per job basis, they actually provided a pretty good return on investment.

So, our imperative is that there is enough resource to protect those services, which we know our members find very vital and businesses in general find vital, in developing and helping fund them. I think it is a frustration that we are so many months further down the line and there is still—there is no indication as to what the shared prosperity fund looks like. There is—. I guess the caveat is there are all sorts of conversations about how we can better target the funding that's available. Our perspective is that's a conversation that is easier to have here in Wales than it is to be bidding into pots of money in Westminster. Certainly, the new regional landscape in Wales, the new regional working, offers opportunities to think smarter, differently, about the priorities that we'd identified for those funds, but again it is difficult to know how to aim that conversation with any kind of assessment from UK Government as to what that fund might look like. 

15:10

Okay, I'll push you on that latter point in a moment. But, first of all, if Wales isn't disadvantaged that more or less means that we're likely to get a similar envelope of funding as to what we currently get through European programmes. That would mean, wouldn't it, that at a UK level the shared prosperity fund would be quite large, because at the moment I think it's Wales and one other region in the UK that currently qualifies—for the highest level, anyway. So, is that something you think is feasible? And is it a policy supported by FSB UK?  

Yes. So, the policy on the shared prosperity fund is a UK policy. 

Yes. Yes, quite a large one. But I think we recognise that there will be pressures and different conversations from different regions of the UK. We absolutely recognise that, but I think the principles that underpin it are that the volume of funding should come to Wales for decision, and the priority should be the decision made within Wales. As I said, that's across the whole range of Government, local government. How you carve it up is a different conversation. 

So, what you just said then echoed your earlier response that there is now a system whereby the UK Government can feed into various city deals, the regional approaches, and that would be one model. They will be very different to the current model, I think it's fair to say, where the European programme is in conjunction with the devolved Governments and they develop programmes and priorities and where they fit and advance European ones then the schemes go ahead. So, do you see a problem here that we may end up with a very different model that is basically through UK Government? And, in your view, could that work to Wales's advantage? Or would you prefer to see something like the current model where, in effect, the moneys are devolved to the Welsh Government, in our case, perhaps with some general framework conditions that the UK want to set for the UK rules of the game, as it were, but that it would be the Welsh Government that would drive the programme and the priorities? 

Yes, the UK position is that it should be devolved to Welsh Government. I think there is another question then about the way in which the Welsh Government chooses to spend that money. From our perspective, obviously, we want to see the sustenance, the spend, on economic development priorities, and it's for the scrutiny of this institution to ensure that there is proper oversight and challenge of that. But that conversation is easier to have here. I think there is—you know, there is a real benefit to the conversation about how the emerging regional working that has shown itself through not just the city deals but I guess the wider regional agenda, what opportunity that might pose to allow us to identify priorities for spend. The weakness, I guess, of that is that we still have 22 local authorities and it is very difficult then. The engagement structures were designed specifically around the city deals. So, they are engagement structures for a particular product. It would mean that we'd have to work very, very differently to identify priorities for a new pot of funding. 

I'm interested—. And I thoroughly agree with you about the point about local government, as you can imagine. But I'm interested in the differential though between how you develop a bid policy and how you deliver, because what you've just described to me, what you were discussing in answer to an earlier question, seemed to be a reasonable way of coming up with an approach, in terms of talking to those different people and taking on board all those different views. I don't disagree with that at all. However, who delivers it and how is that policy delivered? Because it appears to me that those structures that are significant and important in terms of designing a policy aren't the same structures that can deliver a policy. And my experience tells me that, in terms of delivery, you need a body, an organisation, wherever it happens to be, that has the structures in place and the capacity to be able to reach your businesses, which wouldn't necessarily always see themselves as being within the aegis of a government or public structure. So, from your perspective, how then would you see—would you agree with that analysis, and how would you see the shared prosperity fund being actually delivered on the ground, given what you've just said? 

15:15

Well, at a practical level, from my members' perspective, we have a delivery infrastructure for—particularly around something like business support, for instance, we have a relatively efficient and well-understood delivery infrastructure. We have, obviously, the Welsh European Funding Office, which provides that oversight and sign-off of that funding. So, we do have some of that infrastructure on the ground. It's not primed at the moment to deliver exactly the same thing, but if I look at—. Again, if I go back to the report that we undertook that looked at the quality and the reception of business support, there is pretty good regard for the standard of engagement that businesses are receiving. We obviously now have the Development Bank of Wales, which is another part of that architecture for regional delivery and, increasingly, it's taking on a broader role.

So, you don't want to see—. Not to put words in your mouth—you're content with the existing architecture, as you put it, being used to deliver a new fund rather than creating a new structure.

I think it makes sense to look at certainly the appropriateness of the existing infrastructure in delivering any new fund for whatever way that would be, rather than devise an entirely new architecture. I'd say that, if you look at just the Business Wales brand, for instance—that's the fourth or fifth iteration of business support since devolution. It's a very, very—it has been a very confused landscape. I think we're settled now on a brand and a mechanism for delivery that people recognise. So, at a very practical level, it makes sense. Certainly, it is for others to assess whether those mechanisms can deliver against the policy intentions.

Earlier this afternoon you mentioned that you'd hoped or that there might be a need for a fund to help businesses that come across situations where they are in dire straits as a consequence of whatever happens. I would assume that's in addition to the European transition fund the Government has set up.

Yes. Obviously, the EU transition fund was devised with, I assume, a relatively calm transition in mind. Should there be a more disruptive transition or a calamitous 'no deal', as we would put it, I think there is a need to reassess whether the volume of funding is sufficient for doing that, or indeed the way in which that funding is deployed. Now, if you think about some of the ways in which we, collectively in Wales, responded to the situation in 2008 with things like the ReAct scheme, which I think has been relatively positive—you know, keeping funding sufficient for that kind of intervention should that come about. It's very difficult to say now what the volume would be and how you would spec that funding. But I guess that we would just urge caution that funding is available should we start to see businesses in peril, for instance, brought about through disruption to the supply chain or pressures—short-term pressures in cash flow, things like that.

And, of course, many notifications we've had about funding from the European transition fund to businesses have been to large anchor companies, to an extent. Have many of your members benefited from the European transition fund to date?

As far as I'm aware, not many of our members have applied directly to the EU transition fund. Where it has benefited them is where larger organisations have used it to shore up their supply chain and to prepare their supply chain. So, there are examples where members of ours that are in the supply chain of larger private entities have had improved conversations, if you like, as a result of that funding. So, it doesn't—. Our contention wouldn't be necessarily that it has to go directly to SMEs, but it certainly has to—you know, that has to be part of the landscape. If you are, let's say, in the supply chain for Airbus, you know there's a really important role for Airbus to play in helping to shepherd through those businesses through any particular scenario, let alone a 'no deal' scenario.

15:20

On that, obviously, again you mentioned some of your members were waiting, because of the uncertainty, and whether they decide to do anything or not, basically, on that uncertainty, but, clearly, if they're in the supply chain, as you just mentioned, there is a critical consideration of that supply chain and who they supply because the consequences on them might be actually more devastating than anything else. So, are your Members relying upon the major company in that supply chain to be active or are they actually being active themselves?

Well, that's one of the things—. Through the work of the Brexit portal, for instance, we've encouraged people to understand, again, where their exposure—. If your exposure is entirely to one client—you might be supplying 75 per cent of your trade—then you have to understand that, should that be disrupted in whatever way, that will have a disproportionate effect on your business. So, understanding that this is an opportunity, maybe, to look for new business opportunities and to spread that risk has been an excuse for that kind of conversation. There will be—certainly there will be—members of ours who are wholly dependent on individual suppliers. They will have to make their own assessment as to whether or not that puts them any more or less in peril. But what we've said is just having awareness of your exposure in the first instance is the important thing. You can then make an assessment as to whether there is risk associated with that.

The Welsh Government has often identified and maybe targeted specific areas—automotive, Airbus, aeronautics—as an example of areas that they feel are important. Are there any areas your members feel that the Welsh Government has failed to target? Are there areas that the Welsh Government needs to target to ensure that it covers a wider range than perhaps it's currently doing?

We've always been—as an organisation, we've always been cautious about sectors identification. There are strengths in the Welsh economy, but we have been cautious to encourage Welsh Government to have a broad consideration. So, for instance, whereas, yes, you might have automotive and aeronautical engineering, well, clearly, even tourism provides a very solid base within Wales of both employment and economic activity, particularly around the work around the foundational economy, which is growing at the moment. So, we've always been a little bit cautious.

Specifically in relation to the exposure of sectors to Brexit, I don't think we have an assessment right now that there are other areas that should be looked at. I know that, for instance, there is particular concern around automotive, and I think it's just that these are because many of these are obviously headquartered outside the UK and outside Wales—you know, there is a vulnerability that we feel in terms of decision making—but we haven't got an assessment as to what other sectors Welsh Government should be pursuing particularly around Brexit. But we do have an assessment that Welsh Government should be cognisant of the wider strengths of the Welsh economy and not just a few sectors, perhaps, that we would want to see, that we would want because it looks good to have. And this has been pertinent to the conversations around the city deals.

And have you seen a step up in Government activity in relation to looking for new markets? Because if you have some of your members that are exporters, clearly there's concern as to what new markets might be in place to allow them to increase and build their businesses. Have you seen a step up in activity by Welsh Government to try and expand into those markets?

Yes, particularly in that conversation around export. Both Welsh Government and UK Government have been very active in encouraging both the increase in export capacity of businesses that already export but also encouraging businesses to put a toe in the water on export. Again, though, if you are a business that has never exported, that is quite a significant step, and to undertake that significant step at what is a very uncertain time is a very bold decision to make. Many have made it and we've had reflections from members where it's been very successful. Certainly, there is volume of funding, there is volume of support, through the Department for International Trade and Welsh Government to allow that to happen.

I guess, yes, there is the prospecting of new international markets, but the vast majority of Welsh businesses, the vast majority of our members, export to EU markets. So, what we want to see is clarity as to our trading relationship with the EU, because they will continue to be very important markets and disproportionately important for smaller businesses.

Okay. Thank you. Are there any other questions from Members? I see there are no other questions. Therefore, thank you very much for your time this afternoon.

15:25

Thanks very much indeed.

You will receive a copy of the transcript. If you identify any factual inaccuracies, please let the clerking teams know as soon as possible so we can have them corrected.

That's great. Thanks very much. Bye.

6. Papurau i’w nodi
6. Papers to note

I move on to the next item on the agenda, our papers to note. The first paper to note is correspondence from Anthony Soars regarding a new common charter for co-operation within and between the islands of Great Britain and Ireland. Are Members content to note that paper at this point?

Thank you. The next one is correspondence from the Chair of the Constitutional and Legislative Affairs Committee to Bruce Crawford MSP, who is chair of the equivalent committee in Scotland, regarding legislation in devolved areas. Are Members content to note that?

I'm content to note it. Can I say, in terms of the content of the letter, I've got no issues with what Mick has written? I think it is important that we do have wider conversations about the matters, as we did with the Brexit Minister earlier this afternoon, because these matters touch on the fundamentals of the settlement and the structures within the United Kingdom, and I think it is important—. As I say, I've got no disagreement with what Mick has written in his letter, but I do believe it's important that we do have an opportunity to have a broader and deeper conversation on these matters before we establish a position going forward.

Okay. Do you therefore consider we should have a meeting with the CLAC?

I think we probably need to have a conversation with the different committees.

Okay. Noted. The next paper to note, paper three: correspondence from the First Minister to myself regarding fishing boats in Welsh waters. Clearly, it relates to the fisheries policy and the possible fisheries Bill that will be coming forward. Are Members content to note the response from the First Minister regarding this point?

And the fourth paper to note is correspondence from Michael Gove to myself regarding forestry policy when we wrote to him, reminding him of our views that, in fact, forestry policy was devolved. He has tried to explain his position on that. Are Members content to note the response from the Secretary of State for Environment, Food and Rural Affairs?

The last paper to note is the correspondence from the Brexit Minister regarding the revised framework analysis that we wrote and actually had a chance to question him on this afternoon. Are Members content to note that?

Thank you for that. Therefore, the next item on the agenda, which we previously agreed to move into private session for, item 7. We now move into private session for the remainder of today's meeting.

Daeth rhan gyhoeddus y cyfarfod i ben am 15:28.

The public part of the meeting ended at 15:28.

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