Pwyllgor yr Economi, Seilwaith a Sgiliau - Y Bumed Senedd

Economy, Infrastructure and Skills Committee - Fifth Senedd

09/01/2020

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Bethan Sayed
Hefin David
Joyce Watson
Mohammad Asghar
Russell George Cadeirydd y Pwyllgor
Committee Chair
Vikki Howells

Y rhai eraill a oedd yn bresennol

Others in Attendance

Dean Medcraft Llywodraeth Cymru
Welsh Government
Huw Morris Llywodraeth Cymru
Welsh Government
Ken Skates Gweinidog yr Economi a Thrafnidiaeth
Minister for Economy and Transport
Lee Waters Dirprwy Weinidog yr Economi a Thrafnidiaeth
Deputy Minister for Economy and Transport
Simon Jones Llywodraeth Cymru
Welsh Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Andrew Minnis Ymchwilydd
Researcher
Robert Donovan Clerc
Clerk
Robert Lloyd-Williams Dirprwy Glerc
Deputy Clerk

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

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

Dechreuodd y cyfarfod am 10:03.

The meeting began at 10:03.

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

Croeso, bawb. I'd like to welcome you to our first meeting of 2020. Item 1: we have no apologies today, and, if there are any declarations of interest, Members can say so now. 

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

Item 2: there are a number of papers to note. We have further information from the Minister for Economy and Transport on the Welsh Local Government Association discussions regarding taxi and private hire vehicle licensing. We have a letter from the Payments Systems Regulator regarding our 'Access to Banking' report, and we have correspondence from the Future Generations Commissioner for Wales regarding the budget, which we're coming on to later in the meeting. So, are Members happy to note those papers? Great.

3. Craffu ar y gyllideb gyda Gweinidog yr Economi a Thrafnidiaeth
3. Budget scrutiny with the Minister for Economy and Transport

In that case, I move to item 3—is it item 3? Yes. I've got my papers in the wrong order. This is budget scrutiny with both Ministers for the economy and transport, or the 'tag team', perhaps I should say, as it's been referred to in tweets. [Laughter.] So, Ministers, perhaps I could ask your officials just to introduce themselves for the public record.

I'm Simon Jones, director of economic infrastructure.

10:05

I'm Huw Morris, director of skills, higher education and learning. 

Good morning. My name's Dean Medcraft, director of finance operations. 

Thank you very much. Members have got a series of questions. I'll start with questions around the Government declaring a climate change emergency. I wonder how the Government declaring that has influenced budget priorities. Perhaps you could summarise any change as a result of that. 

Well, I think one of the headline facts relating to budget allocations and the declaration of the climate emergency is the 65 per cent of additional capital that's going to be spent on decarbonisation projects—that's a huge proportion. But as well as that, as a consequence of the budget, we're now spending more on active travel than we are on new local road projects. We've got the metro, which is now being rolled out in south Wales as well, and this year we'll see considerable work undertaken on the metro programme, and there are the additional sums directly relating to the north Wales metro—the £20 million and the £29 million that's going to be invested in low and ultra-low emissions vehicles.

Is there anything specific in the budget for 2020-21 that an allocation has changed from this year's budget in that regard?

I think the challenge fund, we've trebled to £4.5 million, and that's designed to do a number of things, principally, to drive inclusive, fair growth across Wales to ensure that communities are more resilient. But that's a considerable increase—it's almost trebled.

And in terms of thinking to the future, I'm thinking long term—five, 10, 20 years—how are budget allocations and priorities changing in that regard?

In terms of the longer term, it's very much going to be for the Wales transport strategy and the carbon budget for 2020-21 that will inform the longer term investment considerations. They will also contain detailed carbon impact assessment data as well.

Could I just add, Chair, on that?

I think there's a recognition in Government that we're on a journey. We published the low carbon plan last year, which had a 100 actions that we we're currently doing to address climate change, but we know that the next iteration of that plan, due in 2021, is going to be against a much more challenging set of climate change targets. So, there's going to need to be a step change from where we are to the next plan after the next Assembly elections in 2021. So, as the Minister said, in the additional capital we've had this year, we've chosen to put 60 per cent of that specifically into decarbonisation projects. We're laying the road as we go on that one. So, in the choices we have to make immediately, we're prioritising decarbonisation, but we also know that the pathway we need to go on is going to be significantly steeper in the next period, and as we draw up the Wales transport strategy, that's going to be at the heart of our thinking of how we fashion that.

This committee has been incredibly helpful in terms of assisting and informing us as to what actions we should take as a Government looking forward. It would be pretty helpful if you could, perhaps, build on the good work that you've done on examining the future of local bus services, on the metro and on public transport as a whole, by looking at potentially what could be done to ensure that we do bring about the swifter and more radical modal shift in terms of transport.

Well, thank you, I'm pleased that, as a committee, our reports are influencing Government, of course. Can I just ask also, with regard to the allocation of funding through the economic contract call to action and the economic futures fund, how much has been allocated to businesses in this financial year?

It's £41.9 million.

It's £41.9 million. There are five calls, and decarbonisation is one of those. I believe that the amount that's attributed to decarbonisation is considerable.

Yes. And how does this compare for this budget coming up?

These are rolling programmes, so they're spread over a number of financial years.

The amount spent on decarbonisation is about £30 million, which is about 30 per cent of what we're actually putting out in total on the calls to action. 

The investments, though, often cover more than just one call. So, there'll be a principal call through which the money is drawn down, but often, they demonstrate benefits in other areas as well. So, whilst it may be one third attributed directly to decarbonisation, there may be additional sums allocated to projects that will have spin-off benefits in terms of decarbonisation.

Sure, okay. I know Bethan Sayed's got some further questions on this area.

Yes. That's what I wanted to ask, really, because, obviously, the Future Generations Commissioner for Wales had recommended £240 million be spent on decarbonisation. You're saying it's £30 million, but that there would be other—. Sorry, not—.

10:10

So, specifically in the calls to action and the economic contract. 

Okay. So, how much overall, then, have you committed to in terms of decarbonisation, because Lee Waters mentioned a plan, but the plan doesn't come with finance? You're saying that financing the plan would come after the 2021 election. 

No. There's a low-carbon plan that Lesley Griffiths and Mark Drakeford published last year that covers 100 things that the Government are doing that are funded. What I'm saying is that, to meet the ambitious targets we have for climate reduction, the next stage, the next plan is due in 2021, and those will be a much tougher sets of targets. So, to get from where we are to there is going to need some significant changes to the way transport operates, because transport is a significant contributor to climate change emissions.    

In terms of the future generations commissioner's report, the 10-point plan and the recommendation that £240 million should be allocated to decarbonisation projects, the actual figure that we are allocating towards decarbonisation-related projects is in excess of £0.5 billion, when you factor in projects not just concerning the money for low and ultra-low emissions vehicles, but also bus-related projects, rail-related projects, metro investment, it amounts to something in the region of £580 million or 61 per cent of the transport budget. It is huge. 

But for the lay person looking in, is it easy for them to understand where in the budget the decarbonisation financing is? I appreciate what you're saying about the wider plans, but in terms of looking and scrutinising and seeing where the decarbonisation moneys are going, is that something that you would be able to be confident of?   

I think yes—yes, I think so. As long as there's an understanding that decarbonisation of public transport includes investment in public transport that has a lower carbon impact than the private car, for example, rail travel, then yes, it would be easy to identify. 

Okay. Just in relation to the allocations, and you've mentioned the budget, in terms of the 14 per cent reduction in transport emissions by 2020 and then 43 per cent by 2030, are you confident that the allocations would lead to those targets being realised? 

That is the point that I was making. We recognise that to reach those targets, we're going to have to make significant further changes. You could look at our budget and once you add up concessionary fares, bus services operator grant and the rail franchise, there's already a considerable proportion of the economy and transport budget allocated to decarbonisation. That really isn't the challenge, because that's what we've done for a long time. The challenge to meet these targets is: what more can we do, and how can we also use the existing funding to further accelerate those ambitions? So, that's the challenge. It's a very complex picture, and we're already doing a lot, but to reach those targets all of us have to do more and what we need to work through the detail of is how we get those changes to be embedded. 

Okay. My last question, and there may be a perfectly legitimate answer, but it looks quite high that—. We're all talking about decarbonsation, but 65 per cent of transport investments by value identified in the infrastructure investment plan are actually road schemes. Are those road schemes looking towards reduction in air pollution and looking at improved carbon emissions? 

There are two important points on this with the Wales infrastructure investment plan. Rail infrastructure is not devolved, and therefore you would expect, within the WIIP, a very high proportion of projects to be road related. If rail-related infrastructure were to be devolved with funding as well, then you'd see it balance out more. The WIIP only contains projects that are valued at over £15 million, and so, often, that means that bus infrastructure projects and active travel projects don't reach that threshold and so aren't included in the WIIP. So, again, it gives a disproportionate proportion of the allocation towards road-related projects. But within the WIIP, there are major projects that will significantly contribute to decarbonisation including, for example, the £300 million red route programme, which will be the spine, it will be the main artery of the north Wales metro with bus rapid transport opportunities across that vitally important piece of infrastructure. 

Can you just explain why nearly two thirds of projects are under £50 million? 

Just the volume. So, it wouldn't give a fair representation, you would argue, of the actual cross-section of—

It's not a fair representation of all of the spend and investment, no. This is about the major infrastructure investments that Welsh Government and partners can be delivering. 

Maybe it's just worth adding that, of next year's economy and transport budget, less than 10 per cent is allocated to new roads. So, it's a really small proportion of the overall economy and transport main expenditure group. 

10:15

Okay. And is any of the—? Final, final question: how much of that is going into—? We know about Port Talbot; we also know from the news this week about Cardiff in terms of air quality. How much of that is going into the current road structures to make them more viable and more carbon-friendly, shall I say?

On top of the 10 per cent that's being spent on new roads, about 10 per cent of the budget is spent on maintaining the existing road network. So, operating, maintaining and renewing the existing road network, that's a further 10 per cent. 

But that would be going towards trying to make them—. To try and change people's ways of—

No, that's purely about maintaining them; about keeping them safe and keeping them open. 

I'll go back to the Deputy Minister's answer. You referred to 100 policies in the low-carbon plan, and 24 are described as proposals—is that correct?

No, I think you mentioned that—. You referred to over 100 fully funded policies in the low-carbon plan— 

—but am I right in saying that 24 are described as proposals?

Well, they're plans that we're currently actively working on. So, those are things that we're going to be delivering this Assembly term. The challenge then is to reach the targets for the next low-carbon plan, which will be due to be published, I think, six months after the next Assembly elections. To meet those sets of targets, we're going to need a step change in our ambition right across Government, and transport needs to play a part in that. So, I was responding to your challenge on, 'Are we doing enough on decarbonisation?' We're doing a significant amount of things, but we're not doing anywhere near enough to meet the more ambitious targets that we'll have to set out in 2021. 

And it's not just us within this administration; there's a key role for the UK Government in terms of the regulations that apply to car use, specifically, the availability and the permission of higher emitting vehicles to use our roads. There is a responsibility and a role to be played by local government as well in terms of demand management. 

Sure, okay. Thank you for the clarity. Vikki Howells. 

Thank you, Chair. I've got some questions around the progress of investment in rail services, infrastructure and the metro systems. So, firstly, I wonder if you could tell us, Minister, how the draft budget will provide for investment in rail services, and the three metros in the north, south-west and south-east Wales. Could you outline the level of progress of delivery that you expect on each of these during 2020 to 2021?

Okay. Well, there's a huge amount of money being invested in metro-related projects. Later today, I'm going to be at the breaking-ground ceremony for the new Taff's Well maintenance depot. That's a £100 million project that is commencing today. Yesterday, we formally opened the Treforest maintenance hub, which will bring together all of the teams that are responsible for delivering the metro.

In terms of services, we've already seen increased Sunday services; we're seeing new rolling stock coming on to the tracks. In terms of the metro in the north, a huge amount of work is being undertaken in partnership with Flintshire County Council concerning the Deeside area, with proposals being developed at the moment for a new Deeside Parkway station on the industrial estate, the integration of Shotton and Loughor stations. In Wrexham, we've created the Wrexham partnership to transform the gateway into Wrexham, and at the heart of that is Wrexham General station. 

We're looking at utilising the additional £20 million to now go further afield, and to improve facilities and services elsewhere in north Wales. Right at the start of the rail franchise, in January of last year, we saw the introduction of new services direct between Wrexham and Liverpool. We're going to be seeing, in 2021, the doubling of services between Wrexham and Bidston. I've already mentioned the work that's being undertaken on the red route, the spine of the north Wales metro—that's a £300 million project. If you tot up all the investment that's allocated to the north Wales metro, it easily breaches the £400 million mark, and will continue to rise as additional projects are included within that package. 

And then, in terms of south-west Wales, so far, we've funded development costs for the programme. There's a considerable amount of work that has already been undertaken in partnership with the four local authorities, but from April of this year, Transport for Wales are being tasked to take forward the programme further. I don't know whether, Simon, you'd like to talk about the south Wales project in particular—south-west Wales?

10:20

So, a chunk of work has been done on looking at that. So, we're talking about south-west Wales. A chunk of work's been done on looking at particularly a rail project that can be developed through that area. We've been doing that, led by the local authorities, as the Minister says, with Professor Mark Barry, who led on the work for the south-east Wales metro, looking at how we can create a local commuter railway in the Swansea area, making use of existing network infrastructure to be able to improve the economic fortunes of that area. 

I'll be regularly updating Members on the progress of each of the projects, beginning in February with an oral statement on the north Wales metro.

Okay, thank you. We're still fairly early on into the franchise, but an extra £15 million of revenue funding for the rail franchise and services has been announced. Why is that necessary and what additional services will that fund?

It won't be funding directly the additional services—very much operational costs. Simon, can you—?

So, the majority of that money is the operation of Transport for Wales itself over the course of the next year. So, that's the funding for the development of the company to be able to deliver these other projects that we're talking about, to be able to oversee the transition of things like the core Valleys lines from the UK Government to ourselves, the huge amount of work that needs to be done there as we mobilise the contract, as we move through the transition from the, kind of, older rolling stock to the new rolling stock and create that bigger brand to be able to deliver more public transport services across Wales.

So, moving forward, then, Minister, we can expect to see additional investment year on year, then, for those kinds of purposes.

If their role and responsibilities change, if there is an increase in responsibilities, for example, where active travel and other functions transfer over, then there would be a requirement to increase capacity within the organisation and accordingly we'd need to take account of that in the amount of money that's attributed towards their operating costs.

I think it's just worth pointing out at this stage in terms of the broader context the example Vikki Howells is making here about the need for additional resource, we've had a very difficult task this year to try and get a budget settlement that meets all the things that we need to be doing, let alone all the things that we want to be doing. It remains the fact that the Welsh Government's budget in 2021 will still be 2 per cent lower in real terms than it was 10 years ago. That's a £300 million shortfall. So, there's a real challenge doing the things that we have a statutory duty to do, like the maintenance of our road network, plus all the additional pressures that we want to do and the additional demands of making sure that the rail franchise achieves the potential it has. So, it's a devil of a job that we all have to try and balance all these competing demands. So, we'd like to spend even more on the franchise and have far more significant frequency, but there's a real constraint with the resource we have.

Okay, thank you. Minister, I'm sure that you'll agree with me that rail passengers have experienced significant issues during 2019, particularly towards the end of the year and the start of this current year as well, and I'm sure my constituents would like to see me ask a whole range of questions at this point, but I'm curtailed by the topic of the budget. So, I'll begin by asking you whether you believe that the rail franchise investment is currently providing value for money. If so, can you explain why you think that and how long do you think this level of disruption should actually be tolerated by passengers?

Well, clearly, it's been a difficult period over the winter and we've been very clear that performance has to improve, and in the latest period it has improved, punctuality and reliability by 6 per cent, but it's got to improve further. I'll be meeting with KeolisAmey next month. I have quarterly meetings with Transport for Wales's chief executive and chair as well. I can tell Members today that performance plan notices were issued to KeolisAmey and that a work stream of no fewer than 11 programmes is being undertaken and has been initiated. That actually commenced last autumn to improve performance. So far, something in the region of £2.3 million of penalty notices have been issued to KeolisAmey. That's £2.3 million of money that's going to be reinvested in rail services.

There has, however, as I say, in the latest period, been an improvement, and that's very welcome. That has to be maintained and the performance has to continue to be improved. We're a partner in all of this, we are not a pushover, and we will be very clear with TfW and KeolisAmey that we expect to see the very best standard of service for passengers in Wales. 

10:25

Okay. Can I just dig a little deeper there, where you said about the 6 per cent improvement in services? I'm wondering really how that is measured, because most people use the trains at rush hour. And if you're looking at the pattern that I see on the Aberdare line, it's extreme disruption through the rush hour but services for the rest of the day running perfectly fine. Then, to the majority of service users, it does not feel like a 6 per cent improvement and, to be honest with you, nor should it. Is there anything built into the contract that accounts for that, in the way that you scrutinise exactly where the disruption occurs? And, of course, in the interests of this committee, looking at the impact of that on the economy as well, because I'm currently dealing with a whole host of constituents who have faced disciplinary action in work because of their lateness, people who have lost wages because of their lateness to work, and people who've had to invest a significant amount of extra money in bus fares because of the disruptions over the last eight weeks. Now, clearly, all of that has a significant impact on the economy as well. 

Yes, absolutely. Shall I—? I'll bring Simon in on the contract, but, firstly, I'll just explain the figures a little more, if I may, Chair. The performance improvement relates to the proportion of trains that arrive within three minutes of the scheduled time and that's increased to 76.1 per cent, I believe it is, for the latest period. But that's against a target of 77 per cent, so it's not where we wish it to be yet, and that's why I say performance has to go on improving. The situation across the UK is similar. We have some operators in the UK that are achieving performance figures just in the region of about 57 per cent to 60 per cent, which is totally unacceptable obviously, and I think the Secretary of State has been very clear about that. They are in England. 

In terms of the availability of trains, there has been an improvement since this time last year. We now have, on average, 108 trains in operation daily, compared to 99 in a similar period in the previous year. In terms of pre-cancellations as well, there has been a significant improvement. Back in 2018, the figure stood at 1,787; that decreased to 1,185 in 2019. And, in terms of delay minutes, back in 2018, the figure stood at 18,199. Totally unacceptable. In 2019, that figure had fallen to 7,347. So, there have been improvements. Those improvements must continue.

But all those figures that you've given me are still generalised across the whole of the day. And I still go back to my point that I do believe that you should be looking at the impact of the rush hour cancellations. I have certainly never known disruption such as that which has been faced in the last six to eight weeks and I think that it's really important to do some digging down into the impact of that on the economy.

No, I totally take your point and this is one of the reasons why I'm so keen to meet with KeolisAmey to discuss performance to date. Simon. 

So, the contract specifically has a specific measure to deal with that problem that you're describing there. The previous contract and most of the rest of the UK rail industry uses a measure that is generalised across the entire day in terms of end-to-end journey time performance. We're using a measure for the first time called 'passenger time lost', which actually focuses on those busiest journeys. So, those busiest journeys create more of a problem for poor performance than poor performance in the middle of the day when there are far fewer passengers using it. So we're using that to administer the contract and part of that performance measure is what's driving some of the penalty notices that the Minister is talking about. That data is actually being used to penalise the contractor to be able to try and get a better service. We're using the contract to be able to push that as hard as we can and we'll continue to do that. And, as the Minister says, this is something that is being taken seriously at the top end of this organisation and of the supply chain organisation as well.

I think it's just worth reiterating that this isn't just a rolling stock issue. We are dealing with decades of underinvestment in rail infrastructure across the network. And, in addition to that, there are some rather curious practices that have been adopted by the rail industry in terms of industrial relations, which have added pressure to the winter period. 

Yes. I just wanted to come back to the £2.3 million you've reclaimed from KeolisAmey. That's quite a significant figure. Does that mean that, effectively, KeolisAmey are £2.3 million short of what you'd expect them to be?

10:30

So, they're incentivised to maximise the number of passengers. I don't think it's that they are £2.3 million less than where they would expect to be, because they will have their own targets for the generating of profit—albeit a capped profit—from the operation. It essentially means that we are reclaiming £2.3 million from them.

We would not wish to be issuing penalty notices. Penalty notices come about as a consequence of failure to achieve the performance that's required under the contract. So, I'm not happy. However, it's something that I feel is absolutely vital in order to incentivise better performance and to ensure that passengers know that when performance is not what they would expect, money is being returned.

And KeolisAmey are not delivering the contract you're expecting them to deliver.

Well, performance at times so far has not been what would be expected and has not lived up to what the contract stated and what was agreed. Improvements have been made. I'd go back to the points I made earlier that we have seen improvements, but those improvements must continue. They must be built upon.

There are break clauses. Obviously, the contract requires performance to be maintained to a certain level, and if failure was to be seen in the future, then of course, we'd have to respond accordingly by looking at the contract.

Just one final question around the transfer of ownership of the core Valleys lines. So, can you assure us that the financial transfer accompanying the asset is sufficient, and that risks are being adequately managed?

I'm going to bring Simon in on the budget pressures that concern the transfer of the asset, but I would say that any risk that we carry in terms of the transfer is more acceptable than the risk of not transferring it. Simon.

So, what we're doing is extracting a small part of a national network and bringing it over to us, which is clearly going to create some inefficiencies in the short term that we need to work through. So, it's right that we're sharing in the costs of those inefficiencies in the short term. So, we're working that through with our colleagues in the UK Government. We've got a clear position on how that works. That's budgeted for for the duration of this control period.

It's not been a straightforward matter to be able to do this. We've the first part of the UK that's ever done this. So, we're very much a test bed for this. So, there's the technical bit of running a separate railway, but there's also the institutional issues of separating out a part of the railway and handing it over to somebody else.

And, clearly, there are industrial relations issues as well. There are people who are employed to maintain that railway at the moment who have some uncertainty about where they're going. We're very keen to make sure that we can give them that certainty as quickly as possible. The Minister has got a call with the Minister of State in the Department for Transport later on today to talk about this.

Given some of the things we've talked about with regard to Transport for Wales Rail, are Transport for Wales anywhere near ready to be receiving responsibility for active travel, bus and other ancillary services, particularly given the budget constraints mentioned by the Deputy Minister?

So, I'm yet to see the business justification cases and the due diligence that has to be carried out prior to any transfer of responsibilities that you've highlighted. It's for TfW's board to determine, following sight of their due diligence, whether they are ready to take on those responsibilities. That will happen this year. I'll report back as soon as the decisions have been made.

Because we were told April 2020 was the target date, but that's not going to be met.

Certainly, that's the date for when the decision should be made as well.

But you don't know when you're going to get the business case yet.

No, the business cases will be prepared and decided upon by the Minister this spring. The transition of those functions will follow that, and part of the mitigation for some of the risks that you're describing may be that some of that stuff happens over a slightly longer period of time. But certainly, over the course of the next 12 months, that will happen.

That's when—. The decision will be made by that point, and those functions will start to transfer. Quite how that materialises in practice and whether all those functions go on a kind of drop-dead date at the beginning of April or not is all to be worked through.

So, it's more of a process to transfer the functions.

10:35

Okay, but that's not the date at which the change—

But that's quite right, because what we don't want to do is disturb the smooth functioning of the processes that we've got under way.

General spring, but would it logically be before April 2020?

I think the decision I'm hoping to make in March, so by April it will have been made, and then we'll be publishing the business case.

Okay. And that is linked into the £15 million we talked about earlier, just to be clear. I may have misunderstood, but the £15 million is to assist Transport for Wales with things like that.

And they've also been undertaking other work. For example, the work on the south-west Wales metro system, and in north Wales as well.

So, that £15 million could need to increase with the business case.

So, what we're aiming to do through the business case work is create efficiencies in the long term in terms of the way that a lot of these functions are delivered, by looking at delivery over a longer period of time and tasking TfW to live within its means. So, the efficiencies that are created should be sufficient to be able to pay for the operation of TfW in the future.

So, effectively, what you're saying to Transport for Wales is, 'Bring your business case in within the £15 million budget we've set.'

No. The £15 million is for the day-to-day operations and these other bits and pieces over the course of this year. In the longer term, what we're saying to TfW is, 'You're going to be delivering all of these functions; your challenge is to create efficiencies across the whole of all of the activities that you're delivering sufficient to be able to pay for your operations.'

Which will be accounted for in the following budget.

So, it might be useful to give active travel as a case study, as you mentioned it. So, currently, there isn't a central set of experts able to advise and deliver, as your report recommended needed to happen; that's capacity and upskilling. Now, we could disperse that resource amongst local authorities so everybody has a little bit, or we could say, 'We want Transport for Wales to be set up as a professional delivery body, that centre of expertise', and that would absorb some of the programme costs that, otherwise, as the active travel budget goes up, would be dispersed in a less efficient way. So, we'd anticipate, therefore, the Transport for Wales budget to discharge that function to go up. Currently, it's at a very embryonic stage; there's only one post in Transport for Wales. We're working with them on the arrangement, jointly with Sustrans, to become that central expert pot. So, as that increases, we'll need to resource that. But that's a more efficient way than doing it 22 times across Wales.

Yes. I'm just trying to work out where the accounting for that is in the budget.

Well, that's work in progress. The £15 million you cited is for the work to date, because we are setting up Transport for Wales quickly as a professional delivery body for Wales. As we add functions, clearly we'll need to increase the resource available for them to do that.

Okay. So, there is potential for adding more funding into it.

Well, it depends what we add. It depends on the business case.

Okay. It's very difficult to pin down, isn't it? You're quite imprecise here, but I appreciate that it's a difficult one. What about Transport for Wales's corporate budget? How do we scrutinise Transport for Wales's corporate budget? Where does the draft budget deliver that?

So, we don't have, within the budget lines for TfW, the specific corporate budget for them. That's for them to determine how much they allocate to that. That's within their business plan for the year. And then that's scrutinised, obviously, to make sure that we achieve value for money.

Okay. So, we can't trace that through with the draft budget.

Well, that would be for TfW's accounting department.

The £15 million—[Inaudible.]

—is essentially the corporate budget for TfW for the coming year.

Right. Got it. And how they deliver that will be in their corporate plan.

In their corporate plan, yes.

Right, okay. I think I've got to the bottom of that.

I was trying to follow as well. We'll work it out after. Right, thank you.

The draft regulatory impact assessment for the planned buses Bill says that £116 million was provided to fund bus services in 2017-18. What is the equivalent allocation for 2020-21?

That will depend on how much of the RSG local authorities decide to utilise to support local bus services. So, the figure for 2020-21, the hypothecated figure for 2020-21, from us is £94.138 million compared to the figure of £88 million for 2017-18. We're yet to see what the figure is from local authorities because they've only recently had the budgets. So, we'd expect that to come in the coming months.

10:40

And you mentioned the local authorities and how much they will use that in their budgets. I know that you've raised this in the past, that some local authorities don't use that budget.  

How can you address that? Does the criteria need to change? 

Okay, well, we'll be setting, as part of the remit for Transport for Wales this coming year, a requirement to look at the criteria that's established for awarding bus services support grants, and I'm keen to make sure that the award is in addition to, not in replacement of what local authorities spend. So, it could be the criteria are changed, that conditionality is applied to them. 

TfW are looking at this in the next financial year.

So, that change won't come into effect from April. The intention is to get TfW to redesign the award criteria for BSSG over the coming year, so that will come into effect then from the following financial year. 

Okay, got it. And in your paper you say, Minister, that £29 million of capital funding has been allocated:

'as part of our aim for a zero emission public transport fleet by 2028.'

Do you think that's sufficient? 

Not yet, no. That sort of investment will have to be maintained over several years, I think. It comes in addition to grants that are available from the Office for Low Emission Vehicles, from the UK Government. I think what's clear is that there is a considerable fleet of buses and taxis that require replacement and would require replacement anyway in the coming eight years, but we're keen to ensure that we use that £29 million as best as possible to drive them towards low and ultra-low and zero-emissions vehicles. Now, the Development Bank of Wales are working with Transport for Wales to determine how grants and loans should be deployed and how operators can apply for them. 

That's what the development bank and Transport for Wales are working on at the moment. 

Yes, just on active travel, you've already touched on it earlier—[Inaudible.]—the budget is spread across a range of allocations—[Inaudible.]—if you can tell us exactly in terms of revenue and capital what the ballpark figure is and where we can find that in the budget?

Well, it's not straightforward in the budget, I take that point, because there are many different funding pots—[Inaudible.] This year, we're spending £40 million on active travel, which for the first time is more than we're spending on local roads, and the budget for 2020-21 is £37 million. We had an additional £14.5 million in-year this year, which is part of the decarbonisation priorities. The First Minister has set a cross-cutting approach to the budget this year. Decarbonisation was one of those, and active travel had quite a significant amount of that additional funding, so there's been an extra amount this year, but the overall trajectory is upwards. 

One of the challenges we do have is that capital funding is relatively easily available, but revenue funding is extremely difficult to find. So, in terms of building new routes and building infrastructure, we're probably spending as much money as the system can absorb at the moment. We did look to see if we could spend more, but the message from local authorities was that they couldn't guarantee they could spend that effectively, and there's still a question mark on whether they can spend the additional £14.5 million we've asked them to spend by the end of March, which is a big challenge we've put on them, if they can spend that in time. So, we're mindful about how much we can get out of the door, but revenue is a much more difficult problem for us.

In terms of the climate change challenge and behaviour change, which involves softer measures, finding the money for that is a lot harder. So, there is revenue within that £40 million, so we are funding cycle training, for example, we're funding pedestrian and road safety training, but that is the bit, I think, that is the known known problem we have in terms of addressing the active travel change agenda: that we don't have enough revenue funding available to do what we'd like to do. 

Yes. I just wanted to ask in relation to—you've mentioned the cross-cutting agenda, obviously—how are you able to show us where that's happening in other departments of the Government? It's this age-old thing of streamlining and making sure that it's not just one department that's in charge of something. But it's harder for us to see where that's happening, say, in health or education. How are you as Ministers keeping track of that? 

I think, generally, the important thing about the active travel agenda is seeing it as a normal part of transport. It's not a nice to have add on, it is a key part of how we get people to move about. Therefore, it should be part of the transport budget. So, active travel infrastructure should be funded by our department. It's not a—. There's a debate to be had—. There was a report recently by engineers who were saying this should be funded, but from the health budget, for example. Well, I don't think the health budget should be funding transport infrastructure.

What other departments should be doing is funding the additional things like the behaviour change. So, I'm having a conversation with Public Health Wales next week about the programme they've been doing, the healthy travel charter they've successfully rolled out in Cardiff and the Vale, for example, and how we can roll that out across the rest of Wales.

It's right that other budgets make contributions for their own responsibilities for the behaviour change. And there will be examples—from the air quality plans, for example, out of Lesley Griffiths's budget—where there will be funding for active travel infrastructure. I know Cardiff, for example, had the significant nearly £8 million this year we've put into Cardiff, plus the additional money of their own capital they've put in, and there's been further funding from the air quality budget for active travel infrastructure in Cardiff. So, there will be examples of where that is the right thing to do; but, generally, active travel is a transport responsibility, but behaviour change should be across departments.

10:45

You already mentioned it's really hard in terms of changing people's behaviour, but what assessment are you making on the effectiveness of where the spend is going, considering the fact that the changes are relatively flat in who and how many people are embracing active travel here in Wales? Switching to walking and cycling is still not moving as fast as we would like to see it.

No, because we haven't—. As your report reflected, there's a whole range of reasons why we've not been doing all the things in the sequence that we should be doing them, and we're putting that right and we're making progress. But we have a constraint of capacity both at the centre and in local authorities. And back to Hefin David's question of whether asking TfW to play more of a co-ordinating role—there's a whole issue about, 'Is the investment we're putting in being properly implemented through the design standards?' So, we're just about to go out to consultation on the new set of design guidance and delivery guidance against taking on board the recommendations of this committee.

And then, as part of that jigsaw, there are the behaviour change measures. So, one of the things we're looking at is a set of targets. Again, part of that money that we're investing into Transport for Wales is to give them an analytical capability to help us to come up with sound data that allows us to make those judgments about what meaningful, measurable targets we can put in. This is a long-term change programme, we've made a lot of progress in a short period, but there's a long way to go.

Thank you very much, Chair, and good morning, Ministers. I heard Ministers saying it's a devil of a job to get this—I understand. My question is regarding Cardiff Airport, because I know there's a bit of a devil of a job there, because you've given—. The accounts that have been submitted within the last two weeks to Companies House show another loss, Minister, £16.6 million. Even though the passenger numbers have gone up to your facility, for £38 million extra, and £21 million on top of what you paid for the equity of the airport. When do you think they will turn around from losses to profit? How long will it take, Minister?

First of all, airports, generally, globally, are valued on the basis of their EBITDA, and that's increased at Cardiff Airport considerably, from £7,000 to £77,000. The revenues in just the space of one year increased by more than 30 per cent. There was a 34 per cent increase in just one year. Since we took over the airport in 2013, we've seen passenger numbers increase by 65 per cent. There's a question to be asked about how we should treat airports. Should we treat them as—

Chair, can I just ask for a clarification? I don't know what EBITDA means. 

It's essentially earnings before interest, tax, depreciation and—

Yes, it's one measure, and that's the measure by which—

You're not stupid, because I had to look it up myself. 

And that's the measure by which airports are globally valued. We've got to consider whether we should treat airports as part of our wider transport infrastructure. Nobody would question—in fact, nobody has ever questioned me on the value for money that Bridgend railway station offers, or the profit or loss incurred by Bridgend station, but that carries the same number of passengers as Cardiff Airport. Nobody has ever asked me what the profit generated by the Newtown bypass is, but that's an incredibly important piece of infrastructure as well relating to transport. 

Can I provide you with a briefing note? [Laughter.]

My point is that I think it's only in Britain, really, that we tend to view airports as being something that should only be in the hands of the private sector, and should generate a profit. If you look globally, 86 per cent of airports are in the hands of the public; only 14 per cent of airports have private sector interest in them. And yet, the perception in the UK is that all airports must be run by the private sector. It's absolutely vital for the future of the regional economy that we have a vibrant airport. It employs directly something in the region of 300 people, indirectly around 1,600 people, and it makes an incredibly significant contribution to our economy. 

And as we look to a post-Brexit environment, it's going to be vitally important that we have a transport infrastructure that will enable us to continue exporting. More than 70 per cent of exports from Wales go to other parts of the UK; that means that we have to have the transport infrastructure to enable exports to continue to rise within the UK single market and, indeed, globally as well.

So, actually, the value of the airport isn't and shouldn't be judged just by profit or loss; it should be judged by how much it contributes to our society and to the economy as a whole.

10:50

The question hasn't been asked. I think the question was: when do you expect it to turn from a loss to a profit position? 

Well, the question might equally be: should we expect significant profits to be made by all airports? And globally, the expectation is not there for all airports to be reporting great profits. In fact, if you look at the operation of smaller airports in the UK, because of UK Government policies, disproportionate costs at small airports are swallowed up by security costs, for example, because larger airports are favoured, like with regard to security gates, the e-gates. Only airports with passenger numbers in excess of—was it three million, Simon—

Two million. 

—two million would benefit from direct Government support. So, airports such as Cardiff did not receive and could not receive any direct UK Government support for the installation of e-gates. That is clearly unfair, but that relates to the rules that UK Government have adopted. 

So, you don't expect Cardiff Airport to return a profit in the foreseeable future. 

I would hope at some point in the future that a profit could be achieved, but my main objective is to make sure that we go on growing passenger numbers, that we go on growing employment opportunities at Cardiff Airport, that we go on ensuring that it contributes more widely to the economy of the region and to the nation, and that it goes on supporting other transport-related infrastructure and facilities, such as Anglesey airport. And so, in the whole, the actual contribution made by the airport is huge. So, whilst you may look at these smaller figures concerning profit or loss, actually, the contribution to the economy is significant indeed—it amounts to hundreds of millions of pounds.  

But you want to see the airport in a position of making a profit. There's got to be some indication of when that is going to happen. 

I think, ideally, anybody would want to see any form of transport infrastructure and facilities make a profit, but you have to accept that it's not going to always make a profit if it carries a wider social benefit. 

Thank you, Chair. Minister, it's music to my ears when you say the private sector should be involved to make sure—. Let me finish now. In the very first year when the airport was bought by the Welsh Assembly in 2013, the first accounts showed that the net asset value was £48 million. Then, in 2018, it had come down to £34 million. I'm talking about net asset value. If any investor would like to come and see this figure first—. In the last accounts that were submitted within the last couple of weeks, the value had gone down to £15.7 million. So, the assets value is reducing in one way or another. That is a disaster for any investors to come and put money into this losing money venture. So, how are you going to convince somebody to come and pay what you have paid, which, really, altogether, if you come to think of it, is well over £100 million on this project? Can you ever recoup this public money? 

As I've already said, actually, the way to judge the performance of an airport is by its EBITDA, and—

I'm not talking about profit here now, Minister; I'm talking about assets. 

Well, it's a huge asset that we have there. I'd just go back again to the question: do we want an airport? Do we wish to have an airport, or would we be content to lay off 300 people and indirectly see the loss of something in the region of 1,600 jobs? Would we be willing to see the loss of hundreds of millions of pounds to the south Wales economy? Would we be willing to see, potentially, the collapse of Anglesey airport? This is a loan that is being offered to the airport, a loan that will be repaid in full with interest to the taxpayer; it's not a grant. This is money that is being lent to the airport in order to grow, in order to generate more money for the country that can then be used to pump prime other services and other transport facilities. It is not a grant; we are not giving the money away to the airport. 

10:55

Another point on this, Minister—. The thing is, have you had some financial advice from within the aviation industry to actually deal with this to make sure that this economic tanker turns around to make sure that profit or money is secure? 

Yes. So, we have had advice. The advice around the loan was given to us by an external third-party professional adviser, particularly with experience in the state aid sector looking at airports. So, yes, we have had third-party advice on this. 

What I'm thinking is that, after looking at only a few figures in the accounts, it looks like that things that are coming within the next five years will be only worth £1, because the way things are coming down, I can't see—. At the moment, the way the profit is being shown, it's probably—[Inaudible.]—the only main world-class air carrier. But the fact is that the situation in the middle east at the moment is such that if they stop bringing their aircraft next week, I think Cardiff Airport would have very detrimental effects. We all know about it. Is there any contingency plan on that? 

It's been a very difficult year for the aviation industry in the UK. The weakness in the pound has caused significant problems because fuel is priced in dollars. And we've seen the liquidation of Thomas Cook as well. It's been a difficult year, nonetheless, Cardiff Airport has withstood the pressures that it has faced very well indeed and, as I've already said, in terms of the value of the airport, it's increased very considerably in terms of EBITDA. 

And my final question. I would love to see Welsh airways rather than other airlines flying from Cardiff Airport and running our airport. It's a national airport and a national flag carrier, so I wouldn't be asking those many questions that I've asked you before if there was a national airline.  

Skates airways will be launched later this year. 

Can I just ask, Minister, about the loans? Can you just detail the—? Am I right to think that the first loan was £38 million? Has all that been drawn down by the airport yet, and have repayments started? 

Yes. So, it has been drawn down. 

Yes, it has all been drawn down. The new loan is consolidated into this one, so what we've done is expanded the facility. 

No, because we've consolidated the facility so that we're looking at the entirety of the loan now. 

Plus the one that was announced recently. 

And have repayments started on that consolidated loan? 

No, they haven't. 

I think it's scheduled for—. So, it's about affordability; there's no point putting an enormous financial burden on the airport. We've talked about the difficulties that the airport is facing, so there's no point in us imposing a huge burden on the airport, in the same way as any parent company wouldn't put that on a subsidiary, frankly—this is a subsidiary of the Welsh Government. So, the loan is structured so that the repayments start later on in this decade to start bringing that money back.  

Okay. Do we know when they're going to start to be paid? 

I don't know off the top of my head; I can give you a note on that. 

Okay, thanks. And presumably, interest is being incurred on the full amount, so—. 

Yes. This is a commercial loan that we've given. It's been benchmarked against commercial loans that are given from parent companies to subsidiaries. That was the piece of work that I was just referring to. In order to comply with the state aid rules, we have to absolutely make sure that this is compliant with the behaviour of any market operator. 

Yes, just on what Simon said there. It's when it's affordable to pay back. In our forward financial projections, about 2027 I think is the date, but it's when it can afford to pay back, basically. And it is complying with state aid, so it's proper interest, basically, but there is anticipation that they would pay it back then.  

Right, and in next year's budget now, 2020-21, you've got £4.8 million in the accounts being drawn of the £21 million. Do you anticipate that being enough or do you anticipate that more might be needed than the £4.8 million during this next budget year?

11:00

That's the ability to draw down.

That was part of the business plan that was submitted by the airport, and that identified that that was what they would need to draw down next year.

So, if they need more than that, then that would be drawn down—

Well, they've indicated to us that the maximum that they're going to need to draw down is £4.8 million next year.

And I suppose I'm asking, really, a wider question about how you would view the financial position and viability of the airport long term.

Again, I go back to the point that we view the airport as a vital piece of transport infrastructure. In public ownership, it's got a very strong future indeed. It continues to grow; it continues to contribute significantly to the economy. In private ownership, it faced collapse, and we would not wish to see the airport go through such a difficult period again. So, I think it's important—and perhaps committee could reflect on this—to view the airport not as a profit-making entity, but instead, as something similar to a bus station or a railway station or a rail service—

But it's a limited company, so it's a different entity, isn't it?

It is a different entity, but equally, it's still a form of transport—it's still a form of transport that serves the public and it's something that generates an income for the south Wales economy, and it's something that employs huge numbers of people.

And what about the long-term financial needs of the airport? We know we've got the current loan in position, the statement last year, but what about the long-term future and the long-term future needs of the airport?

The airport has outlined its master plan for the years to come: its growth projections and its ambition to grow beyond two million and then to three million passengers. That vision and that plan would see the airport become even more a piece of our transport infrastructure in south Wales, serving the whole of Wales and contributing to the whole of the Welsh economy. I think the airport has a very strong future indeed, provided that the public sector retains an interest in it.

Future funding needs, obviously, will be based on them meeting the ambitions that are set out in their plan. That plan is available for anybody to take a look at. The support that we've given in the form of loans is to deliver the objectives of the airport for the coming years and then beyond the next decade. If the airport is able to demonstrate that it can continue to grow, then we'll consider, obviously, supporting the growth of the airport.

So, you don't consider that it'll need more loan facility in this decade.

I think it's too early to say, 'in this entire decade'. That's too early to say, I think.

It might be worth just reflecting on what the Minister said earlier on, though, in that the airport faces a disproportionately significant regulatory burden because of safety—quite rightly—and security fears. But a significantly greater proportion of Cardiff Airport's costs are on safety and security, than its neighbour in Bristol, I would estimate, because Cardiff Airport has to pass the same kind of bar in terms of providing a safe experience for passengers and securing the airfield—all of those things have to be done no matter how many passengers go through. So, you can't amortise those costs. It's harder to amortise those costs, because there are fewer passengers going through the airport.

So, if the regulatory burden increases further or decreases, that will change the financial fortunes of the airport. And it's not in our gift to understand what that regulatory burden will look like over the course of the next 10 years. So, I don't think it's possible for us to say that it will need more money or less money, because that is such a big proportion of the airport's costs, which is completely outwith the control of the airport.

If there was a level playing field, then clearly the proportion of the costs would reduce the level playing field with the UK's larger airports. That's something that I hope the UK Government will reflect on.

I suppose my final question is: how do you assess that the resource that you're providing to the airport is providing value for money—how do you assess that?

On the basis of the contribution to the regional economy and the national economy; on the basis of the employment figures directly and indirectly; on the basis of the contribution towards exports; and on the basis of the contribution towards inbound tourism. All of these factors demonstrate that Cardiff Airport is contributing to the Welsh economy, and that, in turn, it's generating revenues that can be used to spend on public services. And I think that's vitally important to recognise.

11:05

And can I just add as well that there's a danger that we fall into the Oscar Wilde trap here of focusing on the price of everything and the value of nothing? The airport also has a value as an economic development tool. So, for example, I visited a business in Swansea recently that is having work directly because of the Qatar flight. If that investment hadn't been put in place, that firm in Swansea wouldn't be able to expand in the way it is now expanding.

We're looking at the airport as a source of innovation in low-carbon technologies for flight. We're looking at it as a potential test bed for automation and artificial intelligence developments that other airports in the world could emulate.

So, in terms of the balance sheet of looking at the airport, clearly, it performs a key public transport function, as the Minister has set out. If we didn't have it, there would be a significant economic harm to Wales, which I'm sure Russell George would be the first to criticise us for. We've made a strategic judgment that we wanted to save the airport. There is a cost to that, but there is also a value to that in economic terms. So, I think we need to take a broader picture.

It's increasingly becoming an investment and employment magnet for the whole of Wales, and I think its profile in recent times has improved incredibly—internationally, certainly it has—and, in terms of growing employment prospects in the future, the airport will contribute to the regional economy, I am in no doubt, more and more.

I could ask more questions, but I better move on. Joyce Watson.

I am moving on, and I'm going to look at and ask you about resourcing for employability and skills in your draft budget, and the alignment, of course, with Government aims. So, you know that we did a regional skills partnership inquiry, and you know that from that we deduced that increasing levels of skills is good, but it's not good enough in and of itself unless the demand from the employers is stimulated as well. We've rightly put a focus on high-level skills, but we need those skills to be used. So, can you explain how the budget that we see in front of us supports that specific aim?

We're going to be spending £575 million of money on apprenticeships in this Assembly term. That's a huge investment, and we've been very clear in saying that we wish to see opportunities for all ages focusing on high-level skills, and that includes high-level apprenticeships. And we're set to smash through the target of 100,000 apprenticeships in this Assembly term.

In terms of comparing the Welsh system with the English system, numerous reports have now emerged that would suggest the English apprenticeship system is falling off a cliff. If you look at the completion rates in Wales compared to England, there is a very favourable story to be told. And, if you look at employability and skills levels since the dawn of devolution, again there is a very, very strong and positive story to tell about the performance of the Welsh training system. I'm confident, as I say, that we won't just meet that 100,000 target, we will exceed it in this Assembly term.

So, if I move on from that, and all of that is good news, you have committed to reviewing the funding of the regional skills partnerships, but there doesn't seem to be any change in the funding in this budget.

Sure. Okay. We want to carry out a review of RSPs that is thorough and very considerate, and we'll do that in this coming financial year in readiness for any increase in budget to be applied to the next financial year. And although I wouldn't want to pre-judge what any review is going to conclude, I think it's fair to say that an increase in RSP budgets will be required.

That will be the 2021-22, the increase in budget. So, that's why it's not in 2020-21.

Okay. So, Minister, what will your strategy be then for allocating apprenticeship funding? Because we understand that increasing sums have been kept back from main allocations to respond to high demand.

Certainly, in recent years, that's what we've done—we've withheld money. We're moving away from that now, albeit we are going to be setting targets for training providers. So, there is a shift away from that, but we are very clear that we wish to see training providers, FEIs—further education institutions—work towards what regional skills partnerships report. Huw.

11:10

I'd just echo that point, that the RSPs have produced a plan for the next three years. It's very clear what they're saying to people in terms of skill development.

In terms of the commissioning of apprenticeships, through those providers, but also directly through Government, we talk to them about how the skills needs might increase at the higher level in order to deal with some of the technical changes that we anticipate coming in the future, not least those that this committee has looked at itself. And I'm confident that progress is being made on that in line with the targets that were set out in the employability plan, which we review annually, with an annual report to measure progress.  

We do see some direction, of course, within the apprenticeship training financial statement, and some of that direction has gone to Airbus and the automotive sector. So, that's clear direction. So, I suppose there are two questions. First of all, has last year's allocation been used? And, if it has, exactly what for? And how have you measured the outputs of that allocation?

In line with the economic action plan, the funding that was allocated to Airbus has been used to futureproof the business to make sure that they're training in fields such as artificial intelligence and robotics and so forth. But they were also inviting TASC to over-train for the Wales-based supply chain, and they've been doing that. They've been recruiting at a rate of approximately 100 more per year in order not just to boost the prospects of their future business but also to assist the supply chain for the aerospace sector. 

I think it's worth touching on Ford, though, as well, isn't it, because they've not drawn down the money, although we are going to be making available some of that skills funding money for workers who might require the development of skills that are transferable. 

Okay. So, you had a procurement exercise for Working Wales. It has been restarted, it's been renamed and now it's delayed by a year—and I quote—over 'concerns with the evaluation methodology'. 

Can you explain in more detail what they were and what impact has that retendering process had? It must have had some impact.

Okay. So, it was a lack of consistency in the way that the questions were evaluated. I thought that, in order to ensure that there was a fair and open process, it had to be rerun. But, equally, all of those programmes that existed in recent years, they've been continued. So, for example, ReAct and traineeships, they've continued. There's been continuity. 

There is one area—. Of course, we talk about high-end skills and, to grow an economy, we all know you need high-end skills, but not everybody is going to be at the high end. We need to look after people to be employed wherever they're employed and the skills they will need regardless of where they might be used. There's one clear area that was mentioned in terms of a shortfall in skills and training and that was the care sector. And I do remember us saying quite clearly that we would help to reach a standard, a base, minimum standard, of requirement in skills in the care sector. It's also compounded, isn't it, by the workforce that might disappear, because most of it come from Europe anyway. 

So, can I ask, in terms—? And it's the sector that is going to grow probably the most, in terms of social need.

You're absolutely right. I'll bring Huw in to just give a bit more detail about the exemption in terms of the apprenticeship programme that we're running—the exemption for social care in terms of level 2, level 3 requirements. 

Just to say that we are continuing to offer large volumes of social care apprenticeships at those levels for apprentices of all ages, but what we've been trying to encourage providers and employers to do is offer routes for progression beyond that post, up to level 3 and beyond, occasionally into occupations related to health, so that those individuals are not stuck in low-skill traps, which I think was a theme in the Economy, Infrastructure and Skills Committee review of RSPs. That's something we want to see happen, particularly for local workforces.

11:15

Can I say as well this is also an area we're looking at through the foundational economy challenge fund? There's £1 million-worth of projects that we're funding through that, and in some of them we're looking precisely at this area of the workforce within social care. Because you're right to point to the policy tension. Clearly, the Government's priority is to increase productivity and close the wealth gap, and that involves prioritising higher value skills, but then, for the more mundane part of our economy, those lower level skills are just as important. So, construction is another example of where we're working with the sector to address what the sector needs, especially given the challenges they're facing given the economic climate. So, it's part of the foundational economy agenda. I would give you some assurance that there is still a focus on the level 2, level 3 type of skills, and that's—those are the policy tensions that we're working through.

Can I ask what sort of analysis has been done in terms of the removal of the European funds that are heavily used in this area, and in other areas as well, and the impact that could have if that isn't matched by the UK Government? Am I right in saying—? Because everyone asks about the European fund in and of itself, but I'm sure I'm right that the European fund was received by the UK Government, who automatically then added their own element to that at UK Treasury level. So, if we simply receive the EU funding element without any additionality to grow that from EU Treasury, we've got a big missing chunk of money. So, has any analysis been done?

Yes, lots of analysis has been done. For the last three years or so we've convened a group that has the acronym HEBWG, which brings together all of the key stakeholders.

It stands for the higher education Brexit working group. Since its formation—

It includes further education providers who do a lot of the apprenticeship provision, but also work-based learning providers. Through that group and related work we've done an analysis of the financial contribution that comes from European structural funds. It varies year on year because of things like the exchange rate, but also the rate at which the funds are being drawn down. That money is drawn down into Wales directly through Welsh European Funding Office and into the providers. In a typical year it provides 14 per cent to 20 per cent of the funding for apprenticeship programmes, so we're very conscious of what that will do to provision post 2023, because there is in the current plan for transition a tapering-out period. If there is a 'no deal' exit from the European Union, that presents additional challenges and it would see that shortfall in funding hit in January 2021. We have developed contingency plans and those have been presented to Ministers in their own working groups on what to do for Brexit preparation. So, I'm confident that we have strong contingency plans. What I'm less confident about is the scale of funding that we might receive from the UK Government to replace the EU money that was previously provided.

Vikki Howells. Sorry, did you want to come in? Sorry, Bethan. [Interruption.] You did, yes. Come in now, Bethan, yes.

The section on steel in the budget paper you've given us is pretty sparse. It was my understanding—correct me if I'm wrong—that there was a two-year budget deal with Plaid Cymru in relation to steel, specifically looking at funding the energy-saving power plant at Port Talbot, and we know that there have been some struggles with—

Yes, and also I've just seen on Twitter that there's been an announcement by Liberty Steel that they're going to be cutting 355 jobs across Yorkshire and south Wales, so it's noble to say we want to support the steel industry, but in this climate, what are you—? I guess it's the same as other questions with regard to, in the budget, what are you able to do, or to mitigate, when we're seeing this type of situation happening, and can you just give me a bit more information about the conditionality and the programmes that Tata in Port Talbot—?

Yes. The key elements of conditionality relate to employment and the period that we expect somebody to be employed before the conditions expire. In terms of the support that we can offer, it's often channelled through decarbonisation programmes—for example, through the calls to action and through other mechanisms that are designed to improve energy efficiency. Our support is also channelled through skills programmes, and research and development as well. But, as I said in the Chamber yesterday, if steel in the UK is to have a future, then it requires UK Government action on high energy prices, and it requires a steel deal. And as a consequence, I think it's absolutely vital that the sector can gather around the table with Ministers from the devolved administrations and the UK Government to discuss the future of the industry. So, I'm again calling for that steel round-table to be convened as soon as possible. 

11:20

But you said about Cardiff Airport and about the public infrastructure there, is there another way for steel to be retained—?

Well, part nationalisation. If it is important, how are we going to sustain if it's facing the threat that it's facing at the moment?

There are global problems; there are national problems; there are European problems; and then there are local problems. So, the Welsh Government can assist with the local problems, i.e. a degree of competitiveness, and the way that we help is: through energy efficiency schemes; through making sure that the skills training provision is there and is adequate and responsive; and that we can help through research and development; and the development of new products as well, which is why we've channelled money through the city deal in Swansea bay; through to higher education research concerning steel.

In terms of national and European challenges, well, high energy prices, steel dumping, a lack more globally, a lack of demand in China because of the suppression of the Chinese economy due to the lack of a trade deal with the United States—all of these factors are influencing the sustainability of the global steel industry, and with it UK steel as well. But there is a role that could be played by UK Government that's not being played by UK Government to date in addressing high energy prices, which would make a huge contribution to improving the competitiveness of UK steel. 

I know that we don't have time to delve into it any further. 

No; thank you, Bethan. We've got about eight minutes left and we've got two sections left. I'll come to Oscar and then I'll come to Vikki. So, Oscar.

Thank you very much, Chair. I've got a very, very short couple of questions regarding budget allocation support for regional economic development. What has been the Welsh Government's most significant achievement in terms of regional economic development since the publication of the economic action plan in December 2017?

So many. Okay, I'll be fair to the south and the north and pick one from each in that case. INEOS Automotive, probably, in the south; really important, and that required a regional approach, a partnership that we were able to put together to secure that investment. In the north, I think AMRC, the Advanced Manufacturing Research Centre, which is going to have a significant impact on the regional economy. But also, I think a benefit right across Wales has been the development of stronger bonds and ties between local authorities and Welsh Government. I've been keen to make sure—it's now happening—that civil servants within the Welsh Government and local authority officials are working to the same purpose. And in some cases now, they are co-locating; they're working together. We're developing and we're going to be publishing those regional economic frameworks. They've been delayed slightly because I wish to have them jointly signed off by our regional partners, not just signed off by me but co-designed and signed off by all of us. So, that's going to happen in the next two months. And alongside the regional economic frameworks, we will be publishing the regional indicative budgets that will underpin the work that's contained within those frameworks. 

That's coming in the next two months as well. So, by March, the indicative budgets will be published. 

All right, thank you. What specific allocation has been made in the draft budget to support the delivery of the regional economic framework in 2020-21?

Approximately £1 million is available for the development of the frameworks, but in addition almost £21 million has been made available for the economic futures fund. Now, projects that are promoted by the chief regional officers and their teams will form part of the package of programmes and projects that the EFF, that extra £21 million, will fund. 

Okay, thank you. You said in September to the committee that you decided to establish the indicative regional budget, and the words were:

'to ensure that each of the regions are able to secure investment.'

What is the latest position on this, Minister?

As I say, the regional indicative budgets will be published by March. We've got external consultants working on the methodology, the formula, if you like, for each of the regional budgets. Because this is quite unprecedented, I also wish to have agreement from my colleagues in Government as well. 

11:25

Thank you, Chair. I've just some questions to finish, looking at how the budget allocations support the Welsh Government's aim of achieving inclusive growth. So, to start off with, in your paper to us, you referred to the Welsh Government's twin goals under the economic action plan of growing the economy and reducing inequality. So, what analysis have you taken to quantify whether the economic action plan is actually achieving those, or going towards achieving those? 

I think it's probably too early to quantify the success of the economic action plan, the reason being the foundational economy challenge fund was only launched in the autumn. That will make a major contribution to driving inclusive growth. The regional teams were only established last year, although we've got some early wins from them. Their work is ongoing; those regional economic frameworks are vitally important. So, I think it's too early to judge the success of EAP and our new regional approach to drive inclusive growth, but we have employed expertise within the Organisation for Economic Co-operation and Development to carry out work looking specifically at how we can measure success.

You talked about some early wins there, would you be able to expand on those so that we can see some examples of what is being done on a regional level? 

Yes, absolutely. I think it might be helpful for us to provide you with the details of the challenge fund projects. Some of them are incredibly innovative. They touch all parts of Wales. I'm really excited by these. I think Lee's done a great job in driving this agenda. I think also we can provide some details of some of the big investment opportunities, such as the magnet project of the Advanced Manufacturing Research Centre, and also the benefits that INEOS Automotive will bring. There are many others, I just picked those two as examples in the north and the south. It will also include mid Wales, of course. 

Some written examples would be really useful for us. My final question, then, is whether you can outline how that goal to reduce economic inequality has informed the specific allocations within your budget.  

We've allocated additional amounts to drive inclusive growth and fair growth across Wales; for example, the £20 million for the north Wales metro. You may ask why will that drive inclusive growth; well, it's because one in five people in that particular region can't afford travel to their job interviews or to work. That's clearly unacceptable in the modern age. And so, that £20 million is designed to improve bus facilities, rail facilities and bus corridors to make it more attractive to bus operators to provide services to and from places of work. In addition, the trebling of the foundational economy challenge fund I think demonstrates our determination to drive inclusive growth.

I was just going to add the example in Vikki Howells's own constituency of the work the Valleys taskforce is doing as well, which is a series of strategic interventions, which includes the foundational economy and includes the Valleys Regional Park. It is looking at, for example, the example that the Minister just gave about access to employment, a pilot project for getting people who live in the Rhondda Fach—I know that's outside your constituency, but in the region—to access, by public transport, work of unsociable hours.

Because one of the things the Department for Work and Pensions identified in the work that we've been doing with them is that, currently, people are not able to take up offers of work in some areas because they simply can't get to the jobs. So, we've got a pilot project that is showing great signs of success that we'd like to roll out, and we're talking to the DWP about that.

So, there's a lot of granular work going on through the Valleys taskforce, and massive plans are taking place in Hefin David's constituency for the development of the town centre to create an integrated transport hub for there, too. So, there's a whole range, at a detailed level, of work that we're doing right across Wales, to address your question. 

There we are, Members have no other further questions. That does draw our session to an end. I'd like to thank the two Ministers, and I'm glad it didn't break out into a World Wrestling Entertainment fight. People will have to follow the committee's Twitter feed and the Deputy Minister's Twitter feed to work out what that is all about. 

We're just as good as Giant Haystacks and Big Daddy. [Laughter.]

Who's who? [Laughter.] With that, we'll bring this public session to an end. I thank the officials as well. 

4. Cynnig o dan Reol Sefydlog 17.42 (vi) i wahardd y cyhoedd o weddill y cyfarfod
4. Motion under Standing Order 17.42 (vi) to resolve to exclude the public from the remainder of the meeting

Cynnig:

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

Motion:

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

Cynigiwyd y cynnig.

Motion moved.

And if I can just say—we move to item 4, under Standing Order 17.42, we'll resolve to exclude the members of the public from the remaining part of the meeting. And we'll take a 10-minute break. 

11:30

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 11:30.

Motion agreed.

The public part of the meeting ended at 11:30.