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Y Pwyllgor Cyllid

Finance Committee

21/05/2020

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

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

Y rhai eraill a oedd yn bresennol

Others in Attendance

Andrew Jeffreys Cyfarwyddwr, Trysorlys Cymru, Llywodraeth Cymru
Director, Welsh Treasury, Welsh Government
Margaret Davies Dirprwy Gyfarwyddwr, Cyllidebu Strategol, Llywodraeth Cymru
Deputy Director, Strategic Budgeting, Welsh Government
Rebecca Evans MS Y Gweinidog Cyllid a’r Trefnydd
Minister for Finance and Trefnydd

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Bethan Davies Clerc
Clerk
Georgina Owen Ail Glerc
Second Clerk
Martin Jennings Ymchwilydd
Researcher

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

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

Cyfarfu'r pwyllgor drwy gynhadledd fideo.

Dechreuodd y cyfarfod am 14:05.

The committee met by video-conference.

The meeting began at 14:05. 

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

Croeso cynnes i bawb i gyfarfod y Pwyllgor Cyllid, cyfarfod rhithwir cyntaf y Pwyllgor Cyllid. Yn unol â Rheol Sefydlog 34.19, mi benderfynais i fel Cadeirydd wahardd y cyhoedd o gyfarfod y pwyllgor er mwyn diogelu iechyd y cyhoedd. Yn unol â Rheol Sefydlog 34.21, cafodd rhybudd o'r penderfyniad hwn ei gynnwys yn agenda'r cyfarfod hwn. Mi gaiff y cyfarfod hwn ei ddarlledu'n fyw, serch hynny, ar Senedd.tv a bydd Cofnod y Trafodion yn cael ei gyhoeddi yn ôl yr arfer. Ar wahân i'r addasiad gweithdrefnol sy'n ymwneud â chynnal trafodion o bell, mae holl ofynion eraill y Rheolau Sefydlog ar gyfer pwyllgorau yn parhau yn eu lle.

A gaf i atgoffa pawb hefyd fod y Senedd yn gweithredu drwy gyfrwng y Gymraeg a Saesneg a bod cyfleusterau cyfieithu ar y pryd, wrth gwrs, ar gael i'w defnyddio yn ystod y cyfarfod hwn? A gaf i atgoffa'r Aelodau i ddiffodd y sain ar unrhyw ddyfeisiadau electronig a gofyn os oes gan yr Aelodau unrhyw fuddiannau i'w datgan? Dim byd, na. Dŷn ni ddim chwaith wedi derbyn unrhyw ymddiheuriadau. A gaf i nodi hefyd, ar gyfer y cofnod, os byddaf i am unrhyw reswm yn colli cysylltiad â'r cyfarfod yma, fod y pwyllgor wedi cytuno yn unol â Rheol Sefydlog 17.22 y bydd Siân Gwenllian yn cadeirio dros dro wrth i fi, wrth gwrs, geisio ailymuno â'r cyfarfod?

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

Could I remind everyone that the Senedd operates through the medium of Welsh and English and that interpretation is available during this meeting? Could I remind Members to ensure that any electronic devices are on silent, and ask whether Members have any interests to declare? No. We haven't received any apologies either. And could I note for the record that if for any reason I lose connection with this meeting, the committee has agreed in accordance with Standing Order 17.22 that Siân Gwenllian will temporarily chair while I try to rejoin the meeting?

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

Reit, awn ni ymlaen at eitem 2 ar yr agenda, sef papur i'w nodi. Fe welith yr Aelodau fod yna gofnodion y cyfarfod a gynhaliwyd ar 12 Mawrth 2020 o'n blaenau ni. Ydy'r Aelodau yn hapus i nodi rheini? Dwi'n siŵr eich bod chi. Ie, grêt. Diolch yn fawr.

Right, we move on now to item 2 on the agenda, namely papers to note. Members will see that there are minutes of the meeting held on 12 March 2020 before us. Are Members happy to note those? I'm sure that you are. Yes, great. Thank you very much.

3. COVID-19: Sesiwn dystiolaeth gyda’r Gweinidog Cyllid a’r Trefnydd
3. COVID-19: Evidence session with the Minister for Finance and Trefnydd

Ymlaen felly at y drydedd eitem, prif eitem cyfarfod heddiw, sef sesiwn dystiolaeth gyda'r Gweinidog Cyllid a'r Trefnydd ar ymateb ariannol y Llywodraeth i COVID-19. A gaf i groesawu Rebecca Evans, y Gweinidog, atom ni, ynghyd â'i swyddogion, sef Margaret Davies, dirprwy gyfarwyddwr cyllidebu strategol gyda'r Llywodraeth, ac Andrew Jeffreys, cyfarwyddwr Trysorlys Cymru? Croeso i'r trio ohonoch chi.

Mi awn ni'n syth i gwestiynau, os ydy hynny'n iawn. Mi wnaf i gychwyn drwy ofyn i'r Gweinidog sut mae dyraniadau ychwanegol gan Lywodraeth y Deyrnas Unedig a'r cyllid canlyniadol sy'n gysylltiedig â hynny yn cael eu cyfathrebu i chi fel Llywodraeth, ac ydy hynny'n cael ei gyfathrebu mewn modd sy'n caniatáu i chi gynllunio'n strategol ar ei gyfer e.

We move on therefore to the third item, the main item, an evidence session with the Minister for Finance and the Trefnydd on the financial response of the Government to COVID-19. And I will welcome Rebecca Evans, the Minister, as well as her officials, namely Margaret Davies, deputy director of strategic budgeting in the Government, and Andrew Jeffreys, director of the Welsh Treasury. Welcome to the three of you.

We'll go straight into questions, if that's okay. I'll start by asking the Minister how the additional funding allocations from the UK Government and the associated consequentials are being communicated to you as a Government, and whether this is being done in a way that allows you to plan strategically for that.

Thank you for the question, Chair. Good afternoon, committee. So, throughout the crisis, Welsh Government officials have been in very close contact with the UK Government, sometimes on an hourly basis, but certainly on a daily basis since the beginning of the crisis, and that's been a really, really useful mechanism for sharing information and, on occasion, getting advance notice of announcements that the UK Government intends to make. I think it's fair to say that we don't always get advance notice of those allocations that the UK Government intends to make and any subsequent consequential funding that might flow to Wales as a result of that, so occasionally you will hear of an announcement from the UK Government and find yourselves asking, 'Are there consequentials? What's the situation?' And then we have to make those approaches to the UK Government. So, it's not always as clear as it should be and as we would like it to be, but I think that, on the whole, there is very, very good—at official level—discussion between our Government and the UK Government.

In terms of does the situation allow us to plan strategically, well, the fiscal framework in normal times has its challenges in terms of allowing us to plan strategically, but even more so, I think, now. So, we have real challenges in being able to plan ahead, because we simply don't know what allocations the UK Government might be making, and therefore, we don't know what kind of quantum of funding that we'll have to be able to allocate. And that's problematic, because it does mean that that lack of sight on funding that might be coming may mean that we end up missing out on opportunities that we would have otherwise been able to take. But equally, it might mean that we end up proceeding at considerable risk on other essential things that we have to do, which is clearly a worrying situation to be in.

14:10

Yes, if I could, please. I think that's very good, and I'm glad to hear that the relationship between the two Governments seems to be working well on a structural level, even if there are differences of course on political and policy issues. I was very pleased to see that the First Minister has appointed Jeremy Miles to look at how we work out of this situation, and the First Minister's also published a route-map, if you like, last Friday, to take us forward—to move policy forward. I was wondering, Minister, to what extent have you, as the finance Minister, and Jeremy Miles, as a sort of the future Minister—whatever—been able to talk about the sort of budgets that will exist post this next few months, or this period, to enable us to think hard about the sorts of policy choices that we will have available to us.

So, I meet very regularly with Jeremy Miles on exactly this point. I very much see the work that I do in terms of managing the Welsh Government's budget and the work that Jeremy is doing in terms of the recovery and moving out of lockdown, and moving on from the pandemic, I see those as parallel pieces of work, because the choices and the opportunities that we will have moving out of lockdown and through to the recovery will very much depend on the financial choices that we make now. And the difficult decisions that we will have to make in terms of allocating funding in the immediate term to respond to the crisis, but then also those choices that we will need to make—I'm thinking here of the economic resilience fund, for example—more strategically about where we invest in future and what kinds of areas we invest in. But, I can give you assurances that those discussions are very regular between myself and Jeremy Miles, and those two places on the Welsh Government planet are very much aligned in that sense, because the work is inextricably linked.

Thank you for that, Minister. I don't want to push you any further on that because I think it is difficult to look for absolutes in these matters, and I don't think that would be fair this afternoon. But, it might be useful, Chair, if the Minister were to write to us with perhaps a fuller view of some of the funds that she's looking to place at Jeremy, or the wider Government's disposal, to look at how we can take the matter forward, because I'm very interested in the policy conversations that we'll need to have, which will be over the summer and very quick.

Okay. Andrew has indicated that he wants to come in, but I've also got Siân and Rhianon as well afterwards. So, Andrew first.

Just a very quick response on kind of beyond—. So, the Minister touched a bit on the uncertainties that we've got about funding in the current year, which are pretty significant, but, in terms of next year, we genuinely, genuinely have no insights at all into what our budget is going to be next year at this point, and the timing for the spending review or whatever process the UK Government adopts to set budgets for years beyond the current year is still very uncertain. So, there is a very limited degree of proper information really that we can provide at this stage.

Jest mynd yn ôl at beth ddywedoch chi ar y dechrau ynglŷn â'r cyfathrebu ynglŷn ag arian ychwanegol ac yn y blaen, ac roeddech chi'n dweud ar y cyfan ei fod e'n gweithio ond bod yna enghreifftiau lle dydy o ddim wedi gweithio neu eich bod chi ddim wedi cael gwybod bod yna arian i ddod. Oedd yna eitemau mawr o bres roeddech chi'n poeni amdanyn nhw, ac a fedrwch chi roi enghreifftiau o le doeddech chi ddim yn gwybod bod yr arian yn dod?

I just want to return to what you said at the outset about communication on additional funding and so forth, and you said that on the whole it works, but there are examples where it hasn't worked, or that you haven't been informed that there's funding in the pipeline. Were there any major items in terms of funding that you were concerned about, and could you give us examples of where you didn't know that the funding was on its way?

Well, one big example—an important example for us in Wales—would be the job retention scheme. So, we were not consulted and not informed about the decisions that the Chancellor was making and the announcements that he made—welcome announcements—in terms of the forward look for the job retention scheme. And given the fact that this scheme is so important for businesses in Wales, it would have been very useful to have those initial discussions. However, there was an effort after that then to engage the devolved nations on that forward look for the scheme, so we had a finance Ministers' quadrilateral on Tuesday of this week, where we had the opportunity to set out our priorities for the future of the scheme. So, for example, there should be no reduction of support for those people who can't work because their place of work has been deemed not to be allowed to be open yet, for example.

Tourism, for example, should also be given very strong support going forward because that's a sector that is really important to us in Wales, but which has been really hammered by the coronavirus outbreak. People in tourism tell us they're facing the equivalent of three winters in a row, so that's a sector that shouldn't see a reduction in that kind of support.

And then, promoting, really, the views that the Wales TUC have put forward in terms of a more flexible approach to the job retention scheme in future. So, supporting people to return to work on a part-time basis and so on. So, we've been able to put those areas of priority forward in those discussions, and they will continue in the coming weeks.

14:15

Okay. So just to clarify, Minister, in response to Alun Davies, you're happy to write that letter to committee?

Well, at the moment, there are limited things that we can say in terms of the funds available to us in the future. What we do have, of course, next week, is a publication of the first supplementary budget, so you'll see there the additional consequential funding that we've had from the UK Government, the allocations that we've made thus far, and then the quantum that remains, which, I think, will be clear that we are facing an extremely challenging and difficult situation here in Wales.

We will certainly need to look for further funding, so whether that's further consequentials from the UK Government, further flexibilities for us, or another look back through our own budget to explore what we can reprioritise as well. But the situation is very, very difficult and very tight.

Yes. I mean, you've partially answered it, but with regard to the level of concern in terms of this lack of sight, is there any real concern about an ability to (a) balance the budget and (b) with regard to any concern regarding any punitive treatments with regard to divergences in terms of Welsh policy here?

So, the lack of sight is a concern in terms of the overall budget, and I say that because you'll remember the very end of the financial year last year, we were in a situation where we saw significant negative consequentials, which we had to manage at that point. So, all we can really rely on thus far are the changes that have been formalised through the UK main estimates, which have been recently published—so, that's an additional £1.85 billion—and you'll see more detail of that in the first supplementary budget. So, that's what we can, I think, rely on so far, but as and when more information comes forward from the UK Government, we'll obviously be keen to be as transparent as we can on that. But it's an incredibly challenging job to try and ensure that we are not missing opportunities, but, equally, we're responding to all of the immediate needs as well, whilst still having that lack of overall clarity on the way forward.

I will say, on a positive note, officials across the devolved nations and the UK Government have worked together to better define the challenges that we're facing in terms of managing our budgets, and that formed the part of a conversation that we had, again, at the finance Ministers' quadrilateral earlier this week. So, there's a better understanding now of the challenges we face. Because, as I say, in normal circumstances, the fiscal framework and the statement of funding policy are challenging, but I don't think that this situation could have ever been envisaged when that was developed. So, the quickest and most simple thing, I think, that could be done to support us would be to agree to our request for further flexibilities in terms of the Welsh Government's budget.

And we'll come on to that later on. Margaret, you indicated.

Yes, it was just to, I suppose, cover the point that the Minister just made about the uncertainties. Working at an official level, I think there has been a recognition of the challenge for the devolved administrations in managing the uncertainties. What we are trying to do is get to a point where there is at least a clear line of sight, transparency around those uncertainties and, hopefully, we'll be able to put some practical steps in place that will help us manage those, although they won't, obviously, eradicate them altogether, but will give us another layer of, I suppose, confidence that we haven't probably got through the normal mechanisms. So, it's just to say that we are trying to work towards that.

14:20

Okay, thank you. I'll come on to Rhianon now, then, but before I do that, just to remind Members, if you are using the chat facility, not to send the message to everyone, because that appears on the feed that goes public, but that's just a technical thing. Rhianon, you have some questions.

Thank you, Chair. You've partially address this in some of your—Margaret—comments, but what, if any, assessment has been made as to whether the additional UK funding stream for the four nations has been distributed relative to the socioeconomic need and population-based need of Wales with regard to C-19?

Well, all of the additional funding that we have received has been on the basis of the usual formula for the Barnett consequentials. That doesn't, in itself, fully reflect need, but it does mean that Welsh Government does receive an extra 5 per cent on top of its population share, as was set out in the fiscal framework agreement.

I think that it's important to recognise that there are particular challenges in different parts of the UK, so in terms of population, we have some specific vulnerabilities relating to the fact that we have a relatively larger share of older people in the population, and, of course, we have a relatively larger share of poor health and poverty. But on the other hand, population density is generally lower in Wales, we have fewer larger cities and we have lower levels of use of public transport. All of those things, in one way or another, have been linked to the coronavirus outbreak, so how those will transpire and balance out remains to be seen, I think.

In terms of the economy as well, we do have some particular vulnerability in terms of tourism, but that particular sector has benefited particularly from some of the support that Welsh Government and the UK Government have put in place. So, to what extent that will balance off that particular consideration, we will see in due course as well.

So, funding, as I say, is based on our Barnett share, and it's early days, I think, in the pandemic and our understanding of the way it's affecting different places. There's still a lot for us to learn. I think it's difficult to say what the difference would be in terms of that balance at this point.

Thank you. With regard to your earlier comments as well, and what you've just inferred around the correlation between COVID-19 and the Wales indices of multiple deprivation and the predisposition around that for Wales and how that sits with the Barnett formula, does the current budget give you the sufficient flexibility or headroom to respond in an agile way to emergent issues, and, consequently, the correct allocation flowing from that? Or is it not flexible and not agile?

I would say that there are flexibilities that the Welsh Government has been calling for for some time from the UK Government that now have become even more critical and, I think, relatively easy for the UK Government to agree to as well.

So, one flexibility we could be seeking, and which we are seeking, is to be able to draw down more from the Wales reserve. Equally, depending on how the recovery comes, could we carry over more at the end of a financial year as well? We'd want to draw down more in terms of borrowing, so at the moment we have a limit of £150 million borrowing a year, with an aggregate limit of £1 billion, but then there should be flexibility allowed there for us to respond more quickly if we're able to to the pandemic as we come to the recovery as well. I think transferring or switching an amount of capital to revenue would be a really helpful tool that we could have in the immediate crisis.

These are all, I think, very simple, pragmatic things that the UK Government could agree to that wouldn't cost more for the UK Government to deliver, and we're having those discussions at the moment. Again, it's part of the discussions we've been having at the finance Ministers' quadrilateral, because, of course, all devolved nations have their own particular requests for flexibility. But this seems like a really reasonable area where the UK Government can support us very quickly.

14:25

I'll bring Andrew in. I just want to ask as well—do you have immediate access to additional funding when it's made available, or does it vary?

Yes, we can draw down the funding immediately. So, it formally comes to us in the main estimates, but if we can put a level of certainty on funding then we're able to—. We proceed at risk until we actually see it in those letters confirming things from the Chief Secretary to the Treasury. But that's the best that we can work on.

Thank you. We'll come to Andrew, then, and then we'll move on to Siân, if that's okay.

Just a quick point on the Barnett formula. The Barnett formula is very crude. It doesn't reflect the need in any sort of sophisticated way, but it's very simple and quick, and it also means that we don't have to make a case to a third party for a particular level of funding. So, it means that you get a relatively rapid understanding of what funding's available, and a lot of flexibility over what you do with it, but the downside is the big question mark over whether it's the right amount. As the Minister's made out, probably we're getting more than our fair share in some areas and less than our fair share in others. Maybe the areas balance themselves out in total, but that would just be an accident, really, more than anything. But it does allow a lot of flexibility for Ministers to make choices about how they use funding without having to justify to Treasury particular spending levels based on actual activities.

Gan edrych rŵan ar yr agwedd refeniw treth a thwf yn economi yng Nghymru, ydych chi'n credu bod agwedd gofalus Llywodraeth Cymru o gymharu efo'r Llywodraeth yn Lloegr yn mynd i olygu bod yna broblemau mawr yn mynd i fod lawr y lein yn fan hyn, a sut ydych chi'n mynd i fod yn asesu hyn i gyd?

Looking now at the tax revenue aspect and the growth of the economy in Wales, do you think that the careful attitude of the Welsh Government compared to the Government in London means that there will be major problems down the line here, and how are you going to assess this?

As you say, Welsh Government has taken a careful and cautious approach to the lockdown, which does mean that there is some divergence now either side of the border. We've been considering to what extent that would have an impact on tax going forward, and the tax revenues I think will be affected by lockdown, and also by the speed at which the economy recovers. But to what extent that will affect our particular budget remains to be seen, because the fully devolved taxes of land transaction tax and landfill disposals tax, for example, will no doubt be affected by the COVID crisis, but the extent to which it will affect our budget depends very much on the difference, if there is one, between the way in which our situation here in Wales is affected as compared to that across the border. We don't expect there to be very large differences, or significant differences, but clearly we will keep this under review at all times.

In terms of Welsh rates of income tax, the block grant and the block grant adjustment, they're fixed for budgetary purposes for this year, using the Office for Budget Responsibility's forecasts, which are published alongside the UK Government's March budget. Revenues from the Welsh rates and the block grant adjustments will be affected by the current crisis. The net impact is expected to be small, but, again, we'll only have that outturn information in the summer of 2022, and any reconciliation payment then that needs to be made will be applied to the Welsh Government's budget for 2023-4. So, this is something that we'll clearly have to be mindful of in setting future years' budgets.

Felly, dydych chi ddim yn teimlo bod y ffordd, y gwahaniaeth, er enghraifft, ynglŷn â'r farchnad dai, a'r penderfyniad i ailagor y farchnad dai yn Lloegr, a'r anogaeth i fusnesau i ailagor yn Lloegr—faint o wahaniaeth mae hwnna yn mynd i'w wneud yn y pen draw, felly? Mewn brawddeg, felly—sut ydych chi'n crynhoi'r gwahaniaeth sydd yn mynd i fod?

So, you don't feel that the divergence, for example, in terms of the housing market and the decision to reopen the housing market in England, and the encouragement for businesses to resume in England—how much of a difference is that going to make, ultimately? In a sentence, how would you summarise that divergence there's going to be?

At this stage, we don't expect it to be significant, but clearly we will have to keep things under review. But at the moment we don't expect it to be significant.

Iawn. Ac o ran y fframwaith cyllidol, rydw i'n cymryd bod chi'n teimlo bod yna angen llacio'r rheolau dros dro. Sut fyddwch chi'n defnyddio rhyddid o'r fath? Beth fyddai mantais llacio'r rheolau?

Okay. And in terms of the fiscal framework, I take it that you feel that there is a need to relax the rules temporarily, and therefore how would you use those freedoms? What would be the advantage of relaxing those rules?

14:30

I would even go further and say that we should relax or change those rules permanently. Some of the things that I set out in terms of having greater access to borrowing powers I think would be very useful indeed; being able to switch capital and revenue, now that might be a temporary measure, because clearly capital is very important in terms of our economy as well. So, that might be one of the more temporary things. But, as a general rule, I think increasing the size of the Wales reserve and increasing our access to it, is a pragmatic approach as a way forward, and it's something that we've been calling for for some time in terms of the 'Securing Wales' Future' paper, the 'Reforming UK funding and fiscal arrangements after Brexit' paper. So these are all arguments that we've been making for some time, now, to the UK Government, but I think that the time has come to respond positively to them. 

Ydych chi'n meddwl bod y ddadl yn gryfach erbyn hyn, yn sgil hwn, a mai un o'r pethau positif sy'n dod allan o'r argyfwng yma, efallai, yw bod y ddadl yn fwy dilys ac yn gryfach erbyn hyn?

Do you think that the argument is stronger by now, following this and one of the positive things that's emerging from this virus is that the argument is more valid and stronger by now?

Yes, I think that the argument has been well made for some time, but it just feels like a really pragmatic thing that the UK Government could do to support the Welsh Government in responding to the crisis. 

Diolch, Siân. Mark Reckless. 

Thank you, Siân. Mark Reckless. 

Hello. Could I pick up on a point you said earlier, finance Minister, that you would like to see the job protection furlough scheme continue so long as particular sectors are not able to open legally? What about for sectors where UK Ministers have decided that lockdown is no longer necessary and have immediately lifted it for England, yet, Welsh Ministers have removed that requirement to get rid of restrictions as soon as they're not necessary, and instead, set up these equality tests and the future generations test, and then they'll have to go through the Senedd to remove restrictions and reopen sectors here? Are you expecting UK taxpayers to continue paying for people to be furloughed in those sectors just in Wales, because you, as Welsh Ministers, determine that they shouldn't open when UK Ministers are fine for them to?

Well, public health is clearly our overriding consideration in all of this, and Welsh Government will take the decisions that are placed in its hands in terms of protecting public health, protecting the NHS and, ultimately, the decisions that will be saving lives here in Wales. We don't take any of these decisions lightly. We understand how difficult it is in terms of the lockdown measures that are in place, both for individuals in their personal lives and also people in terms of the businesses that they operate. So, Welsh Government is  discharging its duties and I see no reason why we should not expect the UK Government to support that through the continued provision of job-retention scheme support to workers in Wales as we seek to respond to the crisis with that priority of public health. 

And you wouldn't expect any correcting Barnett consequential or other adjustment, you would just expect UK taxpayers to pay for those Welsh Government decisions that UK Ministers didn't consider necessary out of UK taxation for as long as you happen to want to keep those restrictions.

Well, the restrictions won't be in place for any longer than they need to be, based on the best evidence that we're receiving and the best advice that we're receiving. So I think it's reasonable to expect the UK Government, in this extraordinary situation, to continue to support people to be able to comply with what we're asking of people in Wales in terms of staying home. None of this is easy; it's difficult for everybody being asked to do these difficult things, but I think that in terms of the good working of the UK, then the UK Government needs to support the Welsh Government in the decisions that we're taking in the best interests of people in Wales.  

We're in the slightly surreal situation where tax revenues are collapsing with the economy, yet we are seeing UK Government making very substantial spending allocations for which we receive Barnett consequentials. The consequence of that is £200 billion, £300 billion-plus of UK borrowing for this year. I just wonder, however little the Government in the UK may have said about what it's going to do—and perhaps it may not know what it's going to do—what is your assumption, what is your expectation, what is your budget planning basis for the next fiscal year and thereafter in terms of what on earth's going to happen about all this spending that is being funded currently out of UK borrowing, which presumably can't be sustained at that level? Will you keep that spending or will it have to be cut? 

14:35

I remember even last year, we were talking about the huge level of uncertainty that there was in terms of setting our budgets, but this year is completely on a new level entirely in terms of the uncertainty. We had been promised the spending review last year—of course, now we're expecting it this year—and I would hope that that spending review will at least give us some certainty to be able to plan over the coming years, certainly at least these three years ahead. But I don't underestimate how difficult that will be, because the UK Government will have seen the various research and analysis that suggests some very different trajectories in terms of the UK economy, in terms of how we move out and forward from the pandemic. So, I think that we still will be in a situation with a high level of uncertainty and unpredictability for some time yet.  

What I do think is that austerity and continued austerity isn't the answer. I think one of the big lessons from the period following the last recession, particularly from 2010, is that premature fiscal consolidation is counter-productive because it results in slower growth than would otherwise have occurred, and has a lower tax base. So, that is certainly one area that I would implore the UK Government not to look to further austerity. The Prime Minister has been quoted as saying that there would be no return to austerity, and I very much hope that that does turn out to be the case. 

Yes, just very quickly to say that our basic planning assumption for now—and that's based on what the Office for Budget Responsibility have produced, which I'm sure people will have seen—is that most or virtually all of the spending interventions for which we've had consequentials are temporary measures, not permanent changes in public spending levels. In effect, our planning for next year is that our budget returns, broadly speaking, to the level that we were expecting it to be prior to the crisis, but that is purely just a basic planning assumption; it's not based on any real understanding of the UK Government's intentions for public spending, which, of course, are very uncertain for all sorts of reasons. 

Thank you. And finally from me, you mentioned the delay to the spending review at a UK level. Can you say anything about what likely impact that will have on the timing of the Welsh Government budget?  

As I say, we don't know yet whether—. We haven't been told that there isn't going to be a comprehensive spending review. So, we have, in Standing Orders, our responsibility as a Welsh Government to write to the Business Committee ahead of the summer recess with our plans for the draft budget and final budget dates at which we will lay those. So, we'll obviously intend to do that. As you'll remember, last year, we had to use that flexibility, and we were very grateful to the Finance Committee for allowing us to do so. But at the moment, we have no idea when the comprehensive spending review might be or when we will be told if there isn't going to be one. Until that point, we will just stick with what's required of us under Standing Orders in terms of providing you with the details. 

I remembered to do it yesterday and forgot today. Chair, I think that question 9 has been pretty much covered. I was going to ask to what extent does available finance constrain the Welsh Government's approach, but I think you've touched on that all the way through. So, if I can move on to the next question: what has been the cost of the crisis to the Welsh Government so far? If you can give some sort of quantity for that, and specifically, what is estimated to have been the cost to the NHS?  

So far, we've received well over £2 billion in terms of COVID-19-related consequentials, but alongside that, we've realigned just over £0.5 billion of funding to create the COVID-19 reserve, from which we are making allocations to support our response to it. 

In terms of the costs to the NHS, they're definitely going to be very significant. We've already made some of those allocations from the COVID-19 reserve to the NHS. So, over £300 million has been allocated thus far for things such as PPE, field hospitals, additional medical staffing, the testing strategy, and, of course, additional support for hospices as well. But, alongside that, the health Minister has also been repurposing a number of budget areas within his own main expenditure group to be able to allocate funding to areas such as direct support for additional equipment and consumables, through the NHS Wales shared services partnership, and work on hospital discharge and the enhanced GP services scheme, with the fast-track roll-out of video consultations, and lots of other items that you'll see in more detail when I publish the supplementary budget next week. 

14:40

I'm looking forward to the supplementary budget, Minister, as you know, I asked you for that a couple of weeks ago. I imagine—. I'm thinking of conversations that we've had with Mike Hedges in the past about the proportion of the Government budget that is health. I imagine now that that is looking to be over half of the Welsh Government's budget, or are we still edging at 50 per cent?

Yes, it's obviously considerable, but also now, it has that additional £300 million as well. So, it is by far the largest part of our budget by a long way. 

In terms of the health boards, we know that they went into this crisis with a considerable amount of debt in some cases, which has been an issue for some years. So, how have you been ensuring that health boards particularly have got the resources they need to deal with this crisis without too much anxiety about where they're going to find the funding resource from?

Well, if I may, I'll ask Andrew or Margaret to come in in terms of the mechanisms that we have set up between the finance department, and then also the health boards and so on in order to monitor and support them with their spending, and to better understand the challenges that they're facing. 

Yes, I can say a couple of things. So, the Minister's touched already on some of the additional allocations that have already been made to the health service for some of the most urgent actions that were required to respond to the crisis. There is a very well developed relationship between the Welsh Government and the health boards in terms of financial management in normal circumstances. I suppose the big difference in the current financial year, and in the current context, is that that relationship needs to go beyond the health department and really involve the Treasury team and the central finance team in the Welsh Government, because it's pretty clear that the health service is going to need substantial additional funding throughout the year, and that has a big implication for the whole of the Government; it's not just a health system issue. 

So, there's a kind of very important ministerial part of that process, and then, at official level, we have very, very regular discussions with health finance officials about the whole of the position. Yes, so, hopefully, that's helpful. 

Mike wanted to come in, and then, if you're happy, Nick, we'll go on to Alun then. Mike. 

Sorry, I was trying to figure out the unmuting. 

As you told us in Plenary a fortnight ago, in England, they have written off the debt of health boards. Is it your intention to do the same in Wales?

The overall budget for the Department of Health and Social Care, as we were discussing in the previous meeting, in any year will accommodate overspends and underspends by individual NHS trusts in England relative to their allocations. And that's one of the reasons why we didn't get those consequentials that we talked about when we discussed in Plenary just last week. So, I just wanted to clarify that, because I know there were some ongoing questions about that. 

We expect—. The health Minister manages the expectations in terms of the health boards in Wales and I think that he would want to support health boards to make the right choices, but I haven't had any discussions with the health Minister about this. 

14:45

Can you? Thank you very much. You said in an earlier answer, Minister, that the relationship was very good with the United Kingdom Government and that you had very close and ongoing conversations with them about the way in which you're managing the response to this crisis. But recovering from this crisis will not be easy, and I don't think there are any short-term fixes that are going to be appropriate. You've said that most of the additional funding that you're received is on short-term temporary measures that are to deal with where we are today, and not looking at the longer term. 

Now, I was wondering, in your quadrilateral meetings, or in meetings with officials, whether you've begun to have a conversation with the United Kingdom Government about some of those longer-term issues, about some of those longer-term policy responses and financial instruments that may be required in order to invest in our recovery. 

Well, this was a discussion that was ongoing before the crisis in terms of the review of the statement of funding policy, but I think that now things, as we move forward, have to be a much larger conversation than we've had previously. At the last finance Ministers' quadrilateral, we were talking about the importance of working together on a vision, as we move out of lockdown and into recovery. But those discussions are at an early stage at the moment. But there was a willingness, I think, on the part of everybody, to find common ground in order to make the best decisions that we can, moving forward.

Okay. Because we've heard a lot of rhetoric from UK Ministers about going back to normal, about normality, trying to develop some sort of box for MPs so that they can sit alone in Westminster or wherever it happens to be. But what you seem to be quite clear about is, whilst we have this rhetoric in press conferences, what we're not having is any political or policy discussion about how we recover from this crisis and that there haven't been any UK-wide conversations on the financial underpinning of any recovery.

No. As I say, at the last meeting, on Tuesday, we began that conversation, but it's not a mature or full conversation yet. It was, at this stage, more of a willingness to explore that and to work together. It wasn't a substantial conversation.

Okay. So, have UK Ministers talked about their overall approach—their philosophical approach, if you like, rather than a detailed policy conversation? We've heard the Prime Minister saying that there's no going back to austerity. Whether that's real or not, we don't know—he says one thing one week, and another thing the following week. But is there any indication that you've had that the UK Government might be wishing to go back to this regressive, failed policy approach, or are they looking in a more innovative way towards investing in different parts of the economy?

We haven't had any proper discussion on that, so I haven't had any signal either way from the UK Government. But I do think it's positive that they've invested so much in supporting the economy through the crisis thus far. So, the focus on the job retention scheme, for example, was on the basis that it's much easier for the economy to bounce back if people are just returning to their jobs that they had beforehand, as far as possible, rather than seeking out new opportunities and so on, and seeking out new businesses to develop and support. So, I think that's positive in the sense that there's a willingness to invest in an early stage, recognising that, if you don't, things could be much more dire later on. But, in terms of that wider conversation, as I say, we've agreed to have it, but we haven't had anything of substance discussed yet.

Okay. And in terms of conversations with your own colleagues in the Welsh Government, I think one of the lessons that we're beginning to learn from these last few months is that the Welsh public sector, in its totality, has reacted very quickly and with a great deal of agility to what has happened. In terms of procurement, we haven't had the crisis in procurement that you've seen across the border. We've been able to bring different public sector bodies together to deliver some really innovative ways of working.

Now, it appears to me that, coming out of this crisis, we want to learn those lessons, and we want to maintain a more cohesive way of working, if you like, between different parts of the wider public sector in Wales. Have you begun conversations with your colleagues about how that may be achieved?

14:50

Yes, we've started looking at what the recovery might be, where our priorities might be in terms of using the opportunities that flow from this crisis to do things differently, locking in some of the things that we would want to keep—so, the modal shift, for example, exploring the benefits of homeworking. So, this isn't now about just returning to normal, actually—it's about trying to take the opportunities that the situation has presented us with.

But we're not doing that alone here in Wales either, because we're part of the well-being economy network, which is an international group, which is exploring how best to come to a recovery that meets all of our aspirations that we share—so, in terms of well-being, a green recovery, a socially-responsible recovery. So, we're working closely with colleagues in New Zealand, Scotland, Iceland and Finland on this particular agenda as well. So, I know officials are meeting regularly in that forum to have those discussions to support some of the thinking about how we emerge better.

Chair, that's a very, very interesting response from the Minister, and I think we should capture that in some of our thinking, because I hope that we'll be able to look at how the Government is investing in different parts of the country, but also different sectors and different communities as we move forward through this, and it might be useful if we had a private briefing from Ministers' officials on some of those conversations through the summer, so we can give that some thought before we return in September.

That would certainly be useful, I agree, and we can reflect on that when we consider the evidence later on. Diolch yn fawr. Mike Hedges.

It's my understanding that the business rates support scheme supports businesses based upon their rateable value. I understand this to mean that medium-sized supermarkets and others who are still trading, and in some cases with increased income, get 100 per cent rate relief, while those larger business that are closed—such as Swansea City football club—do not get any rate relief. Is that true? If so, what is the rationale behind it?

So, the rate relief, as you'll know, is part of our support for the economy, which is £1.7 billion of support, and our support here in Wales eclipses anything offered anywhere else in the UK. We took the decision to limit rate relief to properties with a rateable value of under £0.5 million, and we did so recognising that there was an opportunity there to put together a fund of £100 million to support small and medium-sized enterprises. But it didn't preclude those business with properties over that £0.5 million mark from seeking funding from the economic resilience fund. So, there's funding there for larger companies, and I know that several of them have made applications to that.

Nick has asked if he can pick up on this particular point. Nick. You're on mute. There we are.

This is a really annoying change to the system, isn't it? It was just on the comment there about the £0.5 million. I asked the Finance Minister during questions recently about the Debenhams situation, and I know that some larger stores have been complaining about the lack of rate relief for them. I actually understand that resources are tight, so it has to be focused, but I just wondered how the Minister's discussions with Debenhams went and whether there'd been anything that came out of it, or whether, as you've just said, they're being directed to the economic resilience fund.

14:55

So, yes, I did have a useful meeting with the chair of Debenhams. I think that we have to start, really, from the point of recognising that the troubles that Debenhams are facing started long before the coronavirus outbreak, of course; it's facing insolvency for the third time. So, I think that it is—. Well, it's just not credible to suggest that rate relief support from the Welsh Government is entirely responsible for the trouble that Debenhams finds itself in. But, that said, we recognise the important role that Debenhams plays in our high streets in a number of places across Wales, and, of course, Debenhams has benefited from the rate relief in several of its stores in Wales where the ratable value is less than £0.5 million. So, I met with the chair of Debenhams, and the suggested way forward was to make an application to the economic resilience fund, which, of course, is grant support for businesses. But, as part of that, I would want to see guarantees on jobs being retained and I would want to see that kind of commitment in the longer term to our town centres, which you just, I have to say, wouldn't get if it were just a matter of offering rate relief. 

Can I ask the question again about those firms, some of which are in the food retail sector, who are having Christmas every week, whose trade has gone up in terms of both alcohol and food quite substantially—why are they getting rate relief? Or aren't they?

So, of course, there will be some supermarkets that are under the £0.5 million mark that are doing very well indeed, but the point is we were responding in a crisis situation and needing to work very quickly to put in place a package of support for business. On the whole, the tourism sector, hospitality sector, retail sector have been hit very badly, but there are several businesses that are doing very well indeed as a result of being able to continue to operate.

I think that what Mike Hedges is describing really is a feature of what was effectively a very blunt instrument to get support to businesses as quickly as we possibly could. We could have created an elaborate system of grant support, an elaborate system of rate relief support, which would have been difficult to administer and timely to administer [correction: and to administer in a timely way], and businesses could still be waiting for that support now. So, we had to—. It was just a real balance in terms of being able to do something very quickly to support a large number of businesses, but, inevitably, when something is that blunt, the difficulties will be there.

But, of course, in terms of the economic resilience fund, one of the main criteria for that is a loss of income, so food industries would be exempt from accessing that particular fund. 

I won't push this point, but I would have thought a simple saying, 'Are you trading as usual: Yes/No?' If the answer is 'yes', you don't get rate relief, if the answer's 'no', you do, would seem a very simple and not complicated method. But I'm not going to get any further with that.

Can I ask the Minister—? Substantial sums have been made available to support businesses. Whilst the criteria used and the amounts given to each business is not within your portfolio, and those who have fallen through the gaps, including a number of firms in my constituency, are not within your portfolio, so I can't ask you about those, what I can ask you is: is the expenditure conforming to the profiling and is there any expectation there'll be further sums of money? I'll express my fear now, that a number of firms are on life support systems in terms of money coming in. If it's just turned off, a number of these firms will either have substantial redundancies—a number of them have told their staff that they're in danger of being made redundant now—or they will just close altogether. I know some within my own constituency have closed already. So, I'm just asking: is there any likelihood of additional money? Because, if you're just taking them off the life-support system, then the businesses are going to die.

So, in terms of the economic resilience fund, there were two parts to it. There was the £100 million Development Bank of Wales loan funding and then also the £400 million grant funding. So, the loan funding has already approved over 1,300 loans, totaling over £100 million, and that's been able to safeguard 15,000 jobs, which is really, really positive, and bearing in mind there's nothing—this is over and above what has been provided by the UK Government. But then in terms of the grant element of the economic resilience fund, it saw over 9,500 claims submitted in just over a week, so I recognise that the demand on it is absolutely huge and I do recognise that the level of the grants provided, whilst providing some important breathing space for businesses in the short term, aren't going to be everything that a business needs should should we be in lockdown for a longer time, so all of this is important as we consider the next stages of the economic resilience fund.

I know that Ken Skates, whose portfolio the fund is in, was in Plenary yesterday and he was able to set out some of the parameters for the future. I think that he said that he hoped in June to be able to announce the criteria for the next stage and then businesses would have that and be able to apply when it opened later on in June; I think that was his ambition there. And he's very mindful as well of those businesses that have fallen through the gaps in support, who have not been able to access funding from the UK Government and haven't thus far been able to access funding from the Welsh Government. I think being VAT registered has been a barrier to some businesses, so I know that he is looking very carefully at what might be able to be done to support businesses who have fallen foul—it's the wrong phrase—of being able to access funding as a result of that.

So, we're very much looking at those gaps that still remain in terms of the remainder of the economic resilience fund. And what more we're able to do to support businesses into the recovery will unfortunately depend a great deal on what further consequentials we might get, because as you'll see from the supplementary budget, there is very limited funding to be allocated further, especially when you consider all of the pressures that are coming down the line on the health side, but also if we intend to continue with some of the measures that we've already put in place to support communities through our work with local authorities, and so on.

15:00

Ocê. Diolch, Weinidog.

Okay. Thank you, Minister.

We're coming to the end of our allocated time. I know Rhianon wants to pick up on one issue before we finish. Rhianon.

Thank you, Chair. I believe you've just brought me in; is that right?

Sorry, I couldn't hear you. Minister, you've stated that thus far the UK Government has responded to this crisis and you've touched there upon, potentially, the future balancing of our Welsh books. And the issue for me, really, is to scope that in terms of whether this is dependent on the UK Government's goodwill or otherwise in terms of our potential policy diversions. So, I think what I want to ask is: what are the fiscal safeguards during this extraordinary time of fiscal spend, and is there any concern or otherwise around a potential failure of the UK Government to deliver on our Welsh spend, based on our much higher health and deprivation COVID population base and our need to meet that public health need?

I think that there are real challenges in being able to respond to the crisis, given the situation that we're finding ourselves in. You'll have seen recently that the UK Government has made some announcements on items that are not attracting consequentials. So, just as we prioritise budgets, I know that the UK Government has made some announcements from within existing budgets as well. There is a likelihood that we might see more of that and less in terms of consequentials, so we need to be very mindful of that.

You'll see, or you'll be aware, that we undertook the reprioritisation exercise across Government to look at what funding we could bring together to create that COVID response reserve, and that was an exercise looking at every single main expenditure group across Government; discussions with Ministers about where they might be able to free up money. But I said to colleagues at the time, 'This isn't going to be the only time we do this', so I think that we'll be at some point going back to colleagues to look at their budgets in that respect. And we're currently undertaking an exercise on capital, looking at what we can be seeking to reprioritise on the capital front or seeking to put forward for that capital revenue switch, should the UK Government agree to it. So, there are difficult decisions being taken right across Government all of the time.

In terms of the certainty, the certainty comes through those main estimates and the supplementary estimates from the UK Government, and those letters that accompany or follow them from the Chief Secretary. But, in the meantime, I think that this just emphasises how important it is to have those strong official level relationships, so that we do have a good to and forth sharing of information as best as we can, in between those points where we do access at least a bit of certainty. 

15:05

And the final question to Nick Ramsay, who's indicated. Are you okay?

Yes. Just very, very briefly, about the supplementary budgets, so obviously that—. Is it next week, I think you said, that was being brought forward?

What sort of detail can we expect in that? Because, clearly, we've had supplementary budgets in the past, some of which have been more interesting than others, a lot of it is technical, but clearly this time—. I mean, this is a very important supplementary budget, isn't it, so I'm hoping that we will see a high level of transparency and it'll aid effective scrutiny, both in this committee and in Plenary.

Yes, I'm keen to give as much transparency as possible in terms of the decisions that have been made. So, you'll see details of where allocations have been made, but you'll also see details of those areas where spending has been reduced in order to free up money for that COVID-19 response. I'm also preparing a much more detailed explanatory note than you would normally get, so that you can get more of a description of the decisions that colleagues have been making, and what the impact might be on the deliverability of our previous plans. So, I intend to give a greater level of information than you'd normally get. And we've tabled the—or we will be tabling the debate for a longer period. I think it's normally just 15 minutes, if I recall correctly, but I think that we've got a full hour in for it this time, as well. And, of course, I'm coming back to committee the week after next, I believe, to discuss the first supplementary budget in more detail with you.

Indeed, we look forward to that. 

Felly, diolch yn fawr. Dyna ni, felly. Diolch i'r Gweindiog a'i swyddogion am ymuno â ni. Mi edrychwn ni ymlaen i'ch croesawu chi nôl ymhen rhyw bythefnos ar ôl gweld y gyllideb atodol, a dwi'n siŵr y byddwn ni'n dod nôl at nifer o'r pynciau a'r meysydd dŷn ni wedi'u trafod heddiw yn sgil cyhoeddi'r gyllideb atodol honno. Felly, diolch yn fawr i chi a'ch swyddogion am ymuno â ni.

So, thank you very much. I thank the Minister and her officials for joining us. We look forward to welcoming you back in about a fortnight after we've seen the supplementary budget, and I'm sure that we'll come back to a number of the areas that we've discussed today in the wake of the publication of that supplementary budget. So, thank you and your officials for joining us.

4. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn
4. Motion under Standing Order 17.42 to resolve to exclude the public from the remainder of this meeting

Cynnig:

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

Motion:

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

Cynigiwyd y cynnig.

Motion moved.

Mi wneith y pwyllgor nawr symud i sesiwn breifat. Felly, dwi'n cynnig yn unol â Rheol Sefydlog 17.42(ix) fod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn. Ydy Aelodau yn hapus efo hynny? Ydyn. Dwi ddim yn gweld neb yn gwrthwynebu, felly mi awn ni nawr i mewn i sesiwn breifat. Mi gymeriff hi ychydig eiliadau inni fynd oddi ar y gweddarllediad.

The committee will now move into a private session. So, I propose in accordance with Standing Order 17.42(ix) that the committee resolves to exclude the public from the remainder of the meeting. Are Members content? Yes. I don't see anybody opposing that, so we'll go into a private session, and it'll take a few seconds for us to stop the broadcast.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 15:07.

Motion agreed.

The public part of the meeting ended at 15:07.

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