Y Pwyllgor Cyfrifon Cyhoeddus - Y Bumed Senedd

Public Accounts Committee - Fifth Senedd

23/11/2020

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Angela Burns MS
Delyth Jewell MS
Gareth Bennett MS
Jenny Rathbone MS
Nick Ramsay MS Cadeirydd y Pwyllgor
Committee Chair
Rhianon Passmore MS
Vikki Howells MS

Y rhai eraill a oedd yn bresennol

Others in Attendance

Adrian Crompton Archwilydd Cyffredinol Cymru
Auditor General for Wales
Alison Butler Archwilio Cymru
Audit Wales
Andrew Slade Cyfarwyddwr Cyffredinol, Grŵp yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru
Director General for Economy, Skills and Natural Resources Group, Welsh Government
David Richards Cyfarwyddwr Llywodraethu, Llywodraeth Cymru
Director of Governance, Welsh Government
Gawain Evans Cyfarwyddwr Cyllid, Llywodraeth Cymru
Director of Finance, Welsh Government
Matthew Mortlock Archwilio Cymru
Audit Wales
Richard Harries Archwilio Cymru
Audit Wales
Shan Morgan Ysgrifennydd Parhaol, Llywodraeth Cymru
Permanent Secretary, Welsh Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Claire Griffiths Dirprwy Glerc
Deputy Clerk
Fay Bowen Clerc
Clerk
Joanne McCarthy Ymchwilydd
Researcher
Katie Wyatt Cynghorydd Cyfreithiol
Legal Adviser

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

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

Cyfarfu'r pwyllgor drwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:30.

The committee met by video-conference.

The meeting began at 09:30. 

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

Can I welcome members of the committee to this morning’s meeting of the Public Accounts Committee? No apologies have been received. Do Members have any declarations of interest that they’d like to make at the start of the meeting? No. Okay.

2. Craffu ar gyfrifon 2019-20: Sesiwn dystiolaeth gyda Llywodraeth Cymru
2. Scrutiny of accounts 2019-20: Evidence session with the Welsh Government

So, on to item 2 of our agenda and the scrutiny of accounts 2019-20 and our evidence session with the Welsh Government. Can I welcome our witnesses to today’s meeting? Thanks for being with us. Would you like to give your names and roles for the Record?

I’m Shan Morgan, Permanent Secretary for the Welsh Government.

Andrew Slade, director general, economy, skills and natural resources.

David Richards, director of governance and ethics for the Welsh Government.

Gawain Evans, finance director, Welsh Government.

Great. Thanks for being with us. As you would expect, we have a number of questions. I’d like to ask both Members and witnesses to be as succinct as possible so that we can get through as many of our questions as possible, as there’ll be supplementaries as well. If I kick off with the first question, in terms of the accounts preparation, in your accounts you note that, in line with guidance from the Treasury—that's Her Majesty's Treasury—you reduced part 1 to allow resources to focus on the COVID-19 response. This seems, on the face of it, at odds with your previous evidence to the committee when you said that you're not required to follow part 1 of the financial reporting manual. Can you explain that, please?

Chair, thank you. I guess I'll preface what I say with the fact that it has been quite an extraordinary year for everybody. I think we've seen an extraordinary response to the crisis across all sectors in Wales, and I am really proud of the Welsh Government for showing such energy and commitment and a truly agile and effective response.

Of course, we have had to prepare things differently this year because of that crisis, and that is indeed what has happened in the accounts preparation. The FReM actually sets out a three-part requirement for the annual report and accounts, so, that's the performance report, an accountability report and the financial statements. It goes on to specify that the Welsh Government determines the appropriate level of reporting for the performance report for each organisation in Wales. So, that means that we don't actually have to follow the performance report part 1 requirements for the FReM. And, actually, this is all set out very succinctly, Chair, in the chart on page 9 of the Audit Wales commentary on the accounts.

So, we look every year at the requirements for the performance report and decide what we should put in it. This year, Her Majesty's Treasury reviewed those requirements for 2019-20 and actually made an addendum to the FReM that set revised minimum requirements, particularly relating to part 1, basically to relieve the resource requirement of accounts preparation in this time. And we considered whether the principles and details of the changes that they were suggesting were actually appropriate for the Welsh Government and we concluded that they were. It made real practical sense to adopt those sorts of changes, because we were facing the same challenges and pressures as the wider public sector across the whole of the UK.

So, I gather that the Financial Reporting Advisory Board has now agreed that HM Treasury should continue with those revised reporting requirements for 2020-21, so, we'll look at that when we come to prepare the accounts for the 2020-21 financial year. But that's the essence of it, Chair. It was a reflection of the situation that we've been in, the need to divert as much of our resource as possible to responding effectively to the coronavirus crisis. The financial reporting manual sets out guidance that we are able to consider, we considered it and took what we felt was the appropriate course of action for accounts preparation for the Welsh Government.

09:35

Can I just ask on that? You say that you don't have to follow the FReM, and you must be going through some process in deciding on whether to do that or not, so what basis—what mechanism comes into play when you make that decision?

It is, as I said—as the commentary sets out, we look annually at the performance report requirements set out in the FReM and consider what is appropriate for Wales. So, for example, the revised minimum reporting requirements that were recommended included things like removing data that isn't auditable, such as the sustainability report, information on grants management and case studies, and we felt that that was appropriate this year, recognising, of course, that grants information is extremely important for scrutiny purposes and that the information that's normally published in the accounts will be published as soon as possible in the new year.

And what resources did you free up by omitting the case studies and the grant management report?

Well, what we were able to do was take the pressure off the team who are responsible for key grants management—so, a mix of policy teams and the staff in the grants management team. All of that alleviated pressures at a particularly intense time of year. Because, of course, the Grants Centre of Excellence, for example, have been absolutely critical in supporting the way that we've responded through grants to the pandemic. So, it didn't release any specific individuals, but it took off a lot of pressure on people who were having to respond very rapidly to the coronavirus crisis. But, as I said, we recognise the importance of the report on our grant activity and will be providing a grants management report to the committee in the new year.

Thanks. Rhianon Passmore, did you indicate you wanted to speak there?

Thank you, Chair. In regard, then, to the qualified opinion, where do you feel the difficulties lie in terms of the Welsh Government's analysis and methodology that it's followed and in terms of the auditor general's qualification?

Thank you. It would probably helpful if I set out the overall situation. You will have seen the letter that the auditor general and I sent jointly to the Public Accounts Committee on 6 November. That tried to be very open and transparent about the situation that we were in. It is, of course, a very rare difference of opinion between us, on what amounts to a very complex technical accounting issue: that's the interpretation of the international accounting standard 37 and how it interacts specifically with grant or accounting. And there is currently no clear central guidance on that that is definitive; we hope there will be in future. This instance relates to the support that was provided for small business and the leisure, hospitality and retail sectors during the COVID crisis, and I would really like to underline that the qualification of the accounts is in respect of that one issue and, as the auditor general himself makes clear, it's not a reflection of the overall quality or transparency or accuracy of the accounts. I think I should also underline that the accounts do not in any way record incorrectly any money that we've actually spent. There is no question of this expenditure not being fully reported by the Welsh Government nor have we lost any money to Wales, and that is equally important.

The question is whether the accounts should recognise a liability in the form of a provision for the total potential cost of the grant schemes that were announced in March for support of small business and the leisure, hospitality and retail sectors. Audit Wales believe that the announcements by Ministers and the release of draft guidance created what amounted to a constructive obligation and an expectation by potential recipients that a payment would be received, but the Welsh Government concluded that there's no need to provide for a liability in these accounts, the 2019-20 accounts, because the final guidance for applications to the schemes wasn't actually published until 22 April, and we think that until an organisation has made an eligible application, there can't be any legal or financial obligation to that organisation.

09:40

Shan, on this point, because we'll ask a whole load of questions on this, so that was good by way of introduction, so if I can bring in Angela Burns. You'll need to unmute, Angela.

Thank you very much indeed. I had a series of questions I wanted to ask on this, and I think that it's really important for the public record that you start by giving a clear overview to those who are interested in these matters as to what the query is, because we're talking about, basically, £0.75 billion and a very rare intervention by the auditor general to give a qualified view on Government accounts. I've done some Googling over the weekend, and I have to say that I've really struggled to come up with other examples of this happening. So, if you could first of all talk about what it is so that, for the public record, there's a very clear understanding—we as a committee understand it, but it's important that the public should understand this and it should be transparent.

And then, secondly, I'd then like to ask a series of questions about why the Welsh Government has taken a view, first of all, that's contrary to the view of the other nations in terms of accepting a recommendation from their respective auditors general and about the actual role of the auditor general in terms of being the watchdog for the public funds and for how Government conducts its business.

Thank you. I'd like to start by endorsing what you said—that differences of opinion between the Welsh Government and Audit Wales are extremely rare. This one is a very technical difference, and I'm absolutely clear that it's not going to affect in any way the very constructive engagement between us, and I would hope the fact that we were able to sign a joint letter to the committee shows that we are engaging very constructively together on this complex issue.

Now, I think the nub of the difference between us is that Audit Wales consider that those announcements by Ministers towards the end of March last year and releasing draft guidance, in effect, created a constructive obligation and an expectation by potential recipients that a payment would be received. That is the position of Audit Wales. I took advice from my director of finance, from my chief accountant and also from the chair of the Welsh Government's audit and risk committee, so I followed the professional advice I was given, which was that there was no need to provide for a liability in the 2019-20 accounts, because the final guidance for applications to the schemes wasn't published until 22 April, into the next financial year, in other words, and we believe that for these schemes, until an organisation has made an application that is eligible for funding, there cannot be a legal or financial obligation to that organisation. Of course, the accounts for the current financial year, for 2020-21, will show the full cost of the grants actually awarded in the SORO, the summary of resource outturn.

09:45

Sorry, Permanent Secretary—may I just come in there for a moment? I understand that, but may I ask, whilst you're talking about, 'The grants haven't yet been awarded', so, if I was a business, and I had taken on a promise that I was going to go and do a project, and that that was going to cost me x thousands of pounds to start to undertake that project, and it was going into next year, I'd have to make provision in my accounts. So, I thought it was a very similar sort of thing. So, my question really is: at what point do you think a commitment made in public by a Minister to spend a sum of money on providing support would then become a more tangible commitment to spend, especially as these very welcome—and let me be crystal clear, I think that people have worked their socks off trying to sort and hold everything together during these last six, eight months—but this very welcome commitment that was made by the Minister had a very low bar. So, it wasn't as if, out of all of the businesses in Wales, very few were ever going to be able to apply for it, because it was very complex. It was basically, if you'd been in business, and you'd been around since x date, you were going to get some kind of financial support. So, the Government knew that it was going to be in for that, and of course, the fact that it's not been accounted for in this year means that next year's accounts, I'm assuming, will also end up being qualified.

I think the issue is take-up. You were hinting at that in your question. It isn't possible to predict take-up. I'll ask Gawain to come in in a moment and give more technical detail about how this works, but it is the difference between an announcement of a theoretical amount of money—well, an amount of money—being made available and the actual take-up of those funds—

Sorry, Permanent Secretary—but is that really the case? Because, of course, in this situation, it must have been pretty much anticipatable, or whatever the word might be, that these businesses would be making this draw down of money. So, is it really that question between hypothetical and actual?

It is the issue of take-up and the timing of take-up. I think the fact that the four nations of the UK have asked for clarification from HM Treasury shows the lack of clarity about this. I know that Treasury is currently looking at papers from the four nations on the interpretation of this accounting standard, and whether further advice and guidance is needed. We have been in contact with other devolved administrations, and in Scotland I know they have similar questions in their mind, similar concerns, but they are not as far advanced as we are in the timetable of producing the annual accounts, so they have not yet concluded on that. But I would just say that, in the introduction to the annual accounts, you'll see that our chair of the audit and risk assurance committee, who is himself a qualified accountant, concludes that the accounting treatment applied by Welsh Government officials is

'appropriate and consistent with the Welsh Government’s accounting policy on and handling of grants.'

So, there is a lot of uncertainty. I know that HM Treasury are looking again very closely at this in order to clarify the technical situation, and we will certainly welcome that, and we will follow the guidance when we receive it. But I'll ask Gawain to come in and answer perhaps the more technical aspects of the Member's question. 

Thank you, Permanent Secretary. I think, really, it's already been captured. An announcement by the Minister would not normally require us to make a provision within the accounts, or indeed accrue for any costs. So, it's really following on our normal approach to the way that we've accounted for grants in the past. As the Permanent Secretary said, unfortunately IAS 37 is not something that there's any central guidance on, so we've had to apply our own interpretation, and in fact, we've applied that interpretation in the past. So, I don't think what we've done this year is any different to what we would have done with grant schemes in the past, and it very much comes down to, in terms of interpretation, we feel that until an organisation has actually made an application and meets the eligibility criteria as laid out in the guidance, then we would not provide for that on this grant scheme or on any other grant scheme.

09:50

To follow on, if I may—

I was just going to say, we have discussed this. As the Permanent Secretary said, we did discuss this throughout with colleagues in the Department for Business, Energy and Industrial Strategy, colleagues in the Scottish Government and, indeed, we had discussions with HM Treasury around this, and this is why particularly BEIS, Welsh Government and the Scottish Government have all submitted papers to Treasury so that the Treasury could put a paper to the Financial Reporting Advisory Board, which is a body that actually advises the UK on the adoption and interpretation of accounting standards. So we're certainly hoping, having done that work with and for Treasury, that the FRAB will be giving us clear guidance on this, going forward. 

I absolutely appreciate that they are going to be looking at this. I understand that they're looking more at the application of the guidance, rather than the principal decision that's been made by Welsh Government to challenge the auditor general and the auditor general to qualify. I take on board your point about the grants and about the fact that, normally, you would say that it's only when the money goes out the door that you've made that commitment. But as you, yourself, Permanent Secretary, said at the beginning, these are unusual times, and it was very much a blanket, 'You're going to have x million pounds to support you, no matter what.' So, I still come back to that old thing that you'd made a promise, a commitment, so I'm slightly with the auditor general on that. But, I'm not an accountant, so we don't know where this will go. 

I think the other point I wanted to raise was that I was just very slightly surprised that you've taken on, actually, the auditor general, because the other nations had the same thought processes that you went through. They received advice from their respective auditors that they weren't going down the right road, and so they have made the appropriate adjustments. And, for me, I think, I just wanted to ask you why you decided to take such a stand, because surely, if you'd come back to the Assembly and asked for a supplementary budget, I cannot think there would have been anyone who would have had an issue with that. That would have gone through, then this question would have gone away and the accounts this year and next year wouldn't have been qualified, which is, as we've already discussed, a pretty unusual thing. But I think that the point I'm trying to make is that the auditor general is there as the arbiter to look at the way a Government handles its accounts, the way they present the accounts. Is this normal, and what dispute resolution is there normally in place if a client, such as you, has a problem with your auditor to the point that we've now got this Mexican stand-off?

I would absolutely not describe this as us taking on the auditor general. I'm delighted that we always work very, very closely with the auditor general and Audit Wales as a whole, and have nothing but respect for them. I think, if we had been, as you suggest, taking him on, we wouldn't have been able to produce a joint letter to the PAC. We have, at all times, tried to act constructively together. This is a very genuine difference of opinion on, as Gawain has said, a very complex technical point. I think we will wait to hear the results of the FRAB and Treasury discussion. I should say that not all the four nations have followed the advice of the National Audit Office in England. The Scots are still, I gather, in discussion because they're a little bit further down—. Well, they're not as far down the track towards producing the accounts as we are, so it isn't clear-cut. We want to do things properly. We are doing what we believe is the right thing to do. I have to trust the professional advice I receive from my director of finance, my chief accountant and from the chair of the audit and risk assurance committee. But, equally, I must underline that we work very, very closely with Audit Wales. I have, I would like to believe, a close working relationship with the auditor general. We meet regularly for informal contacts, about every four to six weeks, and I will always want to maintain that kind of close contact, and I think we will need—. As soon as we have more clarification from HM Treasury and the financial reporting advisory board, we will want to conduct a lessons-learned exercise from this and look ahead, as you say, to next year. But, please don't, in any way, see it as us taking on the auditor general. This is me responding to the professional advice from my experts within the Welsh Government, and there are similar differences of opinion across the whole of the UK. 

09:55

And, so, my final question, then, to you, Permanent Secretary, would be: when the financial reporting advisory board make their decision, will it be a decision that you'll be able to look at retrospectively, so that, going forward, next year's 2020-21 accounts may be able to have a different treatment, so that there isn't that qualification put on them, whichever way FRAB decide to go? 

We'll certainly follow the clarification—[Interruption.] Sorry, I'm conscious of coughing down the microphone at you. I'm awfully sorry. 

We will absolutely follow the clarification that we receive and, as I said, I will value having a lessons-learned session with our colleagues in Audit Wales afterwards, to make sure that we are working together constructively to apply the lessons from this experience.  

Very briefly—. Can you hear me? Yes. So, picking up what has been said in terms of, yes, this is an extraordinary scenario, situation and time, and we're all very well aware of that, but picking up on what Gawain said that this practice has been utilised before, this is not a precedent, I'm interested to know how and when this was utilised before, if it's not—. And, bearing in mind this is an iterative process and that the Scottish situation is ongoing, I'm very interested to know, in terms of timelines, when there will be more definition around guidance for the international accounting standard 37. Thank you, Chair. 

I'll ask Gawain to respond, because I think he knows the actual timetable of the FRAB. What has happened, so far, is that we gave a technical assessment paper to the Treasury, as did other parts of the UK. We've shared that already with Audit Wales. We'd obviously be very happy to provide a copy of that to the committee if that would be helpful, but I'll ask Gawain to respond to the other part of your question. 

The FRAB met to discuss the initial Treasury paper last week, and, I have to admit, the speed at which the FRAB has responded has been really positive. It can take a year or more sometimes for the FRAB to agree on the treatment of accounting policies, so I was really pleased to see the fact that, literally within a couple of weeks of BEIS and Scottish Government and the Welsh Government submitting a paper, it's already been discussed. The next meeting will be now in the new year, and we'll be certainly hoping for guidance to be agreed before the accounts across the UK are prepared for next year. So, although the financial year end is at the end of March, accounts will be prepared over the spring and summer and we'll be looking for guidance to be agreed at that point. 

And the other part of my question was you said that this methodology of accounting is not unprecedented. You've mentioned that it's happened previously—[Inaudible.]

10:00

Yes, I appreciate—. What I was trying to say was we haven't treated this scheme in particular, or these particular grant schemes, any differently, in our view, to the way that we would treat other grant schemes in the past. So, I wasn't saying that this particular qualification was something we'd had before. The Welsh Government has never been qualified.

Which raises an interesting question, doesn't it, because if you've pursued this as the same—. To the layman—layperson, I should say—they're going to say, 'Well, if you'd pursued this in the same way as you have in previous years, that, of course, hasn't led to qualifications. So, there must surely be lessons to be learned here in terms of this particular process and discussions with Audit Wales on how that can improve things in future for the way you do the accounts.'

I think that's absolutely right, Chair, and that's very much what we will want to do.

Okay. Let's move on then, because we've got other areas to cover. Delyth Jewell.

Diolch, Cadeirydd. Good morning. Could you give us an overview, please, of the nature and number of any contracts that exist between the Welsh Government and the UK Government about COVID-19-related services? I'm thinking, for example, of the fact that the Welsh Government has been dependent, to a certain extent, on the UK Government's tests with the lighthouse labs, and that there have been some teething issues with that. So, could you tell us, with that, for example, was there a contract in place for the lighthouse labs? Did that include clauses for turnaround times and would poor performance have been taken into account? Or was that more of an ad hoc situation?

Chair, I don't have at my fingertips, certainly, the range of COVID-19 contracts that we have had with the UK Government. As you'll be aware, they have varied over time, and some of them—. We have our own testing facilities in Wales as well as using part of the UK Government contract. So, I would much rather write to you with the full details of all of the contracts that we have, because I really wouldn't want to be in any way misleading. As you say, there have been contracts on testing, and also, of course, there have been contractual relationships in relation to personal protective equipment as well. But I will follow that up, if that's okay, and send you details in a letter, urgently.

Thank you so much for that. When you send the letter, could you also set out, unless you have the information to hand, whether there's an agreement in place, or contract indeed, about the delivery of the COVID vaccine or vaccines?

Yes, I will consult with our chief executive of the NHS and will cover that in the letter as well.

Thank you so much. Then, moving on to the summary of resource outturn. You said to us last year that the summary had been reviewed and would be enhanced for 2019-20 to ensure that it would be more understandable to the reader. Could you talk us through what changes you've made to make it more understandable and how you tested the assumptions that you were working with to do that, please?

Thank you. That's the summary of resource outturn on page 95 of the accounts. The format was originally developed for the Welsh Government in conjunction with Audit Wales, in fact, and it's based on the Whitehall statement of parliamentary supply, which we don't use; we've adapted something specifically for Wales. But, of course, it was therefore guided by the financial reporting manual and agreed with Audit Wales.

So, last year, the committee made clear that they felt that it didn't give enough information, either for the committee or for a wider readership, to really understand what was happening. So, as a result of the committee's request, we added quite a lot more detail on variances this year, and I hope that has been helpful. Obviously, we're always open to suggestions for improvements if there are things that you feel would be useful. And, of course, the information in our summary of resource outturn in the accounts is reinforced by the Welsh Government's outturn report itself—the separate report—which provides a lot more information. In the past, you've asked for that to be published at the same time as the accounts in order to be able to make that read-across of information, and I can confirm that that document is now on the gov.wales website, as you asked.

So, we have adapted the SORO this year in line with your comments. As well as more information on the individual variances, we've given a description of the type of budget and a glossary of budget terminology, which we hope would be helpful for people. We do hope that those changes—and I compared—. Obviously, every year, I look at the previous year's annual report when I read this year's annual report, and I did feel there was more useful general information this year. I hope it makes the report more understandable, but, obviously, we always respond to any feedback that we receive. So, if you like, we tested it out on the PAC. You asked who we tested out on—yours is the feedback that has determined how we have approached it this year and you will guide us in how we approach it next year.

So, I think I'm happy that the report this year provides more and more useful information. If you put it together with the report on the Welsh Government's outturn report, you get a lot of detail, and this time, as you asked, it is available at the same time on the Welsh Government's website. I hope that responds to your question. As I said, we will look to you and, indeed, to Audit Wales as well for any feedback on more information that we could provide that would be helpful in understanding the accounts.

10:05

Thank you. And with the separate Welsh Government report you were referring to, I think that went up on the Welsh Government's website on Friday. Will that be sent to the committee separately, or should we look to the Welsh Government website for that?

We can certainly send it to you, but it is available on the website, so it's easily accessible.

Thank you so much. This has already come up previously in the session, about the additional support for flood damage that was understandably required after the second supplementary budget. In the summary report, it says that the overspend in the housing and local government MEG was partly due to that. Could you talk us through how you deal with unplanned areas of expenditure and with unexpected demand that can arise in that kind of way, and what the process would be for dealing with that usually?

Well, I think as I said right at the beginning, this has been an extraordinary year, so we've had to adapt very rapidly the systems that we have in place to manage unplanned areas of expenditure. The supplementary budgets are part of our in-year budget management process to help us manage the budget within the framework set by the UK Government, and the supplementary budgets are focused on, effectively, how we respond to those emerging pressures and opportunities that weren't envisaged at the beginning of the budget period. They always include an element of unallocated resource as a contingency against unplanned events, as you would expect, and that is of course sound financial practice.

In a normal year, the second supplementary budget is really the last opportunity to formalise changes before the year end, and, once it's published, we work very closely to manage the financial position to the end of the year. And that typically involves weekly meetings between the heads of finance across the different groups in the Welsh Government, and very regular reviews—sometimes almost daily, depending on the time of year—of the forecast across the Welsh Government to make sure that we are staying within our overall control limit. And, obviously, that can mean using underspend identified in one area to offset pressures in another, whilst we stay within the overall limits. And I must say that the Welsh Government has never breached any of the budgetary control totals, which have been set by HM Treasury or approved by the Senedd, and we have to make sure that we are continually rigorous and vigilant about our expenditure. You're quite right that this extraordinary period has tested that system, but my assessment is that the system has worked effectively.

10:10

Okay. Thank you. And finally from me, then. The summary reports an overall underspend for 2019-20 of £436 million. Could you explain what the implications of that underspend will be, because I don't think the implications were explained fully in the accounts?

Let me just give an overview. The majority of that net underspend is accounted for in two special budgetary classifications. The first covers budgets that are ring-fenced for accounting adjustments, such as the depreciation and write-off of student loans. Those underspends, obviously, tend to be large because of the unpredictability of student loan write-offs, which rely on a complex statistical model. The second classification is what we call annually managed expenditure, or AME. This is where HM Treasury recognises volatility and the demand-led basis of some programmes, which are then managed on an annual basis. Most of our AME budgets cover accounting adjustments of different kinds. Examples might include asset impairments, increases in provisions and pension valuations of sponsored bodies, and student loans that are issued and repaid also fall within that classification.

I think the really important message is that from that underspend in the summary of resource outturn, no funding that could have been carried forward to the Wales reserve has ever been lost to Wales, and these accounts are no exception. That money is transferred to the Wales reserve, and therefore the implications of that underspend are not that we lose money in Wales.

Thanks, Chair. You told us in October 2018 that extracting the largest areas of expenditure into a table, which would included non-cash accounting charges, as well as direct expenditure, added little useful information for the user of the accounts. In this year's accounts, you have included an infographic to set out the top-10 areas of revenue and capital spend. To what you extent do you think this is useful, and why?

Thank you. I think you're referring to the full-page infographic that we had last year that tried to set out main areas of spend. The feedback that we had from the PAC hearing last year and, in fact, I particularly remember Mohammad Asghar saying that he didn't find it particularly useful and would welcome a different way of putting the information across, so we sat and thought about it and decided that we would try what we have put in this year's accounts.

So, what we have tried to do is set out pictures that will help both the committee and the wider readership understand where the majority of our capital and revenue spend goes, and to have just a big picture overview of those top expenditure areas, without giving an overwhelming mass of figures. So, it's an attempt to give a sense of the headline figures for the Welsh Government expenditure, and that's very much in response to the feedback from the committee last year. I hope that you have found that more useful than the information that we provided last year. But, again, if you feel that we could present the information differently—either for yourselves or, probably, in this case, for the wider readership, who don't have your understanding of expenditure by the Welsh Government—then we would be delighted to respond to that.

10:15

Thanks for that response, and I appreciate that you are working with the feedback from this committee. I'm sure that we will come to a view as to how well the accounts were presented and whether we've got any view on that, going forward.

My second and final question is: how do the figures in the infographic agree with reported expenditure in the SORO and part three of the accounts?

Okay. The revenue and capital expenditure in the infographics—just to be clear, I'm talking about the ones on pages 17 and 18 of the accounts—they are included in the total resource and capital requirements set out in the summary of resource outturn, the SORO, which also includes annually managed expenditure, non-fiscal resource and capital financial transactions. So, the SORO pulls all of that together. I think that the difference between the resource outturn of £18.1 billion and the net expenditure of £15.9 billion is mainly due to capital asset expenditure and loans, which score to capital budgets in the resource outturn, but in accounts, do not score in the statement of net expenditure, which is the balance sheet.

I might ask Gawain to explain the accounting requirements that underpin that. But, in other words, what we've tried to do is take what is, admittedly, quite a complex table—the summary of resource outturn—and present key bits of information from it in a way that has meaning for a wider readership. But, perhaps Gawain could explain a little more the response to your specific question about the agreement with reported expenditure.

Thank you. I think that, as the Permanent Secretary has already said, the statement of resource outturn is the all-up budget. So, it will include revenue expenditure, capital expenditure, what we call non-cash—so, the accounting adjustments—and also annually managed expenditure. The reason that we presented the capital and revenue figures is that we felt that, for anyone reading the accounts, they were areas where it actually represents money spent in Wales, if I can put it that way. So, the revenue budgets and the capital budgets would translate into actual money spent in Wales, whether it be grants, whether it be purchase of new assets. That's why we chose those two in particular to highlight. What we've done is take out, as the charts show, the top-10 areas that account for most of the big areas for spend in any case.

When it comes to the difference between the budget and the accounting representation, the SORO is a representation of the ambit, which is a budget that is approved by Wales. When you get into the financial statements, the first two key financial statements in the accounts are—sorry, I have got them here—the statement of comprehensive net expenditure and the consolidated statement of financial position. Those two statements used to be called, effectively, the profit and loss and the balance sheet. So, the profit and loss shows the costs incurred during the year in terms of, effectively, running an organisation, the grants that we give out. The balance sheet is basically the assets and liabilities that the organisation holds.

So, what we've done as part of the SORO this year is actually explain how you get from the budget position in the SORO to the consolidated statement of comprehensive net expenditure, just to show where those differences will lie. Because budgets and accounts are two slightly different things, I'm afraid, and the way that you present the information.

10:20

Thank you, Chair. So, I've got some questions on funding and income. First, the notes to the summary of resource outturn report that £410 million of the approved net cash requirement wasn't drawn down in 2019-20. So, I was just wondering why you didn't need to draw down that money, and what it means for the resources available for public services in Wales.

Chair, if I may, I'll give a sort of headline response to that and again ask Gawain to explain the accounting technicalities, because it is a question about a complex set of issues. Cash that we draw from the Welsh consolidated fund reflects, as Gawain was saying earlier, the expenditure of the Welsh Government. So, £16.9 million of cash was drawn from the Welsh consolidated fund to support the Welsh Government resource expenditure of £18.1 million. The SORO also reports, as we've just been saying, the resource expenditure underspend of £436 million. So, the underspend against the cash limit reflects that position.

Any undrawn cash—and I think that this is what is underlying your question—does not impact on the resources that are available to the Welsh Government or to Wales. That is determined very much by the resource expenditure position. So, I'm afraid that it's another of those differences in accounting. So, I'll ask, if I may, Gawain to just summarise that for us very briefly.

Thank you. I think that, as has already been said, you would expect the resource underspend to be mirrored by underspend in the cash that we drew down. Unfortunately, the figures won't exactly match—sorry, not 'unfortunately'. The figures won't exactly match because the resource budget and cash are based on slightly different criteria. The resource budget that we manage to, and the budget approved by the Senedd, would include non-cash charges—so, things like depreciation. Cash is literally the cash that we pay out, whether we pay our bills, whether pay our grants, et cetera. So, there's a slight difference between the managing on a cash basis and the managing on a resource basis.

One of the differences that I've mentioned is the non-cash charges that have to appear in the budget, and we could have variations on those. The other one is actually timing. Under a resource budget, if I use as an example where you buy some goods and services: at the end of the financial year, if you've ordered goods and services and those goods and services have been delivered, you would account for those against your resource budget. You're effectively saying that that money has been spent. When it comes to cash, if you haven't physically made that cash payment by the end of the year, then that cash payment wouldn't be reflected in your cash outturn. So, there are a number of differences between a resource budget and how we manage in cash. But, I think that the main point here, really, is that if you have an underspend in a resource budget, you would expect a roughly similar underspend on the cash that you would have drawn out from the Welsh consolidated fund.   

Okay, thank you. So, just to be really crystal clear here then, this doesn't mean that there are any implications for not drawing down the approved cash requirement within the Welsh Government—[Inaudible.]

Sorry, Vikki, we seem to be having some interference with your sound.

So, two parts to the question: just to check that it doesn't mean that there are any implications for not drawing down the accrued cash requirement from the Welsh Government's budget, and that it doesn't mean that services were delivered at a lower cost.

Shall I sort of make a response—

No, I—. Sorry.

Shall I make a quick response to that, and invite Gawain to elaborate on any points that he still needs to make, because I think part of the response to your question came in his previous answer? To summarise, I think there are no direct implications of not drawing down the approved cash requirement. It's underspend against the resource position that is carried forward, obviously within the limits that are agreed with the UK Government under the fiscal framework. Cash is made available by HM Treasury to support that, and I must say that I feel very proud that the Welsh Government has an excellent track record for managing cash. HM Treasury maintain a kind of league table of the top 22 departments across the whole of the UK, including the Welsh and Scottish Governments, and the Welsh Government has been consistently placed in the top five or better performing departments at the end of each year. So, I think we are showing that we are completely on top of the cash position. Gawain, I don't know if there's anything you'd like to add to respond to the Member's question.

10:25

On the budgeting position, as the Permanent Secretary has said, the budgeting position is very much on the resource budget, and withdrawing less cash does not impact that budget in terms of either money being lost to Wales or the ability for that budget to be carried forward. On the cash, as the Permanent Secretary mentions, we've got a very good track record of managing cash to the forecast that we provide. The Treasury put a lot of weight behind either Whitehall departments or the Scottish and Welsh Governments and Northern Ireland Assembly having an accurate forecast, and, in fact, if you're not accurate they will fine you. What the Welsh Government has been able to achieve over the last many years is that we actually get a slight rebate. It's not huge compared to the size of the budget, but £50,000 is £50,000 at the end of the day, and so, because of the good performance that we've had on cash, we've actually received a small rebate from the Treasury for the last few years.

Okay, thank you. My next question is on a different matter, and that's the receipts from the EU. It seems as though it's still difficult to forecast the timing of those, and I wondered if you could explain a little around that to us.

Okay, thank you. Now, we work through our delivery partners to run about half of the projects in the European social fund and ERDF programmes, funded by the EU, and obviously those projects range across a wide variety of policy areas. They're subject to a hugely diverse range of pressures and uncertainties, and opportunities as well of course. Those projects run over a number of years, and that, in fact, has been something that the Welsh Government has always welcomed about EU funding—that it's not year on year but it runs across a number of years and therefore gives stability and certainty for longer term planning. So, a UK financial year is only part of the lifetime of that project delivery plan, and we have to, in our budgets, provide cover for the top end of the funding that we think might be needed in any particular financial year, and we have to try and strike a balance between, on the one hand, providing adequate cover for what might be a realistic range of outcomes that we need to pay for in that period, but also not setting that figure for the financial year so high that it is unrealistic and misleading about where the top end of those likely outcomes actually lies.

In terms of timing of receipts specifically, we obviously have to rely on our delivery partners for those projects—well, the beneficiaries of those delivery partners—to submit their claims on time, and that doesn't always happen as promptly as we might like. In fact, once those claims from beneficiaries have been submitted, they are mostly paid very promptly by the European Commission, although, obviously, very minor issues can end up delaying payment. It is a complex process, but I am very confident that EU programmes in Wales continue to perform very successfully and that we continue to derive a great deal of benefit from those schemes. The programmes themselves are more than fully committed, including additional support to respond to the COVID-19 situation. In the Welsh Government, we've already passed the programme expenditure targets for 2020 and, in fact, most of the targets for the coming year, and I'm clear that the expenditure by the Welsh Government compares very well across the whole of the UK and, in fact, other EU countries. We can provide more information on that, because I recognise from the Member's question that the system is complex. We have the Welsh European Funding Office website, which gives a great deal more information, or we could provide any specific information on receipts that the Member is keen to understand.

10:30

Thank you. It is complex. If I can just go back to your reference there to setting the income budget high, just to ask a question on that. So, while avoiding the risk of inadequate cover, could it be that the approach to setting the income budget high might negate the benefits of effective budgetary control? What does that mean for the budget approved by the Senedd?

I think I'd start by explaining the way that the income control operates. It represents the limit on the amount of income that the Welsh Government is allowed to retain in order to support its spending. So, you can see that if those income levels are not met, then expenditure has to be pulled back in order to keep within the budget. The way that we set the budget is designed to encourage the organisation to maximise income that can then be spent on Government priorities. If we exceed the income budget, then the funding would not be available in-year and would have to be carried forward as part of the Wales reserve. And as I was saying earlier, we rely on that in order to be able to take forward underspends in other areas so as not to lose any money to Wales.

As we've just been discussing, EU income can be a bit volatile in terms of timing and so, in this area, income limits are set to allow for the risk of not being able to apply EU receipts against expenditure. I don't know if Gawain would want to come in on that point, but you can see, I hope, from my response that the way that we set the budget is designed to make sure that we have maximum ability to spend the income that we receive in Wales.

If I may, the only thing I would add is obviously, when we're setting the budget, we're looking forward, effectively, to forecast what income we will be receiving, and as with any forecast, whether it be income or whether it be on expenditure, you're constantly refining that during the year. Things will happen during the year that could well mean that you change your forecast, so it's a constant process of refining that forecast during the year. And as the Permanent Secretary has already said, there are a number of external factors in terms of delivery partners and things that could always mean that those forecasts could change. So, the way we've set this particular budget is just to ensure that we're not exceeding that budget during the year, because otherwise, as the Permanent Secretary said, we'd have to include any additional income in the Wales reserve, which isn't a huge reserve—it's only £350 million, and we use that, obviously, to manage underspend on the budget as well. 

And perhaps, Chair, I could end that point by saying that the approach that we've adopted was actually agreed with Audit Wales to make sure that we maximise the income available in-year.

10:35

Thank you, Chair. Just very briefly, if I may, for clarity, then, as you've mentioned rebate—before I go into my questions—where does that rebate go? And I'm still struggling, Chair, with regard to the extraordinary qualification of accounts, with regard to if our grants scheme inclusion treatment is not extraordinary, as to, really, where the difficulties lie in this qualification of accounts. And I presume, not to go over old water, but just for clarity, we would presume that this is a state that is being extrapolated across the UK regions in terms of the guidance that is being looked at. So, if there's any further light that can be shed, I'd appreciate that. So, I don't know if there's any quick comment on that, because I need to go into the questions that I have.

Okay. You talked about a rebate, I think it was probably a reference to what Gawain said about the reserves.

Which are included in the accounts and it's a way of making sure that if we have an underspend in one particular year, we can carry that forward, subject, as Gawain said, to a limit. So, it provides a sort of contingency fund, if you like, and means that we don't have to hand back money that we could otherwise be spending in Wales.

That is carried forward into the next financial year. Gawain, do you want to say perhaps where it's recorded, where to look for it in the accounts?

Yes. In the accounts, the best description of the reserve is actually in the outturn report. There is a section on the Wales reserve. As the Permanent Secretary has said, we obviously don't want to be in a position of handing back any money at the end of the year, so there's a Wales reserve, which has a limit of £350 million that we can carry forward to the next financial year, use within the budget for the next financial year, and spend, obviously, as the Senedd and Ministers wish to spend that money. So, it's effectively transferred from one financial year to the next, through this Wales reserve mechanism. I suppose, to summarise, it's extra money that we get in the next financial year if we haven't already spent it.

I understand that. Sorry to interrupt you. I understand that. What I'm asking is into which financial pot does that go? Is there any clarity on that?

It depends. The reserve, actually, we carry forward money on revenue and on capital. So, it will depend very much on, obviously, the size of the underspend at the end of the financial year. Generally, we try and carry forward more revenue than capital money, if we can, because that gives us greater flexibility under the budgeting rules. So, the majority of Wales's reserve and the—if I can call it this—'carry forth' from one year to the next will be revenue budget.

Right. Okay, thank you. That's much clearer for me. So, with regard, then, to the Auditor General for Wales's notes that the amount owed by students—and we have touched upon this in terms of the methodology—has been increasing, and with regard to the last comments, over past years, and, obviously, the proportion of our estimates, as Welsh Government, in terms of that reduction are going to be recovered, how does that estimate amount, then, be recovered? What factors are taken into account, as we understand that, obviously, the difference in the gap is enlarging?

Thank you. You're absolutely right—the annual cost of financial support for students has been increasing. This is because the Welsh Government is following its policy of increasing financial support for students, and that's very much in line with the recommendations of the Diamond review, which was the review of higher education funding and student finance arrangements in Wales. Also, implementing the recommendations of that Diamond review means that there's been an increasing proportion of loans rather than grants. So, that's why it's a policy, as a result of the review and policy decisions taken by Welsh Ministers to increase financial support for students, that the money is going up.

When it comes to the other part of your question about the amount that we estimate is likely to be recovered, that is calculated using a model that is provided by the Department for Education. So, we follow the standard UK model, which rejoices in the name of the stochastic earnings path financial model, and it covers a wide range of variables. It uses forecasts for the economy up to 30 years into the future, which are obviously subject to huge amounts of uncertainty. But those forecasts are made with the latest available information, although I'm quite sure that, after the events of 2020, they will be reassessed again; these economic forecasts are constantly reassessed and reviewed. The estimated recovery rate on the student loans in the accounts is based on those latest forecasts, using that model, and, to put it simply, historic performance and the strength of the economy are the biggest single determinants. But I could ask Gawain to give you more information about the accounting model, if you would like more reassurance on that, or invite Andrew— 

10:40

What I'd like to do, Shan, if that's okay, Permanent Secretary, then, if there is more interest from the committee, is possibly you could send us a note on that. I understand that it is complex. I suppose I'm more interested in how it's made to fit for Wales and, in regard to our different system, in regard to what you've already mentioned in terms of the proportionality now of loans to grants, if that is fit for purpose in terms of that model. I suppose that's the question that I want to ask. 

I think I'll ask Gawain to come in on how the model works, because I think the thrust of your question is about how that works, as opposed to the increase in the cost of financial support, which is determined by policy decisions of Welsh Government Ministers. Gawain, do you want to say a bit more about how the—? The question from the Member was about how we make sure that it is fit for purpose in Wales.

The way in which it's fit for purpose—one of the ways, is that, obviously, Audit Wales work very closely with the National Audit Office to ensure that the model, the information being provided in the model, is as robust as possible. The reason that I would suggest that some of the numbers move is, obviously, it is very much a model, and so it's very dependent on the economic information that's available at that time. So, what we'll probably see over time is that the percentage that the auditor general has referred to will change, simply because it is a financial model and the information is being completed, being updated, on a regular basis. And obviously, the state of the economy across the UK will change over that time. 

Okay, thank you. I'm going to go on to my next question. The amount owed to Welsh Government within one year for trade receivables doubled in value in the year to March 2020, so what are you doing to ensure that you receive all moneys due to the Welsh Government and how much of the balance relates to the EU? We have slightly touched upon this. 

Okay. I will, again, I think, ask Gawain to come in after I give a headline response to your question. This is complex in the way that it's presented in the accounts, of course. The level of trade receivables does naturally vary year to year. It tends to remain at around 0.5 to 1 per cent of our overall assets, and it remains in that range. The vast majority of those trade receivables, about 73 per cent, relate to inter-governmental balances, which include debtors due from the Welsh European Funding Office, for example, of £52 million at the end of March 2020. There are other elements included there in the trade receivables. A significant proportion, about £26 million, relates to Rural Payments Wales, the short-term loan schemes, including Glastir and the basic payments support scheme.

In terms of your focus on making sure that we receive all the moneys owed to the Welsh Government, which I think is the main thrust of your question, we've got a very well-established process for recovering debt. That process is managed by a central debt team in the Welsh Government to make sure that we've got consistency across all of the processes and policies. And obviously we take that responsibility for recovering debt very seriously and make sure that we are exhausting all avenues. We have an escalation process that can eventually lead, where necessary, to legal action and debt enforcement. But, equally, we do try and work with customers who are experiencing difficulties to find realistic and sensible ways forward to reduce or settle their debt—for example, agreeing repayment plans, where those are appropriate. With insolvency-related debt cases, we make sure that there is timely action by the Welsh Government to recover debts and submit creditor claims to the insolvency practitioner and to maximise potential recovery. So, we have a full process, as you would expect, with differing degrees of escalation, but with, built into it, the sensitivity as well to be able to respond to different circumstances and agree things like repayment plans, where that would be appropriate in the circumstances. I don't know if there's anything that Gawain would want to add to that response. 

10:45

If I may say quickly, of the trade receivables, the Permanent Secretary's already mentioned the inter-government balances, which include the Welsh European Funding Office, they include HMRC, for example, if there's any money owing back to us from HMRC at the end of the year, and even some other Government departments. There's movement of money between Government departments, particularly something like the Department for Transport. Of the balance, there was £63 million that, I guess, you would see as normal trade—so, money owing to us from organisations or individuals. We have a debt team within my finance area that work very closely with groups across the Welsh Government to ensure that we pursue and hasten debt. We have a process whereby we escalate gradually, over time, depending on whether obviously the organisation and individuals actually respond to the initial invoices that we send out.

I think the two important things the Permanent Secretary mentioned were that we pursue debt. We don't give up on debt. Just because, if we send an invoice out, someone doesn't respond or someone doesn't pay us they money back, we don't leave it there. We have this escalation process. But also, equally important, we are very considerate of people's ability to pay, and so we do agree repayment plans, sometimes up to four years even, over time. But we monitor then. We agree a staged payment approach, and then we monitor those payments on a monthly or quarterly basis just to ensure that people are keeping up with their payments. So, as I say, it's a two-string approach. We do not give up on debt, but we're also considerate of people's ability to pay and will agree longer term payment plans for them. 

Thank you. So, you've been very clear in terms of the rigour of the process and the approach that's being taken by Welsh Government. I suppose, really, I'm just more interested—. I am very interested in that obviously, it's important, but, in regard to the proportionality in terms of EU balances, if you're talking inter-governmentally around about 70-ish per cent, how much of that is EU-related in terms of WEFO et cetera, et cetera? 

The EU balance was £52 million—still owing from the EU. 

So, it's in terms of percentage-wise, I'm looking at, really, so that I can capture the scale of it. 

Oh, sorry. The overall total was £229 million for this year. So, it's just under—. It's going to be about 22, 23 per cent. 

That's great. Thank you for that information. And, finally, then, in regard to the Development Bank of Wales, with almost £500 million held in cash as of 31 March this year, how does—and, obviously this is the development bank—the Welsh Government manage that funding placed within it and held by the Development Bank for Wales? I'm not sure, Chair, if we need to be brief or not on this one. Thank you.

10:50

Shall I give a quick overview, and then invite, perhaps, Andrew Slade to add anything that he thinks needs to be added? As you implied, of course, the development bank is an arm's-length body. We're not involved in day-to-day operations, but observers from the Welsh Government sit on the DBW's investment committee and board of directors, which exert very rigorous control over their operations. They are, of course, thoroughly audited and make regular submissions to all their funders and to WEFO.

Within the Welsh Government, we have a partnership team. They're the primary contact for everything to do with the relationship with the Welsh Government, and the partnership team develop the policy framework, which is, obviously, driven by the programme for government, in terms of priorities. The DBW operates very firmly within Welsh Government guidance, which includes, of course, 'Managing Welsh Public Money', and they have frequent reviews of performance against their plans and the targets that have been agreed.

We are, obviously, always looking to see if there are areas for improvement, and there are some examples of that we could provide. There is, I think, very regular and constructive dialogue, but very robust, between Welsh Government and officials in both our Treasury and the policy teams and the DBW. We believe that the governance arrangements and controls are appropriate.

Obviously, we have to, as part of that, make sure that we're ensuring an optimal cash position, and I think this is a key point in relation to the size of their funds. As a provider of loan and equity finance to businesses, the DBW has to maintain sufficient capital to be able to cover its expected investment over an 18-month period, and that is, obviously, a long and relatively unpredictable period, but that is a requirement for their accounts to be approved by auditors. Based on the position in September this year, we assess that DBW has got sufficient cash to sustain investment for a further 20 months, based on their current run rate. So, it's not far above the minimum figure of 18 months.

So, I think I would say that, given those parameters, given the auditing requirements and given the close governance and dialogue that we have with the bank, I am confident that the sum of cash held by DBW is proportionate. But perhaps if I've missed anything out on that, then Andrew Slade would be able to come in.

Just before you come in, Andrew, and if you could just pick this up then—. So, it was—. There was something within your response around where there are areas of improvement. So, I don't know—. And, obviously, I heard what you said in regard to its sustainability, in terms of its minimum level being exceeded of ability to invest. So, I don't know if anybody wants to extrapolate on what's underneath what's just been said.

On the areas for improvement, it's process, really. We're working with them at the moment to strengthen their complaints escalation process and also the mechanisms that they have for referrals between the Welsh Government and DBW. So, it's about are their processes sufficiently streamlined and effective. That's the kind of thing that we work on with them.

Thank you very much indeed. Good morning, Shan. I just want to look at the Welsh Government's liabilities. In your letter to the committee in August, you told us that the international convention centre board had requested additional equity investment from each of its shareholders and your officials were preparing advice for the Minister for economy on this subject. Do you think you could update us on that, please?

10:55

I'm just flipping to a copy of the letter. I will ask Andrew Slade to come in on this, because he will have the latest information. Obviously, the nature of the business of the ICCW meant that it had to close under the restrictions imposed to address the spread of coronavirus from March 2020. It has remained closed, because of the very lengthy lead times that are needed for those kinds of very large events and the uncertainty that there's been over the timing of lifting of restrictions. So, that is the situation that they've been facing. They submitted a request to shareholders for additional investment in support of an £8.3 million financial recovery package. They anticipate that that will enable them to deliver a revised business plan, which will be based on a return to a limited level of trading early in 2021 and full trading in 2022. That package has been approved. It consists of about 25 per cent equity from shareholders and 75 per cent new debt and deferred debt repayment from the company's primary lender. The investment made by Welsh Government is £1 million, with a commitment to further capital budget charges of £1.25 million. But I'll ask Andrew Slade to come in to give you the latest situation, because he is most closely involved in this.

I don't think there's much else to add, Chair and Ms Rathbone, to that. We reached agreement last month on interim measures, as Shan has just described. We think that the business plan, the business model, holds up pretty well, notwithstanding the fact that we are in very extraordinary circumstances at the moment in respect of the pandemic. But in the medium to longer run, we expect to go back to a point where business will resume. There's a lot of demand in the system that is pent up waiting for the moment when a combination of vaccines and therapeutics and mass testing allows us to bear down on the disease, on COVID, in a way that allows business in the hospitality, tourism and conventions side of things to get going again. The only thing I would add is: I was planning to write to committee with a general stock take on where we've got to on a range of business finance matters through the pandemic to date, just to close off some of the earlier discussions that we've had, and to update you, and I'm happy to pick some of this up in that letter, if that's helpful to you.

Okay. And just sticking with the convention centre, because we're not talking about an opera company here, given the ravages that many parts of the economy have suffered from COVID, I'm just not clear as to why we're investing more money in something that potentially could be funded from the profits from the golf and the hotel service, which is able to function quite well whilst we're not in lockdown.

It's back to the points we discussed before. Wales needs a convention centre of size and with the kind of kit and technology that allows us to host modern events. We've got that at ICCW. That's a joint venture with the company there. We've plenty of evidence to suggest that businesses and sectors of the business world want to get back into trade fairs and conventions and the sort of things that ICCW offers, even if that's alongside more virtual approaches in the future. That demand for exhibition space is definitely there, and that's the basis on which we're proceeding, a little like some of the other discussions we've had in other committee meetings about what do you do with things like the airport and so on in a time when things are so severely impacted. We don't completely know how things will play out, but we've got every reason to think that demand will be there once we can get beyond the worst of the pandemic.

So, the £8.3 million that Shan Morgan mentioned—that's a further £8.3 million investment from the Welsh Government, is it?

11:00

No. There's a proportion of that that is ours—Shan mentioned that—but also we're in with the other partner in the joint venture on the total sum of money. But, as I say, I'm happy to pick this up in a letter to you or pick this up as part of my general stock take for you on the business finance side, if that would be helpful.

Okay. Because, obviously, looking at what's in the accounts around the Circuit of Wales project, you've said that there needs to be greater emphasis put on ensuring that risk sharing is equitable. So, have you applied the lens of foresight to your dealings with the international convention centre? 

Well, that is an entirely fair point, and we have. This is a shared risk and a shared endeavour with our partner in the operation of ICCW, which has been the basis on which we've operated from the get-go. We are determined, throughout all this, as Shan has said elsewhere in this session, to learn lessons wherever we can, and apply them to future types of business. So, that risk sharing element is very definitely there. 

Okay. Thank you. Just moving back to the Circuit of Wales, the decision to write off nearly £15 million—how does that comply with 'Managing Welsh Public Money' and Shan Morgan's specific duties as the principal accounting officer?

Shall I give a headline response? Then Andrew can pick up on any of the details. We took legal advice on this situation. As a result of that legal advice, we served notices on the company—this is the Heads of the Valleys Development Company. That was a precautionary measure to make sure that we secured the Welsh Government's rights to take enforcement action at any time if it was deemed appropriate. So, in accordance, therefore, with the principles that are enshrined in 'Managing Welsh Public Money', as you referred to, we have formally written off two invoices. The company was unable to secure the commercial funding to develop the circuit, and so the project did not progress. That was the bottom line. 

But the bill seems to have landed on the Welsh Government's desk, rather than the Heads of the Valleys Development Company.

The invoices relate to the agreeing of a guarantee to Santander bank for the provision of a loan and for interest owed, as well as legal fees on that amount. I think what I would like to say overall is that this was a project that we gave every chance and every opportunity to succeed, because it offered the hope of jobs in an area of real disadvantage. So, I think it's fair to say that there are lessons to learn from this and, as Andrew said, we have. But this was a situation where the Welsh Government was very keen to support jobs in an area where there's a real lack of jobs, and therefore we continued with the initiative up to the point where it became clear that it was not viable, and at that point, we withdrew. I'll ask Andrew to come in with more of the specific details, but I think it's important to remember that overall position—that had the scheme been successful in the way that it was presented, it would have brought much-needed jobs to a very disadvantaged part of Wales. 

I understand that, but, obviously, we appear to have hope over reality here. How much was the interest payable on the guarantee fee, and what were the relevant legal costs relating to the overdraft arrangements, which have now had to be written off?

Can I ask Andrew to come in on the details?

I think, Ms Rathbone, from memory, it's about £7.5 million of the total, of which the majority would have been the interest with a proportion of the legal fees on top. But, again, we can confirm that for you. The only thing I was going to add to what Shan has said was that—and Gawain can correct me if I've got this wrong—the fact that we've written off the money in the accounts doesn't mean that we've stopped our work in terms of the claims remaining lodged with the administrator for the Heads of the Valleys Development Company. So, were there to be moneys that could be recovered, those would come back into the system. We're not expecting vast amounts of money to come back through that route, but we haven't given up on that.

11:05

Thank you. Just moving on to the Welsh Government's investment in the M4 corridor around Newport, the auditor general highlights that £92.6 million of historic costs are still outstanding after writing off this £43 million in the current accounts that we're analysing today. So, that would suggest that the total was almost £136 million, which is rather different to the £114 million set out by the then Minister for Economy and Transport in June 2019. I just wondered if you could clarify the difference between those two figures.

The difference between the amount that was set out in June 2019 and the amount that's referred to in the comments by the Auditor General for Wales is mainly due to work that took place prior to 2013, plus an amount for closing it down. So, the £114 million that you quoted, which the committee is familiar with from scrutiny, refers very specifically to the M4 corridor around Newport project—so, a well-defined project that was conceived in 2013, once a strategic draft plan had been confirmed. The balance sheet assessment under 'construction' included historic costs, particularly land and buildings, that were associated with that earlier work, which was for a wider range of options than the one particular project, the M4 corridor around Newport. That's broadly how it fits. We would be very happy to provide a detailed table showing where those different figures come from.

Okay. That would be helpful. I think that what I'm most interested in is—. We obviously purchased land and buildings with a view to possibly going ahead with widening the M4 at that point, but we purchased them at a price when that land was blighted by this potential development. I assume that there has been some potential increase in the value of that land and those buildings, simply because that project isn't going ahead. So, if you could, in your note, indicate what you think the current value of those assets are. I appreciate that they won't be as high as they probably will be next year or the year after.

We'll certainly do that. We'll give you the latest information that we have, although it may take a little more time to get a more up-to-date valuation.

Great. Thank you, Jenny. We are heading into the last five minutes or so now of this session, so a couple of questions from me before I bring in Delyth Jewell. Turning to RIFW and the Welsh Government's accounts for 2020-21, will they reflect a payment for the settlement of the RIFW legal case?

I believe that they will, but Gawain will be able to correct me if I am wrong. You will be aware, of course, that the Minister for Housing and Local Government made a written statement about RIFW on 10 November, and made it clear that we've now reached a legal settlement on that. Of course, the auditor general and Audit Wales have been kept informed throughout that whole process. I know that my colleague the director general for education and public services, Tracey Burke, wrote recently to you, Chair, giving you a bit more detail and assurance that, from an accounting officer point of view, we are satisfied with the process that was taken. I'm certainly very grateful to the committee for your previous scrutiny of this issue, and the legal action that we initiated actually flowed from your recommendation from this committee. I have to say that what I can say in public is limited by confidentiality clauses that are attached to this settlement, as the Minister's statement makes clear. We will respond, as Tracey has already said, to any requests from the committee for further scrutiny, but they will have to take place in an appropriate way that recognises the confidentiality. So, in terms of the sums of money involved, as the Minister's statement made clear, £40.7 million held in the RIFW can now be made available to address ministerial priorities and action across the whole of Wales. 

11:10

Just in terms of the information you're able to provide with us, as you say, the Tracey Burke letter says that,

'Although the terms of the legal agreement are confidential, it includes specific provision for responding to any further queries which the Committee may have'.

Do you have any further information that you can provide us with in this forum, or in a non-public forum, if necessary, or how would you approach that?

I think, Chair, not in this public forum, but I know that Tracey is in discussion with the PAC clerks about a private session, we hope, on 30 November. That kind of private session would be an opportunity to give the committee more information in an appropriate way.

Okay, thanks for that, Shan. And finally, Delyth Jewell.

Diolch, Gadeirydd. I just had a question ahead of the next evidence session when you'll be appearing in front of us, when we're going to be talking about wider issues about the civil service. The annual report makes a reference to the One Wales public service. When we talk about it in the next session, I'd really like to explore that more and how that could be developed further, looking at the collaboration that's happened in recent months because of the pandemic and the good things that have come out because of that with local government and other partners.

But the question I had was: as I understand it, the strengthening of the delivery and the collaborative role of the civil service is a personal priority of the First Minister's, and before he took office he had commissioned some papers from some external individuals looking at how these different roles of the civil service could be strengthened, and I think he'd asked you as the Permanent Secretary to condense that into one paper. Could you tell us who wrote the papers, what stage that's at, and if you're able to share the content of that and your summary with us ahead of the session, that would be really useful, please?

I will put together a pack of information. I hope it will get to you in time, because I'm conscious our next session is only two weeks away, but you're absolutely right that it is a really strong personal commitment from the First Minister to develop a One Wales public service, and I think, certainly from my perspective, I've seen so much of that developing in response to the pandemic. I think particular examples for me are the track, trace and protect system, where we worked, right from the start, very closely with our colleagues in local government who have done an amazing job. We developed the system in Wales, co-creating it from the start in line with the five ways of working in the Well-being of Future Generations (Wales) Act 2015, developing it with them as opposed to the way it was developed in England—very differently and a much more centralised system. The same, I think, was true of the shielding initiative, where, again, ours was co-created with local stakeholders and customers. In England, where obviously there are different issues of scale, of course, it was developed centrally and then cascaded out across the whole of England.

So, I think you are absolutely right: there have been been some fantastic examples of really close and effective joint working across the whole of the Welsh public sector, and, indeed, third sector and private sector. I think it is quite extraordinary how everybody has come together over this past year to look after the interests of people in Wales. So, it's a great story, and I think we're on that road and keen to travel further down that road. We'll provide you with what we can before, and I will be delighted to talk more about this at our next session.

11:15

And that brings it to a timely conclusion, your final comment. Can I thank Members for their questions and our witnesses today, Shan Morgan and her team, for being with us and providing those answers? As usual, we'll send you a draft transcript for you to verify before it's published, and, as you said, we'll be seeing you on 7 December for the next session. Thank you, Shan, Andrew and Gaiwan and the others.

3. Papurau i’w nodi
3. Papers to note

Okay. We have a couple of papers to note before we go into private session—one paper to note, I should say. So, the regeneration investment fund for Wales, RIFW, which I just mentioned, as Members are aware, I recently received a letter from the Welsh Government regarding the settlement in relation to the legal action that was initiated. The out-of-court settlement between the Government and the erstwhile advisers of RIFW effectively brings the curtain down on what I think we would all say is a pretty lamentable episode, and the hasty sell-off of publicly owned land at prices well below their worth effectively deprived Welsh taxpayers of tens of millions of pounds, which could've been used for essential services.

I know that Jenny just raised this issue with the Permanent Secretary. There's going to be an opportunity to discuss the content of the letter with Tracey Burke next week. Do Members have any comments that they wish to make at this stage? If not, do we have the auditor general with us? Are you with us, Adrian? Yes. Is there anything that you or your team would like to add?

Nothing, really, Nick, further to your comments and the discussions we had in committee last week. I think the time to pick up any particular issues will be in the session with Tracey Burke next week, but I'm very happy to prepare Members in advance for that.

Okay. If we note the letter, then, from the Welsh Government and we take up any issues there with Tracey Burke.

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

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod a'r cyfarfod ar 30 Tachwedd 2020 yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from the remainder of the meeting and the meeting on 30 November 2020 in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

Okay. Item 4, I move Standing Order 17.42 to meet in private for items 5 and 6 and also for the meeting on 30 November. All content. The ayes have it. Okay.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 11:17.

Motion agreed.

The public part of the meeting ended at 11:17.