National Assembly for Wales

I'd like to welcome Members to committee this morning. And in accordance with Standing Order 34.19, I determine that the public are excluded from the meeting to protect public health, but the meeting is broadcast live on Senedd.tv. If there are problems with the connection for myself, then we've previously agreed that Joyce Watson will stand in as the temporary Chair. 

I'm not aware of any substitutions or apologies this morning, and I invite Members now to declare any interests if they have them.

In that case, I move to item 2 and we have a letter, under 2.1, from the Minister for Economy, Transport and North Wales regarding the hair and beauty sector. It is just to note, and, clearly, if there are issues to raise, then we can do so with the Minister himself in the next item.

Therefore, I move to item 3. This is our final session, I should say, in regard to the committee's inquiry on COVID-19 recovery, in regard to the economy, infrastructure and skills. But, clearly, this is sadly an ongoing situation, so COVID, I have no doubt, will feature in other work that we do, as issues emerge. And I should point out as well that we plan, as a committee, to finish just before 11 o'clock and there will be an extended break just in order to allow Members to observe the two-minute silence at 11 o'clock on Armistice Day. So, timing is important for our meeting today, if we're going to ensure that we are in our break period at just before 11 o'clock.

So, I’d like to welcome the Minister back, and the Deputy Minister. I know that the Minister was last with us, and the Deputy Minister, I think, from memory, on 16 July, to discuss the response to the pandemic. So, I'm grateful to the Minister and officials for attending this morning. So, perhaps I will ask the official—. Well, we've got Ken Skates, the Minister for Economy, Transport and North Wales, and the Deputy Minister, Lee Waters, with us as well. And if I could, perhaps, ask the officials that have joined us to introduce themselves for the public record. Shall I come to you first, Simon?

Good morning, everybody. My name's Simon Jones. I'm the director of economic infrastructure in the Welsh Government.

Bore da, bawb. Good morning. My name's Sioned Evans. I'm director of business and regions in Welsh Government.

Thank you, both, for being with us as well today. Minister, if I could ask the first question—I think I've got my first question, perhaps, directed at the Minister, Ken Skates, and my second question to the Deputy Minister. Minister, I think the business development grants that the Welsh Government made available under phase 3 of the economic resilience fund were fully subscribed shortly after opening. So, I wonder if I could just take your view on whether you were surprised at that. And given the clear demand that there has been for funding, I wonder if you could outline what further funding and additional ways that you'll be able to assist businesses to support the economic recovery.

Thank you, Chair, and thanks for the opportunity you've given us today to appear before committee. And can I thank yourself and all members of the committee for the work that you've done in helping to shape our response and offering constructive criticism where and when necessary, but also really good ideas? And you've been able to highlight some of the gaps that we've been able to fill. So, thank you to all members of the committee, including yourself, Chair.

In regard to the latest phase of the economic resilience fund—phase 3—there are, of course, two parts to that phase. There is the £200 million business lockdown grant fund, and then there's the £100 million business development grant. Now, in total, so far, our response has amounted to £1.7 billion of support for businesses, all of which, bar £100 million, has been for emergency funding. And the £100 million business development grant fund has the purpose of making sure that businesses are future-proofed beyond the immediate pandemic, making sure that businesses are able to capitalise from growth opportunities once we're through this.

Now, you're right, Chair, there was incredible demand as soon as the fund opened. It appears that a number of businesses have applied for the business development grants, either believing that they were up for emergency funding, or businesses were trying to double up on the amount of funding that was available. We are in the process, obviously, of sifting through the applications. Money is already going into the bank accounts of businesses, for both the development grants and the business lockdown fund. I can share with committee today the latest data—14,500 offers have already been made as part of ERF phase 3. That amounts to offers in excess of £43 million, and we estimate that £40 million has already gone into bank accounts. So, clearly, the emergency support from that £200 million part of the ERF phase 3 is working rapidly to help businesses.

Now, we are looking at how we can repurpose some of the underspend from the first phase of the ERF support package—the grants that were linked to non-domestic rates. There was an underspend there. We're looking at how we can repurpose something in the region of £35 million. We're also looking at how we can develop further options. You'll be aware that the finance Minister has set aside £300 million for financial support for businesses in the first quarter of 2021, and we're keen to make sure that the focus is on supporting jobs. Everything right now is about supporting people in employment, avoiding mass unemployment and avoiding the scarring that is associated with it. So, we're looking at how we can support businesses through the winter, into the first quarter of 2021, and to the point where we would hope there will be an array of vaccines available. We can't guarantee it—obviously, nothing can be taken for granted—but that £300 million is there, available for business support, and we want to make sure that we use further business support to protect businesses from the potential impacts of the end of the transition period as well.

So, as part of our intelligence-gathering effort, we're going to be developing an expression-of-interest mechanism for businesses to be able to post their pitches for business development grants and potential for further emergency support. And we'll be making sure that the support that's offered through that £300 million isn't just delivered to enable businesses to get through the storm of coronavirus, but also to ensure that businesses adapt to the challenges that we face, be it climate change or adapting to new ways of working, and making sure that they're innovative and investing in research and development.

Thank you, Minister. If I can ask, with just a brief answer, two further questions in this regard: were you surprised by the level of take-up within the first 24 hours? Secondly, on the £300 million that you referred to that's been allocated for business by the finance Minister, do you think that is sufficient? Just briefly on those two, if you could.

Well, £300 million is a huge sum of money; that amounts to the entire third phase of the ERF. Bearing in mind that the £200 million lockdown business fund is still open—still fully open—then we would expect the £300 million of additional funding to go a long way through the winter months. But, of course, we'd be looking to the UK Government, if the pandemic continues as it's proceeded so far—if it continues through the winter as it is, we'd be looking to the UK Government to continue to support businesses with consequentials from any business support that's offered in England. Of course, it's worth bearing in mind that we are offering, at the moment, the most generous package of support anywhere in the United Kingdom.

I was surprised by the number of businesses that attempted to tap into multiple grants. It was very clear on the Businesses Wales website, through the eligibility criteria, what the purposes of the two parts of the fund were, so I was quite surprised that businesses tried to draw down money from both the business development aspect of ERF 3 and the emergency fund, in the belief that both of them were there to support the here-and-now operating costs of businesses in the pandemic.

Thank you, Minister. Perhaps if I can address the next question to the Deputy Minister, hard hit foundational sectors, such as hair and beauty, tourism and hospitality, have all given evidence in our work with regard to COVID recovery. They all mentioned, in some way or another, targeted support for their particular sectors. I wonder what specific measures are in place to assist these particular areas, specifically through targeted support. I say the Deputy Minister, but if the Minister would prefer to answer as well, that's obviously fine.

Shall I begin, Lee, just highlighting some of the specific support that we've offered? Obviously, there's the support available for businesses through the cultural recovery fund, which increased by more than £10 million this week. Also, the freelancer fund has been hugely important to many in the creative industries. Twenty million pounds of that £100 million of development grants was ring-fenced for tourism and hospitality.

So far, in total, microbusinesses, through ERF 1 and 2—and that includes those businesses in those crucial foundational economy sectors of hair and beauty—have drawn down over £90 million. So, the amount of money that's been made available has been unprecedented, and that package of support, as I've said, is more generous than elsewhere in the United Kingdom.

Businesses within all of those sectors and subsectors of the foundational economy have been able to secure support through ERF 1, 2 and 3, but in my conversations with representative bodies of those industries, the key ask that is always being raised is the continued support that is necessary from the UK Government for the job retention scheme, and that has now been pledged through to March. So, that's hugely important—that's instrumental. What we can offer, then, over and above that, is support for other fixed costs and business development as well. 

Thank you, Minister. We're just a bit short of time, so I'll rattle through two further question in one go, I think.

Professor Dylan Jones-Evans has highlighted that business start-up rates in Wales are about half of the UK average. So, I wonder how the Welsh Government is going to support new businesses to start up and be part of that economic recovery. Secondly, what role do you think that manufacturing has in terms of supporting the recovery, particularly with regard to securing jobs?

On that second point, manufacturing will be hugely important to the Welsh economy through the course of the recovery. I make no apology for the fact that £107 million of ERF funding has been secured by businesses within manufacturing sectors. Manufacturing is the largest contributor to the Welsh economy in terms of GVA, so it will be hugely important. Our work in supporting manufacturing was actually pretty advanced before we went into the pandemic in terms of adapting to industry 4.0, the multiple challenges of disruptive technologies, Brexit and so forth. We published the manufacturing plan for Wales—that's being consulted on now. We'll be publishing the final draft of that later this autumn, as we approach Christmas. That work is designed to futureproof the industries of tomorrow, so the support that we've offered in the short term through the economic resilience fund has been about ensuring their survival, but the long-term interests of manufacturing will be served by that manufacturing plan and all of the actions that stem from it.

We're going to be going on investing in those hugely important attractor projects—attractor projects like the Advanced Manufacturing Research Centre, like the advanced technology research centre, like the global centre for rail excellence, which are designed to draw in investment that is aligned with our principles and where we want manufacturing to go in the future.

But there's also an important role for UK Government in this, and I was really pleased to take part recently in a discussion with UK Government Ministers, and with experts within the scientific fields of innovation, and the research and development road map is going to be vitally important for Welsh businesses. Spend on R&D is going to increase from the UK Government to more than £20 billion a year. It's hugely important as part of the levelling-up agenda that we secure as much as possible not just our fair share, but in my view, as part of levelling up, that we secure more than our fair share in R&D.

And then in terms of business start-ups, you're absolutely right to point to the evidence that Dylan has given regarding start-up rates in Wales. We do now have, it's worth saying, a record number of active enterprises in Wales, or at least we did when we went into the pandemic. We expect to have a significant number of new businesses by the time we leave the pandemic as well, given that there is huge interest in starting businesses from people who are facing unemployment. We've got five hugely important regional enterprise hubs that are operating across Wales, supporting people who wish to start up their businesses, and Business Wales has been massively, massively influential in stirring an entrepreneurship behavioural change in Wales, supporting start-ups, supporting microbusinesses to grow in a secure and sustainable way. They provide access to start-up loans, they also work, obviously, with the Development Bank of Wales, which offers microbusiness loans as well. And then, we also operate the accelerated growth programme as well, to make sure that we can take those start-ups and turbo-charge them so that they can grow, albeit in a sustainable way, but turbo-charge them to recruit more people.

During the course of the pandemic, I'm pleased that we were able to offer start-up grants as part of a £5 million fund to support more than 1,600 start-ups, and I can tell members of the committee today that we're going to be adding to that particular intervention with a specific fund, a barriers grant, for people who are going to be most adversely affected by coronavirus—young people, people from BAME communities, disabled people, women. They'll be able to access a barriers grant if they wish to start their own business, and that grant will be linked to ongoing support and advice from Business Wales. So, we want to do everything we possibly can to ensure that, when we recover from this recession, it won't be those who were furthest from the labour market who are left furthest behind. This time, it will be different.

There are a few points there, I think, that other Members are likely to pick up on later in the session. Minister, do you mind if I say to both Ministers here, we are short of time, so if Members think that you're not quite hitting the answer and we need to get through the questions, do you mind if they interrupt you and prompt you?

Not at all. Sorry, Chair. Absolutely. Apologies.

No. I'm just conscious we want detailed answers, but, at the same time, we've got more questions than we've got time for, unfortunately. Vikki Howells.

Thank you, Chair. I've got a few questions around how infrastructure could help with the recovery from the pandemic. Firstly, we've taken some evidence as a committee recently from Chwarae Teg and Dr Alison Parken, and both of those raised the need to think differently about how we prioritise infrastructure investment. So, how will the Welsh Government balance investment in economic infrastructure and construction throughout the recovery with investment in other forms of social infrastructure, such as health and care?

Thanks, Vikki. It's worth saying, actually, that we've been turning our focus on social infrastructure as economic drivers for quite some time. Through the economic action plan, we placed a new focus on the importance of the foundational economy. We began with the intention to support specific sectors within the foundational economy that included health and care, but then we widened it, we broadened it to capture all sectors within the foundational economy. So, I think in fairness we've actually been thinking differently for several years and, as has been demonstrated through the course of the pandemic, we were right to change course and to have a new approach with the EAP. And there will be a need to focus on social infrastructure as well as traditional forms of economic infrastructure. 

You may be aware that projects such as the renewal of Theatr Clwyd will be hugely important in terms of supporting the foundational economy in the region of Wales that it serves. That's a piece of social infrastructure and, linked to the foundational economy, it's going to be hugely important, so we're doing it already. And also, the finance Minister has announced £320 million of reconstruction funding. That will be aligned with the work that Jeremy Miles has been leading on reconstruction and recovery. And social infrastructure and green infrastructure will be priorities for that funding. 

Thank you. That leads me nicely into the next question, actually. I'm sure you won't be surprised to hear that a range of witnesses have also raised with us what they feel is the Welsh Government's need to invest more in green infrastructure as part of the recovery as well and to create jobs that benefit the environment, of course. So what scale of investment does the Welsh Government intend to make in green infrastructure, and which areas within that will you prioritise? 

Thanks, Vikki. Next week, we'll be launching the new Wales transport strategy, which will demonstrate our commitment to investing in green transport infrastructure. We're going to build on the £140 million green capital package that's part of this financial year's budget. We're looking very, very keenly at the work of Sir David Henshaw, who has brought together experts looking at the potential of a green recovery and how bodies such as Natural Resources Wales, the National Trust, areas of outstanding national beauty and national parks can serve the purpose of supporting the development of green infrastructure. And Chris Nott, who is the vice-chair of the ministerial advisory board, has been leading a group called 'Ffenics'. They've gathered together business representative groups and the well-being of future generations commissioner to ensure that we can collectively focus our minds on a green and just recovery, and they've been making recommendations regarding green infrastructure as well.

We're working as closely as we possibly can do as well with the UK Government on this agenda, principally, in terms of the potential to level up through increasing spend on rail infrastructure. I've already outlined in my letter to the Secretary of State for Transport that Wales has been underfunded to the tune of about £2.4 billion over the last three decades. That needs to be addressed. It could be addressed through the publication of the response to the Williams review. But also, there is another significant piece of work being undertaken at the moment, which is the union connectivity review. I spoke to the person who is taking forward that work just yesterday, Sir Peter Hendy, a superb expert in the field of rail, and it's my hope that that review will focus firstly and foremost on rail infrastructure, looking at how, for example, as we reach the end of the transition period, the UK Government will continue to meet the obligations regarding the upgrade to the trans-European transport network in the UK. That should be the starting point and, from that, we should build out and develop more green infrastructure across the UK that serves the purpose of connecting communities and ensuring that people can get to and from work in an environmentally friendly way.

So, huge amounts of work are taking place at the moment. The UK industrial strategy is going to be refreshed. We want to make sure that we play a full part in refreshing that, because there's going to be a role for greening industries as well, taking forward potential projects through the industrial energy transformation fund, which could be vitally important for sectors such as steel. And then there's the question of the future of the shared prosperity fund, which we believe should—should, should—invest in green infrastructure. 

Is it just very briefly worth saying as well, we did make some choices in responding to the pandemic on green infrastructure? We set aside £15 million specifically for road space reallocation. So, we saw the impact of the suppressed demand—people no longer travelling by car freeing up roads for people to travel by foot and by bike—and we saw a real upsurge in cycling during the lockdown. My own wife and daughter, who'd never normally get on a bike, were happily cycling around the streets and they weren't alone. So, we tried to lock that in by announcing £15 million to deal with what we knew would be extra space requirements from social distancing as people were going back to the shops, to allow councils to widen pavements and so on, but also, to try and get some of those changes then locked in. So, to put in cycle lanes, bus lanes that would be there after the pandemic. So, that's a good example, I think, of using the changes made in the pandemic to entrench sustainable behaviours. 

Thank you. And my final question is just linking all this to the skills agenda really. It was the Future Generations Commissioner for Wales who highlighted to us the shortage of apprenticeships in place to fulfil additional jobs created by green investment. For example, things like retrofitting homes, rail and broadband infrastructure. So, do you have any plans to use the skills system to address those, and do you agree that there are shortages?

Yes, we are going to be using that £40 million of funding for employability and skills to address some of those areas of the economy where there is unmet demand. Early indications, though, show that, in all likelihood, there's going to be a reduction in demand for apprentices from within the business community. We're going to address that through trying to stimulate greater demand, and I'll be announcing today an employer incentive of £3,000 per young apprentice that a business takes on. I think that's going to be hugely important in stirring demand at a time when we would expect it to fall. And, of course, the regional skills partnerships have been conducting a rapid piece of work—each of the RSPs looking at how COVID has impacted on recruitment and how we might be able to stimulate demand for apprenticeships and traineeship opportunities. 

Thank you very much. 

Thank you, Vikki. Suzy Davies, you wanted to come in.

Yes, just on the announcement you're making today, Minister. Can you just confirm that that comes out of the £40 million you've already announced, or is this new money?

That's from the £40 million. If the Chair wishes, if Members wish, I can kind of outline some of the other interventions, if that's okay.

Happy to do that, if you're able to, Minister. 

Yes, sure. So, there's £40 million, and that's in addition to the money that the Minister for Education has announced for higher education institutions and for further education institutions. And the £40 million comprises of more than £20 million that's going to be used in the way that I've outlined to incentivise the recruitment of apprentices, primarily young people, but there is also an incentive to take on people who are older than 25 as apprentices.

Significantly, there's also going to be money made available for increasing capacity of the traineeship programme, and additional sums for schemes such as Parents, Childcare and Employment and ReAct, recognising that, right across the spectrum, there are going to be challenges for people facing unemployment.

I've already touched on the business grants that are going to be available for people furthest from the labour market, people who are likely to be most adversely affected. That's going to be important: £2,000 grants linked to business development support as well. So, this is a huge package of support that we're offering, and, of course, within that £40 million, there's the additional £2,000 personal learning account grants that are going to be offered to people who are either in work, on low income, who are on furlough, or who are facing unemployment. 

Thank you, Minister. Helen Mary Jones.

Thank you, Chair, and good morning, everybody. We've taken evidence from equality organisations and academics that have commented that there's been a long-standing issue with mainstreaming good equality practice into economic development plans, economic development activity. You mentioned, Minister, a specific set of grants, and that's to be welcomed, but that's a different matter from building actions around equality into everything that you're doing. So, can you tell us a bit more about what specific steps you'll be taking to address this as you plan for economic recovery—this is an opportunity, potentially, for a resit—and what will be different from previous approaches? 

Thanks, Helen Mary. First of all, I should just touch on the work that we've been taking forward as part of the economic action plan. And the economic action plan had the dual purpose of driving inclusive growth, narrowing gaps within Wales, within communities, within regions, and it also had the purpose of driving the industries of tomorrow, futureproofing businesses. The Resolution Foundation recently published a report that found that, unlike across the UK as a whole, geographical inequalities in Wales in recent years have shrunk. We've been placing a sharp focus on regional economic development as part of the economic action plan outcomes, and that's enabled us to be more sensitive to inequalities within regions and within communities. And of course, we also have, right at the heart of the economic action plan, the economic contract, which is designed to drive inclusive growth, to narrow inequalities, to promote fair work. And we're at the moment at the point of refreshing the economic contract, to deepen it, to strengthen it, and to expand it.

And part of the work that we've been undertaking in social partnership includes referencing the findings of the socioeconomic BAME COVID-19 advisory group, and what they found, which was pretty profound impacts on black, Asian and minority ethnic groups. And so the economic contract, as it's refreshed, will focus very much on addressing those concerns. And, as I say, we're taking that forward fully in social partnership. We've already agreed that the definition of 'fair work' within the economic contract should be the Fair Work Commission's definition. So, huge strides have been made, but this work is ongoing and is relentless, and it's right that it's relentless because this is such a huge challenge to overcome—inequalities within our society must be addressed. And it will only be addressed through a concerted effort across our social partnership.

That was really encouraging, from this perspective, Minister. If I could just draw your attention—the reconstruction plan states that, in the longer term, Welsh Government will focus business support on decarbonisation and fair work, and then it qualifies that by saying, 'wherever possible'. And yet you're talking about doing things in a way that's pretty transformational. So, I guess I'd challenge—when is it not possible and how will you determine what 'wherever possible' means in this context? Because, if you read it from a cynic's point of view, it's a bit of a get-out-of-jail-free card, isn't it, because, 'We would do this, but it turned out not to be possible in this case.'

It's a brilliant question, and the answer is that, when it's not possible, it's because the quantums required to support that transition are so great that businesses would have to tap into other funds elsewhere, or utilise private sector investment. So, for example, if we take one obvious one: steel. The interventions that are required to support the transition of steel to a green economy require significant sums from the industrial energy transformation fund. That fund is something that the Welsh Government alone would not be able to afford, and that's why I caveat our ambitions with the need to address the challenges that certain sectors face by tapping into UK Government funding sources.

I think that works as an explanation for some of those huge green infrastructure issues. But, in terms of the fair work agenda, there surely can't be a set of circumstances in which it is not possible for Welsh Government business support to support businesses that are proactive around the fair work agenda.

Indeed, I'd agree. And if the phraseology, if the shaping, of the words within that statement doesn't reflect our ambitions, then obviously they need to change. Because I think fair work does apply to every sector, does apply to every business type and every business size. And that's why, during the course of the pandemic, with the economic resilience fund, we've seen an additional 12,000 businesses sign up to ethos of the economic contract—all businesses, of all sizes, across all sectors.

That's encouraging too. Can I ask then with regard to the—? You're going to adopt the Fair Work Commission's definition of what fair work means, and that's really good. When businesses undertake to operate in this way, and they receive support on that condition, how will you monitor that, going forward, because that surely is the challenge? It's relatively easy to sign up to take an equalities-based approach, for example, but if nobody ever goes back and checks whether you've done it or not, it becomes a bit of an academic exercise, doesn't it?

You're absolutely right. I'll bring Sioned in in a moment, but just to say that we do have a number of forums that are able to assist us in monitoring activities within the business community in regard to the economic contract. In social partnership, we've got employer representative groups and we've got trade unions as well. We also have certain specific sectoral groups, so, for example, the transport diversity review with input from Chwarae Teg. We could imagine extending their brief to include the monitoring of business activity within the transport sphere. So, there are multiple forums that exist that can assist us in monitoring. But, essentially, the economic contract is—it's not just a tick-box exercise; it's about making sure that we have an ongoing process of dialogue with businesses and that we don't just stand still once improvements are made, but that we undergo a programme of continuous development, but, Sioned, I'll bring you in at this point.

Thank you, Minister. Yes, just really to back up what you say. A lot of this and a lot of the activity and developments that have taken place in the last, I would certainly say the last two or three, if not more, years, is about developing and strengthening the relationship we have with partners around this. So, moving away from the Welsh Government perhaps trying to monitor business, which is always quite difficult—it's always proved quite difficult. So, working with partners who are closer to the business, having a regional approach so that we have more on-the-ground information and intelligence about how businesses are operating, and then perhaps reflecting that, moving forward, in how we provide actual financial support in the future.

It is actually a discussion we've been having on the economic resilience fund funding, certainly around perhaps some of the business activity: how's the business performed, perhaps, in the past and what expectations can we put on the business in terms of additional expectations to improve and to bring standards up? We're really keen to make sure that we are not necessarily penalising businesses, but helping to raise them all to the same bar so that we have confidence that businesses in Wales are operating at a standard and in a way in which the Welsh Government can have confidence in using them and supporting them as partners.

That's helpful, and I think it's important to make—. Fair work practices are also good for business: you get more out of your employees if you treat them well; we know that.

Just one final question, Chair, which is much more specific: Minister, you mentioned the impact of COVID on black people and people of colour. We know that it's been disproportionate. We have some evidence that there are particular challenges for young people from those communities in terms of accessing apprenticeships, and I think that's also true for girls actually. So, can you tell us a bit more about how specifically you intend to address those barriers for the groups of people who haven't been accessing the apprenticeship route?

Yes. This is a really good point to make, actually, that we do need to increase participation and progression of ethnic minorities and women across a range of apprenticeships. And Helen Mary Jones is absolutely right that the focus has to be on removing barriers to apprenticeship opportunities. I don't know whether committee are aware of this, but we've got an apprenticeship equality champion and that champion is currently developing a new equality strategy, reflecting on experiences so far in the pandemic, but also experiences prior to the pandemic because that champion has been in place for a few years now.

We have, I've got to say, already developed more inclusive and more accessible marketing materials. We've made changes to eligibility criteria and we've improved support for both individuals and employers. I'm not sure whether committee are aware of this, but we've given our apprenticeship provider network bespoke training on equality and diversity, and we've also launched a bespoke apprenticeship vacancy service, so that people can easily access details about apprenticeship opportunities that are available to them. But as I said a little bit earlier, this is part of ongoing work—this is part of a concerted effort that won't end at the end of the pandemic. This is going to have to continue for quite some time afterwards.

Thank you. Thank you, Chair.

Thank you, Helen Mary, and thank you, Minister. Joyce Watson.

Good morning, both. 

Good morning.

You did touch very briefly on economic inequality geographically, which is what I want to focus on, and how all the plans that we've heard about—excellent as they are—are going to remove that from some areas and also regions of Wales. I want to combine that with the statement about 30 per cent of the workforce working from home. So, I'll ask those two questions first.

Okay. Thanks, Joyce. I'll bring in Lee, if that's okay, regarding the remote working or multi-place working agenda. But just to say that, in terms of geographical inequalities, whilst there are inequalities within Wales as a whole, actually some of the biggest inequalities are within the regions of Wales. I pointed to the findings of the Resolution Foundation, which found that within Wales the geographical inequality is shrinking. We established a regional approach, a place-based approach to economic development some years ago, to tackle inequalities on a geographical, spatial basis. That work is now proving to be correct and proving to be providing changes to the way that the economy works within Wales and across our regions. But, again, just as I've said in terms of tackling other inequalities, this work must be maintained through the course of the pandemic and then after the pandemic. We cannot take our eyes off of the need for a regional approach to economic development, as outlined by the OECD, who have been hugely influential in shaping our policy towards regional investment. But I'll bring in Lee in regard to the remote working agenda. 

So, just to be brief, I think Joyce is right to highlight the dangers around equalities from a ham-fisted attempt to try and get more people working at home. We are treading very carefully in this space. We realise that the equalities impacts are nuanced. We're not talking about homeworking, you'll notice; we're talking about remote working, we're talking about flexible working. So, for example, we're particularly aware that for people suffering from domestic abuse, getting them to work from home can be a complete disaster. So, we need to make sure that we don't take a crude approach to this.

But, at the height of the pandemic, 40 per cent fewer people were driving in to work, and that is something we want to try and salvage for society as we come out of the pandemic, which is why we've set a target of 30 per cent remote and flexible working. That will be a mix of employers being less insistent on people driving in every day when they don't need to. So, they can work some time of the week at home, or in another location. So, we're developing a series of remote hubs—co-working spaces in town centres—which can help to revitalise town centres by getting footfall, but also using office spaces, for example, in the public estate. If we have an office in a rural town, for example, belonging to one part of the public sector, there's no reason why people shouldn't be able to use that to avoid a long commute.

So, to just give some reassurance to Joyce, we are alert to the issues, we are treading carefully, we are doing equality impact assessments around it, and we are engaging with stakeholders carefully. So, we're not going to rush into it, but we think there are things we can do to, overall, improve things.

So—

Sorry, Joyce; I was just going to say, to add to that, that this whole agenda is about empowering people, about improving well-being within Wales, and, as part of the work that we're taking forward, obviously significant impact assessments are going to have to be carried out, because we need to understand, in terms of mental health, in terms of productivity levels, in terms of creativity as well, what sort of impact could be had by this particular agenda. And I like to call this multi-place working. Multi-place working enables people to choose where and how they work and that contributes to their sense of well-being. 

I want to explore a little bit more about the community hubs and how they might fit into, say, town centre regeneration. We all know and fear that there'll be lots of empty spaces in town centres in the near future, because, as you say, patterns of working have changed, but patterns of shopping have also changed significantly. So I'd like to explore a little bit more about those community hubs. And, of course, that in itself will give some regional regeneration right at the heart of those town centres. 

Lee, do you want to take this on?

I don't mind. That is something that we are working through, Joyce. So, we're looking at are there other programmes that we're doing that we can ally this to—so, for example, the repair cafes that we're looking at as part of the circular economy initiative. That, for example, could also be a place where we have remote working. So, we need to make sure there are synergies—through the Valleys taskforce and the Valleys Regional Park, for example. Parc Bryn Bach, near Tredegar—we are developing that as a strategic gateway to the Valleys Regional Park and upgrading the infrastructure there. So, that could also provide quite an attractive remote working hub, where people could go for a walk around the lake of a lunchtime, rather than drive down into Cardiff, for example. So, we're looking at are there other things that we are already doing that we could butt join remote working hubs on to. And then we're also working with other partners and the private sector for opportunities. For example, in Rhyl, we're looking at can we get a space there, and similarly in Wrexham. So, there's a great deal of work going on to see how we can do this in a way that is sympathetic to other programmes and other partners, in the short term, to try and get some quick wins, while in the medium term, alluding to your earlier answer, we make sure we sympathetically develop a solution that's going to work with the range of complexities we face.

The business model's going to be really important for this, and the involvement of the private sector. So, we'll be scoping out the demand that's out there for these sorts of hubs. Lee's touched on Wrexham; a great example of a remote working hub in Wrexham is the Town Square hub, which utilises advice and expertise from Business Wales to support start-ups. That's the sort of model that we want to build on, but we're going to be looking as well at the involvement of childcare providers and Careers Wales in supporting those hubs. But, crucially, we want this to be a partnership between the public sector and the private sector.

Okay. Just one final one from me. When we're talking about remote working, we could also, perhaps, combine it with remote showcasing for people. We've talked about innovation, about new ideas, about new production and new types of purchasing. So, it's just a question from me: how do we combine those two things, really—getting people to produce things differently, but in different places, remotely, but also combining that with the fruits of their labour, if you like, being on display so that people know that these things are happening, and then generating other ideas beyond that?

Absolutely. The accessibility of success is really important. People have to be able to see that their neighbours and their friends are proving successful, and remote working hubs enable that to happen, particularly where they're in an accessible building within a town centre. So, that's hugely important. This whole agenda, I think, is going to be massively important in terms of re-energising communities that have been hard hit by the last four decades of deindustrialisation.  

Thank you.

If the committee would like to do any work on this, I'm sure that Lee, certainly I, and I think Hannah Blythyn, who's leading on the 'town centre first' approach, would be really, really grateful of any advice and any observations.

Okay. Thank you.

Thank you, Minister. Suzy Davies, you had a supplementary question, and then if you want to come on to your line of questioning.

Thank you very much. Welcome, both. I just wanted to ask you a further question on this community hubs idea and where that fits in with the opportunities for ideas that are emerging from universities being capitalised upon, worked through, in order to become sellable concepts, if you like. And also where it fits in with an existing ecosystem of things like indy hubs, where you've got lots and lots of start-up businesses operating in a given space, which are complementary to each other, and together create a bigger offer for a customer base. So, I was glad, Ken, when you mentioned the private sector earlier on, because, of course, that's where a lot of this already sits. So, rather than duplicate what's happening, are you planning to weave it in to the torch you've already got?

Absolutely, and that's why we need the involvement of the wider public and private sector in this. We don't want to move into any space that's already occupied by the private sector and where there are proving to be successful outcomes. So, you pointed to indy hubs; there's also Tramshed, there's Town Square as well. There are a lot of actors in this space at the moment. We want to work with them, we want to fill any gaps, and we want to make sure that businesses and start-up entrepreneurs have a clear progression through to greater levels of success. So, it's all about bringing the entire ecosystem together, mapping demand, making sure that the public sector doesn't step in to where the private sector is, but that we work on this together.

I'll move on to my questions now, if that's okay, which are about youth unemployment, effectively. I'm sure we're all very worried about this. I've got some specific questions, but perhaps I could just ask, to start with, what are the key challenges in the short term for the skills development sector as it's currently configured. How well equipped is it to deal with the challenges you've identified as short-term challenges? And then, with a longer line of sight, how confident are you that we're able at the moment to identify longer-term skills needs? We've talked a little bit today about different types of start-ups and the green economy and so forth, and you know, of course, this committee's views on the regional skills partnerships. Do we need to do something different now not just to identify skills but that we're up to speed quickly on the types of skills that may not even be readily identifiable at this stage? 

Thanks, Suzy. There's quite a bit that I could talk about on this. I'll be as brief as I possibly can be and say that I think that we are very well equipped to deal with this crisis, given the history of what we've been able to do in previous cycles. We've learned from how we've intervened, we've improved on the offer, we've improved on the sort of incentives that have driven down levels of unemployment.

If we look at where we were before we went into the pandemic, we had more than halved the proportion of people without qualifications in Wales; we had a record level of employment; not in education, employment or training figures were going in the right direction; we were driving down levels of economic inactivity. So, clearly, the skills and employability system was working, and that gives me confidence in saying that I believe that it is very well equipped to respond to coronavirus and to the ongoing challenges of tackling inequalities, the fourth industrial revolution and the need to tackle the climate crisis.

I recognise the committee's views on the regional skills partnerships. I've already outlined the fresh work that they're doing. They had the three-year review but they've been tasked with assessing the impact of coronavirus and then the emerging skills demands within the regional economies. But if there is any further work that the committee wants to look at or if there are any recommendations that the committee can make—we don't have all of the answers—I'm always open to suggestions, ideas, innovation that are proposed by others. So, I'd welcome any advice or guidance that the committee may be able to offer on this front. 

Okay. Thank you. Well, that helps lead into my more detailed questions, actually. You make the point that NEET figures were going in the right direction, although they were still among the highest in the UK, but we've also heard just yesterday that Wales is losing jobs more quickly, so there's a genuine question there about the security of some of the jobs that have been found in what was beginning to look like a time of success. So, in terms of identifying skills needs and employers' demands, I don't think it's just as easy as saying, 'Well, we've got some of our people with lower-level qualifications into work'. It's about keeping them in work as well. And that's why I asked about that long line of sight, really, about working at what we will need, which then takes me on to the questions, if you don't mind, about the £40 million. Now, you've given us a very good and detailed answer on that, but I wonder if you can just give us a bit of an idea about whether the money that will be going into the incentives for apprenticeships will be sector targeted in any way and whether it's a bit dangerous to do that, because we don't really know in 10 years' time what our big sectors are going to be. You may be planning for them, but we don't know if they're going to succeed.

Absolutely. That's why the flexible skills programme is really important, I think. It's responsive, it's flexible, as the title suggests, and working to maintain that has proven to be really, really important for sectors where growth was expected but couldn't be guaranteed and where further support was required. Obviously, with the latest labour market data published, we've seen unemployment in Wales rise, and rise pretty swiftly, but it still remains below the UK average. All of the expert predictions were that unemployment by now in Wales would be significantly higher than the UK level. The reason that it's not is in no small part due to the package of support that we've made available, £1.7 billion. It's also been hugely important in terms of the outcomes from the furlough scheme as well in suppressing unemployment. So, I'd say that UK and Welsh Government have both had an important role to play in bringing that unemployment level to a minimal level, albeit still rising, and it's likely to go on rising because we have such exposed sectors, including tourism, hospitality and manufacturing businesses as well.

But in terms of the packages of support, the £40 million, the flexible skills programme offers a degree of flexibility and dynamism where the system responds to what businesses require. The £40 million is aimed at supporting those who are predicted to be most adversely impacted by coronavirus. So, I've talked about the incentive scheme—£3,000 for each new apprentice that a business hires under the age of 25, and then, support for people who are over 25 as well; the £9 million that's going to be made available to ReAct and the Wales Union Learning Fund and the personal learning accounts; funding for traineeships, for Working Wales, Communities for Work Plus; and all of these programmes, in total, amount to a huge intervention, designed to minimise the long-term impact of coronavirus, designed to prevent young people from becoming unemployed, or where they do become unemployed, to give them the best possible chance of getting sustained employment.

Of course, the Kickstart programme is going to be really important in this regard as well. I've got a few concerns about the Kickstart programme, but I very much welcome that the UK Government has stepped into this space, because, broadly, it's similar to Jobs Growth Wales, but we want to enhance it, we want to make sure that it's part of a clear pathway for young people so that they don't end after the six months of the Kickstart programme with the prospect of unemployment. Instead, we'll be integrating Kickstart within our employability and skills menu of offers to make sure that young people are able to access, for example, Wales Union Learning Fund schemes during the course of their Kickstart programme, so that, at the end of the six months, they are able then to transition into an apprenticeship programme or into secure employment. And we'll be utilising the traineeship programme as well, as part of that pathway into a Kickstart programme.

Okay, that's helpful, because, obviously, I think a concern shared by many of us is that Kickstart will just be a future youth opportunities programme, as opposed to a youth training scheme programme, if I can use such languages.

Yes. That's exactly it, yes. Or a holding pen for young people. What we want to avoid is any sort of holding pen for young people, where at the end of it, they know and we know, that unemployment is probable. That cannot be allowed to happen. There has to be that pathway for a young person to go into a training opportunity to get all the support that they need in order to, at the end of the six months, transition into an apprenticeship or into another decent form of employment or training.

And that's exactly what Jobs Growth Wales was all about. Any business wanting to draw down funding for a Jobs Growth Wales placement had to demonstrate how the job was sustainable at the end of the six months, and that's why we've seen progression rates, positive progression rates, in excess of 70 per cent for Jobs Growth Wales, throughout the period that it's operated in, for the 19,000 or so people who have been benefiting from that programme. We want to make sure that we can add value to Kickstart to deliver the same sort of positive outcomes.

And I think we need to be looking as well at making sure that they go to jobs that are being created, not jobs that would have been filled anyway.

Absolutely, yes.

I think that's critical. Obviously, we're talking about individual human beings when we're talking about this. Sioned Evans said earlier on that it's really difficult to track and monitor businesses when you've given them assistance across various fronts. What's in place at the moment to do that tracking? What are you tracking and what are the difficulties? To be fair, Sioned Evans did give us a little bit of insight in this. But if you're talking about individual needs, what are we discovering?

I just have to say, just a short answer on this. We need to move on to our—

I'm really sorry. So, we collect data on young people by means of our programme data. Careers Wales collects and publishes annual destinations for all school leavers. That then informs the youth engagement progression framework, the five-tier model, and it also identifies those young people who need support from either Careers Wales or from local authorities.

Okay, thank you very much.

Thank you, Suzy. Hefin David.

Can I ask perhaps just the Deputy Minister: one of the things that was said earlier was regarding the changes being made to policy and planning as a result of changes in people's behaviour with regard to transport—beyond anecdotal evidence, which we've heard quite a bit of today, what long-term evidence, what deep evidence, is there, and research that's been done, to suggest that these changes in behaviour are likely to be sustained post the pandemic?

Well, the pandemic's only been going for six months, so it's very hard to have deep, long-term evidence. There's pre-existing evidence about how to change travel behaviour, and I think what the pandemic has done has shown that this has been accelerated, obviously through external events, and it throws up an opportunity to try and sustain some of those beyond the end of the pandemic. Why is it that we need to have the A470 clogged every morning with people going into the same office? For example, the Welsh Government office at Cathays Park is an excellent case in point here. There were 2,000 people going in there every morning from the travel-to-work area around Cardiff; at the moment there are fewer than 200 people going in there. Now, these people are perfectly able to work effectively from home, so that has busted a myth that existed previously that that wasn't practical and it wasn't productive to be able to do that. So, that has created a new set of evidence that we didn't know existed before, which we're feeling our way through to see if that can be sustained.

So, the kind of approach you're taking is a 'build it and they will come' kind of approach, rather than based on any certainty about the future.

Well, do you have any insights on the certainty of the future that I'm not aware of?

Well, it's up to you, Deputy Minister, to answer the question, not me.

Well, I've tried to explain, Hefin, that we are in an unprecedented situation. It has thrown up a series of challenges and it's thrown up some opportunities for changing the way we work.

So, the question I'm asking is: have you got any data that enables you to build your strategy for post the pandemic? The answer at the moment is that there isn't any consensus. 

Well, no. There's a lot of evidence about travel behaviour change and how that's achieved, which is evidence based and peer reviewed and solid. So—

Can you provide that to us? It would be helpful to see it.

Well, this committee's looked at it before and published reports based on it, but I'm happy to point them to you, yes.

With regard to the changes as a result of the pandemic.

Well, Hefin, we are six months into the pandemic, so we can show you six months of data of what's happened in the pandemic, so I'm not sure what else you want from us.

Well, I suppose my question is: are you concerned that some of the changes in policy are based on what you hope will happen, rather than what you expect will happen?

No. Look, there is a series of things going on in the pandemic around travel behaviour. Some of it is a short-term impact, around public transport, for example. So, we dearly hope that, after the pandemic—and based on international evidence, we think it is likely—that, over time, people will return to their old behaviours, and we need to make sure the infrastructure is still there so that they're able to do that. But there is a great deal of uncertainty about the impact of people's long-term behaviour changes from the pandemic too.

Okay. And with regard to homeworking policies, which you've talked about today, the Counsel General told the Committee for the Scrutiny of the First Minister that this is under live consideration. What does that mean, and what impact will that have on existing public transport networks?

Good question. The honest answer is that we don't know for sure. So, in terms of live consideration, we covered the answers a little bit earlier of what we're doing around providing some short-term options for people to be able to work remotely, and then looking at how we sensitively and properly provide ways of making that a longer term, sustained behaviour.

And how flexible is that approach, do you think? Are you able to flex this with more evidence and as times change?

Well, I think, you know, if anything, we are being very cautious about rushing to judgment on the remote working. So, I'm sure that Simon Jones will be able to talk you through the very robust, very civil service-type processes we're going through to make sure that this is properly risk assessed and measured. Simon, do you want to say a little bit about that?

Yes. I think, before we rush into this, I suppose there's a need for us to understand a bit more about the demand—so, who would use these kinds of remote working facilities, and how they'd be paid for. We talk about the fact that we want the public and private sectors to make use of these things. Well, how would that work in practice? If there is a revenue stream that comes out of these things, well, would that be attractive for the private sector to invest in? Where would we like these things to be? I think it's really important to put all that lot together.

The Minister mentioned earlier the importance of impact assessments and the equality space, and that's clearly massively important, but we also need to think about the economic impact of this kind of approach. There will be positives and negatives, and this whole thing will be a balance, and we will need to go through and use well-tried processes to understand the impact of all of this approach to work out what the best solution is and create a business model that we think that people will be prepared to invest in. We don't want to waste public money on something that will never get used.

Indeed. Are you sensing a degree of risk here, Simon?

As the Deputy Minister has indicated, this is new territory. This is a new way of working that's only really gripped us over the last six months. I think we've got a duty to make sure that we understand the risks. That doesn't mean that Ministers may not want to move on with that, but I think we've got an obligation to understand those risks and find ways of mitigating them.

Okay. Can I move on to the Welsh rail operations being brought under direct public control now? Perhaps this is one for the Minister. Can you explain how the three components of the new rail relationship will be incorporated into contracts? Given that they are still to be negotiated, can you give an overview of the approach likely to be taken in those areas, and how they'll differ from the current arrangements that we're so used to?

Thanks. I'll leave this one to Lee and Simon, if I may, for the moment.

Okay.

Lee.

Sure. Well, perhaps, Simon, why don't you start, because you're in the detail of the negotiations?

Yes, so one of those strands is about Transport for Wales operating the service. There won't be a formal contract as such; it will be covered off in the remit letter and the management agreement that we will have in place with Transport for Wales. There will be two other contracts, then, with KeolisAmey, and we're negotiating those as we speak. I think it would be wrong for me to say too much about that. I understand that the committee might be hearing evidence from James Price shortly. James is right on top of those negotiations, and I don't want to say something that would undermine James's position. So, James might be in a better position, when you take evidence from him shortly, to be able to give you the most accurate update of where we are on that, without jeopardising our negotiations.

Okay, well if we stay away from the Keolis contracts, how will rail operations be delivered by the public sector company?

We've established that as what they call an 'operator of last resort'. The vast majority of the staff who are currently providing the service will transfer into the subsidiary of TfW under the Transfer of Undertakings (Protection of Employment) Regulations 2006. We will then work to manage that more closely than we've needed to in the past, because we won't have the private sector operator in place. So, you know, I think in terms of day-to-day operation, people won't see much of a difference, because the people who are driving the trains, the guards, the ticket inspectors, will all be exactly the same. There might be some changes at senior management level, which we will work through. But that will evolve over time, as we learn more about the way the railway operates. We've been one removed from it up until now. TfW will be much closer to it in future.

So, this is one for us to pursue TfW on.

I think so.

Okay. With regard to the public funding required to retain services until passenger revenues recover, you've said that it can't be quantified, but how can we know, how can be assured, that it's affordable? And how will that then impact on the affordability of other Welsh Government programmes?

I think this is a very good and live question, and this is a question that the whole of the UK is facing; this is not just a Welsh problem. The Department for Transport, in terms of the franchise and its operators, is facing exactly the same problem. And the situation we're facing is that the business model of public transport relied partly on public subsidy, partly on what we refer to as farebox. As passengers, at one point, 95 per cent of passengers were staying away from services, clearly that element of the business model just fell away, and therefore, the business model collapsed.

So, we, as operators of last resort, in the parlance, had the choice to make. Do we step in to make sure that a service is there for commuters and passengers, or do we simply say, 'This is a crisis, the model has imploded, the services can constrict'? That is the discussion we're having with our Treasury colleagues within the Welsh Government, Hefin, at the moment is, how can we afford this at this level into the future?

Now, at the moment, we do receive consequentials from the spend at the UK level on a similar set of dilemmas. They've chosen a different model. They've chosen to contract to the private sector to operate these services for them. We've made a different choice, based on our values and aspirations to bring this into public control through TfW, but it does address the issue of affordability. I think that's a real question for all of us: how long will this pandemic continue to have an impact on passenger numbers? In the meantime, what is the appetite of the public sector to intervene and fund a sustaining of services to make sure that they're there as a public good? And that is a really—it's a live question and it's a difficult judgment.

So, we'll wait and see to hear more about that particular area. But also there's a legal issue as well, isn't there? One of the reasons the Welsh Government gave for not having a publicly owned rail service originally was that it wasn't legally possible. So, what discussions have been done on the law with regard to sustaining a publicly owned service, in legal terms?

Simon.

Shall I take that? So, there is permission in the law for us to run this operator of last resort. The market conditions, frankly, at the moment, mean that no sane private sector operator would step in to take a revenue risk on the railway as it is at the moment. And frankly, it's going to be many years before the model that has been running up until now would be sustainable again. Passenger numbers recovering to their pre-pandemic levels might take many, many years. So, it's very difficult to see a private sector operator putting their money behind bidding for something like that.

But, as the Deputy Minister says, this is not a problem that's just in Wales; this is a problem across the UK. The UK Government are going to need to think about this. They've got two of their own operators of last resort at the moment, which were around before this—who knows how many they might end up with as they go through this? I think there's a question, then, about what the UK Government wants to do with the legislation. The Williams review existed before all of this lot and I suspect that colleagues are thinking about that again now. And all of that will come out in future.

So, it's a case of ideology being forced by circumstance. You mentioned the Williams review—are you expecting that to announce or recommend greater public sector involvement? If so, what's the basis of that? What's the basis of that expectation?

Well, I think the assessment that Keith Williams did was based on the conditions that existed pre COVID—that world's changed. I'm sure our colleagues in the Department for Transport are looking again at the recommendations that they will have seen from Keith Williams through a new lens. And I can't imagine that what existed before in the Williams stuff hasn't been impacted by what's happened over the last six months.

Okay. Diolch, Chair.

Thank you, Hefin. Can I thank both Ministers for coming to committee—and officials—this morning? I'm aware that both Ministers are back to committee two weeks today for general scrutiny. And, as it's been referenced by Simon Jones, I should say that James Price, the chief exec of Transport for Wales, is with committee next week. 

So, with that, we will take a slightly longer break this morning, because Members and members of staff will no doubt want to observe a two-minute's silence at 11 o'clock, as we gather our thoughts and remember those who have lost lives. So, with that, we'll take a short break and we'll be back at 11.15 a.m.

Croeso, bawb. Welcome back. We move to item 4. This item is in regards to the Development Bank of Wales annual report 2019-20 and COVID-19 response and future priorities. We do have with us this morning various colleagues from the development bank, and perhaps if I ask you to introduce yourselves for the public record in the order that you appear my screen. So, Gareth, would you like to go first?

Yes, Gareth Bullock, chair of the development bank.

David.

David Staziker, chief financial officer at the development bank.

Rhian.

Rhian Elston, investment director for Wales for the development bank.

And Giles.

Giles Thorley, chief executive, development bank.

Thank you, and thanks ever so much for being with us during our annual scrutiny—I think you were last with us, I think it was, last October last time, so I appreciate again your time with us this morning. Gareth Bullock, if I could perhaps address a couple of questions to you, and if you want to expand on any other points more widely, but really if you could perhaps comment on the performance against the headline target set by the Welsh Government for the first five years of the development bank, and also perhaps if you could outline the biggest challenges faced by the organisation in the 2019-20 financial year so far.

Okay. Thank you, Chair, for that. Let me do that. I think I'll maybe preface my remarks by just making a couple of comments on behalf of the board. I think that, by way of dimensions of the context, first, the development bank's now just three years old. We're in that interesting phase of operating intensively now and, at the same time, building a solid foundation for the future. We're a professional services company of now almost 250 people, many are experienced debt, equity and industry sector specialists, and we've got financial assets now of just over £1.1 billion. Owned by Welsh Ministers, our remit requires us to address Government policy objectives and that we operate almost wholly with our customer base in the private business sector.

You'll see from comments in the most recent annual report that, over the last five years, we've had a very significant impact on the Welsh economy, deploying our own funds as well as mobilising private sector capital to the tune of about £0.75 billion. By the end of this financial year, with the impact of the COVID-19 Wales business loan scheme, our normal business flow and continuing private sector leverage, as we call it, that five-year rolling impact could be as much as £1 billion.

What's not easily seen behind this financing activity and the various key performance measures is the very important task of capacity building and organisational development, and these are important challenges that we face at the moment. There's significant work being undertaken in recruitment and training, investment in modern process and communications technologies, as well as finance systems and working methods, and the aim of all this is to ensure that we're fit for purpose, provide value for money and can deliver efficiently and effectively against our remit, as we build what we all hope will be an enduringly relevant and successful Welsh institution.

Lastly, all of this has continued apace during the ongoing COVID crisis. Indeed, some of our technology and working method investments have stood us in good stead as we successfully disbursed the CWBLS scheme and maintained our normal business flow—all of which, by the way, has doubled our customer numbers—while all our staff have worked from home and continue to do so. The board's very pleased with progress and performance, and are much encouraged by the ongoing support, commitment and energy in our relationship with the Welsh Government and its officials.

In terms of specifically the things you've asked me to comment on, some of that answer is in those remarks. I would say, and I think my colleagues can talk in more detail about this, that the biggest challenges facing the organisation are, in no particular order, I would say: (1) how we manage what has, effectively, been a doubling of our customer base thanks to a number of the schemes that have been deployed to counter the COVID crisis in business; some of the potential Brexit uncertainty that's coming up, as we still don't know what the trading relationship with Europe will be after the end of this year; and then, very importantly—and I did touch on this in my remarks—managing that operational delivery and at the same time building the foundations of a good business, both in terms of technology change and making ourselves more efficient and more effective and building a culture and management training. All of that internal 'stuff', I think I'm going to call it, the internal considerations, is absolutely crucial, and will continue to be a very big focus for the management of the bank in the years to come.

Thank you, Gareth. I appreciate the opening comments as well. I know they strayed into some areas that Members want to ask some questions on, so Members will take up that later in the session. I should say to all the witnesses, if you are not sure which of you may want to come in and answer a question, if you just raise your hand slightly, I'll raise mine to say that I've seen you, so we can appropriately navigate through the Zoom meeting.

I wonder if—. Thank you, Gareth, for your introduction. I wonder if you could perhaps outline why the level of private sector investment achieved alongside the bank's investment has fallen, or did fall, by 40 per cent in the 2018-19 financial year. I wonder who could perhaps address that.

Bore da—good morning, everybody. I think I'll pass that on to Rhian, who's the investment director for Wales.

Yes, happy to take that question. The main reason behind that is because, in the year 2018-19, we had one particular deal that attracted a very large amount of private sector leverage. So, there was an investment that we made into a company called Creo Medical, and that attracted private sector leverage of about £46 million. So, as you can imagine, that's a huge number, that's not something that we would normally see, so that completely distorted the 2018-19 numbers. If you strip that particular deal out, the change in leverage between 2018-19 and 2019-20 is a lot smaller, so the drop is more like a 5 per cent drop between those two years. That's the main reason.

There are a couple of other factors to consider. The mix of deal does change the private sector leverage that we get—so, as an example, property development investments that we make generally attract a slightly lower private sector leverage than non-property deals. It's roughly about half, to give you an idea. So, if you want to compare apples with apples, you need to look at the different types of deals that we've done during those two years. So, if we take out property development deals, the investment to private sector leverage stayed pretty similar between the two years. So, it was roughly about 1:1 between the two. So, you have to get behind the detail, as is often the case, with these overall numbers.

The other thing that I'd mention is our role of trying to increase the various different providers of private sector leverage. The availability of those to Welsh small and medium-sized enterprises is really important—it's a big part of our role—and one of the areas where we did make good progress on that during the year was our angel investment network. So, that's where we're trying to increase the amount of private individuals that are able to put money into the deals that we do, alongside us. Pleasingly, the number of those individuals is increasing. It continues to be a focus for us, to try and find more choice of those individuals for Welsh businesses.

I appreciate that. Thank you, Rhian. And from me, before I come on to Suzy Davies, as I understand it the development bank is monitoring the financial performance of Cardiff Airport and the extended loan facility as well provided to it by the Welsh Government. I wonder if you could set out what that role involves.

I'm happy to take that question again. Our role there with Cardiff Airport is that we play the role of monitoring agent. What that means is that we take the repayments back from the airport. So, the loan is made directly by the Welsh Government, but the repayments come back in to DBW. We hold those on behalf of Welsh Government and we collect the management information from the company, as you've alluded to. So, quarterly, we prepare reports for our colleagues within the Welsh Government, reporting on those management accounts that we receive. So we provide a report back to them to provide commentary around the management accounts that we've had from the airport. 

Okay. All right. Thank you. Suzy Davies.  

Thank you very much. I just want to—

Suzy, you're not on mute, but we can't hear you for some reason. 

Oh—

I can hear you now. 

I was going to say, because it looks all right. Apologies for that. Welcome, everybody. I've just a couple of questions referring to your strategy document from July 2017, and I'm curious to know what the effect of COVID has been on your ability to keep up with monitoring and evaluating the impact that you're making. Certainly, in that document one of the strategic aims is to monitor performance indicators on things like carbon reduction and employment in deprived areas, and so on. Obviously, you've had a lot of distraction lately. Have you been able to keep on top of this work and what is it telling you? 

Thank you very much, Suzy. The answer is that we've continued to keep up the reporting, although it's fair to say that the majority of the new customers who have come through the CWBL scheme, the COVID-19 Wales business loan scheme, won't have had any reporting done quite yet. There are more than 1,300 new customers in that cadre. We provide quite a lot of detail on the reporting in our annual report, on pages 53 to 57, which really talks about some of our responsibility as an impact investor and aligning our investing with the UN sustainable growth goals, the Well-being of Future Generations (Wales) Act 2015 and some of the calls to action in the Welsh Government's economic action plan. 

I think it's fair to say that we've probably gone overboard in terms of the questionnaires to a certain extent, and we've actually started to pare those back a bit to make sure that we maintain consistent reporting. But we're also using the data that we've received in the annual report—to give a report but also a number of masterclasses for our customers, such as on innovation and exporting. We also have two internal working groups, which we call 'teuluoedd', to work up some of our plans for the future in terms of the decarbonisation agenda and new products and services and how we can offer them to our customers. 

Okay. That's helpful, and thank you for drawing attention to the information later on in the report. I wonder if I could ask you a favour—just if you could explain for the record, for people watching, what an impact investor actually is. We're fortunate, we know, but for our viewers. 

Yes, no problem. The UN sustainable development goals report specifically targeted investment activity as an opportunity for businesses to invest in a responsible way. And we believe that the type of investing that we do, in particular the specific type of investing into small businesses and sectors of the market that are not supported by mainstream lenders, can have a direct impact on the performance. It's also important to reflect that there are a number of investing organisations that are looking to find investors who have got the experience in investing in certain sectors. So they're actually looking, as part of their corporate social responsibility or their responsibility as fund management organisations, for investment companies that can invest in certain sectors that make a difference and measure it on different criteria than just financial return. So, all of those are wrapped into impact investing. I'm afraid it's a long-winded answer simply because there's no formal definition of impact investing in the market. There are only a handful of formally accredited impact investors in the UK and we're close to being one of those.

Okay. Thank you very much for that. It does then lead me to ask you—. Because impact isn't measured purely on a financial basis, the quality of the type of jobs that you're either supporting or creating via third parties—how are you reporting that? Because it's quite a different way of reporting an impact, isn't it?

Yes, indeed—

Sorry, can I just say—? Obviously, we're a bit worried that—. We heard the news yesterday that there's a higher loss of jobs in Wales as a result of activities, or lack of them, I should say, over the summer, which obviously leads to concerns that the types of jobs that are being created through, perhaps, even your work aren't particularly sustainable. So, I'm keen to know what work you're doing on making sure that what you're supporting is good value for the individual. 

Yes, indeed. We've measured the jobs created and jobs safeguarded since the inception of the development bank. But, in addition to that, in certain funds, we actually go further than that. Perhaps I'll pass you on to my colleague Rhian to talk to you about some of that in more detail. 

Thank you, Giles. So, yes, we have been recording further information on the jobs we create and safeguard, and that's mainly to do with salary data. So, we collect salary data now on all of our funds—the jobs that are within the companies that we invest in. I'm conscious that's only one aspect of quality. So, we're aware of the work that the Fair Work Commission published, which tried to define quality and the six characteristics around that. But it is quite difficult to measure all of them just from a data point of view.

The one that they mention is reward, and that is where the pay data comes into play. So, you may have seen it in the annual review. We say there that we're able to capture the salary bands of the jobs within our companies, and we can then compare those with what are the low, medium and high salaries within Wales. What the data showed last year is that 50 per cent of the jobs within the companies that we invest in were in the medium to high band. It did give us a little bit of further intel that the equity investments that we make tend to create higher-paid jobs, and equity investment is a big target for the development bank; it's something that we're keen to promote. And, interestingly, another characteristic of equality of a job is opportunities for growth, which is often what those equity investments are about. 

But the other characteristics are less easy to measure with just a data point, as I'm sure you appreciate, though the wider things that we can look at are working with colleagues in Business Wales, who've got excellent equality and diversity advisers that we can refer into businesses to try and give them additional support there. The investments that we make are pan Wales, but we've got a big focus on west Wales and the Valleys because of the regional focus of some of our funds. So, we look to see that we are creating and safeguarding jobs locally, adding to more flexibility and, hopefully, more sustainable jobs. 

So, it's quite a wide area. We've made a start with the salary information, but, as you can imagine, quality is a far bigger thing for us to try and assess with the jobs that we're involved with. 

Okay. That's helpful, but I would have expected it to be easy to find whether there have been improvements, for example, in gender balance within the jobs that have been either created or safeguarded. And longevity as well—so, if somebody starts as a result of some money that you've been able to provide, that they've either stayed in that job or progressed even within the same company, or sector, anyway. 

We've got information on gender, so we do record that. So, we've got information on the gender split of the jobs within the businesses that we support. But I think where we feel we can have the most impact is the gender of the people who are applying to us for funding. So, it's the entrepreneurs, the directors, the founders of the businesses. So, we do measure that information as well. That shows us that around a third of the companies that we support are brought forward by female entrepreneurs. It's difficult to get comparable data, but Business Wales says that around 28 per cent of businesses in Wales are run by female entrepreneurs, and there's a British Business Bank report that's just come out that talks about 37 per cent at a UK level. So, we do measure that data, and if you want, I can talk about some of the activities that we're doing to try and improve in that area. 

There won't be time in my section, I'm afraid. But this idea of measuring longevity as part of quality—is that something you would consider? That's all I'll ask.

I completely understand where you're coming from. The challenge with us is the data, if I'm perfectly honest—trying to get the data from the companies in a way that is easy for them to do. So as Giles mentioned earlier, we were collecting a wider breadth of information, and what we were seeing is a drop-off in the return rate of the forms. So we have to have the balance right, particularly with COVID at the moment—individuals are very busy, so we're trying to get that balance right with the companies as to how we measure further information without it being overly burdensome on the companies that we invest in. So, I absolutely take your point; it's how we do that with the data that we ask for, how we track that individual job. 

Thank you very much. That's me, Chair.

Thank you, Suzy. I think Helen Mary just wanted to come in on the back of those answers.

Thank you. Further to what Suzy Davies was asking you, you said, Rhian, that you collect the gender split of the jobs that you create—how many jobs for men and how many jobs for women. Are you able to have any assessment about the gender pay gap in that regard? So, the jobs are being created for women, but are those jobs as good as the jobs for men, and do they pay as much? Obviously, that's a wider societal question, but are you able to evaluate that at all?

No, I don't think we are at the moment, to be honest, on the information that we get. So, they give us information on the gender split and they give us separate information on the pay band—I'm not sure we can draw the two together to make that conclusion.

It's just something maybe for you to look at in future. Because if you're asking them—. I completely take your point about not asking businesses so many questions that you never get sensible answers, or you don't get answers from everyone. But, if you're collecting information about salaries, and you're collecting information about men and women in the workforce, there might be an easy way of putting those two together without creating a huge burden on businesses, which obviously none of us would want.

Thank you, Helen Mary. Vikki Howells. You've turned yourself off again—I think you were on then back off. There we are.

Thank you, Chair. As you said yourselves in your latest annual report, the long-term continuity of the development bank is dependent, of course, on the continued willingness of Welsh Government to provide funds to invest. And as we're rapidly approaching the time for our exit from the EU, I'm wondering firstly what discussions you may have had with the Welsh Government on future sources of capital.

Thank you, Vikki. We have an almost constant dialogue with the Welsh Government about this topic, not least because of the urgent requirements for COVID. So, we put in place the COVID Wales business loan scheme, for example, in effectively seven days. And we continue to talk to them about future sources of capital. There's nothing specific at the moment, but this work is very much ongoing.

But there are a number of things that we're also involved in. We are members of the Welsh Government's national framework working group, which is consulting on the future of regional investment in Wales. And we've also contributed to the draft framework of regional investment in Wales. These set out the need for financial instruments to form part of the investment group, which is what we really focus on. And through the previous EU funding programmes—the JEREMIE fund and the Wales business fund—it's anticipated that it will create a legacy of funding of over £150 million to seed future investments in Welsh business.

And so the last point I would say specifically on this one is that until we know the longer-term UK Government spending plans on the replacement of EU funding, I think the availability of that type of funding will remain a moderate risk to the bank.

Okay, thank you. And in your previous annual report, for 2018-19, you stated that the development bank intended to attract significantly more funds from other independent investors over the next few years. Is that still your intention and have you made any progress in that regard?

Yes, it's very much our intention. I would say that we haven't made as much progress as I would have liked, primarily because of the immediate focus over the course of the last nine months in relation to assisting businesses through COVID-19. However, as we mentioned last year, we were successful in attracting investment from Clwyd pension fund, a £10 million investment into the Wales management succession fund. That has invested in a number of transactions. In fact, we're in the middle of a transaction specifically in north Wales as well, in their region, so it will be—. And my point that I made to your colleague, Ms Davies, about impact investing is very much a case of providing us with the credibility and the track record to then approach investors and approach money funds with an opportunity to invest in a business that does impact investing as part, as I said, of their corporate social responsibility. But I would say that that's work in progress at the moment, rather than something that we're going to be able to deliver in the near future.

Okay. That's all from me. Thank you, Chair.

Thank you, Vikki. Helen Mary Jones.

Thank you, Chair. I want to turn to some internal matters with regard to how the bank is run. To begin with, the annual report notes that the bank has grown in terms of your employees—239 employees now. And that is, I think, a 70 per cent increase over the last five years. And the report also states that the bank has been able to expand the range and reach of your activities and capabilities, which I'm sure we will welcome. Is that a trend that you see continuing and if so, how will the additional costs of staffing increases be met in future?

Helen Mary, thank you very much. I think I should pass on to the man who controls the purse strings—to Mr Staziker—to answer this question.

Thanks both. Thanks for the question. We don't expect this trend to continue at this level, actually, in the future. But we do think we'll continue to expand the reach and scale of our activities as we continue to address the policy objectives of the Welsh Ministers.

The future staff numbers may well increase as we take on new activities, but this is going to be tempered by efficiencies due to economies of scale and our digital transformation programme that the Chair mentioned earlier. Coming back to costs and how they are met, any additional staff costs will be covered by the fees that we charge for the funds that you provide us with. But, as I say, as our economies of scale increase, these fees will continue to represent value for money for the taxpayer.

Thank you. That's helpful. If I can just look at remuneration here. So, the remuneration of the highest paid director in the bank now stands at, I think, £208,000-and-something for 2019-20. That's an increase of 7.9 per cent in the last two years. Does that level of pay increase reflect across different grades in the development bank over the same period and is it justified by the markets within which you're operating in terms of who you recruit? It does seem like quite a big increase, but I'm sure that there's a good reason for that.

Well, as the pay is specifically about me, I will pass on that answer to the chairman. I think it's only appropriate for him to answer it on the company's behalf.

I'll try to do that while sparing his blushes. Let me just address that. As you have said, Helen, that is over two years. So, that's essentially a just less than 4 per cent per annum increase, which is within the guideline. It's not an exceptional increase; it's well within the norm of what we've done across the development bank during that period. And I would say, also, that that's a mix of base salary and a bonus, and also the bonus is within the agreed parameters that we have with Welsh Government and is no way an exceptional award.

Thank you, that's helpful. I think it's useful in these scrutiny sessions to give you an opportunity to put that on the record so that the public can understand.

I appreciate that.

I mentioned in terms of the businesses that you support, the issue of the pay gap between women and men. Have you made any assessment of what that looks like within the development bank itself? Who are in the senior roles that are better paid and who are in the junior roles that are less well paid? If you have done that, do you have a plan to address any disparities that you've found and if you haven't, is that something that you would consider doing in the near future?

Yes, we do measure that very thoroughly, and I'll pass back to David, who's got the details.

Thanks, Giles. Yes, thanks, Helen Mary. We do an annual gender pay gap report, which goes back to our remuneration committee for review. In 2019-20 year end, the mean pay gap on hourly wages—. So, the pay gap is usually looked at on hourly wages and bonus. So, on hourly wages, our gender pay gap was 23 per cent, which was down from 24 per cent in the prior year. And, on bonuses, the mean pay gap was 26 per cent in 2019-20, down from 44 per cent in 2018-19. And if you think, overall, in the organisation the gender split is 51 per cent female and 49 per cent male, then—.

So, the gender pay gap is principally driven by the gender split in our fourth quartile— senior management—as you've just mentioned, and in that quartile, we have 59 colleagues, 21 of whom are female, so, 36 per cent. Following an external benchmarking exercise that we did in the 2018-19 year end, we've taken steps to equalise the pay of men and women in the senior leadership team and, actually, across the organisation. 

So, I'd like to say that we're improving. The evidence points to that, but how do we benchmark? So, if I give you a comparison, say, against two leading financial services businesses in Wales—Admiral and Principality, and, then, maybe the British Business Bank—it may give you a feel for it. So, in the Principality Building Society, their mean gender pay gap is 29 per cent, as opposed to—that's on hourly wage—our 23 per cent in DBW, and, on bonuses, it's 39 per cent, compared to our 26 per cent. That gives you an idea of Principality. And their gender split, if you like, in the senior management roles, is 31 per cent female, as opposed to our 36. 

At Admiral, their gender split in the senior management roles is 38 per cent. So, they're better. Their mean gender pay gap on hourly wages is 13 per cent, so, that's very good. So, that's much better than ours at 26 per cent, but, on bonuses, they're at 28 per cent, compared to our 26 per cent. So, we're slightly better than them on the bonuses.

For the final example, let me go to the British Business Bank. They have 40 per cent of females in their senior management roles. So, I think, overall, I'd say we're in the mix in terms of the split, certainly in senior management roles. And they're gender pay gap on hourly wages is 11 per cent. Again, very good. And, on bonuses, it's 32 per cent. So, we are better on bonuses, worse on hourly wages. So, we've certainly got areas to improve on in terms of the hourly wages pay gap. 

So, what are we doing to try and improve that? We're working with Chwarae Teg, as part of a fair play employer benchmark, in order to benefit from sharing best practice and internal benchmarking. You may have noticed in the annual report that we've said we've improved year on year there, where we got a silver award this year, as opposed to a bronze award the year before. We're delivering, as a rolling programme, unconscious bias and dignity at work training to all colleagues, and rolling those, actually, into the recruitment and promotion processes. And then one of the other key areas that we're working on is scrutinising gender pay as part of our annual pay review process at remuneration committee, just to ensure that there is gender pay equality. It's a long-term plan, but we are making strides in the right direction, and we are very conscious that we want to make it equal. 

That's useful to hear, and obviously, you do operate within the market that you operate in, so those comparators are useful, and I'm sure that the successor committee will want to keep an eye on the progress, but it's good to hear that it's being actively addressed. Thank you, Chair. 

Hefin David. 

Can I ask a question with regard to the demand for the Wales business loans scheme? It appeared that it was fully subscribed in just a week, and received over 1,500 applications. So, how did you manage demand for that? 

Thank you, Hefin. Yes, this is a good question. What I would like to do is just give you a bit of context on the COVID Wales business loans scheme and then,I'll pass on to Rhian to talk about some of the detail in terms of how we operate it.

Like all other businesses, we were in the process of moving to homeworking. In fact, we actually anticipated that there was going to be a challenge, so we moved to homeworking in the middle of March. And then, of course, at that stage, we got the call from the Welsh Government to put in place something urgently. And I think it's important to note that our role in the market is not as a lender of last resort, but as somebody to fill the gap. And it became apparent to me and to the rest of my team that the problem that was going to occur with the lockdown was an urgent need for finance for certain businesses and certain sectors—and we'll talk about that in a little bit more detail in a moment.

The private sector lenders and the schemes that were being proposed by the UK Government were not fully formed and were not ready to act, particularly for smaller businesses. Most small businesses now are not—to the extent that they get loans from the private sector lenders, it's all done electronically; there's an approval process that is done through online applications, and the problem with that is, of course, when your business is not trading, then the data doesn't allow the loan to be approved. It needed actual sanctioning, human sanctioning, and, of course, the banks didn't have that structure in place. I know this because I was on a taskforce of regular, weekly calls with all of the leaders of the main banks in Wales and with the economy Ministry, and we were talking about this on a regular basis.

So, we took the decision that we had to be out there very quickly, we had to be out with a simple product, and we could deal with applications as quickly as possible. And the reality is that we were inundated, but we managed to cope, we managed to get all the applications in, and it was simply the case that we had to close the demand, knowing that, ultimately, the heavy lifting would be picked up by the private sector in due course, and that is actually what has happened.

I should say, because, obviously, the annual report doesn't cover this, we did write a letter to the chairman in advance of this hearing, setting out some of the actions that we took in more detail, which I'm sure he will have shared with you. I'll now pass on to Rhian to talk about actually how it worked in practice.

Thanks, Giles. What we did in practice, bearing in mind we were expecting such a significant demand, was to really look at our process and see how we could change things to cope with the demand that was coming in. So, we rearranged our process into pod systems, and what that actually means is the current way of working is that an investment executive will deal with an application from the point that it comes in, pretty much to the end as to where we provide them with the funds. What we did here was really turn that on its head, split the process down into, effectively, different chunks, and that allowed us to bring in individuals from across the organisation, so, individuals who perhaps don't have investment experience, but we could put them into a part of the process that didn't need that, and suited the skill set that they had. But it did allow us to keep the investment professionals we employ on the important part of the process that they needed to work on, so the actual diligence into the investment and the approval. And the whole thing was overseen by the senior staff here anyway.

We did take the opportunity to look at our processes, so we looked to strip out any duplication that we already had, and cope with remote working—that was the other big part of it, not just from our perspective, but from the company's perspective as well, because all of those were trying to battle with remote working and sending us information back in that new format as well. So, that was the crux of it, that's what we did, which was to change our approach, and that did mean that we could deliver loans quickly. So, we got the first decision within about three days of launching the fund, and money was out a couple of days after that. And that was the overwhelming feedback that we had, really, as Giles has already mentioned. People wanted speed of decision and speed of funds at that point in time.

Given the speed at which you had to act, and also the uncertain economic situation that was then and is ongoing, do you feel that there were more risks involved, and therefore some value-for-money concerns? Was that the case, and how did you deal with those?

I'd say, on that point—. The volume was a lot higher; the activity was about four times what our usual activity would be if you look at the amount of loans that were being made, and it was even higher if you looked at the volume of transactions. So, inevitably, when you're working at that level of volume, the risk of fraud or the risk of the deals themselves does feel naturally increased, but I think that there are a few things that mitigated against that that I would mention. The first point would be that the process was designed and overseen by senior investment professionals. Going back to my point earlier, we always had senior investment professionals over the whole process and involved in the key steps of the process. 

The other thing I'd say is that we focus this fund on companies that have been trading for two years-plus, so that naturally decreases the risk if you've got an existing business that you're able to reference and look at and look at their past trading history, and we also included a small requirement for personal guarantees as part of the loans, again reducing the risk of fraud and the risk overall to the deal.

One thing I would highlight that we didn't compromise on was our approach to customer due diligence. So, that's where we need to check the identification of the company and the individuals involved, and that process remained robust, remained the same as what we normally do. So, for me, that was a significant protection against fraud, as an example, in terms of companies applying. So, they were the main things, I would say, that were the mitigating factors against the risk that you highlight.

And I think Giles has already intimated that the private sector took up a degree of unmet demand. Have you understood more recently whether there still is scope for, demand for, this kind of loan?

Well, yes, that's an interesting question, Hefin. There's a couple of answers to that: firstly, that we now know, through the British Business Bank, the quantum of loans that were granted through the larger coronavirus business interruption loan scheme and the bounce-back loan scheme in Wales, and that, up to the end of August, which is the last data we received, is almost £1.4 billion—£1.1 billion-worth of bounce-back loans and £300 million of COVID business loans—in addition to the £92 million that we provided. So, they really have stepped up. Now, there's a lot in that. The terms and conditions of the CBILS loans were revised on several occasions, and then the bounce-back loan, which is a much more simple scheme, was introduced at the end of August and has continued. Those loan schemes last week were extended until the end of January, and we believe that they will—. There was suggestion that they will be extended to coincide with the CJRS, the coronavirus job retention scheme, and the furlough scheme as well.

So, it's our view now that that has to take the heavy lifting, but, actually, our other activity—we provided in the letter to the Chairman an indication that we have done as much lending activity and what we'd call 'business as usual' from our normal funds at this point in the year as we did last year. So, although we did very little at the very outset and everything was focused on CWBLS, we're still very active in lending into the market and there are some particular sectors where we see significant problems, with no other lenders—for example, the residential house builders, the small residential house builders—and we've taken on a considerable increase in activity in those spaces.

So, it's appropriate for me to still direct constituents who run small businesses along to the development bank?

Very much so. We've talked to MPs, to Members of the Senedd, throughout the process, and I was literally getting e-mails on a daily basis and we were able to direct them through, and, in fact, in a couple of cases, specifically direct businesses. And we've been pragmatic. So, there are situations where we've turned around to businesses and said, 'Your opportunity is better with CBILS', or, 'Your opportunity is better with bounce-back', and that really comes back to my point about we're there to fill the gap, not there to replace the private sector. We just simply don't have that sort of fire power.

And one final question about financial impact. Can I just ask you about the 653 businesses that took up capital repayment holidays of three months? Has there been an impact, a financial impact, of that or is that entirely built into the risk assessments that you did?

It's interesting, actually, because we extended that to six months—so, initially for three months, and then we extended it to six months. We now only have around 100 customers still needing that support. The vast majority of them have come off the scheme, which is about 10 per cent of the book. This is only temporary, and in itself is not an impact on the bank's repayment obligations. So, in simple terms, we're extending the loan by three months at the end of the agreement as the solution. But, of course, depending on the length that the COVID-19 restrictions remain, the higher the risk of the portfolio companies failing and being unable to repay loans, and that's something that we keep a very, very close eye on and we've done a lot of work with our economics research team, EIW—Economic Intelligence Wales—to really look at where our risk profile is and also the impact of the activities that we've participated in in support of the Welsh economy.

Thank you, Hefin. Joyce Watson.

Good morning. I want to talk about, and perhaps you can explain and help us understand, the potential for refinancing the development bank's existing loans and the role that it might play in the recovery from the pandemic. So, we know that, in June, the Minister for Economy, Transport and North Wales was quoted in a BusinessLive article saying that he was:

'in close discussions with the development bank with regard to the recovery period with regard to potentially refinancing funds to make available more money to businesses in the autumn of this year.'

So, do you have an update on that for us, please?

Yes. It's a slightly odd one, because—. I've actually been involved in buying and selling loan portfolios in previous careers, so it is something that does happen. I don't think it's suitable for the loan portfolio, specifically, of the COVID Wales business loan scheme, for a number of reasons. The interest rate that we charge on the COVID Wales business loan scheme is lower than would be the case for the risk profile of the businesses, but that was a decision that we took in the context of the circumstances and also in consultation with the Welsh Government, and there's also an interest-free period in the first 12 months. So, that would mean that, in mathematical terms, if you were selling the loan to the private sector to refinance that loan portfolio, you would be selling it at a discount to reflect the return. So, you would immediately crystallise the position. 

I also think, and this is agreed with the Welsh Government, that there is a danger that—. There are more unscrupulous owners of loan portfolios who are much more aggressive in the way that they handle the loan portfolios, and, given the unique circumstances of the COVID situation, it would be unfortunate—I think that would be an understatement—if the new owner of the loans became aggressive with businesses that have been struggling because of the COVID situation. So, the view has been taken that it's not suitable.

There is also a final point, which is that the majority of our funding comes these days from financial transaction capital, so in itself is a loan from the Welsh Government, which in turn is a loan from the Treasury. So, if we did refinance these loans, it wouldn't be something that we could recycle back into more loans; it would be simply a case of repaying the FTC. However, the last thing I would say is we do have a couple of funds, notably the property funds, where they do have the provision for reinvestment, and, in fact, we've been very successfully reinvesting those funds on a number of occasions, and they have a much longer term, and that may be the structure for the future.

I'm glad you mentioned about the unscrupulous repackaging of financing, because I think we've seen quite a bit of that post 2009, and much later on than that, and it brought down really good businesses.

Yes, indeed, and I'm well aware of that. I spotted it as well, yes.

Yes. So, I'm glad that we're not entering an unscrupulous—well, it was unscrupulous—bargain: good for the bank, bad for the people.

But, anyway, I need to move on. I'm sure we could talk about that for some time, but we haven't got time. But it was the case that you did apply to become an accredited CBILS lender, but it was rejected because less than 30 per cent of the funds came from non-Government sources. So, in terms of the refinancing, what effect did that have? And, more importantly—my final question, because of time—what role does the bank expect to play in supporting the recovery from the impact of this pandemic, and will that involve further additional funding from the Government, in your view?

Thank you, Joyce. Those are useful points to reflect. The situation on the CBILS application was an unusual one. We didn't know—in fact, neither did the British Business Bank know—what the eligibility criteria was for CBILS, because there was no precedent for it. And ultimately, the Treasury concluded that to provide—. Effectively, the Treasury is providing a bank with an insurance policy on the loans that are being granted under these schemes, and the Government decided that insuring Government money seemed to be perverse and therefore wasn't applicable. So, it was not a question of us failing to get it; they concluded that we were not eligible. And this was the same decision they made for other regional funds. For example, the Cornwall and Isles of Scilly Investment Fund had the same—they came to the same conclusion. Having said that, the English operation that is owned by the development bank, FW Capital, has received accreditation, because their funding comes from different sources, and has actually issued almost £30 million-worth of CBILS loans in the north of England. So, there's no issue in that sense.

And then on to the follow-on question, which, I think, is the key one. The answer is 'yes'. We've been very actively in discussion with the Welsh Government about longer term solutions, and most of those have revolved around patient capital. We often hear the phrase 'patient capital', and I think that's in the same way as 'impact investing' is often misunderstood, or that people have different interpretations of it. In my view, if you look at examples, for example, in Germany and elsewhere in the world, which have very successful investment and funding schemes for small and medium-sized businesses, patient capital is generally longer term debt at sensible interest rates, and we think that that will be an important component going forward.

There will be a need for equity in some cases, but I think equity should be aligned with very specific growth opportunities, and the longer term debt should be aligned with situations where companies simply need time to address the increased debt that they've incurred in their survival through COVID. In the short term, the extension of CBILS, the bounce-back loan scheme and the furlough scheme will, I think, have a significant positive effect, so we're really looking at longer term solutions for Welsh businesses. And you'll notice there was an announcement about six weeks ago that we have been given the authority now to extend loans for as long as 15 years out of some of our funds. Again, it's simply a case of giving businesses the opportunity to de-lever over time, rather than put them on very short-term debt pressure.

Okay, thank you.

Thank you. Are there any further questions from Members, or is there anything that, Giles or Gareth, you want to add before we end our session? Do you feel that you've been able to give your perspective to provide any information to help our scrutiny process though the questions that have been asked, or is there anything you think you want to add?

Thank you, Chair. The only thing I would add is that a lot of work has been done at EIW, Economic Intelligence Wales. In fact, we have put in place a programme, working in conjunction with Business Wales, for an 18-month research plan for multiple, bespoke reports on the impact of the various Welsh Government interventions, such as the economic resilience fund, but also the COVID-19 Wales business loan scheme. A couple of the reports are already out, and they provide some stark data in relation to the reaction, the short-term impact, in Wales. And we will continue to provide that data to give us the closest monitor, and also to provide us guidance for what sort of support we need to continue to provide into 2021 and beyond. 

Thank you, Giles. I'm not sure whether you were indicating, Gareth, to speak or not, or whether you were content with—

I'd just say that I didn't have anything more specific just other than to underline the role we play, as Giles has said, of filling the gap. As we go forward, not just with the continuing COVID crisis and its effects, plus whatever happens on Brexit, I think there definitely will be a gap. How big it is and where exactly it falls will be—. It will be what it will be. Our job is to remain flexible and attentive, and we'll try our best to fill as much of that gap as we possibly can.

Okay. Well, thank you all for attending and, of course, thank you all for your work, particularly during this pandemic, which, I'm sure, as with those working across Welsh Government, put a greater strain on you all, so I appreciate your work during this particular time as well. So, thank you ever so much for your time in committee this morning. As in previous years, we'll send you a copy of the transcript for you to review, in case that you feel you need to provide anything further to what's been said. So, diolch yn fawr. Thank you very much for—

Diolch yn fawr.

Thank you very much. Goodbye.

Thanks.

I move to item 5, and, under Standing Order 17.42, I would resolve that we exclude the public from the remainder of the meeting, if Members are content. Thank you. That brings our public session to an end today.