Finance Committee

Croeso cynnes to the Minister. Nice to see you, hot off the back of your statement yesterday. So, we'll crack on with the first session with yourself. I think you're with us today and then you're with us in January. Could you introduce yourself and your officials for the record, please?

Yes, Rebecca Evans, Minister for Finance and Local Government. I'll ask officials to introduce themselves.

Bore da. Good morning. I'm Emma Watkins, deputy director for budget and Government business and Welsh Treasury.

I'm Andrew Jeffreys, I'm director of the Welsh Treasury.

Lovely, great. Well, croeso cynnes. Thank you very much for making yourselves available today. I'd like to start with looking at the economic context and to clarify some of the overall principles and aims underpinning the budget, and how inflation has changed affordability of original plans. Inflation is likely to peak during the current financial year, but price increases will persist into 2023-24. The inflationary pressures mean that funding won't go as far as when you set out your provisional budget last December, and more funding will be required to fund things like increased energy costs and wages. What changes have you made in terms of what you are hoping to achieve with this budget, and how will you measure the outcomes and success?

Thank you, Chair. So, in terms of the principles and the aims behind the budget, it was very much a three-pronged approach in the sense that, first of all, it was very much about protecting our public services. Secondly, we wanted to continue to support those who are feeling most acutely the impacts of the cost-of-living crisis. And then, finally, supporting businesses through recessionary times. So, those were the three pillars, if you like, of the budget that we announced yesterday.

Of course, the fact that inflation is having such a big impact on our budget does mean that our plans are curtailed as a result of that. So, you'll be aware that our budget is worth around £3 billion less over the three-year spending review period than originally at the time when those budgets were set. And one of the main parts of regret, if you like, for me was that there was no additional capital funding in the autumn statement from the UK Government, and, obviously, our capital budget in real terms will be 8.1 per cent lower in 2024-25 than it is in the current year. So, obviously, that's having a particular impact when you think about price inflation, impact on supply chains, and so on. So, there will be parts of the budget where we're just simply not able to deliver as much as we'd originally intended.

We published our Wales infrastructure investment strategy last year, and that sets out what we want to achieve through our infrastructure investment, but I think that there are things that we are going to have to do over a longer period, for example. So, our sustainable communities for learning programme is one area where, although we're still committed to spending £1.5 billion, inevitably we're not going to get so much for that money. But, that's an area that remains one of our areas of focus. Another area, I think, is around our 20,000 new social homes target. So, that could be an area where we're not looking at all new homes now; we could be looking at homes that are brought up to standard, or further empty homes brought into use, and so on. I think that there have been some changes in that sense, particularly on the capital side.

Mike.

On social homes, isn't there the possibility of them being funded either by registered social landlords or by local authorities? I think there is this idea—and it's a problem I believe we've got in Wales—that the Government is going to give money to do anything, be that to private businesses or anybody else. But local authorities have got prudential borrowing capacity, so they could use that to build houses. Registered social landlords have got the capacity to borrow, and they can build houses. Why does everybody always look to the Government to give them money before they do anything?

Local government and RSLs, in particular, are active in this space—increasingly so on the local government side, which is to be welcomed. But, I completely agree that investment in social housing is truly an investment, and that's one of the reasons why—and this is outside of my portfolio—but one of the reasons why Julie James's officials are looking at what more we can do to encourage pension investments, for example, in social housing. But, if the committee wanted some more detail on that, I'd happily get that.

Just to make a final point, between 1945 and 1979, we built large-scale council houses without having large-scale Government investment. Local authorities borrowed over 60 years, and they paid the debt back through the rents. That worked. Councils can do that now, can't they? So, I don't understand why people aren't looking to do more in terms of how things worked before. Everybody knows that I'm a great fan of the 1945-51 Labour Government, which I think is the best Government this country's ever had.

Well, I completely agree with Mike in the sense that there are further opportunities for social housing beyond grant support that the Welsh Government provides, and we absolutely encourage that. As I say, I can get a note from the housing Minister on what's happening, if that's okay.

I think Peter wants to come in.

Just a little one, just for the sake of people who might be watching in. You said that the budget was £3 million less, but that's a real-terms projected. Could you tell us what the actual cash increase this year and next year is likely to be, because obviously there is a cash increase but there may be a real-terms cut?

So, as a result of the autumn statement, we have an additional £666 million in the next financial year, and £508 million in the following financial year.

On top of the previous settlement, which showed a cash increase as well?

Yes.

Okay. Thanks, Peter. You talked about maybe pausing or deprioritising some of the funding. What real-terms impact is that going to have on that house building or on the communities for learning? Is that pushing end dates backwards? What's the thought process there?

So, Ministers are currently working through their various programmes, and I know that they'll be providing detailed evidence to the subject committees, but it will be in that space of either just delivering less when there's a fixed budget, or delivering things over a longer time frame when we're able to do that. So, those will be the two big impacts, I think.

And with making those decisions, is it individual Ministers who have been deciding those issues, deciding those solutions, and then coming back to you, or have you been giving them directions to say, 'Well, you should be extending this term, because this work needs to be carried on, but it needs to be done over a longer period', or is it that you're saying, 'Well, actually, you're going to be delivering less for people than you were previously'?

So, one of the exercises that we undertook was to reprioritise budgets across the Government, to try and free up some additional funding for the next financial year to be redistributed. And one of the principles behind that was that we should still maintain our commitments to our programme for government. So, that's been very much at the heart of the discussions I've been having with colleagues, in terms of, 'How are you going to continue to deliver on your programme for government commitments within your particular portfolio?' So, maintaining and protecting those, as far as we can, was one of our key parts of the work, alongside protecting public services. And then, of course, the first principle in that exercise was achieving a balanced budget, which is harder this time round than any time before.

Okay. Moving on to the impact of inflation, and in the news in the last couple of days, I think, inflation is dropping a little bit. I'm just wondering if you could give us an idea of where you see inflation over the shorter period, anyway, and then what impact that is having on that real-terms spending power that you've got within the budget. And then, if you could talk a little bit about the processes of reviewing the affordability of the investment plans.

I'll ask Andrew to come in on this, in terms of the wealth of data that we look at to understand what inflation might look like in the period ahead, to help inform our plans.

Thank you. So, Members will have seen the figures in the budget on real-terms changes in funding levels in future years. For those assessments, we use the gross domestic product deflator, which is a measure of inflation that the Office for Budget Responsibility produces, which is intended to reflect the changes in the cost of delivering public services in general. And so it's a somewhat different measure of inflation than, for example, the consumer price index or the retail price index, or those kinds of more general measures of inflation in the economy. So, that's the conventional measure that we use. But I think, in the current context, there's a sense that that understates the real inflationary pressures that are facing public services. And the OBR, I think, in their assessment, published back at the time of the autumn statement, said that the real inflationary pressures facing public services are probably somewhere between the GDP deflator and CPI, which is obviously a broader basket of goods and services. So, I suppose we're basically following the OBR there in our general assessment of inflationary pressures affecting public services.

But, of course, the pressures are very different in different areas of public service delivery, and the Minister's already mentioned capital programmes, where, even in the broad category of capital programmes, you've got very, very different pressures affecting different types of capital investment. So, your inflationary pressures on school buildings, for example, are a bit different from inflationary pressures on road building or hospital building or other different types of capital investment. So, those different sectors, they have their own understandings of what the inflationary pressures are. Just as an illustration, in school construction, we think that cost pressures are around about 15 per cent over the last year, so, yes, that means you're getting 15 per cent less school for your money this time this year than you were this time last year.

So, it's a complex picture. But I suppose the final point to make there is that we haven't really been able to reflect fully those inflationary pressures anywhere in the budget, just because they are so substantial and our funding is not growing at anything like the rate of inflation that we're seeing across the board. So, hopefully that's helpful.

So, just to remind us: what's the average inflation that you've taken across this budget?

So, the GDP deflator next year, 2023-24, is around about just over 3 per cent, whereas the forecast of CPI is about 8 per cent next year. So, where we've estimated—the Minister mentioned £3 billion across the three years of the spending review period—that's an attempt to estimate, between those two levels, the real rate of inflation levels.

And is that closer to the eight or closer to the three?

Yes, it's closer to the eight than it is to the three. Yes.

Right, okay. Yes, that's fine. So, in your outturn report for 2021, it reported His Majesty's Treasury had denied you the flexibility to offset your capital overspend with some of the revenue underspend. Is the Welsh Government still able to switch from revenue to capital?

Yes, we are, and to do so, we'll need to inform the Chief Secretary to the Treasury before a date that he will set. I don't think we've had that date yet.

No.

And is that your intention, if you need to?

If we need to.

Right. Okay. Fair enough. So, let's move on to funding available to the Welsh Government. So, I'd like to look at the draft budget and transparency of UK Government funding. I know this has been a hot topic for us in the past. What level of reserves are being held, and are you expecting to make significant additional allocations between the draft budget and the final budget?

At the spending review last year, we announced a new fiscal strategy in the sense that, for years 2 and 3 of the spending review, we wouldn't hold any unallocated departmental expenditure limits; instead we would be managing things from within the Wales reserve for that year. So, from 2023-24, or in 2023–24, I should say, we'll be drawing that from the £125 million annual revenue limit. But our plans for 2023-24 already outlined £38 million of drawdown. So, basically, within this budget, we've allocated everything that we can possibly allocate, so I wouldn't expect to make further allocations now before the final budget, just because things are so tight for next year. And, obviously, we've over-programmed by nearly £100 million on the capital side as well. So, this is an extremely thinly stretched budget. And I've been really clear with colleagues that they will now have to live within their main expenditure group settlements. So, I don't expect to see further funding allocated. That said, there's always the potential for moving funding within MEGs or between MEGs between the draft and the final budget. But this is one of those situations where, if colleagues or Members of the Senedd, or stakeholders beyond the Senedd, are calling for additional funding in certain areas, then we really need to identify where funding would be moved from. And I can see Mike smiling now. I know exactly what he wants to say. [Laughter.]

There are going to be lots of suggestions. I hope you'll look at them.

With regard to reserves, you said all the reserves are allocated now, or—

So, we're not holding an in-year reserve next year—so, that would be the unallocated DEL—[correction: we're not holding an in-year reserve next year in terms of unallocated DEL] but we do have the ability to draw more down from the Wales reserve if we need to. So, that's how we'll manage things next year.

And the Wales reserve is currently at what level?

So, we're able to draw down £125 million, but our plans have already been made to draw down £38 million.

Okay. Joyce, and then Peter.

Just on reserves. Obviously, there has to be a safe limit of reserves that you maintain and so I'm assuming that—. You said you've, sort of, maxed out to the minimum safe limit. But we're all seeing what's going on outside, and we're in a very cold spell at the moment, which could be a long one—I'm not a weather forecaster—or a short one. And if it's a long, protracted one, and I'm old enough to remember 1963 and all the damage that did, is it likely that your reserve—? The question is: are your reserves sufficient to meet that, because there will be costs of heating, et cetera, as well, in schools and public spaces? Or have you had any indication or asked for any indication from the UK Government that they might assist in a prolonged, real cold snap that we will all be challenged by?

So, any support for that scenario would now have to be met within our existing plans, so it might mean that funding would have to be moved from one area to another to respond to that. So, we're not holding large amounts of funding to provide additional support. For example, the winter fuel scheme, that cost £90 million, so that was a very, very large investment, and it's not something that we are able to afford to do next year. So, as I say, if there was an emergency situation, it would be a case of reopening the MEG settlements that colleagues have.

Peter.

Obviously, the Government wouldn't use reserves to underwrite things like bad weather and that; the local authorities will have to do that out of their reserves and things like that. Just to be clear, the Welsh reserve can hold a maximum of £350 million, but you're only allowed to draw £125 million a year off of that. And so, you're not drawing any—. I'm sorry, I must have misunderstood it. How much of the £125 million opportunity to draw are you planning to draw for this next year?

At the moment, £38 million.

Thirty-eight million pounds.

But, you know, if pressures—. Not extreme pressures, but if pressures do emerge during the year—

Like pay pressures or things like that.

Well, not so much pay pressures, because they will have to be met now within the settlements that all colleagues have, but if there are things emerging within the year that are one-off things. But not large one-off things.

Okay, thanks for that clarity.

Okay, thank you. So, there's just over £90-odd million? It depends if my sums are correct. No, 80—

Eighty-seven.

Eighty-seven million pounds left there, just in case.

Yes. And if we don't have to draw it down, great, because it means that we're in a healthier position for the years that follow as well.

On that, if you don't draw it down, your limit doesn't change or get uplifted next year; you can only draw £125 million, so that money, really, just stays. Because the reserve can only handle £350 million, if you don't use it, where does the money go? If the reserve is already full at £350 million, and you're not drawing down, where does that money go if you don't use it? You might be better just to use it.

We try and maintain as much as possible within the reserve without, obviously, breaching the reserve, because if you breach the reserve, then, obviously, the money has to go back to Westminster. So, in terms of the reserve, that's the general approach that we take.

Okay.

Thanks. Okay, thank you very much. Just whilst we're talking about the UK Government, in terms of funding and consequentials allocated in the autumn statement, has there been any improvement in transparency?

No, I would say, unfortunately. It was another situation where we were only informed of our settlement after the Chancellor had made his statement, which is obviously not ideal by any stretch of the imagination. So, we had to watch the statement and get the information from that at the same time as everybody else, despite the fact that it has implications for us. So, I just think the courtesy of a call before the statement is important, and I wouldn't want to see that repeated again.

I think that the example that this committee's been interested in, in terms of the shared prosperity fund money, just gives a really clear example as to how there's an absolute lack of transparency at the moment. So, the supporting tables, which were published as part of the autumn statement, showed the overall spend on the SPF to have reduced by £400 million compared with what was previously announced. But there was no explanation of that at all in the UK Government's published documentation. So, our officials, the Welsh Local Government Association, yourselves, all had to try and seek some clarity as to what had happened. And, essentially, the £400 million has been added to the Department for Levelling Up, Housing and Communities' budget, but I have a further concern then that it might further erode transparency for that particular fund, when it's just been subsumed into such a large departmental budget. So, that's just, I think, a practical example of how there still remains a lack of transparency, which can lead to confusion, and it's entirely unnecessary.

Thank you. So, if we move on to the fiscal levers that we do hold here—tax borrowing and forecasting: what approaches are being proposed in this budget to maximise the funding available to the Welsh Government for 2023-24, in terms of changes to taxation, growing the tax base, and the borrowing policy?

So, in terms of taxation, we did think long and hard about our approach to Welsh rates of income tax, but, on balance, we think about the amount of tax that people are paying in the round, so we don't think of rates in isolation from the tax people pay to Westminster. And tax at the moment is at a higher level than it's been for 70 years, which obviously does feed into our considerations. And being in the middle of a cost-of-living crisis as well didn't feel like the right time to be taxing people more, and taking more money out of the economy, when what we need to be doing is supporting our local economy. So, that really informed our decision around Welsh rates of income tax in terms of maximising the funding available to us.

And, as I say, we've maximised the funding by allocating almost everything to departments now, to help them deliver on their plans, and over-programmed by nearly £100 million on the capital side. So, we are trying to stretch and maximise funding there.

In terms of growing the tax base, specifically within this draft budget, you'll see an additional £18 million for apprenticeships. I think that's an important investment in terms of supporting people's ability to progress within their careers and maximise their own incomes. But everyone will be aware that this budget just builds on our budget from last year, which was a three-year spending review. So, we're just highlighting an additional area of spend.

And, then, on borrowing, it's our intention to borrow the maximum available to us. Obviously, we try and use the cheapest forms of borrowing first. So, we are able to borrow £100 million—sorry, £150 million.

I'll bring Peter in in a second now. Two questions. The £150 million that you're intending to borrow, obviously interest rates have shot up recently, so how are you factoring the cost of borrowing into the budget? And—it might be a question for Andrew, I'm not sure—looking at the Welsh rates of income tax, could you give us a breakdown, if you had increased the different bands by a penny on each band, individually, how much would that have raised on the base rate, and the middle and the top? So, if you could give us that information.

Do you want to take this one?

Yes, I'll just quickly get the—. So, we published the new income tax ready reckoner yesterday. It's a bit slow opening that. On the interest rates, yes, you're right; the expected interest rates for Welsh Government borrowing have gone up, or are going up next year, so I think our assumption for borrowing this year is around about a 3 per cent interest rate, and it's now closer to 4 per cent next year. It's just worth noting that we're not exposed to the kind of—. A lot of the reason why the interest costs that the UK Government is facing have gone up by so much is that they have a lot of inflation-linked gilts, and so when inflation rates are high, that pushes the cost of UK Government borrowing up by a lot. Our borrowing is fixed-rate through the Public Works Loan Board, so it's obviously exposed to interest rate risk, but not in the same way as inflation-linked borrowing is. So, on the ready reckoner that we published yesterday, it says that 1p on the basic rate is £237 million; 1p on the higher rate is £33 million; and 1p on the additional rate is £3 million.

Thank you. Peter, did you want to come in?

A couple of things. One hundred million borrowing—that's capital, obviously. Yes. That's fine. So, we're just clear on that. You're just saying that local authorities borrow money, but you're limited to £100 million, whereas they can borrow as much as they want.

We're only able to borrow, as I say, capital. We are able to borrow revenue, but for things like tax reconciliation, for example. So, it's very specific. We can't factor it into our spending plans.

But you're limited on how much—. If you wanted to borrow capital, that would still be encompassed in that £100 million—

One hundred and fifty million, was it? Did you say £150 million or £100 million?

I said both, Chair. [Laughter.]

It is £150 million.

One hundred and fifty million.

Oh, right, okay. The other point I wanted to ask, just to—. There was one bit—and I mentioned it to you yesterday, actually, Rebecca—just for some further clarity; the OBR forecast that the total tax take from our taxes here will rise from £4 billion to £4.7 billion in the second year, and I was trying to reconcile, looking through the papers, and understand where the OBR came from for that extra tax take, where it actually states that, actually, employment's going to drop in some areas. Well, I'm thinking that's going to reduce tax take. Is there any explanation that is easy for us to understand as to why, in 2024-25, £700 million extra pounds will be taken in tax through our system?

So, the OBR publish a forecast report, which kind of explains the details there. Basically, on income tax, you're right; there's an expectation that employment rates will fall a bit, but wages are going up because of inflation. And so the combination of those two effects overall is that the expectation is that income tax will continue to rise. Land transaction tax, in contrast, is forecast to fall quite sharply compared to previous forecasts, because obviously now the expectation is that the housing market is going to enter a much—. Prices may actually fall and, certainly, transaction volumes will go down.

But the big effect, isn't it, is the freezing of bands. That is the big effect on increasing the income tax we get, because if bands had gone up with inflation—. But they're not, they're frozen, therefore, as people get wage rises, lots of them will move into different bands.

That definitely helps, if that's the right word.

What I'm trying to ascertain is that there aren't any sort of hidden tax rises likely to be factored in, somehow, into 2024-25, which is captured in—

Apart from the ones mentioned.

Apart from the ones that naturally happen.

Well, I'm not sure it's natural; it's a policy decision to freeze. So, that is a tax rise of the UK Government that Welsh revenues get the benefit of, and, because of the differences in the tax base, we actually get proportionately more benefit, because Welsh taxpayers are earning less on average than UK, so that fiscal drag, again, 'helps', if that's—.

So, that helps our budget next year, so—. Yes.

Thank you. That's all from me. I'll hand over to Mike.

Diolch, Cadeirydd. What is proposed in terms of changes to the non-domestic rates multiplier, and what impact has this had on the draft budget, but also, going forward, the long-term trend in future non-domestic rates revenue?

So, we've opted to freeze the multiplier in 2023-24, and that ensures that ratepayers will be protected from inflationary pressures impacting their NDR bills. And to do that, we've used consequential funding, which came from the UK Government's autumn statement. So, that ensures that the overall funding to local government isn't impacted. And the decision to freeze the multiplier has been factored into our NDR distributable amount for 2023-24. Future increases to the NDR forecast will continue to be based on the default position of CPI inflationary increases.

Can I thank you for that? You made a decision yesterday to pass on large sums of money to continue non-domestic rates support. Can I ask you some questions on that? On that, is it a blanket reduction for small organisations, or—? What I'm really asking is: are the large coffee shop chains, are the large fast-food chains and are the large betting shop chains also going to get some of this money? If they are, I'd like to see it much better targeted at what we normally talk about as the corner shop, not these large chains who may only have three or four of their organisations in one area, but they're highly profitable and I don't see any need for them to get NDR support.

So, in addition to freezing the multiplier, we also announced that we would be giving 75 per cent relief to businesses in the retail, hospitality and leisure sectors, but that is capped at £110,000 rateable value per business across Wales. So, it does leave out some of those larger businesses.

Well, is the business Costa, or is the business Costa per shop, because that makes a huge difference? Nothing against Costa or Starbucks or any of those, but I don't think they're in need of rate relief. If it isn't, I would like to see it aggregated. The same with fast food; I've got nothing against Burger King, I've got nothing against McDonald's, but each one of them will be small. I think it needs to be aggregated across Wales. I don't expect you to have the answer now, but can I ask you to look at that and come back to us? Because I think the general will of the Senedd would be that these big companies—they might have lots of small shops or places, but collectively they're very big, very profitable and we would not like to give them money.

I think Joyce wanted to come in.

Yes, just a word of caution on this, or thinking wider: if that is the case, that you look at them in the round rather than individually, I think there would need to be some caution about the way they franchise them out so that the individual who takes that franchise, which effectively is a small business, isn't impacted disproportionately next to somebody who isn't a franchisee but nonetheless running a similar business with similar costs.

Shall we provide a more detailed briefing to committee?

I think that would be useful, if you could, because it seems from colleagues here that if it's a one-size-fits-all type of system, which it seems to be, it's how sophisticated can we get with the levers that we've got—or is it just that we're stuck with this and it might need a bit more work to get the nuance and some of the things that colleagues have raised? And it might be something that you'd want to take back and think through with the economy Minister to see how best to be more specific and targed to help our smaller businesses, because that's probably the crux of it, to see how do we best make our intervention support our Welsh local businesses rather than the big multinationals, as Mike says.

I would say as well, overall, that there's an important point about balance and being proportionate in terms of implementing a scheme that is relatively simple and relatively low cost, as opposed to something much more intricate that could result in lots of administrative burden and delays and so on. So, there is that kind of balance between something that is simple and something that is very, very targeted.

And it's the balance then between progressive and non-progressive taxation and relief and we see that in council tax; we see that in business rates, potentially, where we probably need a better way of progressively working through these things. But we'd appreciate any information that you could write back to us with; that would be good.

And the announcements yesterday were on top of the £240 million small business rates relief scheme that we already have in place, so, that will also be helpful to many businesses. And just to complete the package, we also announced transitional support for those businesses that will see an increase in their bills as a result of the revaluation that took place. So, there'll be support for any ratepayer whose liability is increasing by more than £300 as a consequence of that revaluation.

Okay. Thank you. Mike, back to you.

Can I ask for a note on this, because, if you answer it fully, it'll probably take a large chunk of the time we've got available? Can you give us a note on progress made to secure the required powers to implement a vacant land tax and what discussions you've had with the UK Government on this? And what is holding it back at UK Government level?

Definitely. I fear it'll be a very short note, though, unfortunately, because things have really just stalled in that space. We have done everything that's required of us through the process that is set out in terms of making the case for the devolution of a vacant land tax—the powers for a vacant land tax—but we've stalled because the UK Government wants to know in great detail how we would use that tax, and that's really a matter for the Senedd rather than the UK Government, and it shouldn't really be a factor in the UK Government's consideration as to whether or not they like things that we're proposing. So, we have stalled at the moment, unfortunately. And I think the process itself is just not fit for purpose, but I'm happy to include that in a follow-up to committee.

As most mortgage owners know, eventually, debt disappears and the councils will be, this year, paying off their 1962 council house building—the final parts of that—that they borrowed over 60 years. We've also got a small number of private finance initiative schemes. And can I give credit to Rhodri Morgan for not implementing PFI when all the pressure from everywhere else was, 'This is easy money, it's good money—you're getting the private sector to give you money cheaply', which turned out to be absolutely and utterly untrue? Do you know—and again I'll take a note on this at some stage—how many of the PFI schemes are coming to an end in five years?

We do actually put—. That's published quite—. I think annually we publish a list of all the PFI schemes in Wales and their expiry, if that's the word, dates. I can't give you an answer off the top of my head, but we can just send you details of that from that published [correction: that published list]. As you say, there aren't many. There might be the odd one or two coming due in the next five years, but we'll clarify that.

And something that this committee—well, mainly myself and the Chair—have been very keen on is outputs. We've talked a lot about that over the last 15 months and I've certainly talked about it over the last 11 years. It's outputs that matter, not inputs. But the question I've got is on the link to outputs, and also gender inequality, affecting different income groups. Different people here hold different ones of those as the most important; I hold that different income groups are the most important. And there's a terrible danger of Government doing lots of things that help rich people and very few things that help poorer people.

So, in terms of outputs, the main vehicles for publishing those would be the programme for government annual report, the well-being indicators and our national milestones. So, those are the ways in which we measure progress and measure the outputs that our investments are delivering. But, in terms of the documentation that accompanies the budget, well, last year, we published a distributional impact assessment and, given that things haven't really changed in that space since last year, that document still remains valid at the moment. So, we do publish that. We're still working on gender budgeting, to embed that in our processes, and you'll remember last year that we increased our funding for some of those pilot schemes that we're doing. We're still working through the well-being governments network to further embed those things, and also working with countries that have gone much further down the road of gender budgeting, so working to learn from them as well. It's very much part of our approach to the budget.

Joyce.

Just a small question. I was on the original Wales gender budget group. In terms of output, you could match output with an area that might be invested in, just a small town or village. You could also look at the census, and look at what the make-up is of that community. I know it's more detailed work, but I think it would be advantageous in this space. You could look at the numbers of, say, single households headed up by females, or the number of females versus males, and decide then from that data what investment would best match the needs of that community, according to that data. I'm just wondering whether that level of detail might come into play when you're trying to specifically target. And then of course it goes back down into training. If you invest in, say, traditional construction, you're going to find very few females.

Do you want to come in on this one, Emma?

Yes, just to respond on a couple of those points. I think the census does provide a lot of information that we can start to drill down on. Obviously, we haven't had enough of it in time for pulling together this draft budget.

One of the things the committee will be familiar with is our reformed budget impact and improvement advisory group. They had a sub-group looking specifically at our strategic integrated impact assessment and the impacts coming out of that. Some of the reforms they've proposed we have actually taken forward into this particular draft budget. There are some more longer term reforms as well. One of the things they were particularly interested in is focusing perhaps on fewer case studies, but delving deeper into those to look at the fuller impact. You'll see that, in our strategic impact assessment, in the latter part of the budget documentation, there are just two case studies; I think in the past we've had five or six.

They've also talked to us about the method that we use. I think in the past, we've looked quite a lot at protected characteristics. They've talked about focusing more on the four well-being domains. So, I think this is something that we could definitely take on board through that work that we're doing with external stakeholders as well; that's hugely valuable. We can certainly pick that up in the context of broader impacts.

It's worth as well mentioning the important role of the census in terms of administrative data linking, which is something that we're supporting through the SAIL project based at Swansea University, which basically uses information to help inform good policy decisions. It has access to a really wide range of information across health and so on. It's basically anonymised data, so we get a real feel for the nature of communities, whilst also maintaining that privacy for the people who are involved. That's really quite an exciting piece of work as well. I hosted an event for the project in the Senedd about two weeks ago. They were able to show how we've used the data in the past—an incredible wealth of data to help us in terms of choices around our response to COVID, for example—but then also outline how they intend to support our policy making in the future, particularly in areas of housing, where data about people's health and so on can be linked across to what we need to do to support quality housing in particular areas.

Thank you. Mike.

Finally from me, the co-operation agreement between the Welsh Government and Plaid Cymru has been in place for a year. Where can we see in the budget the effect of that?

The budget doesn't propose any changes to the co-operation agreement areas where there was funding attached. Within the co-operation agreement, there are 13 areas that explicitly have funding attached to them, and we haven't made any changes to those in the draft budget.

Or the amounts attached to them?

No. No changes to the 13, or the amounts.

Okay. Thank you.

We set those amounts as part of the three-year review.

Okay. We'll move on to Peter.

Thank you. Minister, I want to just touch on carbon net zero and around climate change. I recognise what you announced yesterday: £60 million over two years for transition to low-carbon public transport. Obviously, that's going to require some infrastructure to support that, and I'm just conscious of the shortage in capital. How are you going to prioritise capital to make sure you can deliver on your net-zero targets? I just wonder how we're going to fund all this infrastructure that we'll need to service that desire to move, as you've pledged £60 million to do.

The zero-based review of capital that we undertook last year as part of our three-year spending review really puts us in a good place to prioritise our spend in relation to net zero. That was a really fortuitous piece of work that we undertook. Alongside the draft budget, which was published yesterday, we also published the Wales infrastructure investment strategy pipeline. That sets out the programmes that we need to deliver our ambitions within the Wales infrastructure investment strategy. As part of the 2022-23 budget, we've outlined a significant package of revenue investments worth more than £160 million and a £1.8 billion package of targeted capital investments in response to the climate and nature emergency up to 2024-25. It's very much something that we are prioritising, and it's something that we're trying to protect as far as possible.

For example, we've protected the actions under the national forest and we intend to make further investment over the next two years, leading to rates of woodland creation accelerating to the highest level in decades. Even with a very difficult settlement, we're still prioritising our actions in the climate change space. Another example would be protection against flood and coastal erosion; we're investing more than £214 million between 2022-23 and 2024-25. And, of course, there are other things that are happening. There's the development of Ynni Cymru to expand community-owned energy, the support that we're also putting in place for green spaces, the national peatland action programme, and Natur am Byth. There's a whole range of projects that we're continuing to support, many of which have been protected within the budget.

It's reassuring to know that we're moving on that. Obviously, there's an opportunity cost to making those decisions, so there will be areas that are deprioritised from capital. To understand who are going to be the losers in capital will be helpful at some point. But on that specific point, that was reassuring. Can you tell us then what is the overall carbon impact of this budget? It sounds like it could be quite positive, but it might be difficult to pick that out when you just read it as it is.

It is difficult to make a carbon impact assessment of the whole budget, partly because around half of it is exposed to pay. In that sense, what people spend their pay on has an impact on carbon, so that's difficult. But last year we did undertake a carbon impact assessment of the budget as part of our three-year spending review, and, again, that still remains valid at the moment. We particularly looked at health and social care at that particular point. So, that work all remains valid. The carbon impact assessments that we undertake as part of our pipeline of projects as well are important, because that identifies the carbon impact of specific capital investments. So, again, that's really important.

And then, just to clarify, in terms of the reprioritisation exercise that we undertook to release funding from across Government, that was only on the revenue side. I haven't made any changes to the capital settlement, but individual Ministers are able to move things within their MEG, and, as we were talking about before, things aren't going to stretch as far as they would have previously.

Is there anything in the budget that we could identify above and beyond what you've pledged—the £60 million for transport—that supports behavioural change in organisations and the general public so we that can actually see—? Is there something we can actually see?

Probably not related to the budget itself, but I would point to the work of the decarbonisation panel, which works to bring public sector organisations together. It's particularly focused at the moment on local government, but I think there are opportunities to learn beyond local government. That panel has been working with local authorities so that they each produce a decarbonisation plan. Also, as part of that work, they are engaging with staff within local government to understand the barriers to lifestyle changes, if you like, in terms of having less of a carbon impact—active travel being an obvious example. So, there's quite a lot of good work happening with public services, but probably not something I can point to within the budget; it's more policy and engagement.

I understand that. Thanks for that. If I can just look at public sector pay. It's a straightforward sort of question, really. What assumptions are included in your budget in terms of public sector pay and how will you manage the impact of increased pay awards on your budget, both for pending awards that may be agreed this year and next year?

Obviously, we'll work through our social partner structures to have discussions, bringing together trade unions, employers and Government to talk about what the best possible outcomes are within the funding that we have available. Obviously, despite the uplift to the budget, it doesn't come close to meeting the impact of inflation, and certainly doesn't allow us to meet in full the demands of the various sectors. That said, we were able to meet the requests of the independent pay review bodies, which in itself was very challenging, but we were able to do that. As I mentioned, going forward, Ministers will have to manage this within their own MEG settlements, because there's nothing to provide from reserves. Reserves wouldn't be the right place to go in any case, because once people have a pay rise they quite like to keep it for the next year, so it needs to be baselined.

That's a very fair point, really, because we're in these couple of bad years at the moment, we know, and of course everybody wants a pay increase, but will people want a pay reduction if inflation drops right down and we revert back to the prior—? That is the difficult challenge, I suppose. Anyway, that's going off the point a bit.

Just to look at health and social care—following on, actually, from the previous conversation—are you confident that there is adequate funding? I recognise the £165 million that has gone into health and the additional part of local government money going into social care, but are you confident that that money can address the difficulties? It's fine just giving a lump of money, but what reassurances have you got that you can actually make the changes you need to staffing and the pressures that are blocking the system? Money is not always good on its own without a strategy to spend it, is it?

I think this needs to be considered within the context of the three-year spending review, which set out the overall plans for the NHS. The additional £165 million announced yesterday clearly won't go as far as is needed in terms of addressing all of the challenges within the NHS, but it certainly helps. It will be focused on continuing to deliver core services. There's a lot of important work that has been happening on the staffing side, and obviously the health Minister is leading on this, but we're investing a record £260 million in 2022-23 in terms of finding that sustainable solution to NHS staffing. I know that the health Minister is currently considering the funding level for 2023-24 as part of her budget process, so she'll provide, I'm sure, details of that to the health committee.

Just pushing on the same sort of theme but into the social care sector, because we know the whole health system is absolutely linked, the social care element will be funded via the local government settlement. Again, that is, if you like, the plug to unblock the pressures we've got in the whole health system. So, what reassurances have you got and what are your expectations of local authorities to transform social care to make sure that your aspirations as a Government can move forward and unlock the dire straits our health service is in now?

So, we've provided an additional £70 million in respect of the real living wage for social care workers to try and address some of those staffing issues that you've described in terms of recruiting and retaining people in the sector. Some of that will go through to local authorities, and some through health, depending on where and how the people are employed.

We have provided to local authorities, and to the NHS and education more widely, and business, actually, more in funding than we received as a result of consequentials from the UK Government. I think that's important to recognise. And we were able to do that because of the reprioritisation exercise and some other choices that we've made, including around the Wales reserve for next year. But, that said, the challenges still absolutely exist in terms of social care. I know that the Minister for health and social care meets regularly with local government, specifically with that focus on how to move people more quickly out of hospitals and get that social care package around them.

I think, when I talk to local authority leaders, they're always keen to impress upon me that there are things that the NHS can also be doing to help people leave hospital more quickly. For example, some people might be waiting for prescriptions to arrive longer than they should—those kinds of things. So, I think there's definitely work on both the NHS side and local government side, and it's good that they're working together.

And I know the health service would quite like to, perhaps, absorb social care. Is that something the Government thinks might be a way to unlock some of the problems?

I think that the work that we're doing through the regional partnership boards is really important in terms of better joint working between health and social care to try and encourage the pooling of budgets—encourage those choices to be taken jointly between health and social care. Again, I'm straying way out of my portfolio.

I think Mike has got a supplementary.

Can I ask the Minister about primary care? Primary care has done very badly since the merger of primary and secondary care. And this is a matter of fact, not of opinion—the percentage of money spent on primary care has gone down since they were merged, and the percentage of the money spent on secondary care has gone up, and consultants always trump GPs. I say with all respect to my friend Peter Fox, if social care came under that, that would come lower down the pecking order within health boards than GPs, never mind consultants, who come at the very top. The question I'm asking you is: you're giving this money, so have you got any expectation of improved primary care? We talk about the problems in hospitals and in accident and emergency departments, but a substantial amount of that—how much is a matter of debate and discussion—is caused by people unable to access primary care, and either going to A&E as the only place they can see a doctor, or getting worse until they desperately need to go into A&E?

I'm conscious this isn't the health committee, but it is a funding issue.

I used the word 'expectation'.

Exactly, yes.

Can I ask the health Minister to provide a detailed answer on the expectations, because I'm sure she'd be able to do it greater justice in terms of detail?

Just following on from what Mike was saying, what discussions are you having with the health Minister? You'll see nurses going on strike tomorrow. There are pressures on primary, there are pressures on secondary, there are pressures everywhere, and it seems to be blockages in the system, not moving people through, like you said earlier. Those core services that you talked about investing in, those core services in the NHS don't work unless you've got nurses to run them, because they're the bedrock of that. What conversations have you been having with the health Minister around pay settlements and helping to find a way through the dispute that's currently happening?

I think that I would just refer back, really, to the First Minister's comments in First Minister's questions this week where he set out that there just isn't the funding available to meet the existing demand, and that if further funding is available through consequentials, should the UK Government come to a better settlement, then, obviously, that will expand our options in terms of what we're able to do. But the overall funding that we have is the overall funding that we have; there's nothing that we can go to to provide a better settlement than the one that we're currently offering, which does meet the pay review body, but I don't underestimate for a second how disappointed people are that it doesn't meet inflation and it doesn't meet the requests of their representative bodies. It's very, very concerning, obviously.

So, is the Welsh Government pinning its hopes on the Westminster Government making a consequential to actually be able to do something about the dispute here in Wales?

I think it would be very difficult to find the levels of funding that are being asked for from within existing budgets. You will have seen that Scotland was able to improve its offer, but it did so by diverting £400 million from delivery, so, inevitably, that will have knock-on impacts in terms of waiting times, in terms of what people are able to access and when for health. So, that is a decision that we couldn't take here, really, bearing in mind the extreme pressures that are already on the health service, and reducing the capacity of the health service to deliver I think would be the wrong thing to do.

Yes, okay. The delivery is done by nurses as well, so, by investing in nurses, you potentially are investing in that delivery anyway. But I'll move on to Peter.

Whilst I wouldn't—and I certainly wouldn't—advocate putting up tax, and I'm glad you haven't, those are levers you could use, if you were minded to, to raise additional revenue. To be able to raise—. I know it's a point that Plaid Cymru, certainly, are very keen on. I support you in that regard, not to put that up, but there is a way where you have levers and you don't have to rely on a consequential to flow in. It's a political choice.

I would say that, even if we were to raise Welsh rates of income tax to cover an element of pay—and let's remember that every 1 per cent across the public sector is £100 million—one pence on the basic rate, which would affect everybody, only brings in £238 million. So, it doesn't meet the kind of level of funding that would be needed in any case, and, obviously, it would have to be a permanent increase as well, because, as we've talked about, you can't really go backwards once you've offered a pay increase of that sort. So, it would have to a be a permanent increase.

It's what Scotland's done, isn't it? They've got an extra penny on the pound there.

Peter, is that your—

No, I've finished, I think, Chair.

You're finished—you're fine. We'll go over to Joyce then. Thank you.

You might have noticed, Minister, that we're in a cost-of-living crisis, and that it is estimated that it will impact on the poorest quite significantly. So, in terms of your budget addressing what is obvious to everyone, could you explain to us how you're, to the best of your ability, ensuring that the cost-of-living support that is offered in this crisis to those who need it most is happening, and the evidence that you've used to ensure that?

So, we've provided an additional £18.8 million for the discretionary assistance fund over next year and the following year, and that's based on our understanding of the current uptake of the discretionary assistance fund and where it might move to in the future, bearing in mind the increasing pressures on households. That fund has really been a lifeline for so many people, providing instant cash support or support with white goods and so on. We recognise that that fund supports the people who are absolutely in the most dire need, so it was important for us to increase our investment there.

As part of the cost-of-living package agreed through the budget as well, we've increased the funding for the pupil deprivation grant and PDG-access, and that's designed to help children and young people from lower income households and looked-after children to overcome the additional barriers that prevent them from achieving their full potential. So, again, that's an area where we've invested in a very targeted way for people who need the support the most. And that builds on the additional £20 million through our spending review, so there's significant additional funding there as well. And in the budget, you'll also see additional support for looked-after children who are taking part in the universal basic income pilot, which, again, is a radical way to support the people who absolutely need it most. So, there are some very targeted things that we are doing to support people who are in the most difficult circumstances.

I understand that the housing support element has been reduced. There were comments about it yesterday and comments about it last night, raising concerns. I may not have the right terminology, but, nonetheless, it's a support grant that helps people stay in their homes, and we've got an increase in homelessness that we all acknowledge. Could we have an explanation for how you're going to help that particular group of people? Or is it that you delegated that fund to somewhere else, perhaps to local government?

I might ask Emma to come in on the homelessness issue in the first instance.

The Minister's already talked about the very difficult choices that she and Cabinet collectively have had to make in terms of this budget, and although we've been able to allocate some money, we haven't got enough to go around. So, we have prioritised the homelessness prevention, and I think we've given about £10 million to that. That is on top of already what we had allocated as part of our spending review. But these are part of the difficult choices that Ministers have had to make.

If I can just come back to the evidence point as well, one of the things in relation to cost of living in particular that we did in pulling together the budget was—. You probably heard the First Minister talk about a cost-of-living Cabinet committee that he had, and external stakeholders came into that as well. We did very much use or try to take on board some of that evidence in pulling together the budget, but ultimately there's only a certain amount of money to go around, and it is a difficult decision Ministers have had to make.

On the housing support grant, there hasn't been a reduction in the budget, but, obviously, stakeholders have seen that there isn't an increase, so have interpreted, obviously, that there's a real-terms reduction, which is the impact of inflation that we're seeing right across the Government. We're very aware of that, but, as Emma said, there is an additional £10 million for homelessness in particular.

Have you had any conversations with the UK Government in terms of the benefits that people receive to help them—I can't, again, remember the terminology—to pay their rent? It's been capped for years, the element of receipt of that allowance, which of course has resulted in people who are on benefits having to pay the difference between what they receive from the UK Government in terms of their housing benefit and the actual rent. Have you had a look at that, because that, at this time, must be causing huge pressures on families that are experiencing a huge inflationary impact whichever way they turn, quite frankly?

This is one of the key things that I, Jane Hutt and Julie James are all trying to impress upon the UK Government—that they have to increase the discretionary housing support grant [correction: discretionary housing payment], just bearing in mind how important it is for people who are struggling to stay in their homes. And in terms of preventing greater cost down the line, preventing homelessness is one of the most important things that we can do in that particular space. So, yes, we are continuing to lobby on the discretionary housing payment.

And finally—

Could I ask, just on that point, for your thoughts on the devolution of the administration of benefits, similar to what Scotland would have? Where's your mind on that? Would that be something that would help in some of the things that Joyce has been asking about?

I know that there's been a committee report looking at it, which recommended that we look at that. I know it's something that colleagues are interested in exploring further. One of the challenges is that you end up implementing UK Government cuts, but if we were able to have those powers, we could potentially do that in a fairer way. So, I think it's something that is being explored, but, realistically, with this current Government, there's almost no prospect of anything further being devolved in terms of powers, as far as I can tell.

But, in your opinion, is it something that would be a good thing?

I think it's something that we need to explore fully. I haven't seen the case in depth for and against, but I know that it's something that colleagues elsewhere in Government are looking quite hard at.

Thanks. Joyce.

The UK Government—. Sorry, 'local government' I meant to say, not 'UK Government'—it, of course, provides additional support to people to either alleviate poverty or to improve health outcomes. They do that, of course, through the services that they provide, and we've already seen warnings in terms of leisure services having to be reduced, which would, of course, make people live healthier lifestyles. So, is there any additional support that you've been able to give in that area, just to help local governments to help their constituents live, perhaps, a better life through alleviation of poverty or better lifestyles?

Yes, we've increased the unhypothecated revenue funding for local government by £227 million next year, and that is an increase of 7.9 per cent as compared to this year. So, we'll be publishing the full details of the local government settlement later on today, but I think it's probably better than local government expected, although, probably, 'not as bad as they feared' might be a better way of putting it, because it is a good settlement in the circumstances, but difficult decisions are still ahead for them—no doubt about that. So, I think that we've been able to be good to our word in terms of protecting public services through this budget.

You have to remember as well that, for lots of the support for local government, details are still being finalised, but around £1.36 billion of support will be provided through these specific grants, and many of those are focused on supporting people on the lowest incomes, and supporting people who are living in disadvantage or they need to improve health outcomes, and so on. So, I think that that's one of the spaces as well where you'll see lots of support for local government, and that's increased from £1.3 billion last year, so that's another area of increase.

Based on the settlements that are going out to local authorities today, and you say that they're not quite as bad as they thought they were going to be, what's your expectation around council tax? Are you in conversation with local authorities? Are you giving any direction to try and keep council tax as low as possible, or are you trying anything different from what you've done in the past, or is it up to councils to make their own decisions without any guidance from yourself?

It is up to councils to make those decisions, because the setting of council tax is an important local responsibility, a part of local accountability. We do have powers to impose a cap but it's not something that we've done. I would say that, when local government see their settlements later on today, that, I think, will put them in a much more informed place in terms of deciding on what their council tax levels would be for next year. But, I think it's an important responsibility of theirs.

Because the impact on local services is: if you don't provide it, then council tax has to go up to provide those local services. So, whichever way, the taxpayer has to pay it, the householder, and our communities. I represent some of the most impoverished communities in Wales, but I think Peter and possibly Mike had something to say on this.

I just want to—. It would be remiss of me not to mention—and I'm sure that you've had consideration over the level of reserves that authorities hold. I know how the reserves system works—that the usable reserves carry school balances in them and they carry capital reserves, but there is a significant amount in many authorities that is earmarked. And some of those earmarked reserves are consolidated and have been there for many, many years. I know that because I've looked through the budget statements over many years, and see that as core money. As a past leader of a council myself, I know how reserves are often used.

What consideration have you given to moving those, or asking or expecting councils to mobilise reserves in a time of severe pressure, recognising that, looking through the draft statement of a council, it looks like there's been over a 30 per cent increase again due to the savings through COVID, which is a good thing—it gives them some resilience now, moving forward—but there is probably in the region of £2.5 billion-plus sitting in usable reserves and about £1.5 billion sitting in earmarked reserves. How do we mobilise that so that authorities don't put the pressure, via council tax, on the public, when they can actually afford, through difficult times, to support that? Now, I know that reserves can't be used for recurring costs—they shouldn't be used—but they can be used for transformational change in exceptional circumstances, and I would have thought that we were in that situation.

So, authorities are already saying that they're having to use reserves in this financial year because of the impact of the cost-of-living crisis, and I've no doubt that they'll be looking to be using reserves next year, as well, as part of their overall budget plan. So, it is true that local authorities are holding high reserves, and that is, as you say, partly due to the result of COVID and the additional funding that we were able to provide to local authorities during that time. In the end of the last financial year, we provided an additional £50 million or £70 million to local authorities to help them in these next years as well, so that will be part of their reserves too. So, I think it will definitely be part of their considerations.

If I can just come back on that, it's not that I want to target all authorities, it's just that there are several authorities, now, that will be breaching the £200 million usable reserves—some over £2.25 billion—and it isn't right to hold that and put council tax up. So I wondered what is the expectation of those who've accrued significant amounts and can't prove there's a use for it, and are being told, 'You should not be raising council tax'. You can't raise council tax and raise reserves—it's totally morally wrong.

So, I'm not directing councils in respect of council tax, but, obviously, they will be considering the settlement, which they'll find out details of today, and then also other sources of income, which they receive from some of their commercial activities, for example, and also reserves as well. So, it will all be part of the bigger picture they look at.

Thank you. Were you looking at me, Mike, or not?

I was.

Because I'm just conscious of the time, that's all.

I'll miss it at this stage, I'll raise it somewhere else; it's about school reserves.

Okay. No problem. Joyce.

We are on very limited time now. So, beyond everything that you've already said that you're doing to support businesses—so, I'm not asking you to repeat any of that—what evidence was used in the approach to the draft budget to assist those who have businesses in rural areas, particularly?

So, I'll ask Andrew to come in if I miss any of the detail, but, on farming, particularly, we've confirmed a budget of £238 million for the basic payment scheme in 2023, and an indicative budget of £238 million for the BPS in 2024. And over three years, we'll be making £257.6 million available to support the resilience of the rural economy and our natural environment. And I've already announced £227 million-worth of rural investment schemes, and that responds to the ending, of course, of the European Union rural development programme, which closes in 2023. So, particular investment there. And there's also a budget of £11 million to continue the Arfor work—so that's the second phase, and that supports a range of economic interventions, to support rural Welsh-speaking heartlands in Carmarthenshire, Ceredigion, Ynys Môn and Gwynedd. That's particularly looking at entrepreneurship, business growth, community resilience and supporting the Welsh language. So, some particular things that we're doing there.

And could you identify in the draft budget the support that's been given to children and young people whose education, development, mental health and well-being have, of course, been impacted, firstly by the pandemic, and now ongoing with the cost-of-living crisis?

So, just to remind ourselves as well that this budget just builds on the three-year spending review, so you would have seen a lot in that three-year spending review in this space. But we are providing additional funding in some of the important areas. So, the pupil development grant, for example, has the additional £9 million in 2023-24. Alongside that, we're providing an additional £5.5 million to schools in 2023-24 and 2024-25 to support the continuation of the Recruit, Recover and Raise Standards programme, to ensure that every school in Wales receives funding to ensure that the impacts of the COVID-19 pandemic on children and young people's learning and well-being are minimised, to ensure that schools are able to put in place a range of mitigating actions to address those impacts. So, I think that's an important intervention as well, as is the additional £4.5 million to deliver the additional learning needs reforms as well.

And finally, EU funding replacement—or 'non-replacement', as I might call it—it's been discussed in this committee and they did a report on it, the shared prosperity fund and investment plans, which have been agreed. How does the 2023-24 budget complement the shared prosperity fund and mitigate any issues—I say this tongue in cheek—that you have previously identified?

I'll ask Andrew to come in on this one, Chair.

Thanks. Yes. So, the UK Government has now agreed the shared prosperity fund investment plans, but that was only a couple of weeks ago now. I mean, we obviously saw the draft plans that the various parties in Wales provided, so we had some view of those in developing our plans, going forward. There's still no clarity on the next stage of the levelling-up fund, which is another part of the UK Government's approach to partially replacing European funding, so we're still waiting on the outcome of the next round of the levelling-up fund. So, yes, it's quite difficult to dovetail, if that's the right word, our plans with the plans emerging from those post-EU funding streams, because we don't really get a lot of engagement with the UK Government on how they're going to work in practice. So, yes, I think that's a challenging area. We're coming out of a period where we've had very close integration between European-funded activity and Welsh Government-funded activity, and we're still groping our way into a new approach where we haven't got that kind of close integration established yet.

I refuse to call it the 'levelling-up fund', so we'll have to disagree on what it's been named. But there's a huge gap here, and what are the implications in your budget, because you deal in figures? What is the gap, the estimated gap, between what we would've had in our budget, had we still been members of the EU—if you haven't got it now, later will be fine—and what we are going to have in the coming year, especially in a time of crisis?

So, our estimate is about £1.1 billion. The Minister published a statement on this some months ago, just explaining how we come to that figure, so, yes, it's quite a big gap.

That's not 'levelling up' in my mind. So, in terms of the draft budget support for children and young people whose—sorry, I've asked that one. How does that budget support the higher and further education, which is critical to us progressing further on in terms of entrepreneurship or developments that we see coming out of medicines that have been announced this week? How does the support for the higher and further education sector—? How is that, alongside—? I'm mentioning the removal of the received EU funding that we'd have had in the past. Have you assessed, if not now, the impact that that will have on Wales in the very near future, where we've led the way in research and development, the impact on our receipts, as a consequence of that research and development going forward?

So, the Higher Education Funding Council for Wales has been remitted to consider how it can use its resources to incentivise and encourage greater collaboration across the research community to build bigger and stronger grant bids to increase the level of grant capture here in Wales, which I think is an important step. The draft budget also includes a revenue allocation of £198.53 million for HEFCW. Obviously, it's for HEFCW, then, to determine the distribution of that. We've also provided an additional £9 million for sixth form and further education as part of our budget as well.

Okay, thank you. We're coming up to time. As we look back through the transcript—and you'll have a copy to check for accuracy—there might be a couple of questions that we didn't quite cover, so are we okay to write to you with those questions, especially, because we've got a very shortened scrutiny process? We've gone over that ground before, but is that okay for us to do that?

Of course.

And I've just got one tounge-in-cheek question, I suppose, for you.

The Christmas question from the Chair.

Seeing as I am wearing a festive waistcoat, how do you describe this budget? Is this a Scrooge or a Santa?

Well, we've called the budget 'a budget for hard times in hard times', which, I think, is a pretty accurate reflection. So, I think you can see which side of the spectrum it is on. But that said, I think that we can be really proud that we have laid a draft budget that focuses on supporting people, communities and businesses where it's needed. So, we've done the best that we can within the resources available.

Can I just say—and Rebecca will understand it—I would call it a 'Mr X budget'?

I think—[Inaudible.]—Father Christmas is down the other end of the motorway with £1.2 billion. [Laughter.]

Right, we will stop with the analogies. I started it, I know, but there we are. Thank you so much for your time this morning, and thanks to Andrew and Emma as well for coming.

If it's okay with Members, under 17.42, can we go into private? Are you all content? Yes, thank you.