Finance Committee

Felly, dwi'n mynd i symud ymlaen i eitem 2.

I'll move on to the second item, which is papers to note. We have one paper to note.

It will be noted.

Lovely. Thank you very much, we'll note that paper.

And we'll move on to our first substantive item this morning, which is a session with members of the Silk Commission. It's 10 years on since it was published. It's a reflective session today, so it's looking back over the last 10 years and whether the areas identified in the commission's first report on financial powers to strengthen Wales, published in November 2012, have been fully addressed and how the expectations of the commissioners differ with the practical realities of the past decade.

I welcome you all here. We note that Dyfrig John was meant to be with us and, unfortunately, can't be with us due to ill health. We wish him well and hope that he has a speedy recovery. But we do have here in person Eurfyl ap Gwilym. Croeso cynnes. And on the screen we have Lord Bourne of Aberystwyth, Nick Bourne, and, obviously, Sir Paul Silk. Thank you so much for coming and obviously, for the report in your name that we received, and it's lovely for you to make the time to be with us this morning and for the really important work that you did, quite a few years ago now, but, obviously, this is why we're here, to look at what your thoughts are on where we've got to.

So, I'm going to start, if I may, to explore the effectiveness of the modified Barnett formula, enabling Welsh Government to carry out its duties, and whether it delivers fair funding for Wales. So, as an opener, do you feel that the fiscal levers devolved to the Welsh Government enable it to carry out its duties expected of a devolved administration? And we go to Paul Silk first, if we can. Thank you.

Thank you, Chair. It's given me an opportunity to re-read our report, which has sat gathering dust on my shelves over the last 10 years. But I think, to reflect on that question that you asked, in my own view, it's been a modest beginning. Perhaps things haven't developed as far as I might have expected, but I'm no expert, and never have been, in these areas. But I think it's good to see slow, steady progress. There have been no obvious missteps.

And I was actually very pleased to see this week's announcement of the Welsh Government's plans to reform council tax and business rates. As you will recall, the full devolution of business rates was one of the recommendations of our report that was accepted, and there's now an opportunity for a reform in that area as well. So, my view is that the fiscal levers devolved have enabled the Welsh Government to make some changes, but perhaps not as many changes yet as we might have anticipated.

Lovely. Thank you very much. Maybe, Lord Bourne, if we come to you next, if you're—[Inaudible.]

Thank you very much, Chair, for that invitation. It's good to see colleagues, and it's hard to believe it's 10 years ago. Yes, I agree with Paul, it's been modest; it's been, perhaps, somewhat cautious. I suppose, in fairness, the pandemic has, as in so many areas, had perhaps a slowing effect on some things. Again, I agree with Paul: I don't think there have been any obvious missteps. I should, perhaps, be relieved it's cautious. But, I hope that there perhaps will be a willingness to push a little bit at the boundaries that were afforded by the Silk report, which haven't happened as yet, for a large part, I think.

Thank you very much.

Eurfyl, oes gyda chi syniadau neu sylwadau?

It has been a difficult period. And, can I say that it's very good to see my former colleagues here? I was hoping we would catch up today and have a coffee afterwards. But, of course, as well as Lord Bourne goes on about the impact of COVID, of course, also, we've had about 12 years of austerity, and I don't want to go into the detail now, but a time of very great difficulties in terms of the public finances. I think people are more prepared for change and feel more expansive when things are more buoyant, and they're not, so we're in a very difficult period, both the Welsh Government and the UK Government as well.

I think one of the things that probably has disappointed me slightly—and we may come on to this, Chair—is on accountability. I was reading what we'd written then, and the last bit we said is,

'The impact of decisions on taxation made by the sub-national government should be clear to taxpayers, and taxation and spending choices should be offered to the electorate in sub-national government elections'.

Well, as far as I can make out so far—correct me if I'm wrong—there hasn't been any great advocacy of the principle of a Welsh rate of income tax, of increasing it or reducing it. I'm not saying which would be the right way to go, but, we don't have that, as it were, difference of views from the political parties, which does tend to reduce accountability in the eyes of the public. Because one of the things that struck me when we were doing our rounds—. We went around Wales a lot for drop-in sessions, and people who were dropping in were self-selecting, interested in finance, presumably, or taxation. I asked a number of them, 'Don't tell me. I don't want to know the answer, but do you know how much income tax you pay?' and most of them didn't. So, unless you have this clash of views between parties, particularly at election time, it's difficult to get accountability in that sense. You may get accountability to the Members of the Senedd, but not to the general public. On the other hand, with something controversial like the proposed tourism tax, that does bubble to the fore then and people are more conscious of that.

Lovely. Thank you very much. So, the fiscal framework, which serves to address recommendations made in your report, modify the Barnett formula for Wales to include a needs-based factor. What do you think are the advantages or the disadvantages of this model, and does it deliver fair funding for Wales? So, Sir Paul, if we come to you first.

Well, I think that the Barnett formula was, of course, outside the terms of reference of our commission, therefore we didn't, except tangentially, refer to it. But, the general consensus, I think, inside the commission, despite that, was that the Barnett formula wasn't really fit for purpose. Clearly, the Welsh Government and the UK Government in 2016 came to an agreement about a new funding floor, which reflects some of the recommendations of the Holtham commission, on which we built in our work. I'm not sufficiently expert in these areas to say whether the funding floor, which was agreed in 2016, remains appropriate. I believe that the level of funding in Wales is still higher than the 115 per cent, which was agreed as the funding floor, but whether that is the right percentage is something, I'm afraid, beyond my capability to give you advice about.

No problem. Maybe if we go to Eurfyl and then maybe Lord Bourne, if—

Oh, I think, on the Barnett formula, it is quite clear, it isn't fair. And you've just got to read things like, say, the report from the House of Lords select committee, to which I gave evidence. We alluded to that in this report as well. It's not geared to need and, as Joel Barnett himself said, it was meant to be a short-term fix in, I think, 1978. And the foundations were, they brought forward the current spending of that time, which was not needs related, then you just had the Barnett increments. The adjustment arising from the Holtham report, it's—how can I put it constructively—it's a neat little measure, but it doesn't address the fundamental issues.

The other thing that we didn't look at as the Silk commission, but I'm sure you're aware of, is that you shouldn't just be looking at the funding through the block grant; you should be looking at total identifiable public expenditure per person in Wales, relative to the other parts of the United Kingdom. And, fortunately, next month, the figures come out for the latest figures from Treasury, but total identifiable public spending—that's by the UK Government directly into Wales, as well as by the Welsh Government, through the block grant and through the Welsh rate of income tax—is 106 per cent of the UK average. Therefore, the indication is—and I don't know if there's anybody doing any work on this; there should be—that the spending—. By the way, of public spending in Wales, 43 per cent is by the UK Government directly into Wales, not through the Welsh Government—43 per cent of it. And that appears to indicate, therefore, that, if the block grant is giving us 115—I don't want to get into too many numbers—115 per cent per capita, then the UK Government direct spending in Wales is woefully below that, and I don't think there's been enough analysis made of that, let alone enough issue raised on that. By the way, Wales is 106 per cent—this is for 2021—Scotland's 111 per cent, London's 115 per cent. And again, if you look at the House of Lords select committee, people like—it wasn't a party political thing—Nigel Lawson, for instance, he was very critical of it, and, unfortunately, it carries on. It was a short-term fix, which was in 1978, and it's still here.

Lovely. Thank you very much. Lord Bourne, did you have anything to add, or a different perspective?

Yes, I did. It does need looking at fairly fundamentally, and has done for some time. That's absolutely right. The Holtham floor helps, but it doesn't address the fundamental issue. I mean, this is actually the most important thing for Wales in terms of its spending, that we do look at the Barnett formula. It's long overdue. Scotland gets a pretty good deal; Wales gets a poor deal is the headline figure. But, of course, part of the problem is addressing the English issue. There's no, as you know, accountable devolution within England in any real sense, even within London, so it's very difficult to determine, in terms of England, what is fair in an accountable way. Certainly, there is an addressing of some of the disparities in England, by virtue of spending in terms of the north-east and south-west and so on, but there's no accountable mechanism the way that there is in Wales, Scotland and Northern Ireland—'Northern Ireland' in inverted commas, perhaps. So, it's long overdue. It is quite right. It was fixed in 1978. Sadly, I didn't have the opportunity to discuss this with Joel Barnett; I did overlap with him briefly in the House of Lords, but never got around to discussing this with him. He died in, I think, 2014. But I think you'll find, across the board, that people feel it needs looking at. It's just one of these things that Governments of both parties, I'm afraid, never really get around to addressing, but it's high time they did.

Okay. Thank you. And on that note, Lord Bourne, the report considered a fundamental set of principles for subnational government. How effective is that funding model in addressing these principles? So, I'm assuming it's not very.

Well, as I say, it's rough justice, and it has been over a period of time, but, as time's gone on, the justice bit has got smaller and smaller and the rough bit has got larger and larger. So, it really does need looking at in a very fundamental way, across the whole of the United Kingdom. Based on the fact that the model of government we've got is likely to continue, we do need a proper way of addressing the funding needs of each part of the United Kingdom. And over a period of time, obviously, the position on population, on income, on some of the long-term health challenges and so on, may change. So, it's not just changing it, it's having a formula that's adaptable to the future as well, because we don't want, in 20 years' time, to find out we're in the same situation and it needs a fundamental reappraisal again. We need some sort of mechanism that means that it adjusts itself—a formula that takes account of changes that are made.

I'm assuming then that a new formula might look at deprivation, poverty, age, all the different—. Even more so than—. So, a more dynamic formula, rather than a fairly static formula.

Yes, that's a fair summary. Obviously, population is central to that, if you had a great shift in population—that could well change as well. But, yes, you certainly do need to look at prosperity or deprivation, measures like that, some of the long-term health challenges and so on that certainly exist in parts of Wales—parts of England, for that matter. You do, as I say, need a fairly fundamental reappraisal of the position we're in, and that just hasn't happened yet.

The one thing they do do now is adjust for population every year. When the Barnett formula was introduced, they only changed the population ratio once—that was when Michael Portillo was Chief Secretary to the Treasury; that's going back—until Labour came back to power. Then, Alistair Darling did introduce an annual review of population. So that one is done now, in fairness; it's the whole raft of other factors—. And again, the House of Lords select committee—I think it was Lord Moser, who used to run the Central Statistical Office, as it was in the old days, as it was called, had some ideas there. It shouldn't be beyond the wit of man broadly to agree a set of parameters that we can check every year or two what are the shifts in relative need. Just to show the inertia around this, when I gave evidence to that select committee, I was showing off a little bit, so I went back to the Goschen formula, which predates the Barnett formula. And one of the peers—I won't name him—came up to me over coffee, and gently said, 'You know, Scotland's generous treatment goes back before the Goschen formula, it goes back to the Act of Union.' He said, 'One of my ancestors negotiated it.' Because to oil the wheels of the union, if you like, they decided to give Scotland a relatively generous settlement. And it just shows the sheer almost inertia in the systems that we've still got it today.

Thank you very much. If I ask Rhianon, if we move on, unless Sir Paul has anything to add to that discussion.

The only thing that I would say is that you invited us to look at the principles that we outlined in our report and none of those main principles—accountability, empowerment, efficiency, economic incentivisation, equity—none of those really are shown through the Barnett formula.

Yes, that's very true, very true. I'll move on to Rhianon, then.

Thank you very much, Chair. I'm rather interested indeed in this conversation, and would have liked to have prolonged it, but I'm going to move on. And I take the point in terms of those principles, in terms of their application to the formula that we currently have and the strength of commentary around it. So, we've mentioned briefly at the start of the session about accountability to the public, and we've all heard what you said in that regard. So, what about financial accountability and empowerment of the Welsh Government in regard to the impact that taxes currently devolved to Wales have had in improving financial accountability to the Welsh Government?

Shall we go to Eurfyl first, and then—

Briefly, I think.

I'll try to be brief. It's quite limited, really. First of all, I think, because the bulk of the funding comes via the Barnett formula, and, if you think, a big chunk of that spending goes on the NHS, then a big chunk on education, the room for manoeuvre after that is fairly limited, actually, in terms of big spending. You can do a little bit with small amounts of spending, which can be important in specific areas, but the big ones are there. And I think the Welsh Government therefore feels very restricted in its manouevrability, if I put it that way. At the moment, we don't have, I don't think, any of the parties—I could be wrong—in the Senedd advocating any major shifts in the priorities of spending. And also, of course, nobody's advocated increasing the Welsh rate of income tax, which would generate some extra funding. I'm not advocating that, but just saying that we don't have that difference of view, that debate, I don't think. Everybody avoids it, so it's not working very well, really. It tends to be that it's very limited, the room for manoeuvre that the Welsh Government feels it has.

I'm sure, if the Welsh Government were here today, they would turn around and say that their assessment is that there would have been a negative impact in regard to income tax and in terms of all the connotations around that, but I'm not here to say that. I don't know if anybody else wants to comment on what's just been said. I'll move on otherwise. If not, I'll move on.

Sir Paul or Lord Bourne, if—[Interruption.] Oh, if we do Sir Paul first, and then we'll go to Lord Bourne afterwards.

I agree, basically, with what Eurfyl has said. One of the things that also we ought to remember is that our report recommended that the different bands of income tax should be able to be varied differentially, and that doesn't exist in Scotland and it wasn't something that was accepted in Wales. That might have led to different choices being made, or it certainly has the opportunity of different choices being made, had that been devolved.

Lord Bourne.

There's a great danger that consensus is breaking out on all sorts of areas, but I agree with that. There's been no real debate within the Welsh Parliament, and certainly not more widely than that, on the issue of income tax, which would have been the one that the public could have engaged in. I don't think that people feel there's any accountability in any meaningful way on aggregates tax or landfill tax, stamp duty. These things are not fundamental. There's been no real debate at the moment, I think, in England on income tax, but that would perhaps engage people. It should be borne in mind that it could go up as well as down. There's an argument for saying that, if you reduce the top rates of income tax, you could introduce or encourage more high earners to come into Wales. I'm not saying I agree with that, but there is a debate to be had on that, and it hasn't really happened. That's a shame. I hope it does happen, because I think that, at that stage, some of the real choices that people in Wales could make would become more evident.

I think this committee had a few discussions around varying income tax at the last budget round, so discourse was being had a little bit but maybe not so much making its way out of this Senedd and into public discourse and coming across. Back to you, Rhianon.

Thank you. So, there seems to be a consensus around that, and I would agree with the Chair's comments also. So, in regard to what has been deemed available to us and the aggregates levy being still under review in the future to be able to be devolved, what do you see are the advantages of Welsh Government utilising that as an additional fiscal lever, bearing in mind all our comments around the big beast in the room and the fact that it's still at some point in the future undetermined? I don't know if there's any comment around that.

Lord Bourne, you mentioned aggregates there. Do you want to comment on that question?

I'll certainly try. I don't know the current state of discussions; I'm not privy to that, so forgive me for not being totally au fait with where the discussion has got to on devolving aggregates levy. I think there are strong arguments in relation to that relating to energy and climate change, just as there are on something I think you might touch on later, which is the Crown Estate position. I think areas like that would be good to see being developed in a Welsh context, and a bit of ambition, which early on we saw in powers, with pushing back on where powers could be exercised before Silk on things like the smoking ban, which I think happened in Wales first, the plastic bags levy and so on. It would be good to see, now that the Welsh Parliament has some powers in these directions, or arguably will have in relation to the aggregates levy, perhaps the Crown Estate, that there is an attempt to exercise that in an imaginative way that could then be picked up by other parts of the union. I think that’s something that would be interesting to look at as well—the extent to which one part of the union could influence other parts by success, which we have had, again, on the smoking ban, plastic bags levy and so on.

Sir Paul or Eurfyl. Sir Paul.

Well, I think the aggregates levy has been devolved in Scotland, and, looking at what the Scottish Government say about that, that they intend to introduce what they call a 'distinct and appropriate' tax for Scotland, no doubt the same could be done in Wales. But it's small beer. We're only talking about perhaps £20 million a year.

Yes, totally. And in terms of the Crown Estate issue, that is absolutely live in that regard as well.

So, in regard to and moving on to air passenger duty should be devolved for direct long-haul flights, the UK Government has stated that different rates either side of the Wales-England border would be likely to redistribute passengers between airports. So, is there any view on that commentary? Because it's, again, a sort of, 'Well, we could possibly, but we're not', and the levers are not occurring.

It strikes me on a lot of these issues—it struck me when I was with my colleagues on the Silk commission—we're overly cautious about these things. There's quite a useful set of maps at the back of this report showing the variations—now, historically it's different—in things like taxation in Switzerland, and we keep talking about things like the porous border, and I find it rather interesting. You know, one does need some competition, some imagination, on some of these things, and using policy levers, and finance can be an important one, not just for raising money through taxation, but through changing behaviour patterns and so on. Therefore, I think this nervousness about getting differences across the territories of the United Kingdom is unfortunate. I think they should venture a little bit more, and, as Paul Silk said, take the plastic bags initiative and so on, it was tried here, and, frankly, if the Government tried something that didn't work, at least you've limited the damage to that area, and then others will say, 'Well, we're not going to do that.' We do seem to be totally hidebound.

I'm sure that you are all very cognisant that we would like these things to be occurring, but, obviously, in terms of when these things are going to occur, and the UK Government's line on this, it's all very much, 'Let's look into the future.' So, again, that's not within our gift. We are waiting for these things to occur.

I'm going to move on then, Chair. You mentioned, I think, earlier that the Senedd should be given a power to introduce specified taxes in Wales—it was within your original reportage—and the UK Government should adopt a flexible approach, and we've sort of touched on this, to any proposal for these taxes from the Welsh Government. Are any of you aware, then, of the challenges faced by the Welsh Government to actually introduce a vacant land tax in Wales? Again, I've sort of touched upon that. How do you think that these could be addressed? Because it's not as if Wales doesn't want to do these things.

Sir Paul.

Well, the amended Government of Wales Act gives very wide powers to devolve additional taxes to Wales, and my recollection is that the command paper that the Treasury produced set some perfectly reasonable conditions at the time. But I wonder whether the Treasury has acted really in the spirit of the intention to devolve taxes, and what I've read about the delay in coming to a decision about a vacant land tax rather confirms that view. So, there has been a reluctance, as Eurfyl said before, to be imaginative, I think, about this—not from the Welsh Government's point of view, but from the Treasury's point of view. But I can understand the Treasury has constraints that it has to operate within. But perhaps the last few years have not been the most propitious for anything that looks like devolution of more powers to Wales.

Lord Bourne, is there any influence that the House of Lords might have in these things, as you are a Member there?

Certainly, the issue of land banking has come up in the Lords on a broader front, not in the Welsh context, as you'd expect, because that's something that would be largely devolved. But, in terms of England, certainly land banking is a very real issue, so it may be that something needs to be done on that right across the union, so I have some sympathy with that, certainly.

If I may just go back very briefly to the position on the air passenger duty, which I didn't get a chance to say anything on, I agree that it would make an impact if Wales had a lower airport duty than Bristol. Hopefully, it would make a difference, people would be attracted to use Cardiff rather than Bristol and vice versa. It would be strange if it didn't, but that's the whole point of having differential rates, I'd have thought. So, I've got some sympathy with that. To be fair, until we quit the European Union, and I certainly wasn't in favour of that quitting, but there was an issue of state aid that doesn't now present itself. One of the few advantages, perhaps, of leaving the union is that we don't have to worry about state aid quite so much. So, that argument isn't there. So, I certainly personally am very sympathetic to the issue of air passenger duty being devolved.

I just want to bring Peter in.

It's a fascinating conversation, and I can almost feel a frustration that you gave us the tools and we haven't, really, used them. I suppose politics has got in the way of us using the tools, from all sides. How do we overcome that? Because, for the good of Wales, we have to move on, and we've got to find a way to cut through the politics to enable some of the tools that you've given us to be able to be used. I don't know how we start that conversation, how we change that.

Sir Paul—

Maybe I'll say something—

Eurfyl, yes.

I don't want to encroach too far beyond talking about the Silk report, but the thing that struck me was that, just before COVID, I was at a seminar in Cardiff given by Lord Heseltine, Michael Heseltine, describing what he'd done in Liverpool, and I do think that we probably, at the moment, lack strong, imaginative leadership, frankly. I don't want to encroach further on that because that gets into the realm of party politics, but I imagine someone like a Heseltine—and I'm not a Conservative, as you're probably aware—would have shown much stronger leadership and banging heads together to get things moving. We don't seem to have that.

Lord Bourne or—

Again, I think that's true. I think it's a very relevant question. Part of it, in fairness, is not just the question of politicians who make a difference, and Michael Heseltine was one who did; it is also—we touched on this a little bit on the current climate—that there are so many supranational challenges, like inflation, like the war in Ukraine and so on, and the whole position in Russia now, that attention, perhaps, is understandably elsewhere at the moment. But when we're through these issues, hopefully someone will come through who has got a bit more imagination than is the case at the moment, to bring forward some powerful ideas to move things forward, both on a Welsh front and a UK front and more broadly.

Rhianon, did you want to come in?

Yes, absolutely. And, obviously, we're here to hear you and to listen to you as witnesses, but I just wanted to push back in regards, as an example, around the aggregate levy and also the UK Government's position on air passenger duty. I hear what you're saying, but if we are going to the UK Government—and I know that we are—and stating that we wish to do x, y and z because of the work that's gone previously, and all of your hard work, et cetera, et cetera, and we're told, 'No, you're in a potential limbo land of waiting to be reviewed, and at some point in the future we'll come back to you,' what would be your positioning around that in terms of your comments around leadership? Because we don't hold that authority to be able to demand that these are—. Is there any comment on that, or is that incorrect from your views?

Sir Paul.

I fear that—. It’s an awful thing to acknowledge when one’s Welsh that the interests of Wales have always come lower down in Whitehall than the interests of Scotland and Northern Ireland. And I fear we suffer from that, and what we’ve got to do is build up better relations between politicians in Cardiff and those in London, at all levels. I’ll just fly a flag here for a report that I was involved with earlier this year on increasing the level of co-operation between the Parliaments of the United Kingdom.

Interesting. Okay. I mean, there is a power imbalance; that’s my point. It’s not just about leadership.

Thank you very much. We’ll move on to a set of questions from Mike Hedges. Thank you.

Can I start off with a statement? I still use your report and I still find it useful, and I still find it something very useful to quote from—not necessarily to the benefit of the Welsh Government or some of the opposition parties—but I welcome your report; I think it’s very good.

I’ve got basically two questions. The first one is: you reckoned that tax and dividend income should not be devolved to Wales. As you know, since your report, more and more people are actually getting paid by dividend, because you pay less tax on dividend than you do in income tax. Now unless dividend tax and income tax are equalised, then do you now think that dividend income should be devolved to Wales, because it’s a way of getting around paying income tax for high earners, and also people who are self-employed who have got the opportunity to incorporate themselves?

Who wants to start on that? Eurfyl.

I hesitate. It’s a complex area, and I think our concern was the complexity of implementing it, rather than the principle, if I recall, but maybe my recall is deficient—it’s 10 years now. But I think that’s what we ought to look at here: what are the mechanisms for the implementation of it? Therefore, just like you’ve got a taxable person, but then how do you track where they’re getting the dividend incomes? It’s a perfectly reasonable point you make, and I think and I’m well aware of how people are able to adjust their tax arrangements so that they make it more as dividends and less as salary or wages. But I think that’s what held us back at the time was probably the potential complexity of implementing it. That’s not a very good answer, possibly.

So, the principle is sound; it’s just the practicalities would get in the way. Sir Paul, you’re nodding there. Was that the driver there?

Yes, that was, as I recall, but I don’t think we specifically had in mind at the time, because I don’t think it was as salient as it is now, the way in which high earners have been able to lessen liabilities through incorporation.

I think that’s right. I think the point Mike is making presumably applies in England just as much as in Wales. It’s not that it gives one part of the union an advantage over the other. It does sound like a powerful argument, but I don’t think it’s something that we looked at very closely, from my own recollection.

Okay. It’s certainly something I will be talking on again, and we haven’t got time to go into it in detail now because we’ve only got 22 minutes left. What I was going to ask you about was the Welsh Government’s borrowing limits, the Wales reserve; is it really fit for purpose? Should there be a borrowing limit or a limit on reserves? You suggested a higher level, but should it be? And if there is, should it not be at least indexed on an annual basis? Because what might have been correct—and I’m not convinced it was—in 19-whenever it was, when it happened, it’s certainly not correct now. So, I just ask: should there be a limit, and if there is a limit, should it at least be indexed?

Trying to be realistic, and bearing in mind that we’ve discussed before the power imbalance, and the power of the Treasury, I think one would have to have some form of limit, but one could put the limit, gear that to the income of the Welsh Government. So, either you could gear it to the Welsh rate of income tax yield, which would be a cautious one, or actually—as we made the point, I think, in this report—to the Welsh Government’s income, which includes the block grant. I think I'm correct in saying that the Welsh Government, in practice—and I'm not trying to bash the Welsh Government; it's an observation—has not made very much use of its borrowing capacity in any event, which is particularly disappointing. Until about two years ago, interest rates were uniquely low, the lowest that they've been, even if you go back to the eighteenth century, and you can't go back earlier, but they didn't take advantage of those low rates even then.

I agree with you, and if you listened to what I said, I was talking about using borrowing at that time. But Peter used to be leader of Monmouthshire council; he had no limits on borrowing apart from that it had to be seen as being prudential, and he had no limits on how much money he could put into reserves. He quite often bashes local authorities for the amount of money they have in reserves. Should the Welsh Government be treated less fairly than Monmouthshire council?

You'd be on stronger ground, Mike, if the Welsh Government had used those borrowing powers. It hasn't, frankly. I have some sympathy with what you're saying, but it's not as if they've been denied any form of borrowing, because they haven't wanted to use it. I do agree with your point on indexation—I think that's reasonable—but in practical terms, I think you're going to have to accept that there will be some limit on it. You could argue for a higher limit, but as I say, I think you'd be on stronger ground if the Welsh Government had been denied the opportunity to borrow money, which it hasn't.

But they were denied the opportunity to move money into reserves because they were going to move money over their reserve limit. That has actually happened and the Treasury took £155 million back. Should there be a limit on how much money can be put in reserves? Returning to Peter and Monmouthshire council, if he'd had money over and put it into reserves, Welsh Government wouldn't go and take any of it back off him; they'd just let him keep it in reserves.

Well, if they'd tried to, I'd have spent it in advance, I think. [Laughter.]

Yes. Sir Paul, any comments on—?

I agree broadly with what Nick has said, and I think that the Scottish limits have been increased substantially since our report and I think there's a case for increasing Welsh figures in line, at least, with the Scottish figures.

And it goes back to your comment earlier around this union being an unequal union when it comes to parity around the four nations.

And within the nations.

And within the nations, yes. Mike, are you content?

Yes, I'm content.

Lovely. We'll come over to Peter Fox.

Thank you, Chair. You highlighted in the report the opportunity to improve the availability of information and accountability, and we touched on it earlier, about the public understanding and things. How do you think we've done in achieving that? Have we made steps, or is there a long way to go?

Sir Paul.

Well, I haven't followed this in detail, but since I've been asked to come to this evidence session I have had a little trawl around the internet, and there is a lot of information that is published, but I think one of the things that we were particularly keen on, which is very difficult to publish, is comparable information between the nations of the UK. There probably isn't as much information out there as ideally there should be, and as far as public understanding and transparency is concerned, that's always—[correction: always difficult]. I know this from my experience of working as Clerk of the then National Assembly, that getting people to understand what the National Assembly does is quite a difficult job. Getting them to understand how fiscal devolution works inside Wales is a difficult job too. So, my broad answer would be that a lot has been done, but there are obviously great gaps in understanding and certainly on the comparability factor.

Is that—? Forgive me, Peter. Is that more that public discourse doesn't happen and, therefore, there isn't a mature conversation within the country and between people to understand what we can and can't do, and what levers we have available to us?

I think that's right, Chair, but these are difficult issues to understand, to understand how the Welsh Government needs to compensate the UK Government for its changes in its tax policy. These are very difficult things to understand, and one would have to be optimistic to assume that there would be public discourse about them. But one has to byw mewn gobaith.

Byw mewn gobaith.

Yes, certainly. Would Eurfyl or Nick want to comment?

It is a challenge, as Paul said, and I remember, many years ago—it's long enough ago that I can say this—I was having dinner with a senior person from the BBC in Wales, and we touched on this exciting subject of the Barnett formula. And I offered, I said, 'Look, I'm more than happy to spend an hour with your people showing them what the Barnett formula is and how it works.' And I said, 'I promise, it will be non-party political.' In fact, as probably some of you know, this publication by the Treasury, the 'Statement of funding policy', sets out how the Barnett formula works in a very clear way. And I said, 'I'm more than ready to do that' but he didn't take me up on it.

And another time, when there was a Welsh budget being announced, again, a friend of the BBC was saying, 'Well, there's not that much interest in Wales about it.' And I said, 'Well, there's only a lot of interest probably in the UK budget on things like what's happened to taxes, duty on petrol and alcoholic drink.' That's what engages the public—I don't want to sound patronising—not the finer points of corporation tax or the tax on carried interest of private equity firms. For most people, it's not relevant, it's not interesting. So, unfortunately, unless we're doing things that people can see their impact on them or their families, most people won't be interested.

There is a fair amount of information published, both here by the Senedd and by the Treasury itself. Next month, there'll be the annual public expenditure statistical analysis report, which is a very detailed report showing relative spending on a whole set of programmes across the nations and regions of the UK. I wonder how much coverage that will get. Wales Fiscal Analysis—like I said, I've got an interest in that one, but we publish lots of detailed analyses, and we also work with the Institute for Fiscal Studies. So, it's there at that level, but only a few aficionados—can I put it that way—follow this stuff. And, of course, the other point we have is that most people don't read the Western Mail; they read London-based newspapers.

Rhianon, did you want to come in?

Just a very brief point, just to pick up on that as a really important point. But it is also about having a creative media that is able to make it accessible to people, because all of these issues have a direct impact, as everybody knows around this table, in terms of people's cost-of-living approach and how we have enough money to survive. So, I do know, as a piece of information, that we've appointed a journalist, I think, to cover Senedd operations, and I believe it's somebody from The Observer. And I think we all have that duty to be able to broadcast what's happening across Wales, and I think it's a shame that the appropriate media, at that point, didn't pick this up, because it is so crucial for Wales, and I think, hopefully, it will change. Sorry, that's a comment.

Could I just come in on this?

Certainly, yes.

Thanks. Just to really echo Paul's point on comparability, and, I think, that perhaps relates as well to the work he's been doing elsewhere on the different institutions within the four parts of the union. I think one thing where we have missed a trick is on ensuring that there is a strong infrastructure to the devolution settlement that we have, so that different parliaments are talking to each other. It's improved, and it's certainly improved at official level, but I think that's something that we do need to look at with, perhaps, some statutory underpinning to ensure that that's happening on a more widespread basis than at present.

We're never going to get people excited about the relative strengths of aggregates tax in Scotland and Wales. I'm afraid that's—again, not being patronising—just not something that members of the public will be discussing in the Dog and Duck or in the local post office; it's not going to happen. But if we have some sort of meaningful infrastructure to the way that the devolution settlement works, I think that will help all parts of the union, and people would be interested in that, I think.

I think that goes on nicely to your next question, Peter.

Yes, thanks. I agree with that, Nick. Obviously, you recommended strongly that the Chief Secretary ought to attend this committee and keep us updated, and you'll also know that that hasn't happened. I'm assuming you still feel that ought to happen. Should we be looking at any processes to try and make sure that happens? Perhaps that's part of what you've just said, Nick, about underpinning.

Yes, it is, Peter, and I believe more strongly than ever, and I think it's dreadful it doesn't happen. We can't, as members of whatever institution we sit in, complain about devolution not working when we're not willing to put in the work at that sort of level, and I think Ministers have a duty to attend committees where required. And if it needs putting on a statutory basis, I think that needs to happen. It shouldn't need to be put on a statutory basis, but it seems to me pretty fundamental that should happen. And where members of whatever political party ignore a devolved body, the consequence will be felt electorally, and it should be.

Sir Paul.

Yes, I agree with that, I think, perhaps not as strongly as Nick has expressed it, because the Chief Secretary has a responsibility to the House of Commons, but he or she should also feel an obligation to come to your committee and to a comparable committee in Scotland and so on, when invited to do so, in the same way as I hope that Ministers in the Welsh Government, who have a responsibility to the Senedd and no responsibility to the House of Commons, will still feel that they wish to go and give evidence if they're invited to do so by committees in the House of Commons.

Absolutely. As a final point, and we touched on it, briefly, earlier on, you shared your thoughts on the potential for devolving the Crown Estate back then. I wonder if you wanted to expand further on that if you felt it's even, perhaps, more relevant now, or your views, actually, on the Crown Estate. That would be very helpful for us.

Sir Paul.

I haven't thought of this in great detail, but I did see that the Crown Estate management was devolved to Scotland in 2017. If it's devolved to Scotland, I can't see any reason why it's not devolved to Wales.

I think we did anticipate the increasing relevance of the responsibilities, the scope of the Crown Estate in the report, and that's come about, to your point. It's becoming more and more relevant and, as Sir Paul said, if for Scotland, why not for Wales?

Exactly.

I think it certainly should be. There is, obviously, an area for liaison, again, amongst the different parts of the union, not least because this is a responsibility for 12 nautical miles from the coastline, and there will be areas, obviously, where there's an overlap with England in the case of Wales, clearly, where there would be need for liaison. But, in principle, I can't see any reason why it shouldn't be devolved to Wales at all.

Great. Thank you very much. The final question, then, from me. Actually, before I ask the final question, Mike, did you want to—?

We've had a very interesting discussion, and can I thank you very much for coming along, which I'm sure that the Chair's going to do? But everybody always ends with a 'but', don't they? It's 10 years since the report. Do we need a new one after all the things that have happened? And I'm not asking you three to be involved in it, okay, but do we need a new report into this? We've had the changes in dividend income, we've had the Crown Estate being devolved to Scotland. And those are just two—we've had a lot of other things happening. Air passenger duty and the aggregates levy haven't been devolved. Is there a need for a new report of this kind?

That's for you people to determine. I know a political hot potato when I see it, Mike. I think that's for you people to determine. Fun though it was for us, I'm glad that you said that it shouldn't necessarily be us doing it. [Laughter.]

It would be an excellent opportunity to spend some more time with Paul and with Nick, I think. [Laughter.]

There we are.

Ditto, Eurfyl.

But, in all seriousness, do you think there would be an opportunity now—a lot has happened in the last 10 years—to have another look at it?

It would be interesting to see what the Rowan Williams and Laura McAllister commission says about this, if anything, and I guess that they may recommend that or may talk about the issues.

I think they're already tarnished in the minds of many people.

The last question that I've got, really, is that if we're sat here in another 10 years' time—I'm trying to be optimistic now rather than pessimistic—do you think that we might well be in a very different place, and do you think that some of the relationships might improve as things go, over the next 10 years? Maybe get your crystal ball out and say what you would like to see us discussing in a session like this in 10 years' time, and to say, 'Yes, those were good things that were put in place.' Or if you had, I suppose, one wish, to say, 'Well, if we could change one thing in the next 10 years', what would it be? Sir Paul.

Well, you're inviting me to get into a political mode, which I try to—

Fair enough, fair enough. But maybe along the lines of—

If there is a change in Government that may result in a change in policies, I guess, from London—

I was thinking more from maybe a structural point, that you were talking about the relationships between the countries of the union, as to whether or not that discourse might be better.

I sincerely hope that that will happen and that there will be opportunities for much better liaison between the Parliaments and the Governments of the United Kingdom. The proposals that Michael Gove has come up with, actually, about liaison between the Governments are things that I think are very welcome, and there is more that could be done between the different Parliaments, I think, in the future, and I hope to see that.

Yes, and passing the political hot potato on to Nick, any thoughts of what you would like to see happen, if we were looking back in 10 years' time?

Certainly that the 10 years don't go quite as quickly as the last 10 years have done. That would be good. But, in all seriousness, I think what Paul has said is really the essence of what needs to happen—much better infrastructure to the way that devolution works, because if we get that right, then some of the other things that we may differ on, to a degree, will be easier to hammer out, just as we did hammer out things on the Silk committee. It's a great benefit to be able to talk and to exchange ideas. That just doesn't happen enough. As I say, it's better than it was when devolution first came in. It's hard to remember now, but, when devolution first started, the liaison was pretty much zero. It has improved, but it needs to improve a lot more.

Eurfyl.

We've had a fairly dismal period over the last decade or so economically, and therefore understandably, to an extent, the main focus has been on those issues. Things like Brexit took a lot of time and energy, and, if you like, the aftershocks are still there. I remember having a long discussion, many, many years ago, with Gwynfor Evans about when people are likely to think they're ready for change, and it's either when things are absolutely dreadful, or when things are going pretty well and people are feeling more expansive and a little bit more relaxed. Certainly, we're not in that context at the moment. Also, without trying to be party political, I think, unfortunately—and it was tied up with Brexit—of Westminster and Whitehall trying to claw back more power to itself. We've got concrete examples of that. And therefore, I think, maybe if there were a change of Government at the UK level, the incoming Government might be more sympathetic to the whole concept of devolution, which would be helpful, because, of course, we were set up by a coalition Government, if you recall. That coalition Government had a markedly different attitude, I think, to the current Government.

Thank you so much to the three of you this morning. It's been fascinating. It's been great to have you here with us, and your expertise and your experience, and it's really helped us to shape some of our thoughts, and it will come in useful when we are scrutinising the Government on decision making. It will help us to frame some of that discourse around tax, around income and Barnett, and those big discussions that we should be having, and taking the opportunity, I suppose, from the potential, as we heard yesterday, that Senedd reform is coming in the autumn in a Bill. Well, what does that mean to the financial architecture of this place? What does it mean as to what it would look like after 2026, and those elements? That will help our discourse. So, thank you so much for your time this morning. As we said, we'll give you the transcript just to check that that is correct. We'll now go into a short break—

Chair, before we break—

Sorry, yes.

—could we be sent the report that Sir Paul's spoken of in terms of inter-parliamentary co-operation, because I think it will feed into that discussion?

Yes, certainly.

Thank you.

We can get that. But, thank you to you online, a diolch yn fawr, Eurfyl, in the room.

Thank you very much.

Hopefully, it won't be another 10 years before we speak, because it's been fascinating. Diolch yn fawr iawn.

Diolch yn fawr.

So, under rule 17.42, I'd like to propose, in accordance with the rule, that the committee resolves to exclude the public from items 5, 6 and 8, and the meeting on 6 July. Are you all content?

Content.

Diolch.

Gwych. Croeso nôl i bawb. Rydym ni rŵan yn symud ymlaen i eitem 7.

We're moving on to item 7, the financial implications of the Infrastructure (Wales) Bill, and we have witnesses here with us online. The Minister is with us, and her officials. I wonder if you could introduce yourself and your officials, please, Minister.

Diolch, Cadeirydd. I'm Julie James, the Minister for Climate Change, and I have—. Well, I'll let them introduce themselves, actually. Neil, do you want to go first?

Bear with us. Hang on a second. There we are. Go for it. No, we can't hear you. Minister, do you want to introduce?

And with me is Neil Hemington, who's head of the planning division, and Owen Struthers, who's the Bill manager for this Bill, part of Neil's division.

Thank you very much. Neil, hopefully we'll be able to hear you at some point—just maybe. Anyway, that's fine. If not, we'll have to do it via sign language, but that could be interesting. There we are. Right, thanks for being with us this morning, Minister. Obviously, we were expecting you in person initially, but, obviously, with circumstances, you're away today, so we'll—

I'm in the Welsh Government's London office, having just come from a meeting with one of the UK Government Ministers, so apologies.

We appreciate that. Thank you very much. We appreciate these things—these things happen. We'll move on, then, to discussing the financial implications of this new Bill that you've introduced. I'd like to start with understanding the purpose of the Bill and a bit of the high-level costs and benefits associated with the change. You've said this is a process Bill, and, given that, how has your approach to developing the Bill, and the options considered in the explanatory memorandum and regulatory impact assessment, differed from a policy-focused Bill?

Diolch, Cadeirydd. So, this Bill indeed sets out a process. The process starts with notification requirements for a proposed application for a significant infrastructure project, through a formal decision and the issue of consent, where the application has been approved. So, it's right the way through a process of that. The RIA calculates the likely costs and savings to each stage of the process proposed in the Bill against alternative approaches to consenting projects.

It's really important to understand that the Bill does not seek to influence or change any policy framework on which the decisions are based. So, this is not a Bill that changes planning policy in any way; it's a Bill by which the process of gaining consent under the current policy framework happens. The financial arrangements for this Bill do not include, for example, the financial implications of a new hydroelectric plant or a new floating wind arrangement, because that would be a matter for each application. This is the cost of the process by which such an infrastructure project would get consent under the existing set of policies. So, I think it's quite important to understand that. Although we know energy is one of the key projects that probably will come through this process, there are other projects of that sort, and, as I say, the Bill is not intended to influence the policy itself. This is very much, in our view, a measure that will streamline the process and actually have some cost-saving implications along its route.

Okay. So, the process considered involved the Welsh Government, local planning authorities, developers, communities and statutory consultees. How have you engaged with those groups to ensure the changes you propose account for all their requirements?

So, we've had an extensive range of discussions with key stakeholders during the whole of this time. This has been in production for some considerable time, Chair. I was engaged in some of this as part of the previous Senedd term, so this has been a long time coming, and it's been a long set of engagements with the various stakeholders. There's been a lot of opportunity for various public bodies, local authorities, the UK Government, and so on, to express a view about this and to take an overall look at it, as well as individual steps along the way. We've also discussed it with other stakeholders who are likely to be impacted, including things like the Welsh ports, the National Grid, various energy companies, harbour authorities, and other stakeholders. So, we've had a lot of those kinds of informal discussions.

A formal consultation paper was published in 2018, which had the main principles of the Bill and the potential benefits in it. And then we did an analysis of the consultation responses, which were generally positive—a lot of support for this unified consenting process that we're looking at here. And then we had a real in-depth look with local authorities and with the Wales planning inspectorate division—Planning and Environment Decisions Wales—to understand their expected costs, because that's where most of the impact would be, including undertaking new functions with the new consenting process. So, a lot of work has been done on that. And then, in March 2019, a research study report was published with a requirement for industry and development industry engagement, and so on. The data and information in that report was used to inform the RIA as well.

So, I think, Chair, it's fair to say this has been a Bill a long time coming. A lot of us have been involved with it for a very, very long time, and we continue to engage with stakeholders throughout the process. I was talking to cabinet members in the Welsh Local Government Association a couple of weeks ago, for example, and this was one part of a much longer agenda. So, it's been the subject of those kinds of discussions for a very long time. I'm sure Neil or Owen will be able to fill you in if you want more detail of the individual things. But I think we're in a position where I can tell you that there's broad, general consent that this is a good thing and that it will streamline the process and assist people to get to the outcome that's desired.

Thank you for that, Minister. I think, at this point, it gives us a good overview of what's been done. I think they've just popped Neil into the waiting room to try and sort out his sound—he'll be back with us shortly, hopefully. So, hopefully that won't take too long. But if there are any questions that we need to come back to because of that, then we'll cover that when we do it.

You estimate a net saving of £2.2 million over the five years, but the RIA notes significant benefits over and above, which it's not possible to quantify financially. Can you go into a bit more detail as to what those unquantifiable benefits might be or will be?

Yes. So, this is all about the streamlining effect of this process and how the various public consultees respond, Chair. So, if you think that a large number of the processes that are in here—. It's impossible to understand this unless you think of a project in your head. So, if you think of one of the big flood development projects, for example, at the moment, a flood development project might need a marine licence, it might need planning consent, it might need highways consent, it might need a harbour revision authority order—there are a range of things. As it stands at the moment, a developer who wanted to do that—and, often, the Welsh Government is the one who's trying to put flood defences in—would have to go round the range of things there and speak to the various consultees about it. Frankly, quite often, they're the same consultees—you'd speak to NRW on the marine licence, and then later on they'd be a statutory consultee on the planning consent, and so on. So, we think it allows them to streamline and co-ordinate their response. And when we did the end-to-end review of marine licensing, for example, it was clearly the case that a streamlined process in which they considered the licence and the planning consent at the same time would be a cost saving—a resource saving to them. But it's hard to quantify that until we've—. It's very difficult to put an actual figure on that. I don't know, Neil, are you hearing us okay now? Neil, I don't know how much of that you heard, but I was using the example I've always got you to work through with me of a flood defence programme. I don't know if there were others that you want to just highlight, just to explain why the process has some unquantifiable benefits in it—that's what we were asked.

Yes, I think you're correct there, Minister. There are a number of benefits we can't quantify, so, setting aside the developer benefits, there are benefits to communities as well. So, for example, we don't know how much actual cost communities incur in engaging with this process, but what we can say, I think, with some certainty is if they engage once with one process, it's likely to be less than engaging multiple times with multiple processes. So, although we are happy to say that there are positive outcomes in terms of cost, we cannot, obviously, pin that down to a monetary figure.

Okay. Thank you very much. Moving on, your evidence to inform the cost estimates includes a 2019 report from Arup. The report notes issues associated with the sharing of data. How have you accounted for the limitations of that study, and did the additional work, which covered the years to 2022, also experience the same issues?

So, this is a bit more complicated, Chair. I think I might get Neil to explain exactly how that's worked, because there's been a technical exercise, effectively, about how the data's been dealt with as a result of the Arup report. So, I don't know if Neil, you, or Owen wants to go first.

So, if I start off. So, yes, we asked Arup to undertake that work to establish the costs to the development sector. We did experience some issues around the cost data, primarily because of commercial confidentiality. We've got to remember that, when developers engage people in this area, it's a competitive process, so different consultancies are asked to bid. So, they are a little bit reticent about sharing their exact costs. Having said that, we did receive some data, and we did then go through a process with Arup looking at, I suppose, what we'd term 'industry norms'. So, that process was undertaken as well, and it was back-tested with some of the developers again: so, did this make sense? Were these reasonable high-level, medium-level, low-level estimates for that process? Because, as the Minister said, the project has taken some time to get to this stage—obviously, the data was collected in 2019—we did decide to undertake an enhancement exercise, bringing it more up to date. So, we did work particularly closely with local planning authorities and Planning and Environment Decisions Wales. We've got to acknowledge that a large part of this process is based on, or similar to, the existing developments of national significance regime. As those costs are costs that are incurred either by Welsh Government or by PEDW, we do know with a degree of certainty about those costs. So, we are confident as we can be that the costs we've identified for the development sector are accurate and appropriate.

Thank you very much. So, regarding the methodology paper that you've put alongside the regulatory impact assessment, why have you produced that document? Is it maybe to answer some of the questions that Neil was answering there, or is there another reason? And will it be Government policy to produce such a report for Bills going forward?

So, answering that last bit first, I really honestly don't know, and it's sort of above my pay grade, really. I think if it works and the committee likes it, then we may consider doing it. For my own part, Chair, I think this is a document that's really helped me understand what we're looking at. I think it's really clear and transparent how the costs have been come to, and it's been really helpful in getting your head around what's really quite a complicated set of processes. So, personally, I find the paper very helpful and I hope the committee does too, and the idea is that the costs and savings are as transparent as we can make them, because we're also trying to keep our stakeholders on board and happy with the process. So, we hope that the committee finds the paper helpful and that it's assisted in understanding how the costs in the RIA have been arrived at.

Thank you very much, and, speaking to researchers in developing our papers for this meeting, I think it's been very useful and we'll possibly reflect as a committee as to whether or not we make recommendations to Government that this comes forward in all Bills, because, as you say, it is very, very useful. And anything that gives us that transparency—. To coin a phrase that Mike Hedges uses regularly, it shows your working, so it's really important.

I'll pass over now to Rhianon, and she's going to explore the costs of the current system and how these have been established.

Thank you very much, Chair, and welcome, everyone—welcome, Minister. How confident, Minister, are you in regard to the baseline costs being accurate? And in particular, are you satisfied that the number of applications you have used to estimate those annual costs are reliable, slightly leaning backwards to where we were talking previously? So, to reassure our committee—.

Thank you, Rhianon. So, we are satisfied that these are the best estimates we have at this point in time. We slightly covered this in an earlier answer with Neil, didn't we? The allocated costs to each stakeholder are the best evidence that we've had from developers, local planning authorities and statutory consultees and our own costs of processing and determining applications. So, they're provided on the basis of the best possible evidence that we have at the moment, and reasonable best-guess assumptions on that evidence. And then we’ve got the methodology paper that sets out why we’ve come to that conclusion. And then we’ve looked at historical data for infrastructure applications—we don’t really have any other way of doing it—and they're taken over a considerable time period so that we can have a look at what the historical patterns look like, and that we have a reasonable estimate of numbers likely to come forward.

I think I just want to emphasise this at every point—the point of this Bill is to streamline the process. So, we think the cost and the resources necessary to do this will reduce, not increase. But of course we can’t be certain how many projects will come forward in the future. It’s a best guess, isn’t it? So, yes. I mean, if the committee has any other best guesses they’d like us to consider, I’m sure we’ll be very happy to do so.

Okay. I'm going to follow that up in regard to the mechanism in terms of the complexity across the three levels in terms of how these applications are categorised and the fact that these costs are not included, because, as you say, they're not known. Did you consider undertaking any analysis of the options, given the variation in the complexity—it's a sort of traffic-light system in a way, isn't it—of these applications?

Yes, so, again, it's based on a wealth of knowledge and experience from officials who've been dealing with planning applications for a very long time as part of the DNS process, for example, and other processes. And the committee can come to this conclusion itself: small-scale renewable energy facilities are unlikely to be part of the process—a single community turbine or a small hydro project—but, obviously, large projects with a range of issues likely to have an impact on a community, and with much likely community engagement and so on, are likely to be captured. So, we've just looked at the historical complexity of that. And one of the other things I would say is that we also have—I'm not sure if this is the right technical term, Neil, so forgive me—a reach-over ability, where something might not meet the threshold, but, for whatever reason, we think it is of national significance, so we can accelerate it up into the process if necessary. So, again, Neil, I don't know if you want to add anything to how exactly we've come to that conclusion.

Yes. So, essentially, Minister, we have looked back. We've looked back at the types of application received, and, critically, we've looked at how they've been dealt with by PEDW. So, obviously the more straightforward applications have been dealt with through a written representations procedure, with the most complicated ones going to inquiry. So, that has been of assistance to us in that categorisation process. When we’re looking at the existing situation, where there are multiple consents required, we’ve based it on the most complicated one of the multiple consents. So, as the Minister mentioned previously, this is about a one-stop shop. If there have been multiple consents required for one project, and one went through an inquiry process, we’ve said, in the future, all of them would. So, that’s the way we’ve attempted to assess it, really, based on our technical expertise and knowledge of the applications we’ve seen previously.

Okay, thank you. The regulatory impact assessment outlines a variety of differing regimes currently in use. No costs are estimated for planning permission under section 57(1) of the Town and Country Planning Act 1990, so what is the expectation around the future costs associated with the regime? I take on board your comments previously, but what is the anticipation around future costs?

So, again, Rhianon, this based on a best estimate based on historical data, so we've looked back over what's happened before. So, section 57 is the general power to require planning permission for a development. That's normally done by the local planning authority, but we can do it at the moment, if we call in—you'll all be familiar with that expression—an application for determination by the Welsh Ministers. Nothing that's an infrastructure project that falls within the scope of the Bill has been consented under section 57, so we don't think there are any costs to be factored in. In terms of future costs, a small number of applications will now fall back into that system for determination, but they've been included in the RIA assumptions, and there were four applications that would revert over the period we looked at—that's 2013-22—so, not an enormous number anyway. We've just assumed that the cost implications for each party involved in the application are as is. That's, again, a best estimate of what we think, looking at a wealth of historical data.

I hear that. In regard then to the largest costs being associated with developers, the Arup report states that, in some areas, the estimates used a very small level of responses from developers in the calculation of cost. So, in a similar vein, how confident are you with the estimates of those very specific small referenced costs, given that they are based on that cohort, which is very small, isn't it, in terms of your projection?

So, as Neil explained, a lot of the problems here are the commercial confidentiality of the information and the difficulty in getting people to reveal that, for obvious reasons. But we're very happy that Arup has taken a robust approach in the collation of the data and, to mitigate that, they undertook a cost validation exercise and we've tested it with developers—I've done that myself, actually—and, if the committee is taking evidence from any of the developers, you'll see that they're pretty happy with the estimates that are there. Again, it's a best guess, based on Neil's and Owen's and the team's expertise in dealing with these things over the years of the likely cost to a developer of having to put this in. And again, it factors in the 'no need for multiple applications for the same piece of work'. So, there's a cost reduction there. If you've got to apply for a marine licence and a planning consent and a highways consent and a harbour authority revision order, for example, you'll obviously have more costs than just doing it as a streamlined, single issue. You'll be able to use the same set of, for example, environmental impact assessment documents for the same thing, and not to have to tweak them for the different regimes. So, the one-stop shop provides a significant streamlining for the developers, and, I think, from the developers that I've spoken to, which are a very large number of the ones who have an interest in, for example, floating wind, they're very happy with the process and looking forward to it becoming the way that they deal with it.

Okay. Thank you, Minister. In regard, then, moving on, to DNS—the developments of national significance to Wales—the analysis for DNS used the aspects of cost to estimate around consenting regimes. So, in the example that we've been given, the Welsh Government costs associated with the transport and works orders are assessed to be the equivalent to determine a high complexity category DNS application. So, it's really a question around why is the DNS process appropriate to use for the analysis in this way. What was the rationale behind that?

Again, very similarly, we've dealt with a large number of applications. The committee will be familiar with the one that we're using as an example, which is the Morlais tidal energy scheme off the coast of Holy Island. And that had to be dealt with—and I remember it well, I'm afraid, with all of the various things coming up to me—under the Transport and Works Act 1992 and the old Electricity Act 1989, and there was a lot of scratching of heads about exactly how they interacted with a project of this size, and they were never—. These old procedures were never intended for the kind of project that's coming forward now, and so there's been a lot of discussion with the developers who went through that process on how to align the regimes to make them make some sense. Neil, I know you've lived and breathed this, man and boy, so I don't know if you want to explain quite how that works to the committee.

Thank you, Minister. Even though we've, obviously, had to consent things under historical regimes, we have worked with the developers to actually align the process as closely as possible to the DNS regime. So, for example, under the harbour revision orders and transport and works applications, there's very little engagement with the community. Obviously, that's not acceptable to us, so we did work with the developers to align them with the DNS process. In doing that, that gives us some confidence that the cost we've attributed to those regimes is fairly accurate, by using the DNS costs. It was the best estimate that we could come up with based on those processes. So, yes, I think, looking forward, this process we're working towards has more in common with DNS than it does with a harbour revision order or a Transport and Works Act or highway order process, so using that information is appropriate.

I understand that, but, in a nutshell, why model around the DNS system? I'm still not quite grasping it.

I think the layperson's answer to that, Rhianon, is that having negotiated with these old systems with the developers, the process that was eventually used looked more like a DNS application than it did any of the others, and so everyone was happy with that.

That makes sense. Thank you. Finally, my last question, really, is again around the incurring of costs. You say in the RIA that communities are, obviously, likely to incur costs, but you don't provide those estimates—I'm positive I know what you're going to say, but I'm not going to pre-empt it—for the group in the 'do nothing' or preferred option. Is there any information on why you've taken that approach in terms of the likelihood of incurring costs?

It's near impossible to answer this question. We know that communities do incur costs because they get together to put their views forward on various projects, and, as I've said, in the previous processes, they would have had to do that a number of times depending on the complexity of the process. So, they might have been applying, for example, for an operating licence, actual planning consent and for highways consents and for a various number of other things—all kinds of complexities. The community would have had to put its views forward in the terms of those consenting processes on a number of occasions.

Members of this committee will have had the same problem as me in the past with members of my community, with my constituency hat on, complaining to me that they were objecting to something only to be told that this wasn't the right time to object to it because now we were looking at the licence and they'd have to hold that objection until the planning consent, which would come slightly afterwards, or the other way around. People get very frustrated by the fact that it takes up time and energy, and cost, to some extent. It's a complex process to understand, frankly, from the outside.

What we think is that the amalgamation of all of these processes into the single infrastructure consenting regime will make it much more open and transparent to communities and will give them a much better understanding of how to make their views known, pro or against a particular development. They'll only have to do it once, because it's a single process, so they won't have to have this iterative thing where they look at the licence and then they look at the planning and so on. All of you will have experienced that in your own patches, I know.

So, although we don't have any way of accurately determining what those costs are, and it depends on the level of the group and whether it's an individual or an organised campaign and all that, what we do know is that it will be more streamlined and much easier under the new system. So, the costs will reduce, even if we don't know what they were in the first place. I hope that makes some sense to you.

That's great. Thank you. I have no further questions.

Diolch, Rhianon. Over to Peter.

Morning, Minister. I just have a couple of questions around exploring the cost of the proposed systems and the key areas of uncertainty around that. We know the RIA includes the cost of transition into the new arrangements covering IT, training, et cetera. I just wondered if you could expand on the extent of those new systems, please.

Yes, for sure. PEDW operates fully electronically and uses a bespoke case management system. Some of you have been on committees where we’ve discussed that very system on a number of occasions. So, obviously, when the new regime is in force, those systems will need to be updated so that they can deal with this set of applications as well. We think that the costs will be very similar to the recent transfer away from the UK Planning Inspectorate service into PEDW, so we'll use those as the basis for the upgrade of the IT system, I think that’s fair to say.

And then, obviously, the process itself will require all PEDW staff to be trained, the inspectors, the local planning authorities and Welsh Government officials, and consultees and developers, to understand the process, so that training resource will also be there. And again, we’re assuming that it will follow the same process that we used to disseminate the DNS regime. That was considered to be working very efficiently at the time. And we’ve also anticipated that the training will be delivered by Welsh Government officials. We also imagine that stand-alone guidance will need to be prepared to explain the new consenting process in an accessible fashion for the wider audience. So, that’s based on estimated costs of officials preparing the guidance.

The committee will be aware that we’ve done a large number of similar-type exercises in the past, so we’ve got a reasonable historical wealth of information to do that. Obviously, Welsh Government officials produce guidance to go out to local planning authorities on a regular basis. We often do training regimes; we very recently completed a set of training on compulsory purchase, for example, across Wales. So, we’ve got reasonable cost estimates for what that looks like and how long it takes.

On that point, Minister, how much read-across—? From that stuff that you've just been talking about that you've got expertise in now because you've done it quite a few times, how much read-across is there to other ministerial colleagues to help—? Because one of the things that our committee are always concerned about is how accurate the RIA is and those estimates are. Does any work happen between Ministers or between departments to say, 'This is the methodology that we've used, and we actually find that it's quite accurate in that sense'?

Yes, certainly. Owen can talk a little bit about the Bill managers and how they work together, if you like, Chair. I will say, though, that planning is a very specific thing. It's a quasi-judicial function; it tends to be much more regulated than other areas, and the inspectors have to account for their costs and so on. So, it's a little bit more of a precise art than perhaps some of the other policy areas are for Bills. But yes, we do share information. I don't know if Neil or Owen—

It's probably going off on a tangent, but it was just to understand a little bit of that. I'm conscious of time, so I don't want to delve into that now, but I just wanted to ask that question. If I can go back to Peter to carry on. Thank you.

Thank you, Minister. The RIA also sets out that the provisions within the Bill will generate around £2.2 million of savings over the five-year appraisal period. To what extent is this due to the lower number of applications accounted for under the new regime?

It's not the number of applications under the new regime, it's the lack of having to duplicate applications as in the current regime. So, for example, if you're applying for—. I don't know, I'll use my flood defence one as a good old chestnut. If you're applying for one of those at the moment, you would have to put in a series of applications: harbour revision, marine licensing, a planning application, a highways stopping-up order—blah blah—and now, you'll only have to do one thing. So, it's not based on, like, we expect 50 applications; it's based on the fact that for each application, there'll be one process and not five. So, that's basically where it's from. The main saving is to the developers, because they're the ones who don't have to resubmit slightly differently set out information under various different processes.

Thank you for that. That clarity is helpful. The RIA also talks about fees and reimbursed costs, and these are netted off in overall costs in the RIA. Can you outline why you have taken this approach, how the approach to fees might change under the new regime, and whether they are likely to increase?

I'm going to get Neil to explain that, Peter, because this is a dark art. [Laughter.]

I think the first principle in this Bill is that we are seeking to enable full cost recovery. We are looking to recoup the costs from the developers that are undertaking this process. We're fairly clear and fairly certain about the cost to PEDW, the cost to Welsh Ministers and the cost to local planning authorities as part of the local impact report process, and the marine impact report undertaken by NRW. So, we have some evidence there.

The main cost-benefit, again, comes back from the fact that there is only going to be one consent required. So, to use the Swansea tidal lagoon example, I suppose the primary consent was a development consent order, but there were also two harbour revision orders as part of that process. So, we are here talking about removing that.

There's also a potential element of double counting, which we've sought to remove. For example, the developer pays for the local impact report—obviously it can't appear as both a cost to the local authority and to the developer, so there's a netting off that takes place there. But the principle here is that we're seeking to achieve full cost recovery. That's the important thing to take away from this.

Thank you for that. The last question from me is probably a bit of a technical one. For significant infrastructure projects, the Bill proposes a tier of optional thresholds and criteria below the compulsory levels. Can you outline the process for classifying projects as 'optional'? What resources will be required for this aspect of the change, and why have you decided those thresholds will be contained in secondary legislation?

I've touched a little bit on this before, Peter. There are thresholds that set out which applications fall into this and which don't, and they're set out on the face of the Bill. But we'll also use guidance for stakeholders in understanding the type of project that might be directed to be a significant infrastructure project. I think the easiest way for those of us who are not professional planners to understand this is that it's a bit like the call-in or recovered appeals procedure, if you like. So, something that falls below the threshold—a fairly small onshore windfarm, for example, that's below the threshold—doesn't fall automatically into this, but because of its siting or a particular thing that's happening locally—it's highly controversial and it's having an impact on perhaps the way that the grid connections work locally and so on—it might be that we take the view that, even though it's below the threshold, it actually has a much more significant impact on Welsh life than would otherwise be the case. So, we'd have the ability to option it into the system, if you like. That's broadly what it is.

That makes sense. Thank you, Chair.

It just struck me—before I bring Mike Hedges in to ask some questions—that with this Bill, you're talking about streamlining, you're talking about making things easier and smoother, I suppose—down from five applications to one application that would probably capture a lot of the same information. Is there any concern that developers with deep pockets—and I'm talking as a regional Member in south-east Wales, and I've got two other Members in this committee that are based in that region as well—are able to use this process to keep going around the hamster wheel, if you like, until they get the decision that they want? Does it streamline that at all, or is that an unfounded concern that I might have?

No, it wouldn't allow that. If you put in an application under this process for—. Let's do something as controversial as we can think of: a very large onshore windfarm that is being put through the process. It will go through the process—it will be tested against the current 'Planning Policy Wales' and all of the technical advice notes and all of the rest of it that goes with it in the same way. The developer will only have to produce one set of environmental impacts and all the rest of it. They might have had to do slightly different tweaks of that for various other regimes. But in the end, when the decision comes, the decision comes—it is either granted or refused. If it's refused, then there's judicial review and so on, as there would be now. Like all planning consents, this process doesn't get away from general planning law—and forgive me, Neil, for garbling this. It's an iterative process, so if, during that process, in the pre-application phase in particular, we take the view that if they tweaked it a bit like this, or dropped three of the turbines or moved the road around here then it would be more likely to succeed, and that iterative process is still part of this system. You're still attempting to do it. But it doesn't allow you to come back four times with the same application. I mean, there's nothing to stop you coming back with a completely different application, obviously, and that's always the case. So, it's not changing the fundamentals of planning law, just the process that's used to get you to consent or not consent, I have to say—it also gets you to not consent, of course.

Thank you for that clarification. It helps, just to get it clearer in my mind that, just by saving money within a process, it doesn't open the door for an unintended consequence, so thank you. I'll move on to Mike. Thank you very much.

You note that the new regime could result in additional development in Wales, but won't the effect of the regime be overwhelmed, in terms of economic development, by the economic conditions existing at the time?

Well, yes, of course, Mike. What comes forward is very much determined by the economic outlook and prospect. But, for example, we know that there is an opportunity in the Celtic sea waiting to happen. Now, a lot of that will be outside of our 12-mile zone, but some of it won't be, and as that Celtic sea opportunity develops, we know that more in-shore projects will come forward that are community owned, for example. We're having discussing at the moment with the Crown Estate about how that might roll out in the future. But of course, the amount of development that goes on in any country is absolutely impacted by the prevailing economic conditions.

Okay, thank you. You considered and ultimately discounted two other options—that of establishing an independent consulting body and establishing a major infrastructure planning unit within the Welsh Government. I'd like to talk about the policy, but I'm only allowed to talk about the finance, so, to what extent were costs a factor in discounting these two options?

Again, it wasn't really cost. Costs are important. but the options were discounted for reasons that weren't just cost; they were around efficiency, really. So, a consenting unit inside the Welsh Government would give us a one-stop shop, but it doesn't work quite as well as PEDW. I can get Neil to explain it in great detail, Chair, if you want me too. An independent body removes the democratic accountability from the process, which I don't think any of us particularly wanted, really. Very much part of planning policy in Wales is that there's the democratic accountability for it and it's a democratic decision-making process, so I wasn't very keen on having that removed altogether. But if you want, I can get Neil to go through the detail of how we went through the process.

Maybe if Neil is able to do that briefly—

I was going to say that we don't want to infringe on things that are nothing to do with us, so, 'Was finance an issue—yes or no?' is all we really can ask. Other committees will ask on the policy.

No, Mike, it wasn't. Other issues were much more important than cost in considering which regime to use.

It's very difficult here, when you have views on something, not to move away from the purely financial situation, and I'm doing my best.

Well done, Mike. [Laughter.]

Your post-implementation review outlines an evaluation of implementation within five years. Given that the Bill aims to make the process more efficient, can you commit to that evaluation assessing the overall costs and benefits of the change?

Yes, I'm very happy to commit to that. We'll do an evaluation within the first five years. Once it's up and running—. This is the primary legislation we're looking at here of course, but there will be subordinate legislation to come through to actually get the regime up and running. Once it's implemented, we'll also do an annual basis—. We'll do a performance review on an annual basis as well, and then we'll obviously develop the methodology as we go along, as we look at it. But I'm absolutely happy to commit to that kind of review, but it will be subject to all the same limitations as the current system, so we won't have all the development data, for example. It will be impossible because it's commercially sensitive and there'll be other issues with that. But, yes, we absolutely will do a review of that.

You raised the subordinate legislation. On that, are there any areas of the cost assessed in the regulatory impact assessment, not already discussed, that may be impacted by secondary legislation?

So, I think the short answer to that is that there are not, but we—[Inaudible.] So, this is a different kind of Bill; it's not a policy Bill. This is a process Bill, so the detail of the processes will follow in secondary legislation, but they won't be significantly adding anything. So, I think, if you look at the Air Quality and Soundscapes (Wales) Bill, for example, that's currently going through, that has subordinate legislation to actually set out targets in the statute. Well, obviously, what the target is has a great impact on the cost of what you're doing, whereas this is the detail of a process that's set out on the face of the Bill. I think that's fair, isn't it, Neil?

Yes, I think so. I think we've given our best estimate of costs. As we develop the secondary legislation, I think, particularly in relation to the roles of others in the process, there may be some additional costs or reduced costs. So, for example, the precise details of the consultation arrangements—those sorts of things we will need to work out in fine detail, and, of course, that subordinate legislation will itself be subject to an explanatory memorandum regulatory impact assessment, so we can develop it at that time.

Thank you.

On that point, it's something that this committee is grappling with, especially when you're talking about framework Bills, and, as we talked about, the other Bill that you've got going through at the moment, and that subordinate legislation, and the cost of that. It's how do we confidently cost it so that we know, actually, what the Bill is going to cost in the fullness of time. Obviously, I take your point that this is a process Bill, and the secondary legislation is probably going to be not as costly as maybe the soundscapes and the other Bill that you've got going through, but have you got any comments as to what you think Welsh Government could do to help this committee understand that subordinate legislation, and the costs of it, better?

Yes, so, we really aren't expecting it to be all that dramatic, and bearing in mind that we're expecting this Bill to be largely cost saving, what we're doing is streamlining the processes. As we work through the subordinate legislation, as Neil just said, and we talk about those specific statutory consultations, for example, that are required, we will be able to get a better understanding of what each of the statutory consultees might have in terms of cost. But bearing in mind that this is a streamlined system, the likelihood is that that will go down compared to the current system, not up. So it's very hard to—

I was just thinking in the broader—. Obviously, you've got a couple of Bills going through at the moment, in that broader ministerial role in your department, as the secondary legislation is coming through in different parts, how could you help us as a committee to understand the cost of that secondary legislation coming through?

Yes. So, lots of them have RIAs associated with them, and we certainly do try to set the costs out on that. So, if you look at the soundscapes Bill, for example, I'll be really clear with the committee that some of the costs will be in the secondary legislation, because how we set the targets, and the exact workings out of that will have a big cost implication. I think this Bill—forgive me, Neil, because it's not a simple Bill in any real sense of the term, but in that sense, it's a simpler Bill, because it's not setting out some of the major policy bits in the secondary legislation; this is all about the detail in the secondary legislation. So, if you like, it's the instructions to the local planning authority for how to deal with it, or to the statutory consultee for how to deal with it. It's not the development of a policy that's setting framework on the Bill and then, developed in the regulations. So, it's a very different feel.

Okay. Well, thank you very much. I think that brings us to a conclusion on our questions this morning. So, if anything else comes up, as we're deliberating your answers, then we might come back to you. But I think we've covered the ground that we wanted to cover this morning. Thank you so much for making yourself available to give us your time. And thanks to your officials. Obviously, Owen, we didn't hear much from you, other than 'Hello' at the start, but, Neil, I'm glad that the sound is working now for you. I'm now going to go into private session, but thank you very much, and we will see you soon, Minister. Diolch yn fawr.