Finance Committee

We'll move on to the second item, which is the papers to note. Are we happy to note those? Yes, fantastic. Rhianon—yes, I'll bring Rhianon in.

Just for clarification on agenda item 2.1, the Welsh rates of income tax, it's just I’m not quite clear in terms of the final two paragraphs where there was some double counting both from England and Wales, which didn't affect individuals, but it says that there was a difference of £0.4 million. Is there any clarification or a little bit more meat on the bones around that in terms of it being of an impact to the purse or not?

We've had nothing further from them other than the letter, but we do have Mark Drakeford in with us later as the Cabinet Secretary, and we'll obviously have him in for the budget as well. So, it might be an opportunity for you to maybe raise it at one of those two sessions. I'm just thinking which one would be more pertinent—probably the budget rather than the supplementary budget today. But if there's an opportunity for you to ask that question today, then do come in with it. Okay?

Thank you.

There we are. So, we'll note those papers. Just to say that we've noted the paper from Dawn Bowden, the Cabinet Secretary for Children and Social Care. It was worrying to see the numbers change so much from evidence given, and, obviously, our report will reflect that, and I will bring that up in the debate next week when we look at that. But we'll note the papers otherwise, if there's no further comment. Yes, great. Diolch yn fawr. Okey-dokes.

Right, we'll move on to our first substantive item, and we've got some witnesses with us here. Would you introduce yourselves for the record?

Yes. Bore da, good morning, I'm Michelle Morris, public services ombudsman.

Bore da. Katrin Shaw, chief legal adviser and director of investigations.

Bore da, Chris Vinestock, chief operating officer and director of improvement.

Croeso cynnes—a warm welcome to you. This item of course is a review of the operations, processes and investigations carried out by the Public Services Ombudsman for Wales, and it’s the evidence session following the publication of the independent review. As people will remember, on 9 May, you gave evidence to the committee in relation to the inquiry on the operations, processes and investigations carried out by your office. During that session, you told us that the committee had appointed Dr Melissa McCullough, the commissioner for standards for Northern Ireland and Jersey and Guernsey, as a lead reviewer. Dr McCullough’s report was published on 27 September, and has been circulated to Members and published publicly beforehand, and your response has been published on your website for that as well.

Thank you very much for coming in. We’re going to go through the report and look into it in detail now. But I’d like to start, really, by exploring the process itself, what you’ve been through, what the investigator went through. So, now that the review has been concluded, you’ve got the findings, are you satisfied that it went far enough, and was it sufficient enough and thorough enough to provide the public with assurances on the matters considered? Maybe you could just talk us through the process since we last met, what’s happened and just give us an overview.

Okay, thank you. Well, I think the process since we last met, I think following our last meeting we took on board your thoughts and comments around the terms of reference, and we finalised those and published them quite soon after our meeting, and confirmed, as you say, that Dr McCullough would lead the review. Early days—I think this is important as well in terms of scope—we met with her and she had that opportunity before the terms of reference were finalised. She had the opportunity to look at them and discuss them with us, and the opportunity to ensure that she was satisfied that the terms of reference were right to try and achieve what it is we wanted to achieve from this. That was important. She was leading the review, she's put her name to it, and it was important that she had that input. So, that all sort of happened in a few days after we were here in front of committee last time.

In terms of 'Am I satisfied?', yes, I am and I'll expand on that a bit. I think it was a thorough review, and I think she was very minded to follow the terms of reference that were set down and agreed for her. As I said, she had some input into that and I think that was important. I think with any piece of work like this, two things are important. One, the methodology that was used and the process that was followed—I'll talk a bit about that now—but also the independence of Dr McCullough and her team, and her standing and credibility within this field of ethical standards in the work that she does. Those two things should, I hope, give people confidence and assurance.

So, she set out in her report very clearly what the methodology was that she used, and I think that's important. They reviewed relevant documents, they had access to all of the documents that they needed from us to review. Many of those are published documents, but some of them are not, they're internal documents. Importantly, they reviewed over 670 cases, and they had full access to our case management system and to all of those cases that were within the scope of the review. I think we talked about that the last time we were here. It was helpful that the case management system we use is the same one that she uses in her work. So, she and her team were familiar with it and we were able to offer them that remote access, so they could do it from their own offices. They didn't have to come into our offices to do it.

And as Members will see, they also interviewed relevant staff who undertook this work, and importantly the staff whose work was being reviewed as part of this process. I think there was an important element of fairness there, that staff had the opportunity to participate in the review and put their views forward. So, I think there was a robust methodology. I know that Dr McCullough said several times that she's a scientist by background, so the methodology was really important to her; the terms of reference and getting the methodology right were really important. I think that's why she spent some time in the report talking about that and confirming the methodology she followed.

Sorry. The interviews with staff happened on Teams, or on an online basis.

On Teams, yes. They happened on Teams.

And back to the final point I'd make, really, which is that, with any independent review like this, it's really important who does it, the credibility of the person who does it. Dr McCullough, I believe, was well placed to do this work. I've heard no criticism of her appointment. I think people felt she had the right background to do this work. She's very experienced in it, and she brought her academic and professional experience of ethical standards working in this field in Northern Ireland and other jurisdictions.

And perhaps it's important to say as well that she had not worked with me previously. I didn't know her before this started and she had not worked with PSOW or any of the team previously. So, she was totally independent. And the team that worked with her, the two individuals that worked with her, were a team that she normally works with in doing her work in Northern Ireland and Jersey and Guernsey. So, again, they were very familiar with how they work together, and there was no influence there from them—they were totally independent as well.

So, that was quite a long answer, Chair, but, hopefully, all of that sets out why I am confident that the review was thorough enough, and I do believe it did follow the terms of reference that we set out for Dr McCullough.

As the review went ahead, the lead reviewer obviously had the opportunity to widen scope if she wanted to. Did any conversations about that happen? Was there a need to look beyond what was in those terms of reference? Did any conversations about that happen, and what were the outcomes of those?

So, the way we set this up and ran it is that, once the terms of reference were agreed, Dr McCullough really took that on then and took the review forward. I asked that she gave me a monthly update, and we touched base—had a Teams conversation or a telephone conversation—around that time as well, on a monthly basis. And that was really to understand how things were going, to make sure she was still confident she could deliver on time, because of the timescales we were working to, and it gave her an opportunity to raise any issues that she had as she went through the work. So that, really, was the opportunity for her to bring forward any ideas around necessity to widen the scope, and the terms of reference gave her that ability to do that. So, she did that as she went through the process, but there were no—. She didn't make any requests around that and she didn't feel there was any need to widen the scope beyond the terms of reference. Now, I'm sure, perhaps if the independent review had gone differently, perhaps if, when they got into the cases, they'd found areas of concern, then she might have wanted to widen the scope, to perhaps drill down into some of those, but she didn't.

Oh, she didn't from that. Would that potentially have been then to interview people who had been investigated, or is that where that natural progression might have gone if she thought it was necessary?

Yes, absolutely, it could have been. So, just to explain that, when we talk about the case files that she and her team had access to, we use Workpro, and everything to do with the case goes on that file—it's all electronic. So, any correspondence we've had from people, from either those who raised complaints with us or those who were the subject of an investigation, any correspondence would have gone onto that file and the team would have had full access to it. So, there was nothing kept from them—they saw all the information. So, yes, I can see a scenario, if she'd started to see concerns around certain cases, she might have said, 'Actually, we want to do a bit more', and that might have been talking to other people who were involved in that case. But as I said—

But because she was confident as it was going along, and, obviously, from her report, that she had all the information that she needed, she didn't feel it necessary then to widen beyond that. Okay. Thank you.

Yes. Yes, I think that is the situation.

One of the big parts of the review, and part of what was being investigated, was potential political bias. How was that defined, and what did you do to formalise the definition of political bias? If you could talk a little bit about that.

So, I think the definition of political bias was really important, and this was a conversation we had with Dr McCullough when we were setting the terms of reference. Because if you're doing a piece of work to try and determine whether something happened, you need to be very clear about the definition you're using. So, she set that out in the report—it's actually at the bottom of page 6 in the report. If I could just quote what she's put there:

'political bias will be found where there is evidence that the decision on a case was influenced by the political affiliation of the person who made the complaint and/or the member who was complained about.'

So, that was the definition of political bias that she has used throughout the independent review.

Fine. Okay. Thank you. Thank you for that. What sorts of thresholds were applied for something to be considered as having been influenced by bias? Going on from the definition, then, where do the margins happen, and what would constitute sufficient evidence to prove it, do you think?

Well, what the team were looking at was our two-stage test. So, I think we've talked to Members about this before. When we receive a complaint, the first stage in the process is that we do an assessment of that case, and we use a two-stage test that we've been using for quite some time, to determine whether that is a case that should be investigated. So, there are two steps. The first step is: is there evidence? So, everything we do is based on the facts and based on the evidence that is in front of us and is provided by the complainant. So, I think that would be the first thing that the team looked at. And if there isn't evidence, if you like, the complaint falls at that point; we would not be taking it forward to full investigation. If there is evidence of the complaint, then the stage two of the process is relevant, which is about public interest, and is it in the public interest to investigate that complaint, given the evidence that's been presented. So, that's the two-stage test. That was really the focus of their work: they were looking at how the two-stage test had been applied by the team in making those assessments and making a decision about whether to investigate or not. So, I'm just—sorry—giving you that for a bit of context.

But I think, in terms of threshold, yes, I'm not sure quite how to respond on that one, because, for us, there should be no political bias. So, it isn't the case that a little bit of political bias is okay; actually, there should be no political bias whatsoever. And I believe, from the work she's done and the way she's written her report, she is saying she did not see any evidence of political bias in the paperwork that she and her team reviewed.

Okay. Thank you for that. There's talk, in the process and in the review process that went on, that 5 per cent of the cases that were selected for review were subject to an additional dip sampling. How was that dip-sampling size determined, and how were those cases chosen for dip sampling?

So, it's important to say that, as part of the work that her and her team did, they looked at all of the cases, so all—. It was around 670 cases. So, they didn't sample those cases; they looked at every single one. The dip sampling was done as part of the methodology. Again, I think Dr McCullough wanted to make sure that—. She had three members of the team working on this. She wanted to make sure that everyone was using the same definitions and processes and applying the same thought process, if you like, to how they were doing the review, to make sure you didn't have someone doing it differently to someone else. So, I think what they did is they initially sampled a small number of cases—I think they did about 50—and she split them between her and her investigating officer, who was on the team with her, and they both went through them, to look at the test to see whether they felt there was political bias. And then, what they did is they used that to—. The third person in the team then looked at those on a dip-sampling basis to see whether they agreed with the decisions they'd both reached. So, it was like a triangulation exercise, if you like, to make sure everyone in the team was applying the same approach.

And using the same methodology, so the—

Yes, that's right. So, the dip sampling was to do that: it was to satisfy her, I think, about the robustness of the approach they were using and that the whole team was using the same approach. And they applied that. We weren't involved in the dip sampling. They made the decision as to how they allocated the cases; they made the decision about the dip sampling. It was all part of them, I think—and Dr McCullough in particular—being certain that the methodology she was using was the right one. But it's important to say that they looked at all of the cases. They didn't do a dip sample, they looked at every single case.

Okay. Diolch yn fawr. Peter.

Thank you. That was very reassuring, because I think that adds to the integrity and robustness of the independence, and so I'm pleased that's good and clear.

The remit of the review did not include investigating the initial incident or the former code team manager. Given this, why was it appropriate for the former code team manager to be interviewed as part of the review, and why was this the first time she had spoken to anyone formally about the details of the incident?

Okay. I'll bring Chris in on the second part of the question, but, just to say, the review team interviewed—and I think I referred to this earlier—all staff employed by us who do this work, so all staff whose work was in scope for review, and that's only fair that they were interviewed and had an opportunity to take part.

Clearly, the former team manager had left the organisation by then, but it was the case that some 80 of the cases being reviewed were ones she had worked on while she was employed by the organisation. We did have some discussion with Dr McCullough about this, and I think, at the end of the day, my view was it was her call, because she was doing this independent review, and I really did try and step back and allow her the space to do it. And I know, for her, she felt very strongly that it was a matter of fairness that the former team manager had the opportunity to take part. We couldn't compel her to, we couldn't force her to, she wasn't working for us anymore, but we felt it was important she had that opportunity, and she—Chris can talk a bit more about this—was contacted on a couple of occasions. The first occasion she declined, but I think, on the second occasion, she took up the opportunity to talk to Dr McCullough and have her views put forward and on the record that way. So, it was Dr McCullough’s call. I don't necessarily disagree with it, to be honest, in terms of fairness. This review was the first time our staff had had a chance to have their voice heard in all of this, and I know they were very pleased. I don't know about the former team manager, but the staff in the team were very pleased with the way their views were represented and set out here, because, I have to say, I feel that criticism that's been levelled at them has been very unfair, but this has given them the opportunity to have their voice, and I think they feel very vindicated by that.

Yes. Thank you.

The second part of your question then, Peter, was about why it was the first time anyone had spoken to the former team manager since the incident. That's not our recollection or understanding of events at all. Perhaps if I can bring Chris in, he can share with you the timeline and what was done.

Thank you. Yes, we have spoken formally to the former code team manager. I won't go through it in huge detail, but I will just set out some of the events around this. So, there was a meeting in our offices on 29 March, which was a formal meeting involving the former code team manager, her manager and our human resources business partner, and that was after we first became aware of the social media posts. The outcome of that meeting was that the former code team manager confirmed that they were her social media posts, so she was formally suspended, pending disciplinary action. And, as you'd expect, that decision on the day was confirmed formally in writing. There was further contact and support for the former code team manager from her manager over the weekend and the bank holiday. After that, at the request of the former code team manager, contact was through her trade union representative.

The former code team manager resigned with immediate effect on Wednesday 3 April. That was accepted formally the following day on 4 April. So, all of that was part of the formal process. I think it's worth saying that all this happened in the course of less than a week, so it wasn't a protracted period. And if the former code team manager had not resigned, there would, of course, have been a more formal process, a disciplinary process, in which she would have been, obviously, involved and spoken to and given the opportunity to explain her actions and events.

But the independent review, as you said, was not an investigation of the incident, and it wasn't an investigation of the former code team manager. It was about the casework and the reliance that people can have on the work of the office. At the point of the resignation, that really ended the formal relationship between the organisation and the former code team manager. So, that was the end of the formal relationship and the formal process. But, as Michelle said, there was some limited contact after that. I was in contact with the former code team manager a number of times by phone and e-mail, firstly to pass on an offer from the reviewer to be interviewed as part of the investigation, secondly, to update on progress and pass on a second offer for the former code team manager to speak to the reviewer—that was at a later stage of the review work—and then, finally, to advise that the work had been completed and that the report was going to be published, and I told her about the publication arrangements. So, I think, overall, we think that the contact was appropriate. It was formal at the early stage of the process, and we tried to keep them informed as the process developed.

Thank you, Chris. Thanks for the clarity around all of that. That was helpful to clarify what we needed.

Moving on, obviously, the review was very inclusive and interviewed all staff and key people within the organisation. How did you decide, then, that you’d got enough people there, because you didn’t consult outside stakeholders who have several views on bias and different things like that? How did you come to that decision?

In terms of the staffing, as I’ve indicated, the staff involved with those who work in the code team—it’s a very specific team within our structure, and they’re the ones whose work was being reviewed—. So, in a way, there was a natural selection there that they should be given that opportunity, and they all took that opportunity. I don’t think there would have been a clear purpose in involving other members of staff in the office who don’t get involved in that work. So, we felt that there was a natural group that should be involved.

Sorry, on that point, were any members of staff who used to work in that team, who were working in a different team, given that opportunity?

Yes.

Yes, there were, Chair. Some staff had moved to the assessment team, for example, or had always worked in the assessment team, but their cases were subject to the review. So, they met with Dr McCullough and were interviewed in the same way as everybody who is still in the code team.

Thank you.

Do you want me to come back on the stakeholders?

Yes, because there's quite a lot of people who contacted lots of their elected Members, concerned because they have a perspective, they have a view that they feel ought to have been contributed to the outcomes of this, and I’m just trying to understand—very difficult I know—why you, perhaps, excluded them.

It is difficult. We never, sort of, identified that as being part of the terms of reference, to be honest, from the first point. It is difficult—and you’ll appreciate this—because, if someone brings a complaint to us, however we deal with that complaint, we end up with someone dissatisfied. We either end up with a complainant whose complaint we don’t investigate, and they’re unhappy, and they may allege that’s because of political bias, amongst other reasons. Similarly, if we do take a complaint forward and then end up investigating someone, even, perhaps, referring them on to independent hearings, they will generally be unhappy with that as well and will have a view. So, it’s very difficult, because those individuals, dare I say, carry their own personal bias with regard to their experience with us, and it’s a challenge.

But I think I'd come back to the purpose of the review. So, the purpose of the review was not to determine whether individuals were satisfied with the outcomes of their complaints or investigations, and their interactions with our office; it was to determine whether there was any evidence of political bias in our decision making, and I believe the people we have spoken to, and the approach that Dr McCullough has taken, has been very focused on that purpose.

As I said earlier, the review team had access to all case files, and that included all correspondence. So, all of those who have written to us and contacted us and said, 'I'm not happy with this. I want to make sure—'. As you can imagine, in the spring, when this blew up, we had a lot of people who wrote to us, who said, 'I want my complaint in the review. I want to make sure it's in scope', et cetera. And we played that with a straight bat. We went back to everybody who wrote to us—there was quite a lot of correspondence—and we said, 'If your complaint is in scope, within the terms of reference, then it will be considered. If it's not within scope, or, for instance, if it's already been considered by a standards committee or APW, then it won't be considered.' So, we just stuck to the terms of reference. Dr McCullough and her team had access to all that information. They knew what people had written and what we'd written back. And I think it goes back to what I said to the Chair earlier—I'm sure if she had found concern, or points of concern, or evidence of political bias, in our decision making when she reviewed all the cases, then she might well have come back and said, 'I now think we need to widen the scope. I need to have a look at different areas.' But, I'm very pleased to say that that didn't happen. I believe that Dr McCullough involved the people that she needed to involve to meet the terms of reference and to do the piece of work that we asked her to do.

I'll just bring Mike in.

At least half of the people are going to be unhappy in any investigation, and sometimes more than half, because although you're finding on behalf of somebody, you don't find as strongly as they wanted you to find on behalf of them. We deal, as Members, with neighbour disputes, which we all hate—and I don't think I'm putting words in anybody's mouth there—where one neighbour has complained about another, and if you support one, then you've only done what any normal person would have done and followed the logical part. The person you don't support says, 'How could anybody be so stupid as not to support me?' We all try and avoid them as best we can, but some of them are very difficult, and yours is just that in spades, isn't it? You get these coming in, and—. My experience is that an awful lot of these are politically biased. There was a time when there was a battle between the Liberal Democrat councillors in Dunvant and—Chris Vinestock will remember this—the woman who ran the community council in Dunvant. They would be sending complaints to you—it might be an exaggeration to say once a month, but certainly several times a year—and you ended up with these huge disputes. Nobody is ever very happy at the end of it. It was solved because Dunvant community council disbanded, and the Liberal Democrats lost their seats. So, the whole problem disappeared, but it went on for several years.

It's a difficult area.

So, just for us to be clear, and you don't need to repeat your answer, but, yes, I'm reassured that Dr McCullough and her team had access to all of the correspondence that they would have received pertinent to the review. If she had felt that there was something that needed further engagement with stakeholders, there is no doubt that she would have taken that opportunity and engaged with them. Right. I think that's pretty clear. Thank you for that.

Moving on, then, how often now will your office's process documents be audited, or rather how often are they audited and reviewed internally? Has this whole review changed your perspectives on how often you might review your internal processes in the future?

Look, I think the opportunity to have an independent team, with experience in this field of work, to come in and look very closely and in detail at what we do, has been incredibly helpful. I mean, the way it arose is not what we would want, but the piece of work that has resulted from it, I think, is incredibly helpful for us. So, I think we take a lot of learning from that experience.

In terms of our process documents, our normal procedure in any respect, before this review, is that they are reviewed or amended at least every two years. So, the key process document that Dr McCullough and her team looked at was the code of conduct process document. It's quite a big manual. It says literally from start to finish how we deal with complaints, and that's a bit of a bible, if you like, for our staff. We actually reviewed that in April of this year, so, on that cycle, it would be due to be reviewed again in April 2026, but, in light of this report, we will now go back and make adjustments, as the recommendations recommend. So, we'll update that now; we won't wait until 2026 to do that, obviously. I don't think we'll change our review cycle, because it's on a two-year cycle anyway, but I think the value of this has been that that external team has come in and looked so closely at what we do, and we take on board fully their recommendations and the lessons that we learn from it.

That takes us on to my next set of questions, really. You've accepted all of the recommendations and lessons learnt from the review. Could you give us some clarity now on how you will go about implementing them? What mechanisms are in place to ensure that you do so satisfactorily? Obviously, you just clarified how you're going to review your guidance and things anyway, but is there anything further you want to add to that?

What we're doing at present, and immediately following this meeting, is—. I made an initial response to the report—you referred to it earlier, Chair—but we're now drafting a more detailed management response, which says exactly what we'll do against each of those recommendations and lessons learned. That's what you would expect us to do. We'll be discussing that response with our advisory panel later in the month, because part of the role of that advisory panel is to do pieces of work such as that.

Our commitment is that we want to complete all of the actions necessary to implement the recommendations and the lessons learned by the end of the financial year, and we feel that we can achieve that. What we will then do is that, once we've got that detailed management response and published it, our audit and risk assurance committee will oversee the delivery of that, monitor that and seek assurance that we're doing that properly and in line with what we committed to do, and that it is having the right impact—not just that we're ticking the box but that it's having the right impact on the work that we do.

So, that's immediate, high level. We can go into a bit more detail about each recommendation if you want, but we'll certainly be involving our advisory panel and our ARAC in doing that work, and we will be publishing a more detailed management response. But we will deliver all of that by the end of the financial year. I'd be very happy to write to the committee, perhaps early in November, with a copy of that, confirming those timelines. And, obviously, we'll reflect this in our annual report next year.

If you could write to us with those timelines, that would be helpful.

Thank you for that. That's answered of the questions I was going to ask. Perhaps in addition to that, do you feel that there might be any further need to engage with this committee to inform us of any updates against any of the actions that you're carrying out, or do you believe that it will be sufficient to report it in your annual report?

I'm very happy to do what the committee wishes. I can write to you and tell you exactly what we're doing. If you would like me to come back at the end of the financial year and talk a bit more about the actions that we've taken, I'm very happy to do that. But we will be preparing our annual report at that point as well, and I think that it's really important that this features in the annual report so that people understand the sequencing. We'll be here next week talking to you about our annual report, but we've talked about what's happened in our annual report, and it's important that we can close that down and tell people what we've done as a result of the independent review. So, I'm happy to do whatever the committee thinks is appropriate on that.

As part of that, and looking at your key performance indicators, are you going to be adjusting any of those to maybe monitor what Dr McCullough was trying to make sure wasn't happening? Or have you given any thought to how it's embodied in something going forward, for us as a committee to be able to track that that's being done, so that we don't get ourselves into a similar situation again in the future?

That's a good point and something we can reflect on and talk through with our advisory panel. Just thinking about some of the recommendations, for instance, there's a recommendation there that we introduce an additional quality check by doing a dip sample of delegated decisions. We could well build that in to our performance framework as well so that there's an assurance that that's happened, and also what was the result of that dip sample and quality check—were we still satisfied about the quality of our decision making and the absence of political bias. So, I think that's a good point, Chair, and where we can it would make sense to do that.

A couple more questions from me, not too many. I was just wondering, do you think that there is any future role for the review team to conduct any follow-up work, or anything? Do you envisage anything like that?

We haven't discussed that with Dr McCullough, so there are no plans currently. I think our focus at the moment is to deliver on the recommendations and the lessons learned. But we can certainly give that some thought as to whether there might be a touch point in a year's time to follow up with her—something, I would suggest, perhaps, that's light touch, given that this was quite a resource-intensive, particularly financially, piece of work. But it was absolutely valuable to have that external focus, and I think that's something for us to reflect on as well.

In a way, I suppose, it's an opportunity for Dr McCullough to respond to the way that you've reacted, or the actions you've put in place in light of her recommendations. It might be that, giving it a 12-month—. It may be just a, 'This is what we've done, any further thoughts', just a sense check as to, when she was writing the recommendations, are the actions that you've taken the ones that she would have assumed that you'd taken or that she would have foreseen, and whether or not you've gone further than she thought. It might be interesting to then embody that and, when you come to this committee, to report back on that. That would be useful.

Okay, yes, certainly, we'll give that some thought.

I'm not suggesting you have to do that, but it's worth reflecting on whether that strengthens any—. I think the report is strong and I think it gives a lot of clarity and a lot of reassurance to a lot of people, but belt and braces is always important with these sorts of things, isn't it?

This is the final question from me. The review recommended that the political affiliation of the accused member is not recorded on your pre-assessment and assessment form. It also recommended that you consider reverting to the previous practice of notifying the accused member of the complaint once it's received. Why are these changes important?

Can I ask Katrin to come in on that, as the lady who's very close to our work on this?

Thanks. What happens when we first receive a complaint is that the case file is set up on our case management system. As an administrative task, we search to find out what the accused member's contact details are. The practice we did adopt was that our staff would screenshot the details on their council's website. Sometimes that includes political affiliation, sometimes it doesn’t. Particularly in relation to town and community council complaints, that information isn’t there.

To ensure that those details were transferred correctly and that there were no inaccuracies in putting the details on our system, the screenshot was copied over. The inclusion of the political affiliation was very much, as Dr McCullough says, a by-product of that administrative task. She did find that it played no part in the assessment of the actual case—very much, the assessment decisions were taken on the facts and the evidence presented. She found no concerns about that, but we absolutely agree and we’ve already implemented this recommendation.

We’ve amended our complaints process to make it absolutely clear that when we do input the accused member’s contact details, we just input those contact details—the name and address from the council—and no mention is now made of that political affiliation. Obviously, when a complainant refers to a member’s political affiliation in the complaint that they submit as part of the narrative of the complaint, it would appear on that case file, because that’s been raised by them. We’ve already implemented that one and that was quite straightforward for us to do because it was very much an administrative issue.

In relation to notification of complaints to accused members, we have already discussed this with the monitoring officers group for all local authorities in Wales that we engage with quite closely and regularly. When we consider whether to revert back to our previous practice, what we intend doing is consulting with the key stakeholders: the monitoring officers, chairs of standards committees, members of local authorities via their monitoring officers and One Voice Wales, for example, and also the Adjudication Panel for Wales, given their experience and expertise on what we do. I think we’ll also look at what other regulatory bodies that undertake work of a similar nature to us do. And then, we’ll carefully consider the responses that we receive and see what the benefits and disadvantages are of reverting back when we take that decision.

Thank you. Thank you, Chair.

Thank you. Rhianon, I'll bring you in at this point.

Thank you, Chair. The review made two recommendations relating to unconscious bias: that an additional review or check mechanism is put in place for quality assuring the investigating officer decisions, and that an additional review or check mechanism is introduced in respect of delegated authority to overrule investigation officers' proposals to investigate, extend or commence new investigations. How will those two be implemented, and also how will those changes help in terms of the risks around unconscious bias? Thank you.

No bias was found, as outlined in the report, and in addition to the checks and balances that already exist within our processes and procedures, we intend to implement this by introducing an additional quality check on those decisions taken by investigating officers not to investigate complaints, and, as recommended in recommendation 3, the code team manager decisions in terms of her oversight of the team. We will randomly sample those decisions and, importantly, those checks will be undertaken by someone who is not working in the code of conduct team, so independent of that work.

Would that be a manager in a different team, or would that come to you? Just for us to clarify.

It may not be a manager, but certainly somebody of experience and standing in the office. That's our initial thinking. Our initial thinking is that that should be around 5 per cent of a dip sampling, random sample approach, across the piece and across the cases closed under these decisions. As I say, it's important, and it's akin to our review process, really, where, when somebody is unhappy and they ask for a review of the decision, for example a complainant or a party to a complaint, they can ask for a review now if they are unhappy and that decision is taken outside the team.

I suppose it matches up with what Dr McCullough was doing in her methodology in that triangulation element.

Yes.

In regard to the former code team manager implementing training, and the review, are there any concerns around internal staff—and we've just discussed something similar—delivering bias training? Are you going to continue that process of internal training?

The general unconscious bias training that we delivered in 2020 was arranged by the former code team manager, but actually delivered by an external provider. In terms of general training modules that we have, I and a former colleague who also has a legal background developed training on evaluation of evidence. That included an element of unconscious bias and the need for staff to be alert to that, together with other biases such as confirmation bias, when we are reviewing evidence on a file. It's a general package of how to assess evidence. That formed the basis of a module that exists on our hub for staff, and that was delivered by team managers to their teams, and the former code team manager to her team and other staff. We will continue to use that. We feel it's a rounded, comprehensive guide as a reminder for staff on how to deal with different types of evidence. We feel that is appropriate, but we do review, and I review that guidance to staff and training. We have a constant package and training plan to ensure people are up to date and feel equipped to take these decisions that are important decisions.

Thank you for that answer. In terms of what the investigation actually allowed for in itself, one of the recommendations was for you to consider whether there are any additional points in the process in which there would be a benefit, or not, in providing the accused member with the opportunity to comment further. Are there any proposals to implement that?

Yes, we will consider how to add those additional steps. What we do at the moment, when we take the decision whether to investigate, if we start an investigation we notify the councillor then, at that point, and provide them with a full copy of the complaint so that they're fully informed. They have an opportunity then, if they wish, to comment on the facts and the events presented, so they can take that opportunity at that point. We then investigate, gather evidence and obtain witness statements. If we think the matter should progress and that we should interview the accused member, we send them everything that is relevant in terms of evidence in relation to the complaint at that point. So, again, they are fully appraised before we ask them questions about the events.

Yes. I accept that, but in terms of the recommendations, in terms of the accused never being able to comment further to that process—the internal process—I presume that you're considering that as a recommendation.

Yes. Yes, there are three opportunities in our process at the moment and we will look at how we can strengthen and develop that.

Okay. Thank you. I'm going to move on. Regarding the public interest test, the review recommends that you give consideration to developing more detailed internal guidance. So, what information would revised guidance include, and how would this assist the process?

Yes. The public interest test is published and it's included in the guidance for councillors, and we will implement this recommendation to have more detailed internal guidance. The report was very clear that, in the application of the public interest test, all of our cases demonstrated clear analysis and documented sound reasoning for the decisions under this second part of the test.

In terms of how we will develop more detailed guidance, as you'll appreciate, public interest is something that is not easily defined and we wouldn't want to make it an exhaustive test or list; they're generally issues that are of great public concern and in the public interest for us to investigate. And I think the detailed guidance we'll provide for staff will draw on precedent cases, for example, where that threshold should lie in terms of matters that we refer on. And we can adapt it so that, if, for example, the ombudsman refers a case for hearing to a standards committee because we felt it met the test, but the standards committee decided not to issue a sanction, for example, we would then revise that guidance and adapt our approach. That, in practice, is what happens, but we will document that so that it's in written guidance and clear for everybody.

Thank you for that. Going forward, then, how will you ensure that your staff code of conduct policies and practices, pertinent to social media particularly and its usage, are comprehensive in relation to setting out the circumstances in which and how social media activity by an employee amounts to misconduct, in terms of that communication, both in the work and in the private sphere?

Could I ask Chris to pick this up?

Thank you. The first thing, I think, to say is that the actions of the former code team manager and her social media posts did breach the existing staff standards of conduct policy and that policy did refer to the fact that that could be misconduct. So, that's the starting point.

Having said that, it's obviously appropriate to review the existing policies and that's what we have started to do. We've reviewed the policy over the summer and what we've decided to do is rather than have social media as a section within the staff standards of conduct policy, we're going to have a separate social media policy for staff. I think that will be clearer and it's more evident what that relates to, and people will be able to find that.

We have drafted that now. It sets out what social media is unacceptable and it also makes clear that inappropriate social media posts could be considered misconduct or gross misconduct, so that will be absolutely clear. It also specifies that all social media posts are covered, so that's anything that is made in a private or a work setting that could have an adverse impact on the perception of the office.

In terms of process, that has been drafted now, so it exists as a draft policy. We're discussing that with our advisory panel this month, and then, as we do with all our HR policies, we will then proceed to consult staff and trade unions on that policy before it's implemented.

If I may, Rhianon?

Yes.

In drawing up that policy and strengthening the policy that you've got and creating it, where have you drawn advice from, or where have you looked for good practice? Because it's a very pertinent issue. It's an issue for Members, even, and standards committees in this place and such things, as anybody who's read any of the standards commissioner's reports on this sort of thing will know. From where have you drawn inspiration, if you like, on what to put in the policy and what not to, and how to police it and that element?

As you say, it is a difficult area. We’ve looked at a number of other organisations. We’ve looked at the standards commissioner here’s approach, in Scotland, in Northern Ireland, we’ve looked at the Local Government and Social Care Ombudsman, the Scottish Public Services Ombudsman, the Northern Ireland Public Services Ombudsman, to give us some steer as to how others have approached it.

There’s quite a variety in terms of how explicit those policies are on social media. Most of them include something, but not necessarily a lot of detail. What we’ve done is try to build on that best and good practice from elsewhere, but make sure that it does address the recommendations that Dr McCullough has made, so it is sufficiently clear to staff. I think that’s one of the really important things. We want staff to be accountable for their actions that could impact on the office, but it’s only fair, if we do that, for the policy to be very clear about what they can and cannot do.

How are you going to 'on board' that policy? You've talked about going to your advisory committee and then rolling it out as training. What does that look like?

As Michelle said earlier, we're developing a more detailed set of actions and action plans, but we need to consult on the policy and get that introduced. There will then be information provided to all staff about that policy. We will provide training and there will be annual reminders or refresher training to staff, I think on two things. One is about just reminding people of the importance of getting this right, and then the other is about the specific requirements and the policy.

How do you monitor it, then? Do you ask staff what social media they're on, or what their handles are? That personal/work line could get crossed. I'm just wondering how you try and avoid the situation you've got yourselves into, potentially, with one member of staff. How do you protect the organisation from that?

Michelle may want to add to this, but our approach is broadly going to be—and this perhaps moves on to some of the other recommendations around recruitment—we are going to undertake additional checks at recruitment stage and we’re going to be clearer about our requirements at recruitment stage. But we’re also, as part of recruitment, going to ask people before they are appointed to share details of the social media accounts that they use.

I think this is a challenging area. People do have a right to a private life, and we don’t want to interfere with that more than the job requirements actually require. So, we don’t have a proposal to do close monitoring of staff social media accounts, but we do want to emphasise and make sure that staff understand the restrictions. It is always difficult, isn’t it, getting that line right? But, ultimately, our staff are doing a really important job.

We’ve got to make sure our recruitment is right, but then there’s got to be an element of trust that they do act in accordance with the policies that we set and they agreed to, and we will make sure that our emphasis is on making sure that that policy is well understood and therefore well complied with.

Peter, did you want to just come in quickly?

Chris, you captured it, actually. I think people have a right to a private life, and social media is a big part of people’s private lives now. It’s quite appropriate that anybody could make a judgment. It could be a political decision, something's made it to the national press, why shouldn't anybody have a view on that? It doesn't mean to say there's political bias. So, drawing up the guidelines of where you go is a real headache, I think. But you're conscious of that, very clearly.

Yes.

Mike.

A simple thing, based on today, there's legislation coming in to improve workers' rights and there's also the Daily Mail attack on it. Now, would 'liking' either of those be seen as showing political bias?

It's a good question. I think the advice that we've given to staff is also about how visible their social media accounts are to others. I think one of the key things and I think one of the challenges of the social media posts that gave rise to this incident was that they went beyond policy issues to political party issues. So, certainly that would be one of the questions that we ask. And I don't think it's realistic to expect staff to have no views on any matter. That can't be right and that would be an interference with people's rights.

But they have a public view, don't they? I mean, if somebody 'likes' Daily Mail headlines, Peter would probably agree with them. But that would be seen by many people, including me, to be showing a right-wing bias.

Chris is right: there's a difference between expressing a view on a policy, which affects everybody, and actually making very specific comments about a political party, which is the situation we were in. So, it is a tricky one. I mean, we're going to work hard to try and make sure we get it as right as we can, but I'm sure it's one that all public sector organisations grapple with.

And then what we've seen from the report is the checks and balances that—. That's from a private life into a public life, and the checks and balances that you have in your work environment are there to mitigate some of those personal feelings, if you like, on a policy. You're making decisions on facts within a case and it seems that you're dealing with that with your dip sampling and the monitoring and the things within the work environment. It's that crossover that's the tricky bit, isn't it?

And Dr McCullough has said quite clearly that there are a lot of checks and balances already in place, and she's recommended some additional ones and we're going to take those on board. But you're absolutely right: provided that continues to be robust in terms of the checks and balances and the training of staff and the supervision of staff, then even if someone has a view that is held in their private life, it doesn't come into their work and it doesn't show up as bias. I hope this report and the work that Dr McCullough has done will provide that assurance to people out there that they can trust us as an organisation and have confidence in the work that we do, because that's what it says.

Rhianon, did you have any further questions at all?

We've discussed my final two questions previously, but I'm still slightly confused. Obviously, this is an ongoing area of development in public organisations and it's just that this particular individual case, unfortunately, has brought it to a head. You did say that you wouldn't be monitoring staff's social media accounts, but you did say something around you'd be looking at who they were following, or something to that extent. Can you just clarify that? Because what I've taken from this discussion—and it's been very, very interesting, and it's not an easy area—is that this is work in progress. So, I just wanted clarification about those comments that I thought I'd heard.

It's a difference between when we recruit staff and existing staff, I think, yes.

It is, as you say, work in progress. But I think the direction is reasonably clear, although the detail, obviously, is subject to further discussion. The principle is that we want to be absolutely clear with people before they are appointed what they are signing up to. In other words, that they acknowledge there are restrictions on political activity and they are restricted in how they use social media and what they post. So, at that point we will be doing additional research, prior to appointment as well, so that we have a better understanding. And if there are problematic posts in the past, then we're at least aware of those, and we've got the opportunity to discuss those with the candidate. So, that's prior to appointment. Once people are appointed, our emphasis is on training and awareness and understanding of the policy, and making sure that that policy and the guidance is clear.

Okay. Thank you very much, Chair.

Diolch. Mike.

Diolch, Cadeirydd. Did the review demonstrate any particular challenges for the team investigating elected Members code of conduct cases, and is there any specific training or support you will provide to the team, going forward?

Thanks for that. I think that's a really important question. We worked very closely with staff on this, because, as you will appreciate, it's been a really challenging time and a really difficult time for staff across the office, but particularly within the code of conduct team. And the morale of the organisation and of staff did suffer, and, again, that particularly affected the code of conduct team. We did put in place a number of things to support staff generally, and the team in particular, and a number of adjustments. We have tried to make sure that, where possible, staff, particularly staff of the code team, have been protected from some of the criticism.

Moving forward, we recognise that, in some ways, it goes with the role—perhaps it shouldn't, but it does go with the role—that staff, particularly in the code of conduct team, do get unacceptable and sometimes aggressive criticism and abuse. One of the things we're looking to do, as we have got a policy on how we handle unacceptable conduct by third parties, is we're looking at taking perhaps a firmer line on that, where we can. We're also looking at providing additional training and support, and we will be discussing with staff generally, but the code team in particular, what else they might feel would be useful if such circumstances—hopefully, they don't—occur in the future. But also just recognising that that is the nature of their ongoing work—it is challenging and it can be stressful.

One thing I would just add, though, is that we were pleased that we got some unsolicited but positive feedback from staff, particularly staff of the code of conduct team, that they did feel that they were supported and that they did feel that we kept them informed during the process. So, I think some of the things that we did during the incident have obviously helped, but we'll be asking and discussing with staff what more might be useful in the future.

Have the staff identified other changes they feel would be beneficial, outside of the report?

One of the challenges of our work, particularly code of conduct work, is perhaps the fact that, sometimes, it can seem personal. Obviously, from a councillor's point of view, it can be quite personal. Sometimes they feel that that is personal with the investigator and the person who has actually undertaken the investigation or written the letter. One of the things we've tried to do is make sure that it is clear that these are decisions of the office, of the ombudsman and staff supporting the ombudsman, rather than individual decisions made by individual investigators. So, that's one of the changes that's come as a result of feedback from staff. And decisions go in the name of the ombudsman, or, at a lower level, as a decision of the team, rather than necessarily a named individual.

Do you feel you're giving your staff enough support? I know you're going to say 'yes'. Do your staff feel that you give them enough support, and how are you investigating whether they believe they're getting enough support?

Well, as Chris said, there was some unsolicited but pleasing-to-hear feedback from that team, and the wider team, when we briefed staff on the independent review and what would be happening next—publication, et cetera. There was a feeling that they felt they had been supported through the process, that comms were strong, they knew what was happening before the rest of the world—they weren't put on the back foot. The support that's been specific around the code of conduct team needs to continue. And I think we're fortunate in way—we're a relatively small organisation and you can sit down with that team and have that conversation about how things are feeling now and what more would help.

That change around the signatory on the letter happened quite quickly after the event in April, because, frankly, staff felt very exposed and very pressurised, and were getting a lot of unfair comments from individuals, even to the point that people's—. You know, someone might publish a letter that's been signed by a member of staff on a social media page and suddenly their name's out there. I think they felt very exposed, with what was happening in the spring, to that being the reality. So, we did that within 24 hours. When they said, 'Look, we feel really—', we said, 'Right, we'll change it', and we don't intend to change it back. So, I think we need to have that ongoing dialogue and keep checking in with them, which we can do through team meetings, et cetera—keep checking in to say, 'How are things?', and what more can be done to help them. So, we'll carry on doing that.

I can talk about Swansea Council probably more than I can talk about most other places, and, with the director of education, for example, every letter that went out went from the director of education. It may have said, 'Please contact Chris Vinestock', who was working there at the time, but everything went out in the name of the director of education, and I think that was a particularly good practice, in that the person in charge is the face and the person being blamed, rather than some lowly position, some person, who has actually been signing that letter, but they are working within the rules of the organisation. I mean, do you put everything out in your name and, if not, should everything go out in your name?

Most goes out in my name, and some will go out in senior officers' names, depending on the delegation scheme. So, that example I just gave you was an example of where a staff's name was on the letters and going out, and we've changed that. It's been a particular issue in that team. So, there's a mixture of approach across the office, to be honest.

There must be a mixture of approach across the same council, never mind anything else, where you'd have letters sent out from one part of the organisation from relatively junior members of staff, whereas, in education, it was always the director of education's signature on it. And I think that somewhere in between is probably the right place, and I assume that's where you are.

Is that something that you then—? You've done it in the code of conduct team, but then, have you thought, 'Well, actually, that's good practice across the other teams as well'?

We haven't. On our complaints, the public service complaints, our staff do have that close connection with the complainants, and it's important to discuss the details of the complaint.

Just a different nature of—

But it's certainly something we can think about, particularly, as Michelle was saying, we are seeing increasingly challenging behaviour on that side of our work as well, so that's something for us to reflect on, I think, as well.

The last question from me—and you answered the timeline question earlier, and you're reporting back on that—you all live, I would guess, somewhere between Llanelli and Monmouth, or the vast majority of staff live in that south Wales area, so you're actually having people who are not necessarily neighbours, but people living in the same area as you, complaining and being complained about. Does that cause any problems? I mean, you might actually know some of these people, and not for any political reason, but just actually going out in the street.

With the existing declaration of interest policy, obviously, if somebody was dealing with a case and knew somebody, they would step back. Our practice requires that. But the nature of our code work in particular is that it is very public sometimes, with the hearings. So, it is something to bear in mind, and particularly in the light of the recent experience in April and the events that arose there.

You've also got people who've come from fairly senior positions in some local authorities, for example. I see two in front of me. I mean, does that become a problem at times?

Well, as I say, any conflict, we step away. If somebody has worked for an authority, our policy requires them to have no involvement in that particular public body's cases, for three years, and then they can—

I'd just take things on a stage. I mean, I knew Chris very well when he worked for Swansea Council, and he may or may not have liked me, but the danger is that people bring unconscious bias of people they worked with who they liked or didn't like during their time at that organisation.

That's true, so the training, the checks and balances that we have in place are really important, but the declaration of interest policy is quite clear about people stepping back. What we also do as well, if it presents a conflict for the organisation or perhaps a senior member of staff, is we would ask another ombudsman to take on that investigation, and we have a reciprocal arrangement where we do that for them if they're in a similar situation. We've got memorandums of understanding in place to allow that work to happen. So, we're very, very conscious. We hold very dear our independence and that impartiality and fairness, and that's why this whole incident has been so difficult for the organisation. But everything we do is about maintaining that independence and impartiality.

Thank you very much.

I think that brings us to the end of our session with you this morning. Diolch yn fawr iawn for coming in, and thank you for going through the report with us and the candid information that's been given. We'll now reflect on any next steps that we might have in responding to the report, and, obviously, this session will help us to form that. But, I think we're seeing you next week now—

Yes, you are, about something else.

—about the rest of it. So, two weeks on the trot and we'll see you next week.

We'll now break until 11:15, when we will have the Cabinet Secretary for Finance and Welsh Language coming in to discuss the first supplementary budget. So, we'll take a break now. Diolch yn fawr iawn.

Croeso’n ôl. Rŷn ni rŵan yn ôl ar gyfer eitem 4.

So, this is item 4. We're back with the Welsh Government's first supplementary budget and the evidence session, and witnesses are here. I'll just ask them to introduce themselves for the record, please.

Diolch yn fawr, Cadeirydd. Mark Drakeford, Ysgrifennydd y Cabinet dros gyllid.

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

Bore da. I'm Sharon Bounds and I'm deputy director for financial control, Welsh Government.

Bore da. Welcome. It's good to have you with us again. We're doing this regularly now, so—. It's good to have you with us, anyway. We've had the Welsh Government's first supplementary budget, and we'll explore some of the aspects within that this morning for an hour or so.

Could you give us a few words on how you've gone about any of the key aspects of the budget? And, obviously, this is your first Welsh fiscal event since the new First Minister took office and appointed her Cabinet. To what extent has that influenced the priorities of the new ministerial team and any challenges coming to setting up the supplementary budget?

Diolch yn fawr, Gadeirydd. So, the supplementary budget is essentially a backward-looking exercise. It consolidates the spending and funding decisions made within the Welsh Government since the main budget was passed by the Senedd in March of this year. In that sense, almost every decision you see in the supplementary budget predated the First Minister becoming the First Minister, so I don't think it would be fair to say that her priorities, as set out in her statement to the Senedd on 17 September, are reflected very much here, because these are largely decisions that had been made prior to her becoming the First Minister.

Sometimes, supplementary budgets are referred to as 'tidying-up exercises'. I think that slightly undersells them, because there's quite a lot of money, as you can see, that is reflected in the budget, but it is mostly an attempt to make sure that the Senedd is as well informed as we can make people of those spending decisions that have been made in that interim period and how we propose to fund them.

Great, thank you. Thank you for that explanation. You've increased the revenue that you're drawing down from the Wales reserve by £39 million, up to £125 million. Why have you decided to do this now rather than wait until after the UK budget in October?

Well, I think, Chair, it's essentially because it's important for me that the supplementary budget reflects not just spending decisions, but that we're able to explain to the Senedd how those funding decisions are to be funded, and the spending decisions that are reflected here relied upon the drawing down of that extra £39 million. So, there was no reason for waiting for the UK Government's budget, and in some ways it would not have provided the committee or the Senedd with an accurate statement of how the spending decisions were to be afforded. That is not to say, of course, that, if 30 October leads to money coming to Wales in the current financial year, we can't put that money back in the reserve, but I think it would not have been an accurate reflection of that balance between the spending decisions made and how they are to be funded if we'd waited until October, because October does not—. We're not depending on October to fund the decisions that you see in the supplementary budget.

So, effectively, it's a balancing-the-books exercise and, potentially, things might change again on 30 October, depending on decisions made there.

Surely. Look, if we didn't get a single penny on the 30 October, this budget would still be affordable, because we've used the money from the reserve to make it affordable. If money does come our way, then it will go back into the reserve, and it's a balancing exercise in that way.

You mentioned the last time we met and also in the Chamber that you’ve had the Finance: Interministerial Standing Committee recently, and we’ve spoken about potential changes to the fiscal framework around borrowing, draw-down from the Wales reserve, and you’re now borrowing and drawing down the maximum amount you can this fiscal year. If fiscal rules allowed, would you be borrowing and drawing down more in this supplementary budget? And maybe you could give us a flavour of those discussions that you’ve had about relaxing some of those very tight, straitjacket rules that we’ve got.

Thank you. Well, I suppose the first thing to say is that we operate within the rules as they are today as far as this supplementary budget is concerned. So, there’s nothing in this that relies upon us having flexibilities that we don’t have. However, I continue to make the case to our UK Government colleagues for further flexibilities in the way we manage our own money, and, I suppose, I wouldn’t be making that case if there wasn’t some prospect that we would use those flexibilities if they came our way. Now, I still think you would have to make the specific decision on how far you use flexibilities in the context that you would face at the time. It would be very good from our point of view to be able to borrow as much in real terms today as we were able to borrow when the fiscal framework was first set. But, if you borrow money, you have to find revenue to support that borrowing. So, there’s always a calculation you have to make at the time as to where the balance of that decision will best lie.

So, Chair, the FISC did have quite a focus on financial flexibilities. All three devolved Governments have a case to make for increasing the ability of those Governments to manage their own money without some of the micromanagement that the Treasury applies to it. So, there was a thorough discussion of that, led, as I recall, by the Scottish finance Minister.

I see this myself, from a Welsh perspective, as a two-stage process. The first thing I’m arguing for is, I think, a very simple thing. I can’t guarantee we will convince anybody else, but it seems very simple to me. When the fiscal framework was negotiated, figures were set of how much we could borrow, how much we could hold in reserve, how much we could draw out annually from the reserve and so on, and the real value of those figures has been significantly eroded, probably by about 30 per cent, in the time between—

You were in the room in those negotiations, weren't you?

I was indeed. David Gauke was the Chief Secretary to the Treasury. He had negotiated the Scottish fiscal framework the year before, and I was the Welsh Government Minister who negotiated it for Wales.

Those figures have never changed, despite us asking for them just to retain their real value. So, stage 1, for me, is just to get back to the real value of those figures. That would give us 30 per cent more flexibility, or thereabouts, and that by itself would be a very useful first step.

I think there’s a wider case, though, for not having, as I say, that level of micromanagement by the Treasury of how much money we can carry forward, splitting it between revenue and capital, putting annual limits on how much of our own money we can then draw down to use and so on. So, there’s a second stage for me of an argument for a wider range of flexibilities within the fiscal framework.

I’ve got Mike, and I’ve got Rhianon as well. So, Mike.

As far as the Treasury’s concerned, it shouldn’t really matter. Once this money is out, it’s out. I’m not going to talk about capital, because that’s more complicated. But, once the money’s out, whether you put it into reserves, whether you take it out of reserves, that should be totally immaterial to them. Have they explained why they’re interested in movement in and out of reserves for the Welsh Government, when no-one takes the slightest bit of interest in movements in and out of reserves for every one of the local authorities in England and Wales and Scotland?

Well, I think Mike makes a very strong point about it. I felt, with the previous Government, that it was just difficult to attract their attention for this issue. It’s a big issue for us, and a very small issue for a Chancellor managing a UK budget. And I don’t think I ever heard a UK Government Minister make a cogent case against what we were arguing for. I felt it was more that, in the long, long list of things they were doing, this wasn't something that we could get up their agenda enough for them to attend to it. But, if you had put that point to them, I don't think they would have had an answer that said, 'Oh, we're not doing this because we think it's the wrong thing to do.' It's just—

It's not a priority for them.

Yes. It's not going to get the time it needs to make it happen, even as simple a thing as stage 1.

Rhianon, did you want to come in on that?

Yes, sorry—very briefly. In terms of being in the room and the degradation over time of 30 per cent, which is a very significant figure, where we stand now, in regard to other devolved legislatures in Northern Ireland and Scotland, is it the case that Wales has the weakest flexibility and arrangements et cetera around borrowing and resource?

I think that is now the case. It wasn't always the case, but I think, in the last year or so, that has become the case. Scotland renegotiated their fiscal framework, and in doing so they regained some of the real value of the figures that we don't in Wales. There was, in my view, a stronger case for a more fundamental review of the fiscal framework in Scotland, because some difficulties had arisen from the Scottish Government's point of view in the way that population changes were treated within their agreement. By the time I came to be involved in the original fiscal framework agreements, I think some of that had already become apparent to the Treasury, and therefore we avoided, in our fiscal framework, some of the pitfalls that the Scots have found themselves in. I don't think there is a strong case for a fundamental review of our fiscal framework; I'm simply arguing for an uprating of the figures to its original value. So, the Scots have achieved that, and the Northern Irish achieved, through some of the funds that were put on the table, as part of the deal to get the Executive back in being—. They have some capital flexibilities that we don't have as well. So, in that sense, both other devolved Governments have made some progress where we've not been able to.

Talking—. Oh, did you want to come in, Peter?

Only a little one. It's really how the relationship now is going to be more conducive for change, probably, or I would hope so. I've often wondered in the past—. We know the Secretary of State's role is sometimes questionable on what it achieves for Wales, but it ought to be a key conduit from the Welsh mindset to the Cabinet table and the Prime Minister. So, I think—. Would you agree that there is a role—and I'm sure these are probably already happening—that the conduits can be now strengthened to lever in at least the modest changes that we might require?

I agree that the office of the Secretary of State for Wales ought to be a voice for Wales in Westminster, rather than the other way around, but there is quite an important distinction that we are keen to preserve, and I know our Scottish and Northern Irish colleagues are as well. The relationships between the Welsh Government and the UK Government are direct relationships. My health colleague talks to the health Minister in England. The education Minister speaks to the education Minister. The Wales Office is not a—. We don't go through the Wales Office.

It's not a gatekeeper.

It's not a gatekeeper. It's not by their permission. But, when there are important Welsh interests at stake, they can be an advocate for Wales, and have been in the past as well, and maybe that can be strengthened.

I think so.

You talked a bit about capital, and, when your predecessor was with us, we were talking about overprogramming capital. Is that policy still working, and are you confident and comfortable with that overprogramming, and is it going to deliver? Are you able to manage it within—? I think it's—. Where are we? In the supplementary budget it's about £110 million.

Yes, Chair, we're confident that we can manage it. We're confident that the programming will be reconciled and the budget balanced by the end of this financial year, but I do think that some things may be changing in the context here. My colleagues will correct me now if I'm remembering this wrongly, but my memory of how we got to overprogramming was this. We were dealing with two essential issues. One is the very long-standing issue that capital plans often don't come to fruition within the timescales that are laid down. So, you set a budget and you find that you're underspending at the end of the year because money hasn't been spent as originally profiled and planned. So, overprogramming helps you with that, to maximise your spend. But we'd also run into a period of years when we ended up with some significant additions to our capital budget right at the end of the year, in the February final estimates. So, with six weeks of the financial year to go, suddenly a sum of money would appear. You can't spend it at that time, and we generally used it to substitute that new money for money that otherwise we would have borrowed. So, we would have started the year planning to use our borrowing limit, and at the end of the year we wouldn't do that, because the extra capital would have come in and we'd substitute the two, and then the finance Minister would be asked questions in front of the committee here as to why we hadn't used our borrowing. Well, overprogramming is a way of trying to mitigate some of that as well.

And that's where I think the context may change in the next spending review, because if we get, in the next spending review, a three or a four-year reliable run of capital allocations to Wales, then maybe the case for overprogramming because we don't quite know what's coming our way will be reduced. So, I will be looking in the context of the comprehensive spending review as to whether or not the overprogramming of capital in the way that we've done it in the last few years is necessary in the future.

One of the other things, and you touched upon it in your answer to a previous question, was the flexibility to be able to switch capital and revenue, something that we focused quite heavily on when we were talking about the mythical £900 million, and we were trying to work out was it £900 million, was it £800 million. And part of that solution was being able to switch from one to the other—asking Treasury to be able to do it, and I don't think that was forthcoming. But is that something else that is within that first batch of things that you'd like to be able to achieve, or is it more of a longer term aspiration?

Well, it was certainly discussed at the FISC. What happened last year was that we did have some capacity to switch capital into revenue, but all we were offered was a Barnett equivalent figure to the capital-to-revenue switches that had been agreed for English departments. And that's it. I really cannot see how that is thought to be a sensible way of doing things. This is money that is here already in Wales. We should be able to make that decision. It's not an easy decision, because you're giving up capital, and capital is scarce and all of that. But the decision is best made by Welsh Ministers close to our own spending priorities, rather than giving us a very blunt instrument, which is whatever is right for English departments translates into a figure that is the figure we have to use for Wales. So, that was quite definitely rehearsed at the FISC.

There we are.

I've always wrestled with this concept of changing capital to revenue, because it's something that, in a previous life, we so could not do, because, obviously, capital is for infrastructure and you can't service, you can't do it regularly, so how can you invest it into recurring costs, which revenue costs are, generally? So, it's very much a sticking-plaster approach, isn't it? And it just shows that there's something wrong with the system that it requires us to try to find sticking plasters at the last minute.

It was a point that I was trying to make, in a way, that Peter's made, that, although we would like more flexibility, I don't regard capital-to-revenue switches as something that you do lightly, because the capital has generally been allocated for important purposes. Sometimes, you have to do it for managing purposes.

Rhianon, did you want to come in on that?

Yes, if possible. Speaking more generically, in terms of the scarcity historically, for a long time, around capital for Wales, is there cognisance of that dearth? And I don't know if it was mentioned in the FISC, but are we hopeful that that is going to be reversed, because we know that we've not received that capital spend?

Well, I don't know, Chair, that I have much more insight to offer you than you'd get by reading The Observer at the weekend or something. I think the incoming Government does recognise that, if they are to achieve their ambitions for growth, growth in the economy depends on investment and that has to be public investment to crowd in private investment. And the UK economy has suffered now for many years from very anaemic growth, and part of the reason for that is that there hasn't been the investment in capital and infrastructure projects that would drive growth in the economy.

So, at the FISC, there was I think a very direct recognition of that. How far that will translate into additional capital spending in October, I don’t have a clear sense of, and I think that quite a bit of that might come more in the second stage of the spending review in the spring of next year. It seems to me that the Chief Secretary is pretty much focused on getting October sorted and that might be a more modest set of changes, and then he’s got a longer term prospectus that he will be working on for the next six months and we’ll hear more about that. But the basic disposition to find ways of investing to drive growth seems to be pretty clear.

Mike.

You used to be able to move revenue into capital without any control, but there's also that grey area of capital of maintenance, isn't there? If you look at schools, a new boiler for a school can be capital or maintenance; putting a new lighting system into a hospital, that can be capital or maintenance. I could go on, but I think I've probably made the point.

Yes, and I’ve often been baffled myself, Chair, as to why some things are counted as revenue, when they appear to be maintenance, and some things are counted as capital, when they actually appear to be things you need every day, but these are things that accountants and people who understand these things are better placed than me—

The accountant sat next to you is smiling. [Laughter.]

I know, but I’ve often asked, ‘Why is that being counted as revenue?’

But can you move it? Can you move it? If you've got to put lighting into a hospital, which is being dealt with by revenue, can you transfer that to capital?

So, in terms of should it be revenue or capital, that will be the accounting policy that is applied in those particular circumstances. There are some general rules around what is capital and usually it’s something that’s going to last more than 12 months and all of that. Essentially, capital budget is there to cover items that will end up on the balance sheet of whatever the entity is—that’s the general rule with this.

In terms of the budget itself, the rules are still the same: there is no limit on moving revenue budget into capital—that flexibility is still maintained.

But putting new lighting into a hospital, which will last longer than 12 months—are you going to treat that as revenue or capital?

It would depend on the accounting policy of the entity. I'm not that close to that. It sometimes depends on: is it one lightbulb, is it all of the lightbulbs, and does it raise the value of the actual hospital itself?

Well, it will raise the value, because parts of the hospital would not be able to work if the lighting system's out. I'm not talking about lightbulbs, I'm talking about changing the lighting system maybe to LEDs, taking them straight off. Would that be capital or would that be revenue?

There could be a case for that to be capital. As I said, it would be the details that you'd need to look into, but there could be a case for—

Sorry, I hate to keep on pressing this, but where do I find out how you make those decisions then?

Yes, where would those—?

So, they are in the accounting standards. That's what accountants will refer to. Auditors can help you, because they are the ones who will be, obviously, auditing the accounts and whether things have correctly gone into capital or revenue. So, the audit office would be able to provide that kind of information. But it's general guidance that is available. As I said, accounting policies can differ, depending on the nature of the specific circumstances.

I'll just end with: local authorities have far greater ability to move things into capital maintenance if they have lots of capital, and move things into revenue maintenance if they have plenty of revenue, without anybody seeming to be worried at all. I'll leave you with that.

Okay. Well, my last question, and it's moving on to something slightly different: one of the items outlined in the supplementary budget is a correction of a previous consequential adjustment valued at £1.2 million. Can you explain what the issue was and whether the issue is now resolved? It's a specific one, sorry. You may want to look at—.

Yes, I don't think I probably could explain it, but Sharon may—

Maybe Sharon could.

Yes. Thank you. This is the £1.177 million—

Yes.

That's related to the non-fiscal budget, so it's the non-cash, so the ring-fenced element of the department expenditure limit. It was an administrative error by the Treasury, essentially. We didn't know until the Treasury advised us during the main estimates. They had done a review and found that there was an allocation that had gone to the Department for Education back in 2022, and they hadn't given us the Barnett share of it, so they had rectified that. In that case, as I said, it was an administrative oversight. That has now been resolved.

And it was non-cash.

And it was non-cash, yes.

Thank you very much. Okay. Mike.

I'll prefix this by saying there's cash, there's cash that is covered by consequentials and there's accountancy standard movement of money. I'm going to ask you a number of questions. Which ones of these do these fall into? The £200 million associated with superannuation contributions, is that cash or is it cash covered by consequentials?

I'll try and answer that. I might get it slightly wrong, because I think of it slightly differently, because the question I normally ask is: is this money I can spend or is it money that I can't spend? In the case of the £200 million, which is the superannuation contributions adjusted for past experience money, it's not money that we can spend.

So, it's going to be covered by consequentials.

It is covered—. It is not necessarily even consequentials. So, this is the every four years review of the value of the contributions in unfunded public service pension schemes. It's a complicated way of doing it, which I don't completely understand. I know that it relies on gross domestic product forecasts for the coming period, rates of inflation, and out of that comes something called the discount rate, and when the discount rate is set by the Treasury, if they set it lower than in the previous four years, then the contributions to meet future liabilities go up. But they cover that for us. So, they make the decision, they give us money to cover it. It's not money that can be stumped for anything else. So, it's a consequential in that sense—it's a consequential of their decision—and then the money comes to us.

So, it's a non-cash element again for a—. It doesn't form part of, as you say, something that you can spend.

So, it is actually cash, because this is an increase in employers' contributions, so it is a cash—

It's a cash element, but it's ring-fenced, in a way.

Yes. It has arisen specifically because of that decision by the UK Government and therefore the consequentials have arisen, and those are costs that are arising in Wales, so it needs to be used to meet those costs.

Sorry, when I said 'cash', I meant spendable cash. As we've seen previously, there are various changes within the supplementary budget associated with international financial reporting standard 16. Are all those just technical or are those taking money out of what the Cabinet Secretary can spend?

I'm pleased to say it's not taking money out of what we can spend. They are the consequences of those new standards. The UK Government has covered the cost of those new standards, so, again, it's money that comes to us outside the block grant and can only be used for that purpose. But it doesn't impact on our—

But they have to be reflected within the budget and within the accounts.

Yes.

The same as with student loans, which I think is a Ponzi and is going to explode at some stage. But the fact that it goes up massively continually doesn't matter at all to the amount of money that the Welsh Government can spend on a day-to-day basis.

No. Actually, it's gone down massively in this supplementary budget, and it also has no effect on day-to-day spending.

Yes. Thank you.

With that, reading the supplementary budget, how have you made sure that people understand that that's the case? Because it isn't always clear that it's an accounting standard that causes that change, rather than a—. So, people can see lots of, effectively, changes in the budget, but actually, there's not money changing hands, and as such, as you said, it's not money you can spend.

I think this is quite difficult, really, because there's more than one audience, isn't there, for any budget. For people who need to know about these things because they are having to deal with it and manage it out there in local authorities, or wherever the impact is felt, there is training and guidance and everything like that. So, I think, probably, we would feel that, amongst the people who actually need to deal with the practical consequences of this, we do—

The expertise is there to understand it anyway.

Yes. Whether the person on the Grangetown omnibus understands the differences that we've just been describing between cash, non-cash, cash you can spend, cash you can't spend and things like that, I very much doubt. And I'm not really sure that it is very easy to find an explanation that people would understand beyond making these very sort of commonsense distinctions by saying to people that Government budgets include money that you can spend and money that you can't spend, and this budget covers them both.

This is something I was going to raise a little later on, but it's pertinent now, because I think when you look at the headline figures—. Let's look at the education figure. It looks like, 'Education has been reduced by £215 million, isn't that horrific? Isn't that terrible?' and you know how that will be interpreted by lots of people in this place, because they don’t understand what we've just talked about. And that's where I think that understanding what 'non-fiscal' means compared to 'fiscal' and all of those different elements—. Because I was mind-boggled when I came here and I saw all these acronyms for these different elements that contribute to a budget; I only ever saw 'revenue' and 'capital' before. And it's really difficult to articulate that and get it over to people so that they don't get the wrong end of the stick, if you like. With that education question, for instance, I think what we can assume—and we'll clarify it later on, perhaps—is that that doesn't mean any reduction to the expected spend in education, it's non-fiscal-related.

Chair, I don't want to correct Mr Fox, given that he's dealt with budgets for so many years, but I think what Peter is pointing to is another complexity. What's happening there is that money is moving from one budget, so it looks like it's gone down, but actually, it's just gone into another budget, which has then gone up. They're both cash budgets, actually, but if you only look at the one line, you think, as you say, 'That's £200 million disappeared from there.' What you've got to look at is the other line that's got £200 million more in it. So, these MEG-to-MEG transfers, as they're called, often do cause a lot of either genuine misunderstanding, or, dare I say it, occasionally, even a bit of mischief-making on the floor of the Senedd, where people point to just one half of the story, as though that were the whole story, while, in fact, that money hasn't gone anywhere in real terms, it's just appeared in another budget line.

Is there a way of strengthening the documentation around the supplementary budget in particular in this case, where the narrative, for that person sat on a bus to be able to understand some of this—? I don't know if there's anything that Government could do to help, alongside—? Because there are lots of people who'll read these and understand 'IFRS' and 'capital' and all the things that we've been discussing and that we've been talking about. Is there a simpler guide to saying, 'Well, if you strip that out, this is what it actually means', in terms of what's happening on a day-to-day basis? I don't know if there's a little bit more that may go to answer some of that question and to help certain colleagues, possibly, in the Chamber to be able to understand it better.

In fairness, one of the things that I did when I got here was to get the definitions of all of those elements. And they are freely available on many of the documents around the budget. There’s usually a glossary at the end, which gives you some insight into them. Even those aren’t very clear unless you know what you’re talking about, but they are there.

I was going to say, first of all, that we should have a look at it, but the glossary seems to me the place you would go to to try to provide a bit more explanation, because you can take the glossary with you across the whole of the documents then, can't you?

I think the narrative on the draft budget, when it comes out, is very detailed, and I know it creates work, but it also creates clarity potentially on the supplementary, so it might be something to consider for future supplementary budgets, to give maybe a narrative or something, or glossaries, to help with understanding of what’s happening. Mike.

This is on pay awards. No treasurers or finance people worry about anything more than pay awards, because that smashes right the way through whatever budget you thought you had. Are you expecting the pay awards for 2024-25, which have gone through, to be fully covered by consequentials?

We are. I’m saying that as confidently as I can. The final confirmation will happen at the end of this month, but all the discussions we’ve had and the indications we’ve had give us confidence that they will be covered in full.

Inflation has come down—this is really a capital question—so are the prices for capital projects also coming down?

No, I don’t think they are, because headline inflation disguises so much. Inflation in the construction industry has not come down to the extent that you are seeing money being released back for use.

Thank you. We'll discuss this when we look at next year's budget, but I thought the point was worth asking, because people see inflation is down and therefore think the cost of doing things should have gone down.

Yes, but it's not as simple as that.

Peter.

I’d like to explore a few points around those funding changes within MEG, to try to understand those a little bit better. To kick off, the supplementary budget includes a £141.3 million consequential allocated to support allocations to the Welsh NHS. Can you confirm what previous announcements this relates to, how this money is being spent, and whether it is used to fund anything new or ongoing?

Thank you, Peter, for that question, because it does shine a bit of a light on one of the real difficulties that we experienced last year. For the last financial year, a deal was struck with 'Agenda for Change' staff in the health service, and a Barnett consequential of that came to Wales. It was around £140 million. That was all done very properly. What the Treasury was not prepared to do—and in this case it wasn’t prepared to do it for the department of health in England or for us—was to confirm that that figure would be baselined into the current financial year. So, right through our budget-making process, we did not know whether the £140 million that had been agreed for the pay awards would be money that we would get for this financial year. I agreed with the finance Minister at the time, as the First Minister, that we would have to base our budget on the belief that that money would be baselined. I just couldn’t see how it could not be, even though the Treasury wouldn’t confirm it for us. Once you’ve made a pay award, then the pay bill is there for next year as well, isn’t it? In the end, in the March budget, it was confirmed that that money was recurring, and that’s the £140 million that you see here. It is just the money that was needed to make sure that last year’s pay award was carried forward into this year.

So, basically, you couldn't put it in until you knew for definite that it was going to be there.

No. It is a planning assumption, and I was happy to agree that the health budget could plan on the basis that this was coming to them, and, once it did come, it would go to them, and that's what you see here. So, in that sense, it's not money for new things, it's money to go on paying the pay award that had already been made.

Thank you for the clarity on that. While we're talking about health budgets, can you provide any update on the financial position of NHS bodies, in regard to their resilience, as we move forward to the winter?

What I can say is that the position is a lot better than last year. I'm not saying that health boards aren't facing some real pressures on them—they are. But when we were doing that exercise last year, it was very much driven by the fact that health boards everywhere were telling us they couldn't live within the budgets that had been allocated to them, and we had to find money from elsewehere to do that. This year, at this point, health boards are a lot closer to managing within the budgets that they have available as they go into this winter. We monitor every month, as you know—the monthly monitoring. And a difficult part of the year, from a health board's perspective, is still to go. So, I don't want to sound like we're out of the woods, or anything, on it, but we are certainly in a much stronger position than we were.

So, you're more confident this year than you might have been last year. You're not thinking of any interventions currently that you need to reallocate from different parts of the budget to cover that.

I'm not in a position to rule it out at this point—

No, I understand that. But at this point in time—

At this point, there are no active plans or decisions being made of that sort.

Okay. Rhianon, sorry, you had your hand up on the previous question. I don't know if you want to still come in.

Yes, it was on the previous question—sorry to go back. But very briefly, in terms of that important planning assumption around the pay consequentials, were the other parliaments, devolved legislatures, in the same position as far as you know? And, obviously, in terms of moving forward, in terms of three-year cycles, hopefully, we won't be in that untenable position, but were we an outlier across the UK, or were we all in the same basket in that regard—having to basically lick your finger into the wind and just hope for the best?

We were all in the same position in that regard. Even the department of health in England didn't know. I've no doubt at all that they would have been told quietly, but they didn't know until the March budget whether they had the money for the following year.

Back to Peter.

Thank you, Chair. Carrying on that theme of health for a moment, the Cabinet Secretary for Health and Social Care mentioned in September the modelling scenarios for winter and key areas he would wish to be considered, or to be focused on. I just wondered how that work is informing your budget planning to the end of 2024-25 for that directorate.

My discussions with my Cabinet colleagues are always about two different things. They are about in-year management—so, I will talk to all my colleagues about where they are, are they living within their means, what plans do they have to live within their means if they're not living within their means, are there any genuinely inescapable pressures that have happened in-year, something that nobody could have known about or planned for. So, I have that sort of discussion, and I wil continue to have that discussion, of course, with the health Minister. And then, at the moment, I am much more engaged in a series of budget bilaterals about next year, and the setting of next year's budget. And at the moment, the planning arrangements that the Minister has, dealing with winter pressures and others, are proceeding as planned. But I talk to all my colleagues on both of those heads.

Thank you for that. Moving back into the education realm a bit, I still want to understand—and I'm sure many people looking in do—a little bit more about the £215 million reduction in education, and what that actually means. So, an actual layperson's perspective of what that means to education would be really, I think, helpful, even though those of us who've tried to get under the skin of this think we're almost there. But, perhaps, could somebody just say, or share, how we've got to that figure, what will that mean to that education MEG? Some things like student loans money, that's non-fiscal, so that's moving out, is that part of the picture? Just so that there won't be people who will misunderstand it and then, on the floor of the Senedd, will be saying, 'Look, this is horrendous.' I think it would be useful to clarify that.

Well, thank you for the chance to do that. I'll try to respond to one part of it; I'll ask Sharon to deal with the student loan part of it, because that is very complicated in an accountancy way.

Just picking up the point that Peter made earlier, Chair, so the big change in the education budget is the way in which budgets are now being aligned with Medr, the tertiary and research body. So, on 31 July this year, the Higher Education Funding Council for Wales ceased to exist, and for budget purposes, their budget is transferred to the new body and, at the same time, a significant amount of money is transferred from the Welsh Government education budget. Post-16 education previously appeared in the education Minister's budget; now it appears in the budget of Medr. So, the money is being used for exactly the same purpose that it was before, but it now appears in a different budget line. So, it looks as though the education budget has gone down by that much, but the Medr budget has gone up by that amount. So, you will see in here there's a £500 million budget that is created for the new body and, essentially, it's a combination of HEFCW resources and post-16 resources that previously appeared in the education budget line, consolidated into the resources available to the new body.

So, a lot of that £215 million is part of the £500 million, which is now—

Yes. Exactly. It's gone from—. It appears to have left education, but it's just arrived in another education budget. But it's also caught up in the student loan changes, which are also very significant, and Sharon will explain better than I could.

So, if I just clarify: there has been a reduction in the education budget, but it is the non-fiscal student loan element. That has reduced by £238 million—

That's money you can't spend anyway.

No. So, that is—. It's sort of a double ring fence, in that it is non-fiscal, so there is no cash attached to it, and it can only be used for the purposes of student loans. I can explain a bit more about why that has come about. So, this is a budget—. As I said, it's a double ring fence, it's probably one of the most restrictive budgets that we have. It's essentially there to show that there is a cost to providing student loans, and it's a way of reflecting that annual cost. It's the bit of the loan that you're not going to get back, so that's how I always like to look at it. It has been on something of an unsustainable footing, I think, ever since that budget has come into play. So, previously, before the start of this spending round, the Treasury accepted that the amount of money in that ring fence was not sufficient and, therefore, on an annual basis, both Welsh Government and the Department for Education would bid annually to say, 'This is how much additional budget we need', and I don't think there was ever a case where that wasn't then provided by the Treasury.

Back at the beginning of this spending round, Treasury took a different approach and put quite a large amount of money into the Department for Education, of which we got a Barnett consequential. That hugely increased that ring-fenced budget; it went up to nearly £1 billion, and we were underspending quite significantly because of the differing policies. Obviously, we don't have as many loans as England do with the Welsh Government's student loan policy. There's been a lot of review going on between the Treasury and the Department for Education, and now we have a different policy applied to how that budget works.

So, there are two elements within that budget. One is, I guess, the relatively stable part of the budget, which is what we call the RAB charge—RAB just stands for 'resource accounting and budgeting'; it's an accounting term. It's simple insofar as it is a percentage that's applied to the amount of loans that are issued in that particular year. How the percentage is calculated is very complex; it comes out of the student loans model, but it is just applied to the amount of loans that are issued. That's one part of it. The other part of it is the change in the actual student loan book and the value of the loan book, which is very, very volatile, partly because it's so big, so small changes can have big numbers attached to them, but simply because of the reasons for the change, which can be around, again, discount rates, demographics, income distribution—all of those factors in what's the chances of you getting these loans back.

So, those two elements now are treated differently in terms of this budget, which is why you see this reduction. The budget that we have now only relates to that RAB charge element. That has now been set at a baseline; we're confident it is sufficient for our current student loan policy, and it will change going forward in line with changes to DfE's equivalent budget and Barnett applied to it. The volatile part of it, the student loan books, both ourselves and the Department for Education will provide a forecast of that to the Treasury every year at the supplementary estimates. There will be a reasonable test applied to it, but ultimately that will be provided at the supplementary estimate. It has gone up and down in the past, and sometimes there hasn't even been a need for additional budget cover. But that's how that budget will operate going forward, and that's why you see the reduction in this budget.

But can I just say, I'm meeting some headteachers over the next few days, and at least one of them will be asking me, 'Why have you cut education by £200 million?', 'Why have you taken money out of it?' Is there any way, in presentation terms, that you could actually take out the student loans, like you do with capital, and have a student loans part that you would just present as student loans, which would not be part of education, but would just show, like capital is shown as capital, that student loans could be shown as student loans, so that you can actually distinguish the student loans bit of it from the education expenditure part of it?

I think we do publish one table where you can do that. I think the trouble is, Mike, as you know, it's at a level of detail that a headteacher would be very unlikely to have looked at. But I think there is a table we publish that does allow you to see that student loans are a thing of themselves. We could try and give it more prominence in the way we describe things.

And it's lucky, Mike, that you're on this committee to be able to explain to the headteachers that you come across what's happening.

Yes, but we're all going to get it, and we'll all respond in different ways, depending on where we stand politically, but I think it is important that we get across to headteachers and headteachers' organisations exactly what's happening, because it's a presentational problem we've got, and people look at the figures: '£200 million off education. See, you're stealing £200 million off education to spend on other things.'

Maybe, Chair, in a similar way, when we present or you present the annual budget, there's usually a summarised, quite easy-to-read narrative that explains the bulk of what's happening. An easy-read narrative, recognising as well that there's a lot of scrutiny of supplementary budgets, perhaps something that just summarises, in layman's terms, what is happening in this budget, would be really helpful.

Thank you.

There we are. I'll just bring Rhianon in for a couple of questions now, and then we'll come to time. So, Rhianon. Oh, hang on. There we are. Yes, your mike's on now.

We muted and unmuted at the same time. So, moving on to the transport MEG, £34.3 million to Transport for Wales has been transferred from the bus support, local transport priorities, and sustainable and active travel BELs. So, what is the rationale around that, and does that mean there is any shift in priorities for the new Cabinet Secretary?

I don't think it's so much a shift in priorities as just a recognition of the fact that the core Valleys lines, which is where this money has gone to, is a programme that is more expensive than was originally anticipated. So, the impact of construction, inflation and of supply-chain constraints means that the costs of maintaining and improving the core Valleys lines were greater than was originally anticipated, and money has been moved around inside the MEG—this is all money within the transport MEG—in order to accommodate those additional costs. So, it's not a policy decision, rather that's a practical recognition of something that's costing you more than you planned and you've got to find a way of paying for it.

In the same way as the conversations you're having with the health Secretary around, possibly, winter pressures, are you having that sort of conversation with the transport Secretary to say, 'Well, with these big capital projects, how's the profile looking?' and are you having to anticipate capital spend that you weren't necessarily looking at to start with, and whether or not any capital might be coming down the line from the October budget, whether or not some allocations might be made to transport to make sure that you get these capital projects over the line?

Yes. Chair, I'm due to meet the Cabinet Secretary for Transport and North Wales in the next round of budget discussions, and I am anticipating that the Valleys lines will be a major part of that discussion.

Okay. Rhianon.

Thank you, Chair. Just to follow that through, I believe that there was a consequential received in terms of the £18.7 million of revenue and £20.3 million of capital allocated to the core Valleys lines. So, what was that funding? Or what will that be used for in the round?

Well, the core Valleys lines are a new responsibility for the Welsh Government. It was negotiated, primarily, by my predecessor, during his period as First Minister. So, we took over the responsibility for the running and the maintenance of the core Valleys line, and a sum of money, capital and revenue, came across to the Welsh Government to take account of those new responsibilities. There has been an ongoing conversation ever since as to whether or not the amount of money that came across was a proper reflection of the cost that would be involved in running and maintaining those lines. Obviously, we as a Government, separately, have an improvement programme. So, we didn't take the core Valleys lines on just to keep them as they were. We took them on on the basis that we would then be able to invest further in them and to buy new rolling stock and so on. But the amount of money it was costing already should have come with the responsibility, and that's both capital and revenue, and is still part of an ongoing conversation with the UK Government as to whether or not those transfers fully reflected the money that was being spent at the time of transfer.

Thank you. There's £81.5 million of general capital funding that has been allocated to the city and growth deals, and similar applications for this in supplementary budgets previously. So, was this funding anticipated, and is that in line with where it's expected to be?

I think the answer is 'more or less', Chair. So, the city and growth deals are jointly funded by the Welsh Government and the UK Government, and the UK Government's contribution, we are essentially a 'pass through' for that. They give the money to us, and we pass that money on to the city and growth deals. The UK Government amended its profile of spending, not the quantum, but they amended the profile of their contribution, and we were aware of that, and this budget reflects that. We've since been told—Sharon will correct me now if I've got this wrong—that there are some minor further amendments that the UK Government wanted to make. They didn't get all the sums exactly right, and so there will be a further sum in the second supplementary budget. But it is just money that passes through our hands.

So there's no haircut taken by the Welsh Government on that.

No.

I like that turn of phrase, Chair. I'm going to move on to cultural and sporting organisations. There’s been a very welcome £5 million injection in-year. The Culture, Communications, Welsh Language, Sport and International Relations Committee have heard from their witnesses that that help is extremely welcome. It has been welcomed, and it has been noted, but we all know—and you’re probably fed up with me banging on about it—that those in-year grants don’t resolve the long-term demand issues in this area. So, what’s the expectation around funding provided in-year and more sustainably so?

Members of the committee will be very well aware of the huge pressures that were in last year’s budget, and the very difficult decisions that had to be made to reduce the budgets of almost all my Cabinet colleagues. And that, inescapably, included reductions in the budgets of arm's-length and other bodies that rely on the Welsh Government. For my predecessor, in the final closing of the March budget, one of the things that concerned her the most was the impact of the cuts that had been passed on to the sports council and the arts council, and the bodies that rely on them, and Cadw and the royal commission and so on. She came into this year with an ambition, if it was possible, to restore some of those reductions. The £5 million that you see here is what she was able to secure in order to mitigate some of those impacts. It doesn’t restore the full cut, but I’m afraid that’s just inevitable. We just have less money to do all the things we want to do than we did at the time of the start of the last spending review, in the value of the budgets that we have.

This is £5 million in-year. I will continue to manage the in-year position. My first priority has to be pay deals. As I said in an earlier answer to Mike Hedges, we’re confident that we will get cover for those pay deals, but that won’t be confirmed until the October budget. And that’s my top priority: if there's any money for in-year additions, the pay deals will be at the front of that queue. If there’s anything beyond that that we can do in-year, there will a long queue around the block of my ministerial colleagues coming to me with things that they would like to achieve, and I have no doubt at all that the Minister with these responsibilities now will be amongst them. But I’m not in a position to go any further than that this morning. The £5 million is there, and all our bodies are going to have to find ways of managing with less money than we once hoped they would have.

Thank you very much, Chair.

Diolch yn fawr iawn ichi am y bore yma. Rŷn ni wedi bod drwy hyn yn drylwyr iawn. Diolch yn fawr iawn ichi am eich atebion. Wrth gwrs, mi fydd transgript ar eich cyfer chi, ichi siecio bod hwnna yn gywir.

I now propose that we go into private, under Standing Order 17.42, resolving to exclude the public from the remainder of this meeting and the start of the next meeting, if everybody's okay. Yes. Okay, we'll do that. Diolch yn fawr.