Public Accounts and Public Administration Committee

Okay. So, item 2, we have a paper to note, which is a follow-up letter from the Chairman of the Finance Committee to all Senedd committee Chairs regarding scrutiny of the Welsh Government draft budget 2027-28. Do any Members have any comments on the paper to note? It is, as I said, for information only because we don't routinely get involved in scrutinising that as this committee. Okay. Members, are we content to note the paper? Yes. The paper is duly noted.

Item 3: Audit Wales briefing on NHS digital transformation. The purpose of this item is so that we can enable the committee to understand Audit Wales's findings in this area ahead of our already agreed inquiry into the NHS digital. We've been joined today by officials from Audit Wales. Catherine, you've already introduced yourself, but if I can ask you to go first for the record, please.

Prynhawn da. Catherine Mealing-Jones, Auditor General for Wales.

Okay. And we also have a member of Audit Wales online, joining us hybridly. Could you introduce yourself?

Prynhawn da. I'm Darren Griffiths, audit manager with Audit Wales.

Okay. I'll start with the people in front of me in the room. Starting with Matthew.

Matthew Mortlock, audit director at Audit Wales.

Nathan Couch, audit lead at Audit Wales.

Tim Buckle, audit manager at Audit Wales.

Charles Rigby, audit lead at Audit Wales.

Okay. Thank you very much. Over to you, Audit Wales, for your briefing, please.

Chair, I think Catherine's going to start and then hand to colleagues.

Yes. Just a few brief remarks from me to start with. Thank you. So, thanks for the opportunity to present our findings today. My team who have undertaken the detailed work will then present more detailed information about our reports and some information about the wider context around the topic covered. We'll then be happy to answer, obviously, any questions the committee has.

As demand on health and care services continues to grow, digital transformation has become a critical enabler of service improvement in NHS Wales. The Welsh Government's 2023 digital and data strategy sets the direction of travel, aiming to improve patient care and efficiency through better digital services, better use of data, and nationally shared platforms.

Our work focused on how the 12 health bodies in Wales are using digital transformation to improve services and realise the benefits of digital change. We looked at their digital strategies, leadership, workforce capability and investment planning. We also looked at how they're managing risks associated with digital infrastructure, cyber resilience and the increasing use of artificial intelligence. The work deliberately focused on local arrangements and did not assess the effectiveness of national digital leadership, governance or delivery arrangements across NHS Wales. We have, though, reported on national arrangements before.

Our 2018 report on informatics systems in NHS Wales was followed by a Public Accounts Committee inquiry in the fifth Senedd. We also reported on the Welsh community care information system in 2020, updating this committee's predecessor in 2022. Our recent article, which summarised the findings of our local reviews, still reflects issues with the delivery of national systems. Over to you, Darren.

Diolch. Thank you, Catherine. For the benefit of the committee, I will be delivering part of my briefing through the medium of Welsh, so the first couple of sections will be in Welsh and then the remainder will be in English.

Felly, yn gyntaf, hoffwn drafod y sail tystiolaeth ar gyfer ein gwaith. Felly, y sail tystiolaeth oedd hunanasesiad a gwblhawyd gan fwrdd pob un o'r 12 corff gwasanaeth iechyd gwladol, gan gwmpasu meysydd megis strategaeth ddigidol, arweinyddiaeth ddigidol, sgiliau, capasiti a gallu digidol, seiberddiogelwch, seilwaith digidol, ymgysylltu digidol a gweithio mewn partneriaeth. Ategwyd hyn gan adolygiadau o'r dogfennau perthnasol, dadansoddiad o'r data a chyfweliadau â rhanddeiliaid allweddol, gan gynnwys prif weithredwyr, aelodau annibynnol â chyfrifoldeb dros ddigidol, cyfarwyddwyr digidol ac aelodau eraill o uwch dimau arweinyddiaeth ddigidol.

Rydym wedi cyhoeddi adroddiadau ar wahân ar gyfer pob corff iechyd. Mae 10 adroddiad ar gael ar ein gwefan, gyda'r ddau adroddiad sy'n weddill i'w cyhoeddi'r wythnos yma—yr adroddiadau ar gyfer Bwrdd Iechyd Prifysgol Hywel Dda ac Iechyd Cyhoeddus Cymru. Roedd ein herthygl ddiweddar yn crynhoi'r prif themâu a'r canfyddiadau a ddaeth i'r amlwg ledled y gwasanaeth iechyd yma yng Nghymru. Byddaf, felly, nawr yn cyflwyno themâu yr erthygl drwy gyfrwng y Saesneg.

In terms of our article summarising the key themes from our local work, our overall message is that delivery is not matching ambition. We identified several themes, and I'll take the committee through each theme in turn.

The first theme relates to digital ambition being clear, but delivery needing to improve. So, through our work, we found that NHS bodies have clear digital ambitions that broadly align with the national strategy, but most have not yet translated them into costed delivery plans with clear actions, responsibilities and success measures. Furthermore, not all have assessed their digital maturity. As a result, some bodies do not fully understand their starting point or the scale of change required. So, without clear delivery plans and robust benefit management arrangements, a digital ambition may not deliver better services or value for money.

The second theme relates to how digital change must not leave people behind. So, in our view, people must be at the heart of digital change and effective digital change depends on whether people can access, understand and benefit from new services and ways of working. If digital change makes services easier for some but harder for others, it could widen inequalities. Through our work, we found that all bodies recognise the importance of digital inclusion, but some are further ahead than others, with some having dedicated digital inclusion leads and plans in place. But we also found that bodies need better ways to demonstrate that digital change projects improve access for those most at risk of exclusion.

The next theme is that the balance between spending on day-to-day demands and digital change is an issue. We found that the full picture of NHS spending on digital change is hard to pin down because NHS bodies record digital spending in different ways and the available figures do not capture all digital activity. Based on available figures, 11 of the 12 NHS bodies reported spending an average of around £216 million a year on digital technology and services across the financial years 2023-24 and 2024-25. Most of this spending was on maintaining existing digital services and systems rather than investing in digital change. DHCW—Digital Health and Care Wales—reported spending an average of around £191 million a year over the same period, but we should note that its figure is not directly comparable with those of other bodies, and around £66 million a year of DHCW recharges may also be included in expenditure reported elsewhere. So, we do caution that the two figures should not be added together to give a total for NHS Wales.

Wider financial pressures also make upfront investment in digital change even harder, so many of the bodies we looked at still rely on ageing systems that are costly to support and difficult to connect to newer technology. Although some funding has been made available for digital investment, we found that it's insufficient to meet demands across NHS Wales.

Thank you.

Thank you. Thanks. The recommendations in our local reports focus on strengthening the arrangements needed to deliver digital transformation and demonstrate that digital investment is achieving its intended benefits. In terms of other recent developments, the findings from our digital transformation work will provide an important evidence base for this committee's planned inquiry. We will continue to monitor NHS bodies in responding to our recommendations.

The Welsh Government is seeking to strengthen the delivery of digital transformation across NHS Wales. This includes refreshing the digital and data strategy for health and care. We understand that work commissioned by NHS Wales chief executives to develop a framework for digital services will help inform that refresh. The Welsh Government is taking action in response to concerns about the delivery of national digital programmes led by DHCW. This follows its decision in April 2026 to escalate DHCW to level 4 under its oversight and escalation framework. This is the second highest level of escalation, which is applied when organisations have serious problems and where there are concerns that they cannot make the necessary improvements without external support. As part of its response, the Welsh Government has commissioned independent assessors to review DHCW.

We also report on DHCW through our local audit work, which includes annually looking at different aspects of its governance and our recent report on delivery of its remit letters. We welcome any questions or observations you may have about our reports. Thank you.

Thank you. We'll go to the Members, and I'll start with Shav Taj, please.

So, I guess my question is that everything seems to be—. Lots of people are doing lots of different things. Are they looking at the possibility, has anyone ever really looked at the possibility, of jointly procuring, to begin with, particularly in terms of—? You mentioned AI, which has been referred to quite a lot in the report. It's quite clear that, as far as workforce skills are concerned, I think, was it, 2 per cent—. Across NHS Wales, only around 2 per cent of staff have completed the self-assessment tool. Do they get time off—do they get paid time off—to complete that tool? Is it readily available? And as far as the—. It's quite striking that the report also says that:

'Small digital teams can also mean key work depends on one person.'

So, you're talking about one man and a dog that is responsible, really, for all of this, yet we're talking about cyber security risks et cetera, we're talking about introducing yet more AI and automation.

And my final question, I guess, is that ethical use of AI was referred to, but we do know that, when it comes to some of these roles, certain roles are now diminishing because of AI, and opportunities for young people perhaps to come into certain roles are disappearing because of the introduction of AI. So, their opportunity to get into the NHS, to have the backroom staff roles, potentially disappears. Have we done an assessment? Have we got a plan in place to stop that from happening? These are really big questions, I appreciate, and they're probably—. You're not going to be able to answer them all today, but I'm just thinking, in the grand scheme of things, particularly in relation to procurement, has there been an assessment? How much are we spending?

Shall I try and steer—[Inaudible.] On joint procurement, certainly, as Darren was referring to, many of those national systems are, effectively, a collective procurement exercise, or systems being developed by DHCW as well for the NHS, but that is where some of the challenges have been, in fact. So, Darren mentioned the Welsh community care information system that we reported on a few years ago. That was a system that was trying to layer one approach—health and social care interface, information—across all the health boards and, indeed, local authorities, but coming into a system that had different legacy systems at different points in their existing contracts and trying to onboard those. And in fact, that's been part of the challenge of now coming out of those contractual arrangements as well, in terms of people coming to the end of their own commissions at different times. But there has been joint procurement, joint national development, of some of those systems. But, indeed, that is where there have also been problems with delivery, as was alluded to. So, it's not been a panacea to moving the NHS on; there have been as many problems in that national space as there have in what bodies might have done locally historically as well.

And in terms of the assessment, in terms of staff?

So, our evidence doesn't point to the fact that staff get paid time off for it. The actual assessment itself is not mandatory. So, you're asking—

So, it's voluntary anyway.

Yes. So, you're asking busy staff to just complete a self-assessment of their skills.

Exactly—you figure out whether or not you've got the skills.

Yes. And even then they can overstate or understate where they are with digital capability. It very much focuses on basic skills to do the day job as well. So, it doesn't really touch upon the wider skills you need in the organisation for digital transformation. So, yes, hence why there's a low take-up of that across all of those organisations. What we did do is we made recommendations to each organisation on how to improve that and develop their own approaches to developing digital capability. But we also made a recommendation specifically to Health Education and Improvement Wales, who have developed a digital capability framework to improve that offer as well.

Do you think they're not completing it because they're scared that they might lose their jobs, they might get replaced by something else?

It's hard to say. I couldn't possibly comment on that. I think perhaps maybe they're not completing it because you're asking them to do something that's—

Extra.

—extra. Given that health boards struggle with compliance rates on statutory and mandatory training anyway—

Yes—why this?

Yes. That's on top of.

Yes. Thanks.

Chair, just to jump in on that, that was an interesting thing you said, answered. People are being asked about their digital skills for day-to-day digital stuff that they're expected to do in their job. What's the point of that, given that, surely, a manager will be able to figure out if someone is capable of doing their job or not? I don't understand why that's the job of this survey, to figure out if they're capable of doing their job.

I couldn't possibly comment on why HEIW have designed the digital capability framework in the way that they have. Obviously, it gives the opportunity for individuals to comment on their basic digital skills.

I think it's less—. I wouldn't see it as a vehicle for managing the individual and their performance. It's more a vehicle, I think, for wider workforce planning and skills development. So, where is the NHS at, where are individual organisations at collectively across their staff base in terms of that skill mix, to inform workforce planning, the training offer for staff more generally—recruitment, even, perhaps in future in terms of the extent to which these skills might feature in future recruitment to fill obvious gaps as well. So, I think I'd draw that distinction between managing the individual, which I think, you're absolutely right, you would expect managers to be doing locally and developing people, and that wider corporate approach to workforce planning as well, and, as Nathan said, the role that HEIW has in that space for the NHS at large in that wider workforce planning as well.

Anna.

Thank you. I'm just looking at my questions and you haven't got down to the level 4 escalation and asking more about that, but I suppose I might start off with that the report starts off with underlining that digital is about—or our briefing does—technology, data, but it's also about ways of working. And I'm not sure how much you've looked at the ways of working. So, I suppose I'd expect to be seeing things like that managers and doctors are able to do things, really, starting with people, patients, that they're able to be agile and innovative and that they're looking at data, but not just data, that they have the experience there, I guess, of their patients' journey through this lived experience. How much do you feel that is really coming into it? It fits into this one Wales public service that we're hearing about from Government now—that everybody should be thinking differently, about being people-centred and outcomes-focused et cetera. But it feels like this might be more about skills in using data or actually doing things on the computer, almost, and digital systems. How much have you got into—? This is a whole different way of working and culture, I suppose, that we're talking about, not just using different software or things like that.

So, we've focused on digital strategy, as we've talked about, workforce development, cyber security, AI, et cetera, benefits.

I suppose, with that workforce development, does it include the different type of leadership that we need in the NHS if we're going to be able to enable this sort of thing, or different types of empowering teams, or anything like that in the workforce development, I suppose?

We didn't really cover that aspect of it. I could probably comment that NHS digital teams struggle with vacancies and things like that, because they're in competition with the private sector, which can offer higher salaries for equivalent jobs and stuff. So—

That's great. You've answered my question. I suppose, Chair, as we go forward, I think that's something for us to be thinking about, the wider—as it starts off in your report, I think, saying it's about ways of working, what do we mean by that, and what do we think the NHS means by that. Because, I suppose, there's something for me about, from what I've seen, that there's a danger in these things that, actually, they're getting more and more centralised, and decisions are being made on data that, actually, is getting further and further away from people's experience, and, actually, some of that is slowing down the system rather than speeding it up and making it actually less patient-friendly, rather than more.

We were in Bronglais the other day and somebody mentioned that, with some of these initiatives, especially with increasing centralisation and perhaps some of it being done with data centres far away, they've seen a decline in productivity in their unit. I don't know to what extent that's—. I haven't got evidence around that, but I don't know if that's something that's coming out, I suppose—. You're talking about national programmes, and, with some of this, to what extent are we enabling—? Are we seeing local innovation and doctors and nurses being able to look at stuff on the ground, understand their patients and respond?

We didn't get into that level of detail, but we did pick up on some systems, innovative systems. I can probably mention those now if that's going to be helpful for you.

Yes.

So, Aneurin Bevan developed a 'My Medical Record' system in urology with a patient group, and patients have told the board about the benefits of that. It has also introduced an AI tool to support chest x-ray reporting. Swansea Bay developed its own patient flow system, Signal, which tracks a patient's journey from admission to discharge, and its patient portal gives patients access to test results and appointments. And Cardiff and Vale is developing a regional shared care record with Cardiff Council and the Vale of Glamorgan Council. Much of the progress is local roll-out of national systems, such as electronic prescribing, which shows how far local progress depends on national programmes. So, I can say that level of detail.

Yes. That's great. And I'm probably not allowed to have more questions, but something about the escalation to level 4, I suppose, would be interesting to know more about.

Cai Parry-Jones.

Sorry, I was just going to add briefly that I think that it's a salient point around the balance between national systems development and local delivery and local innovation and how those decisions are made. What makes it into a national programme? Is everyone on board with that principle as well? And I think, as Darren alluded to, these things—. Some of this is within the gift of Digital Health and Care Wales to deliver and procure centrally. But, most of the time, for those procurements or developments, the whole system has to be on board with that and has a role to play in developing that programme, that project. And that has been some of the tension, I think, in the system in delivering some of those. Not everyone has actually been as on board with the development, or they still want to do something their way locally, even though in principle there's been an agreement that there'll be a national system.

So, these are some of the tensions, I think, that, in the course of your inquiry, you can perhaps get into with witnesses, potentially, in a bit more detail. That is a big question, around how do we make those calls on what's best done nationally and what's best done and delivered locally. Because, as Nathan said, there are still those examples of local innovation and system development out there. Sometimes those do have to marry onto other national systems and infrastructure as well. So, yes.

Thank you.

Thank you.

One of my main takeaways from your report is that a lot of money is being spent on digital and technology services. Most of that is going towards keeping existing systems going rather than delivering digital change. This to me sounds a lot like the evidence you gave last week in terms of the dire state of the NHS Wales accounts—they're in a huge financial hole, and they're using the money meant to move the NHS into the modern day, but they're simply just using it to keep the lights on. To what extent is what you have found on digital transformation simply another symptom of that wider financial problem?

I don't know if Darren or Catherine want to comment on that. From my perspective, it is a symptom of that story that we were telling last week and the need for the service to turn around and front-load some investment in service change and transformation. Digital is one key way in which that's done. It's not the only driver of those changes. So, I think it's a fair observation. This is, to some extent, a microcosm of that bigger story that we were telling last week on the wider financial position.

So, in all of this, I think part of our message is that we see the opportunity for the NHS around digital transformation as well. Clearly, it's there, I don't think that's in dispute, but the track record of delivery has not been good over recent years. And as I think we headlined our article with, you can't question the ambition, but the delivery needs to be better than it has been. And I think we started down the road of the committee thinking about an inquiry off the back of news about investment in England as well that's going into some of this space that was announced before the summer recess. And there are questions for the NHS about keeping pace and falling behind. As we all know, the world of digital technology is moving probably faster than we often move, and certainly than NHS structures and governance perhaps sometimes move. So, there's a real challenge for the system in keeping up with and getting out of that system of keeping the lights on and trying to get ahead of that in some way.

So, sorry, just in short, you would agree with the statement that NHS Wales requires more funding for investing in future digital change.

Well, the NHS has got to invest in future digital change. Where—

Do you think more than it currently invests?

Well, our analysis is that it would need to spend more than it's currently spending, or it needs to find a way of breaking the cycle and freeing up some of that day-to-day spend so that it can redirect some of that expenditure towards that change investment, but I think, in practice, that's going to be difficult and it's going to need some more upfront investment. Where that comes from, whether that's from efficiencies elsewhere in NHS delivery, improved productivity or whatever—. It's not an easy turnaround on this without some more money somewhere in the system.

That said, I think part of our message last week was the NHS just making better use of the resources that it does already have across a whole range of areas. So, it's not necessarily all about more money. It's about making better use of the funding that is available and ensuring those programmes and projects are delivered effectively. Otherwise, you could be throwing good money after bad and chasing after yourself.

I suppose that's the balance though, right? Is the problem that we need to spend more money or is the problem that the systems we're chucking money towards are not effective? If we don't know which is the issue, we're kind of in a little bit of trouble. I can give you an example, because, in private industry, I was involved in two implementations of the exact same data system, a data build tool. In one, I was part of a nine-man engineering team. It was really slow and there were loads of mistakes happening because there was miscommunication, because you had nine different people. Eventually, it got done, but it was pretty bad. In the other company, I just did it on my own, and it was a success and it was fast and there weren't really any mistakes. So, I guess the point I'm making there is that that nine-person engineering team was told there were issues, and then they invested more, and so they went from five people to six to seven to eight to nine, and that was just making it worse. I wonder if you think it's worth while having some sort of investigation into whether, actually, more money helps at all.

We touched on DHCW's escalation. It has a key role in driving some of these national systems. I think, behind the Welsh Government's concern around DHCW's performance is that we could put more money into DHCW to help support that development, but we're not assured at the moment that DHCW is doing as well as it could do in its role leading that. So, I think, to an extent, that answers to your question. I think some of the Welsh Government's concern at the moment is that we are not getting the bang for the buck that we think we are already putting in, and why is that? I think that it's easy often for us to come and say these are questions for the Welsh Government and the NHS, but they generally are. They're exactly the sorts of questions I would expect you to have the opportunity to explore with those responsible as well.

We've—

Sorry to interrupt, just one final bit. The first answer you gave me was that there is not enough investment or we need to divert some day-to-day spending into digital change. Are you changing your mind now? You're saying you're not sure if we should be putting more money in it.

I don't think I've changed my mind. I think I was saying it's a mix of both those things. I think there probably is a need for some targeted investment to help break the cycle of spending money on keeping the lights on, because I think you'll appreciate that you can't turn the lights off overnight on this or all the systems will fall over. So, there is a need to keep some of these systems going in the short term, but they've got to get ahead of the successors to those and that development curve to help you make that shift. So, I don't think I was contradicting myself, but I'll let the record tell me.

Well, as a committee, we've already agreed we're going to be holding an inquiry anyway on the basis of this briefing, and I'm sure, when it comes to talking about the terms of reference later in the agenda, we can look at devolving or pushing forward onto that when we actually start taking evidence for that meeting. Carrie Harper.

Diolch. Thanks for the report. The headline is that it's not good, is it? I was stunned to find out that we're still sending patient notes by taxi between health boards, which is quite difficult to understand, isn't it, in this day and age? I've got two questions. You said very clearly that delivery isn't matching ambition, but it would be interesting to understand where you think responsibility and accountability sits for that. Is it with the health boards? Is it with Digital Health and Care Wales or the Welsh Government? And is any lack of clarity about where responsibility sits itself contributing to the poor delivery that we're seeing?

The second question I had follows on from Cai's question. You've partly answered it. You describe a catch-22 situation where we've got old systems that are increasingly expensive to maintain, but then the financial pressures make it challenging to replace them. Is the slow pace that we have in rolling out that transformation now actually costing NHS Wales more money? In turn, that longer term investment actually could reduce costs, couldn't it? It's the invest-to-save principle. I'm interested in your thoughts on that.

In terms of roles and responsibilities, I would say it spans all three. At the local level, health boards are responsible for the digital programmes and things that they implement locally. At a national level, it's the Welsh Government and DHCW who are responsible for the roll-out and delivery of national digital programmes, in conjunction with the health boards as well, because they have to be able to work together to be able to roll, certainly, the national digital programmes out. What came out of the reports that we've done is that there is a lack of clarity around the roles and responsibilities of each party in doing that.

I was just going to invite any colleagues, if they want—

I'm just conscious of the fact that we're nearly at the time for ending the next item as well—we're considerably over time—so I want to try and see if we can get ourselves back on track a bit.

Okay, I'll be brief. I think Nathan's right, it's at all levels. The Welsh Government has a chief digital officer for the NHS, as well as a chief digital officer for public services more broadly. So, they do have that wider remit, but DHCW has a key role and health boards have a role to play. One of the issues has been tensions and clarity around those relationships and accountabilities. That's the evidence from our work recently and previously as well.

Andrew R.T. Davies, any questions?

Yes. Thank you, Chair. Just two quick points. The first point is an observation: with only 2 per cent of staff engaging in the self-assessment for IT provision, it must be very hard for the NHS to gauge what type of product will work well in the field. I was just wondering what your viewpoint was on how we might be able to drive up those self-assessments of the IT provision amongst the staff, so that that can feed into formulating new IT solutions, and how that might compare to other NHSs across the UK with their staff engaging in the feedback on their use of IT.

Secondly, importantly, I'd like to try and understand the national IT programmes and the deliverability of those IT programmes. Are they delivered on time and on budget or do most of them face quite considerable delays?

For your first question, the self-assessment focuses very much on assessing each individual's digital skills, not necessarily IT provision. So—

The point being, there's no point in providing the IT if the skills aren't in the workforce, is there?

Darren wants to come in and answer that question, so I'll leave it to Darren.

Thank you. In terms of the national self-assessment that Health Education and Improvement Wales developed, we did identify a low take-up, but, as part of our work, we also discovered that individual bodies had developed their own self-assessment mechanisms, and the uptake of those tools were much higher compared to the national one. So, there's something there, where local bodies develop their own approaches to understanding the skills and capacity and capability of the workforce, about what helps in terms of driving a greater uptake in the local tool compared to the national tool. We are also aware that HEIW rolled out a newer version of their self-assessment tool a few weeks ago, so it'll be interesting to see whether or not the tool in its newer form will lead to greater uptake locally across the individual bodies we looked at.

Can I just ask what the greater uptake on the local tool was as opposed to the 2 per cent self-assessment on the national tool? It wouldn't be hard to get over 2 per cent, would it?

Again, the figures do vary. We don't have them to hand currently, Mr Davies, but that's certainly something we can go back and look at and provide you with that information from the local reports, but clearly they were higher than the 2 per cent. I think what's fair to say as well is that it was 2 per cent across all of the bodies. The uptake of HEIW's tool did vary across the individual bodies, but where they did have a local tool in place there was a slightly higher uptake.

Thank you. Just on national roll-out of national IT schemes that the Welsh Government and the agency might have commissioned, do they stick to timelines and budgets, or do many of the roll-outs end up being more costly and, ultimately, delayed?

I think the short answer is that they often do end up more costly and delayed. We will be bringing forward as part of briefing material for the committee in due course, when it takes evidence, as I think we're planning to pull together, some analysis of some of the history of some of the main programmes as well. There is some information in the public domain from DHCW, but sometimes that can be difficult to cut through. So, we are planning to bring to the committee a bit more analysis of some of those programmes in due course. But the back story, the history, has been generally one of 'longer than expected, costs rising more than expected', if, indeed, there's full transparency on costs, as well. And that's sometimes an issue as well—getting to the root of what actually has been spent on some of these programmes.

Thank you. Alun.

Thank you, Chair. Briefly, a couple of quick questions. It's a depressing report, partly, and it's not new, is it, but that historic look back, where some of these issues had been identified several years ago and we're still facing the same problems. One of the things that I'd like to understand, though, particularly in terms of workforce skills and capacity, is it's quite right to identify capacity problems, but there's a different question about whether that capacity could ever be built within those organisations—i.e. are they too small in themselves to develop the resilience that is needed within those organisations? So, is that part of the answer, part of the question, in that it's not that people are not trying but that the structures themselves do not allow those bodies to build up the capacity within those organisations and maybe never will? I mean, it's a question on structure.

And the second question is: are there examples of digital transformation programmes that have been very successful, either at the national or at a local level, which you can point to that are measurable, that have had an effect?

So, to your first question on the structures, that didn't really come out as a theme in terms of our findings. We very much asked questions around whether the teams had capacity and stuff, and that would quite often come back as 'no'; they were struggling in some key areas. And then, obviously, as I referenced earlier, there is a struggle in terms of recruitment, when health boards are in competition with the private sector for some of the digital posts. But on the structure and the size of the organisation and whether they're able to recruit based on that, that didn't come out as a theme, I'm afraid.

On the second—. Sorry, you'll have to repeat the question on that.

Yes. So, are there examples of digital transformation projects or programmes that have delivered well?

I mentioned earlier the examples on innovation—you know, My Medical system in urology, and the AI tool to do the chest x-ray reporting, and the development of a patient flow system. So, there are good local systems coming through that are delivering benefits. But, yes, that wasn't prevalent across all health boards; there are just certain ones. But there were good examples of innovation at a local level.

I won't take up the time, Chair, but—I will [Laughter.]—the last question is: where those examples of good practice are, I guess the question is why that is not being transferred elsewhere. I mean, is it not being widely used in all of the authorities, in the health boards, for example?

Yes, I'd probably say it's the latter.

Thank you. Obviously, I'm conscious, as Chair, so I'm going to forgo my right to even ask a question, but I am taking first dibs next time. So, we're going to move on now. Thank you very much for that briefing. It certainly gives us some food for thought for when we consider what we're going to bring up on the inquiry.

I'd like to move now to item 4, which is another briefing from Audit Wales and this time on Welsh Government arrangements for funding local government. It's a new team, but you introduced yourselves at the start, so we'll go straight over, please, to Audit Wales.

Thanks, Chair. I'll briefly start the item and then hand over to Charles to talk in a bit more detail about the findings. On the agenda, you've got two reports from us today under the general topic of local government finances. These are the latest in a series of reports we've produced over several years on that broader topic, in particular around councils' financial sustainability. Today, we'll talk mainly about the most recent report on local government funding arrangements, but we'll also draw some links between that report and the report on capital planning also on the agenda, in particular around the administration of grants, because some of the recommendations and findings clearly link.

The report on council funding arrangements builds on some of our previous work around local government financial sustainability. Our previous reports tended to focus on the councils' arrangements and what the councils could do to improve those arrangements. We made recommendations around things like the need to improve longer term financial planning.

But this report on local government funding arrangements, to a large extent, stemmed from the concerns raised through that work by some councils around the way the broader system operated and whether or not that helped them to be able to plan to be financially sustainable. In this report, we looked at how the Welsh Government funds the 22 councils in Wales. This included the local government annual settlement, but also the way in which restricted grants were administered and managed by the Welsh Government. We also looked at how and when the settlement and grant formula is allocated and the accuracy and timeliness of the data used to inform it. Timeliness was a particular issue raised during some of our local work as well, for example.

And then we also looked at how the Welsh Government supports councils with their financial planning. We included in particular in the report a specific reference to what might happen, for example, if a council got into significant financial difficulties. Again, that's covered in some of our findings.

Another area of concern that was raised by councils previously, which we investigated in this report, was around estimating the costs of new responsibilities placed on them. Again, some concerns raised by councils previously were around not understanding the full cost implications of new responsibilities and some concerns around consultation on some of that as well. So, again, we've touched on that in the report.

And then, as you'll see in the report, we make some recommendations to the Welsh Government that are aimed at improving the value for money of those arrangements and how they can get better value for money from the money that councils then subsequently spend. I'll hand over to Charles, who will briefly run through some of the key findings from the report.

Thanks, Tim. The overall and the key finding is the way that the Welsh Government allocates funding to councils does not always help councils to get the value for money from that funding, particularly over the longer term. There are two aspects of that. One element of that is the settlement, the annual process of using a formula to allocate local government funding within the Welsh Government's budget. That, since the pandemic, has been announced generally later in the year, which squeezes the window between the legal deadline for councils to set their council tax and their confirmation of the amount they're going to receive, which we've noted can have some challenges around consulting the public and also in terms of the capacity for officers to make adjustments if their assumptions and their planning have been off course, I suppose, based on the mood music beforehand. There are some challenges around that. We do also highlight in the report that there are things that councils can do to mitigate the impact of that. That is a theme in the local reports that Tim touched on that we've made to councils themselves on multiple occasions.

As well as the timing of that, the settlement typically is only a single year, which again makes it more difficult for councils to take those decisions over the medium to longer term. That is in part, as is included in the report, down to how the Welsh Government receives its budget allocation from the UK Government. But, again, there's a section in the report that talks about the importance of scenario planning and making assumptions around funding to help plan over the medium to longer term. That applies just as much to the Welsh Government in the report as it does to local councils as well.

Turning then to grants, again, with grants, the timing of those being announced quite often can be late in the year. There's a chart in the report that shows that there's a significant uptake in March of each financial year, where funding leaves Welsh Government at over double the comparative rate for the rest of the year, which shows that funding is leaving the Welsh Government and going to local government to ensure it's being used within the financial year. That makes it very difficult for councils to plan that spending. Ultimately, to achieve the best impact, they either need to have an off-the-shelf project ready to go or they need to have lots of people to turn that around. And what we found is that that is not always the case, particularly in some councils that feel that, due to their size, they may not have the capacity to have an off-the-shelf or the people ready to work through that funding.

There are also some points in the report around the design and the mechanisms for grants, and those not always reflecting the size in terms of the financial size of the grant or the risks that that may pose both to the Welsh Government or to councils. This is where there is real read-across between this report and the capital planning report. That's a theme that's quite core in the capital planning report, that quite often councils will be asked in different service areas to do different things to apply for funding, and that can make it difficult to respond at pace to offerings of funding, but then also when monitoring the spend going forward and reporting on how it's been spent. That means that when thinking about the costs to councils in terms of doing that monitoring, it's not always clear what the benefit is in terms of some of those processes.

For example, we sample tested and invited councils to share examples of different grant schemes. Some grant schemes for comparatively very small amounts of money would be required to do lots of reporting to the Welsh Government—quarterly reporting of things that have been bought or that the money's been used on—compared to some of those larger grants at the other end of the spectrum, when you're talking in millions, where the reporting is less frequent and is very simplified on the assumption that, because it's a big service area, the councils are well equipped to use that money in accordance with the grant conditions.

We've also touched on there that some of the grants that the Welsh Government offer have been offered regularly over a very long period. We looked at 11 different settlements, and there are grants that are offered in every single settlement. That's despite the Welsh Government having made a commitment in the past to making grants short and time bound to introduce new policies or responsibilities and then be included in the settlement. That's important, in a sense, because obviously getting it in the settlement is less administration both for the Welsh Government and for councils.

I'll turn, Chair, to the second key part of the report, which is around the formula itself. As Tim flagged, one of the things that we heard from some councils was concerns around the age of some of the data used in the formula. Some of the oldest data used in the formula dates from 1991, which relates to the dispersion of settlements around Wales. But the vast majority of the data, 72 per cent, is either from the current or the two most recent financial years. So the vast majority of the data used is as up to date as it could be, and the Welsh Government does regularly update that. The Welsh Government is in the process of updating some of that particularly older data, and some of it is outside of its control, relating to reporting around benefits controlled by the UK Government. So, some of that reporting has stopped. But as regards the settlement and the dispersion data from 1991 and 2001, they're in the process of recalibrating. That is the phrase that the Welsh Government uses.

Thank you. As a former community councillor, I've had personal experience with short-notice grants, because once it's gone to the local authority, then it comes down to community and you get four months to spend the money and you've got no project. But just one quick question from me. In your opinion, what's the biggest issue here? Is it the 20-year data gap or the timing of the settlement?

I suppose that's a difficult one, because I imagine if you asked the 22 councils, there would be a range of different views on that.

I don't think we've prioritised them in terms of a bigger issue. I think we've explained in the report the implications of both. That's how, I suppose, I would respond to that. We don't make recommendations lightly anyway, I guess. I think we see all those as significant issues, but certainly those two, as per the recommendations. They have different implications, but I'm not sure we would say one is more important than the other, necessarily, at this stage.

Thank you. We're very conscious of time, so we're going to go around the room, and if we could have some brevity, please, so we can try and catch up. Alun Cox.

I'll try my best. We've seen, I think, from what you've written, the effects of an omnishambles chaos at Westminster and how that plays through in terms of the financing of the Welsh Government: an increasingly unpredictable schedule of reviews, which is based on the political chaos at a UK level. Because we are subservient to that organisation, that plays right through, doesn't it, from the Welsh Government into local government. The question you put was whether the Welsh Government could do more in terms of making assumptions, and local councils in terms of making assumptions, but I'm unclear about how that would work in practice when nothing is guaranteed until that funding is committed. To what extent can the Welsh Government guarantee and can councils rely on that guarantee, without some kind of clarity from Westminster, which I'm not sure is ever going to be there?

I absolutely recognise that that's a fair challenge. I think we would want to avoid the presumption that we think this is easy. We reference a couple of links to guidance from the National Audit Office, for example, and the Chartered Institute of Public Finance and Accountancy, in terms of making assumptions and scenario planning. But there's also a quote in there from the Institute of Chartered Accountants in England and Wales, and they make clear that scenario planning and the use of assumptions is routine for any organisation, whether that be a business, charity, or indeed the public sector. And I guess, having the conversation and saying, 'We've made an assumption, this is best and worst-case scenario'—which some councils do; you can quite clearly see that in their medium-term financial plans—is useful, because then, if you're not in control of the timetable, if something happens that's unexpected, or is within that tolerance of best and worst case, you have levers that you've already prepared. And that's the point we're making. I recognise that there's a political element to that—

Sure.

—and there's a challenge around the detail around that. But we're making the point that it's important to think that through, in order to give yourself more time and to think through those options, rather than panic at the last available opportunity, I guess.

Sure, okay.

Just to add to that, if I may, I think we certainly recognise the point. It's an interconnected system, so, absolutely, it's not for one organisation to operate in isolation. I suppose, in quite simple terms, we've made similar points to councils, and suggested that they take a longer term approach, and that would include things like scenario planning. In this report, I guess the main point we're making there is that we think that Welsh Government could do the same. But, taking the point, that doesn't provide certainty in terms of funding levels, but I guess it provides more of an indication, I think, and Charles has explained the reasons why scenario planning is considered a good idea.

Okay, thank you.

Thank you. Carrie.

Just a comment, very quickly, as a former county councillor. Obviously, we've seen how short-term or restrictive grant conditions often lead to councils making poor investment decisions, and that's been the case for as long as I can remember. So, it would be good to see your recommendations around that acted upon, basically.

Andrew R.T..

I'm just surprised at that data lag, 2002—I think I'm hearing that correctly—up until now; there's a massive data gap there that needs to be rectified. I fail to see how people can make informed decisions with such out-of-date information at their fingertips. But also, I'd just be interested to know about the hypothecated grants as opposed to the non-hypothecated grants, because the greater flexibility local authorities have to fund things in their area, the better.

Are we seeing a greater use of hypothecated grants going to local authorities, which is limiting their ability to spend that money locally on their own priorities?

So, in relation to the first point around the data, some of the data comes from the 1991 and 2001 censuses. The Welsh Government, as I mentioned in the briefing, is updating some of that in relation to social care and education, to start with, and will roll that through to other areas in due course. But we've made that recommendation that that should be made to the whole formula.

In relation to the hypothecated grants, I think it's difficult for us to get a read over time, just because of how the grants are recorded. But in 2024-25, there were 110 hypothecated grants, which is a significant amount. And, I can't remember, but it is referenced in the report, local government as a sector gets significantly more of the hypothecated grants than other sectors that the Welsh Government gives grants to. For example, the NHS generally gets unhypothecated funding rather than hypothecated, when looking at grants specifically.

So, in terms of the increase over time, it's difficult to kind of map, but there are a lot of grants. And, I think, one of the points that we make in the report is considering whether there needs to be so many of those grants, and whether there are other opportunities to move some of those long running ones into the settlement, which is in accordance with the policy, and was also recently committed to by the Welsh Government in their protocol with the Welsh Local Government Association and the 22 councils as well. So, that is something that the Welsh Government are aware of and are seeking to do. But it's something that we've also raised in this report.

Thank you. Cai Parry-Jones.

So, on restricted grants, it was incredible that £1.5 billion was allocated to councils in the last month of the financial year in 2025. So, obviously, that leaves very little time for councils to get that money and then figure out what they're supposed to spend it on. I'm just thinking of quick wins. Could you recommend to the Minister of government efficiency or something that it makes sense for grants to be less restrictive later in the financial year?

So, generally speaking, this is primarily anecdotal, from council officers, the grants do generally get less restrictive as they go through the year, but because of where they originate in Welsh Government, they still will have some restrictions. So, for example, not in the last financial year, the year before, councils were given a pressures grant, which they could use over four different service areas, so there were greater flexibilities in there.

I would just note with that graph as well, some of that will be timed regular funding, in the sense that it will be sequenced, so the council will have had the money allocated to them at the start of the year, and the cash payment just happens to be in that final month. Not all of that is additional new funding going to councils. Some of that will be sequenced, so they will have already pre-planned and thought about that funding.

But the primary cause of that additional funding is, generally speaking, underspends in the service areas themselves. So, whichever part of Welsh Government may have an underspend and how they can use that money, they will generally seek to use that underspend in the form of a restricted grant. But as I said, it generally does get more flexible in terms of its conditions over the year.

But do you think it should be more flexible, or do you think that balance has been hit?

That's quite subjective and, obviously, would vary by each individual grant. I'm not sure it would necessarily be our place to tell the Welsh Government which conditions it should and shouldn't be placing on its grants. But the point we've made in the report is that for some of those underspends that it's aware of, it's taking the action earlier in the year. So, still, if it has to allocate that grant in year, again, giving councils as much time as possible to think through the spending.

But isn't, partly, the reason why so many grants are provided later in the year because the Welsh Government can't figure out, actually, 'How much in grants can we give local councils?' until it gets very close to the end of the financial year?

Yes, there's an element of that, and that's where giving itself, I guess, the time with the scenario planning and that kind of stuff comes into it. Tim, is there something you wanted to touch on there?

Just on that, one of the recommendations very clearly says, in fact, I think, your comment. So, the recommendation is they should put in place an approach to reduce the proportion of funding distributed late in the financial year. So, I guess we are saying that, in that sense, we think it should be reduced or an approach should be put in place to reduce it.

Thank you. We'll move on to Anna Nicholl, please.

Thanks for all of this. I know time is tight. So, there's something there about how we're having to do this fitting into UK systems that, perhaps, aren't ideal for Wales. That's something we might want to look at there. I think Welsh Government is doing a review now of the funding formula with councils. So, that's welcome and, I guess, there's something in seeing where that gets to now. I was thinking if there are areas that feel like something where, maybe, we'd want to focus down a bit. It feels to me that the timing of these one-year cycles and money not getting out the door until the end of March is something where, and the scenarios and assumptions work, it feels like something practical that, maybe, we could dig down on. Some things are already being done, I suppose; some things aren't. I don't know if you have a feel or if you have any advice on where you think we could do our best work with scrutiny.

One thing that we didn't mention—. So, we haven't yet had Welsh Government's final response to the recommendations, and I assume, at some point, that will come to the committee. So, that might be a time to consider Welsh Government's response, certainly, at that point, if that helps.

Okay, yes.

Yes, Shav.

A quick question: have you got a list of the grants that should just now become part of the core grant? Because every councillor out there complains about this, time and time again. You've mentioned it a few times. Have you got a list? Have you done an assessment?

We have a list of grants that are included in the settlement, listing in terms of, over time, how many years. I guess, again, it would be a decision for the Welsh Government, in terms of which grants it would want to include. The recommendation and the point we've made is around the fact that there's a point in terms of the administration, but also there's a point around local democracy, in the sense that, when it's a restricted grant, the elected councillors can't make that decision as well. So, there are multiple elements to that. But, in terms of specific grants, I don't think, really, it would be appropriate for me to list them.

The reason I ask is because after COVID, and during COVID, there was a series of grants that then continued, and they've almost kind of become a part of what people need at this moment in time.

I certainly think in the report we highlighted the point that there are a number of recurring grants. As Charles says, it's difficult for us to say that they should or shouldn't be part of the settlement. I suppose, on this topic generally, it's a difficult line for us to tread. We looked at the arrangements and we highlighted where we think there are opportunities to strengthen the arrangements and the ways of working to improve the use and value for money.

So, we highlight that the Welsh Government has said, as Charles explained earlier, that its policy on the use of grants is generally for them to be short term and specific. But there are a number of grants, and that's easily available in terms of the number of grants that have been recurring for a number of years. So, clearly, we've highlighted that issue and suggested it's reduced, but not the specific ones, if that makes sense.

I would just add for context as well, again just thinking of time, the Welsh Government has been seeking to move some of them into bigger grants—so, in education there are two big grants and the same with the communities funding as well—but there's also a challenge around identifying the grants in that there will obviously be a corporate view from a council around having fewer grants, having that in the settlement, which is the council's overall view and the view articulated through the WLGA, but then, on a day-to-day and practical level, there's the difficulty around picking the service areas, but also the views of that sector. If you are, for example, to move funding from one service area into the settlement formula, that service area is guaranteed that funding if it's a grant, and it may not be if it moves into the settlement. And there's lots of small 'p' politics around in the individual grants there as well. So, again, I think that's probably one that we'll try to steer clear of.

Thank you.

Thank you very much. I'd like to thank the auditor general and her team for coming to give us these briefs today. We will be moving on and discussing those during our private session.

As usual, there will be a copy of the transcript available to check for factual accuracy and this will be published on the Senedd's website in due course. Further updates about the committee's work will be available on the committee's website, including dates of future meetings and agendas.

So, moving on to item 5, I propose in accordance with Standing Order 17.42(ix) that the committee resolves to exclude the public from the remainder of this meeting. Are Members content? Thank you. We will now proceed in private.