Economy, Trade, and Rural Affairs Committee

So, we'll move on now to item 2, papers to note. As Members can see, there are a number of papers to note. You'll be pleased to know that I won't go through all of them, but there are a number of them, including letters regarding our review of the regulations on agricultural pollution, and a letter from the Llywydd on the timetable for and the remit of the committees. We will be discussing this matter in our private session later.

So, are there any other matters that Members would like to raise from these letters at all? No.

So, we can move on to item 3 on our agenda, an evidence session with the Minister for Rural Affairs and North Wales, and Trefnydd regarding the Welsh Government draft budget 2022-23. A very warm welcome to the Minister. May I thank her also for the paper that she has submitted beforehand to the committee? Before we start our session today, perhaps the Minister and her team would like to introduce themselves for the record. Minister.

Thank you. I'm Lesley Griffiths, I'm the Minister for Rural Affairs and North Wales, and Trefnydd, and I'm joined by Tim Render, who's the director of rural affairs, and Christianne Glossop, our chief veterinary officer.

Thank you very much for that introduction, Minister. Perhaps I can just kick off this session by asking you, first of all, just a general question. How confident are you that the money allocated to your portfolio in this draft budget is sufficient to meet your priorities going forward?

Yes, I am confident. It would always be good to have more, of course, but we all recognise we're in very, very difficult times, coming out of the COVID-19 pandemic. But, I've had a lot of very helpful discussions with all colleagues, but particularly with my colleague the Minister for Finance and Local Government, and you will see that I received additional funding, et cetera. So, yes, I'm confident it will deliver on my priorities, and particularly programme for government commitments.

And can you tell us how you'll be monitoring the effectiveness of this budget? What outcomes will you want to see and how will you know that this draft budget has been successful in meeting your priorities, going forward?

Well, all policies and schemes are monitored and evaluated very closely on a continual basis. I meet with my director of finance every week. I have more intensive monthly discussions on budgets to make sure that everything is as it should be. I think, as a Minister, it's really imperative that you keep a very close eye on your budgets. So, obviously, the programme for government, the commitments within that need to be delivered. It's very important that, every five years, we do that. So, I suppose, for me, that would be the measure of success. But, of course, there are lots of other schemes and policies alongside that that have to be developed.

Clearly, leaving the European Union has caused a huge amount of work and a lot more new schemes are having to come forward, on restricted budgets, for instance. So, I'll give you an example: the rural development programme, the seven-year programme, is obviously finishing at the end of this month. We should then have been starting, if we had remained in the European Union, a new programme. We would have had that certainty that we had that funding to do those schemes. At the moment, I've only got partial, three-year funding, and not even all the funding. So, it is difficult, but we are where we are. We're in this new world now and we have to find a new way of working through it.

And you mentioned, obviously, the programme for government there; will you be setting financial targets alongside your priorities to ensure you're actually on track to achieve what you want to achieve as a Minister?

So, I suppose, as we go through—. At the moment, where are we, we're probably in month 7 or 8 now of the first year, and a lot of scoping work is currently being done, a lot of the design work is being done, but of course you have to look at the budget. So, I'll give you an example, and the community food strategy is probably a good example. It's a programme for government commitment, we're doing scoping work at the moment, and we've got a specific budget for that, which I think is about £1.85 million. So, as you design that strategy, and as you work through it, because you've only got a certain amount of funding, then you would look at how that funding is going over the months and years. But, you can't deliver everything in the first year, obviously, it's a five-year programme, but you would have to keep a check on it, yes.

Okay. Thank you, Minister. Perhaps I can now bring in Sam Kurtz to ask a set of questions. Sam.

Diolch, Cadeirydd. Thank you, Chair. Apologies, my internet is causing a few issues at the moment, so please bear with me. Can you hear me okay?

We can, yes.

Yes, fantastic. Good morning, Minister.

Good morning.

To follow on from the Chair's questions regarding funding, information from the research team has suggested that, in comparison with the financial year 2021-22 and the draft budget of 2022-23, rural affairs will see an increase of 10.3 per cent, equating to £37 million. What is your understanding of where this increase in financial support has come from?

So, obviously, you have discussions with the Minister for finance. So, that money has come from the pot of money that we have across Welsh Government. I needed that increase, obviously, to make sure that I do fulfil all my statutory duties and the programme for government commitments.

Fantastic. And in terms of that, every budget that I can see in front of me from the research team has seen an increase. Nearly everyone has had a double-digit increase, bar economy, which is at 9.9 per cent, but climate change has seen one of the largest increases at 15.2 per cent. Have you any concerns that budget allocation has been moved towards climate change and away from rural affairs, given the complexity and the intertwined-ness that these two portfolios have?

No, I've got no specific concerns. Obviously, climate change is a massive priority for us all but, clearly, for the Welsh Government it's a significant priority—the fact that, after the election in May, the First Minister brought in a new portfolio just solely on climate change; the first time we've had a Minister for climate change. Obviously, I was responsible for climate change mitigation before that. Climate change isn't just for one person to do; it's for the whole of Government. We all have responsibilities, but I think bringing all the levers together, which is what, obviously, has happened with Julie James and Lee Waters as her deputy, was a really clever move because, previously, when I was responsible, you didn't hold all the levers. I held the energy ones but I didn't hold the housing ones, so I can see why it's been brought together. Clearly, it needs the funding to make sure that we do respond to the climate emergency in a way that we need to. So, I don't have any specific concerns and, obviously, I need to work very closely—. As you say, there is a lot of integration between our two portfolios.

Fabulous. Finally, with regard to the new sustainable farming scheme, how would this be funded in terms of the extra administration costs that might come from the unique contracts, or, especially in the discussions you and I have had previously in the Chamber, the funding shortfall from UK Gov with regard to agricultural commitments. How is the SFS looking to be funded from its implementation?

So, you're quite right to refer to the reduction in funding from the UK Government. I talked about the RDP in my opening answers to the Chair. We know we have got that reduction, and I can't find that reduction from my budget. There is no way I'm going to find £106 million, so what we've had to do is look at where we can cover that gap whilst we continue to have discussions with the UK Government about the approach they've taken to giving us that funding.

Around the question you asked in relation to contracts, obviously, no decisions have been taken about the exact amount of funding that will be going to the sustainable farming scheme. As you know, we're in a design phase. We're about to—not about to—. In the summer, we'll be having the second phase of engagement with our farmers around this scheme. So, no decisions have been taken at all about the exact funding that will be allocated to SFS, but I am confident we have the funding that we need to begin that phased transition from the basic payment scheme, which, as you know, I've stated will be given in 2022 and 2023 to give some sort of certainty and stability to our farmers. So, what I will do is allocate some of the replacement funding that we've received to staff costs. It's normally around 4 per cent for the administration of the BPS, for instance, and I'm assuming it will be similar for SFS. And I think all countries take that sort of stance, so I will find that money from the funding that I have.

Excellent. Thank you, Chair.

Thank you, Sam. Before I bring in Hefin David, you mentioned that you are trying to get the £106 million within your portfolio where you can. What do you mean by that?

Say that again, sorry, Paul.

You said that you were, obviously, trying to find the £106 million shortfall 'where you can' within your portfolio. What do you mean by that?

Well, we've had to, obviously, reallocate. So, the additional £30 million of capital funding I've had from the Minister for Finance and Local Government, obviously, is part of the funding. What I was trying to say was I can't find £106 million—I can't—but we've had to look very closely at where we can repurpose and, obviously, that significant additional funding is helping.

Okay, thank you. If I can now bring in Hefin David. Hefin.

Can I just come back with a follow-up to Samuel Kurtz's question? The sustainable farming scheme and the basic payment scheme, are they going to run in parallel at any point?

No, there will be a transition from basic payment scheme to sustainable farming scheme, and you're probably aware that, in the co-operation agreement, one of the things I'm now working with—I met Cefin Campbell for the first time yesterday to discuss this—is a stability payment. So, I've always made it very clear, Hefin, that there will be no cliff edge in the funding. We will only go from BPS to SFS when that scheme is up and running. There will be a transition.

And BPS is in place until 2024, so we won't see the transition happen before 2024.

That's right. BPS is in place until the end of 2023. So, yes, we won't see it happen before 2024. I mentioned earlier we're in the second part of the farmer engagement. From the summer, we're asking for expressions of interest now from our farmers. We've had a good response. But it won't be parallel; it will be a multi-year transitional period.

Okay. And the funding for agriculture customer engagement is actually remaining stable, so you don't anticipate any additional calls on that budget given the difficulties of transition at this point.

Not at the moment, no.

Okay. Can I move on to the thorny question of the agricultural pollution regulations? Without getting into any additional issues that we don't want to get into, having had many conversations with NRW, regardless of a Wales-wide nitrate vulnerable zone and those kinds of issues, I've seen the need for additional regulation in my community. NRW say, 'Regulations are great, but they've got to be followed by funding.' So, what conversation with regard to funding agricultural pollution regulations have you had with NRW and have they put any calls on you to enhance their budget in that regard?

So, obviously, in this term of Government, NRW sits within the Minister for Climate Change's portfolio, so I don't now meet NRW on the regular basis that I did in the previous term of Government. But obviously, agricultural pollution and the regulations, et cetera, we need NRW to enforce, and they will enforce if they have incidents reported to them that they then obviously go into. I'm not quite sure if the Minister for Climate Change has been in front of you yet for budget scrutiny but—

Not yet.

—she has maintained NRW's core grant in aid budget at £60 million for 2022-23, and she's also provided an additional £1.5 million increase in revenue for a specific programme, from £21 million to £22.5 million, for the flood and coastal erosion risk management programme.

I know that Welsh Government officials are currently working with NRW to do a baseline review exercise, which I think was started at the beginning of this financial year, to examine the allocation of NRW resources against its statutory functions, and, obviously now, the additional programme for government commitments. I think once that piece of work has been completed, it will obviously inform how NRW allocates its funding, and I would assume that they will look to how they meet their statutory obligations as well and then come back to the Minister to show how they can fulfil those ministerial priorities and, obviously, the programme for government commitments starting from the next financial year on 1 April.

They haven't specifically asked me for any further funding. I'm not aware if they've asked the Minister for Climate Change either. But, as I say, I do expect to have a conversation with them when we're in the position where we can discuss the agricultural pollution regulations in more detail.

Okay. I'm just very aware that resourcing enforcement action often affects whether enforcement action may be able to be taken or not. And any additional regulations would require that money to follow. I think there's a little bit of concern about the fact that the agriculture regulations sit with you but the funding sits with the climate change Minister. I think it would be helpful to understand how those discussions happen mid budget term. We don't know about the regulations at this point in time given the court case. So, how will that budget then be allocated?

So, we will have to obviously look at what comes out of this piece of work that Welsh Government officials are doing. I know from my regular meetings with NRW previously—. We found extra funding for them from within our main expenditure groups previously. So, it's not something that you can't do, even if the budget is set. I remember finding significant extra funding at times for NRW during the five years I was responsible for them. So, I think those are conversations that we have to have as we go further. It is really important, as you say, that they are able to carry out their statutory duties, and that's why I was really pleased to see that grant in aid budget maintained.

Okay. Thank you, Chair.

Thank you, Hefin. Before I bring in Vikki Howells, I believe Sam wants to come back and just ask a question around livestock movement and the support available for that. Sam.

Thank you, Chair. With regard to livestock identification and movement, how are ambitions for the updating and the increase of that from Welsh Government being made in the budget allocations, especially around equine ID and the digitisation of equine registrations and passports?

Thank you. Obviously, these are crucial pieces of infrastructure to support disease prevention and control. So, that then supports our public health, and we've all seen what happens when we have a public health pandemic. So, it's really important that we have these systems in place, and it's really important for continuing our trade, particularly with the European Union at the moment. And, as you know, our programme for government does commit us to a new system of farm support, which we've just talked about, and, obviously, the electronic identification Cymru movement system is another area where we've done some significant work.

I had a meeting with Christianne and her team. I'm trying to think—it might have been on the back of a question that you asked me actually, Sam, thinking about it, around equine passports, and I know they were going to do some engagement to see if our equine keepers wanted a passport, because I wasn't sure when you asked me the question how much information we'd had. So, I'm going to ask Christianne if we've done any further work on that before we come back to the budget issue.

Thank you, Minister. I can't report additional work has been ongoing, although engagement with the equine sector continues. We meet with the equine forum on a regular basis, and ID is a very important component of that. But I'm afraid I can't give you any update on what the Minister's already said.

So, obviously, we will look within the budget again. In relation to animal health and welfare, we've put a further, I think, £4.5 million into that budget expenditure line, so it would come from there.

Okay. Thank you, Sam. If I can now bring in Vikki Howells to ask a set of questions. Vikki.

Thanks, Chair. Good morning, Minister. I've got some questions firstly on the food and drink sector. I know the Welsh Government published its post-Brexit vision for food and drink in November. I would say that it's a very ambitious strategy, particularly the part about growing the industry at a higher rate proportionally to the rest of the UK. So, I'm just wondering what are those ambitions—[Inaudible.]

[Inaudible.]—work that the food and drink sector has done. I think you were in the Chamber when I did the oral statement on Tuesday around BlasCymru. I had hoped to launch the vision there, but I managed to do it at the winter fair, which was really important, building on the previous food action plan, where we exceeded all targets that we'd set for 10 years. So, really, this next vision takes us to 2025, where, as you say, we've got a target of, I think, £8.5 billion turnover for our food and drink sector, and other targets as you referred to.

We know we have to develop further financial and non-financial support for our food and drink sector. They are incredibly successful, and it's because of, I have to say, the EU rural development programme, which has really given significant financial support to our food and drink businesses, and, obviously, we'll be losing that funding now, so we are going to have to look at what schemes we can bring forward. I think in the last RDP, which finishes this month, about £100 million has gone to the food and drink industry in Wales. So, you can see it's significant funding. One of the schemes we had was the food business investment scheme—£35 million direct capital investment, with a further £30 million committed over the remainder of the programme, and that will support the schemes to deliver the food vision.

One of our big schemes was Project HELIX, which I referred to in the oral statement on Tuesday, and they've worked incredibly closely in bringing forward really innovative ways of producing food and drink, working with one-man bands, sometimes, to help them with all aspects of producing a certain food. We've got three brilliant food innovation centres—really important we continue to work closely with them. We need to also support Cywain and Menter a Busnes to work with our small what I call rising stars. We had an area of BlasCymru where 200 new products had been brought forward just during the pandemic period, which I think is incredible—that people still managed to do all that during the pandemic. So, it's really important that we continue to support them as well.

And one of the other things—and I think this is an area where perhaps we need to have a bit more of a focus—is to make sure we've got buildings that can support companies when they're looking to bring forward new products. And sometimes that has been a bit of a barrier. So, I think we do need to look very carefully, to make sure we have the premises that are required to support them.

Thank you. And to pick up on one thread of that work as well, I note that £1.85 million has been allocated from reserves to develop a community food strategy, and that's certainly an issue that's close to a lot of people's hearts, isn't it, as part of the Welsh Government's work to tackle climate change. So, could you outline for us the analysis undertaken to ensure that the allocation of that £1.85 million provides value for money? And—[Inaudible.]

Sorry, Vikki, I think we've just lost you there. I think we've lost Vikki entirely. Yes, I'm afraid we have. But, Minister, she was just asking you, obviously, about the—

Yes, about the community food strategy. Do you want me to answer that question?

Please, yes.

So, it's very early days. I mentioned the community food strategy earlier on. So, it's a programme for government commitment. Officials have done a scoping paper for me, because, again, this is part of the co-operation agreement. So, it's very early days. Vikki's back now, I think. Vikki's back.

She is, yes.

I was just saying, Vikki, it's very early days. Officials have produced a scoping paper. What I wanted them to do in the beginning was, first of all, to look across Government at all the initiatives we have. Because food and drink is a very diverse area, and, whilst it sits in my portfolio, it's really interesting to see the number of different schemes that we have across Government. So, for instance, in the Minister for Social Justice's portfolio, there's a huge amount of work going on in relation to community food that will fit into the strategy. So, the first thing I asked officials to do was scope that across Government. They're now engaging and scoping with stakeholders, to learn more about current initiatives, and to see how a strategy really could provide a strategic framework for such initiatives in the future.

I'm not sure if you heard, Vikki, but it's part of the co-operation agreement, so I did meet with Cefin Campbell yesterday, to see what ideas they have. I also promised in the Chamber—. And I will be meeting with Peter Fox again, because, as you know, he brought forward a private Members' Bill, which I didn't support, mainly because I think a lot of what Peter wants to do—I have no objections to it in principle—we're already doing, and it doesn't need legislation. And I'm not a Minister who thinks we should have legislation for legislation's sake, particularly at the moment, when we have such massive calls on our legislative resources. So, I think Peter's got some really good ideas that we can fit into the food strategy as well. So, that's what we're doing at the moment. So, that's not really taking up a huge amount of the budget, as you can imagine.

Once the scoping work is concluded—and I would hope that would be this year—we'll go out to consultation then, to see how we take it forward. But, at the moment, that budget has obviously barely been touched, so I was very pleased to have that budget. It's a programme for government commitment, so that was obviously additional funding. And I should have just said in my earlier answer to you as well, Vikki, about how we support our food and drink industry, I think one area where we can see some improvements is exports. And you'll be aware of BlasCymru, which I referred to earlier, and we have that biennially. And it's great, because we bring the world to Wales to see our fantastic food and drink. fantastic food and drink. But, as well as launching the food and drink vision in November, in October, we launched a sub-group of the food and drink industry advisory board, specifically for export. So, we have this specific export group that will advise me in relation to, obviously, trying to expand our exports and increase them.

Thank you very much. Thank you, Chair.

Thank you, Vikki. If we can now move on to the topic of animal welfare and if I can bring in Sam Kurtz. Sam.

Thank you, Chair. Minister, thank you, and TB, bovine TB, is obviously an issue that you and I have discussed previously and I'm reluctant to call it a pet project of mine, but it's something that is of deep importance to the agricultural community. So, given that the EU is no longer providing funding for bovine TB compensation in the UK and you've allocated an additional £5 million for this purpose, where is that budget being drawn from?

Okay. So, just to be clear, the European Union have never provided funding [Correction: 'full funding'] for TB compensation. What they did is provide a certain amount of money. I've always had to find, ever since I've been in this portfolio—and probably my predecessors before me have always had to find—significant additional funding for TB payments. So, the EU provided a contribution. We used that towards our TB compensation payments; we used it towards testing. So, as part of the draft budget, I have been able to allocate £5 million additional funding as part of my budget uplift, agreed with the Minister alongside, obviously, the allocations from the UK for the farm replacement funding.

We have a statutory duty to pay our farmers for animals that are slaughtered under our TB eradication programme, which, as you know, is out for refresh at the moment, out for consultation. The consultation finishes on 8 February, so please encourage everyone to put forward their responses. But there are long-term historic overspends on this budget. It's a demand-led budget, obviously, and we have a statutory duty, quite rightly, and we have to fund that. So, as I say, it was only a contribution; it's not as if I've suddenly got to find additional funding because the EU aren't paying it; we always have to find additional funding.

Thank you. And you mentioned there the overspend, which you mentioned in the Chamber in the annual TB statement as well. Isn't it the case, and forgive my bluntness on this, that if we fixed the problem of bovine TB we wouldn't have the overspend? So, by doing a long-term strategy, which, depending on the data that you see, in different parts of Wales is bringing about some positive change and some non-change whatsoever, this problem is just going to continue to persist and overspend is going to continue to persist and there's little light at the end of the tunnel for the farming community?

So, you're quite right. That's why our ambition is to eradicate bovine TB, of course. It's one of the reasons why we're refreshing the programme. It's one of the reasons we're always looking for new tests. We're always looking at what vaccines are available. You and I have had a discussion about cattle vaccines. I met with the north Wales TB eradication board yesterday to hear what they're planning. Of course, our ambition is to eradicate bovine TB and—

Well, can I just ask on that then, Minister—? Can I just ask: if that is the ambition—to eradicate it—what's the time frame for that?

So, I think the top date was 2041. I'm looking at Christianne to nod at me—. Yes, 2041, which, I know, it sounds a long time away, but we've built in targets along the way. And, you know, we are making progress. I was really encouraged to see a map last week, and I can't remember what the actual map was called, but it had red and blue on it, Christianne, and it was really, I thought, very helpful, and, if colleagues haven't seen it, I'd be very happy, Chair, to send it for colleagues to see. It was a heat map and it was—. I thought it really showed how we are making strides now to eradicate bovine TB. The whole point of refreshing the programme is to make sure that we're targeting the right areas—we're bringing in the right policies et cetera. So, as I say, please do make sure that everybody puts forward their ideas in the industry response. And certainly, yesterday, in meeting with the north Wales—well, some of the members of the north Wales—TB eradication programme, it's good to hear of the work that they're doing with farmers in their areas, up in my neck of the woods, actually, in the Clwyd South constituency. So, we are making strides, and I do, of course, want to reduce TB compensation payments, because of course it is a drain on resources and on the public purse; I absolutely accept that. But it's our statutory responsibility to do it.

And with regard to the consultation that you mentioned and the option of tabular evaluations, isn't one of the consequences of that that farmers will actually receive less money, and therefore the budget is less, so that financial element of it is constrained anyway, so you're saving money from the tabular evaluations, if that comes into effect?

Well, we—. It's one of the options in the new TB eradication programme. Last time when we—. I'm trying to think when we refreshed it. I think it was 2017, previously, that we had to look at this. We have to look at it. We have, I think, a moral duty to do that. It is public money, and we need to make sure it is being spent in the correct way. But, as I say, it's out to consultation, and we'll see what comes in, and then we'll bring forward the new programme.

Cool. Thank you, Chair.

Thank you, Sam. Can I just push you a little bit further on this matter, Minister? Obviously, we've just discussed that costs are increasing significantly, which suggests that you'll be slaughtering more animals, because, obviously, of this budget increase, but doesn't that then confirm that your TB strategy isn't working, because, if it was working, then surely fewer animals would be slaughtered due to bovine TB and the budget would be reducing instead of increasing?

No. We are doing more testing, so there was a period where we certainly found that we were, unfortunately, having to slaughter more cattle. I'm going to bring Christianne in to explain a little bit more, because it is very technical.

Thank you, Minister. Yes, of course. When we started our annual testing programme, which has been in place for over 10 years now, we inevitably found more TB breakdowns and more infected cattle over a shorter space of time, because we were doing more testing over that period of time. And then we saw a reduction in the incidents, the number of breakdowns, and that's good, but there are other parameters of TB eradication that we have to take account of, and you will be familiar with farms that have had a TB breakdown and then six months or 12 months later they go down with TB again. And the overriding question always is: has new TB arrived on that farm, or is it that we left infection behind when we lifted restrictions? It's never a simple answer, but, in order to make sure we don't leave infected cattle behind, what we've been doing is increasing the sensitivity of the test, and also being more draconian with animals that are what we call inconclusive reactors, which I'm sure you're familiar with. So, as we increase the sensitivity of the test, we have been finding more animals that are actually infected with TB that, in the past, using different testing arrangements, we may have left behind on the farm.

So, as a result of testing more sensitively, of course you'd expect to see more infected cattle, and the number of animals being slaughtered will increase for a period. But if you look at our most recent TB dashboard—and once again we'd be very happy to share a link to that dashboard with the committee after this—you will see that, over the last couple of years, there has been a gradual reduction, not just in the number of new incidents, but also in the number of cattle that we're slaughtering, even though we're using more sensitive tests. So, everything we're doing is working towards reducing the number of farms that are affected, but also of course making sure that, within those farms that we regard as clear, we have found all infected cattle.

So, it's a balance and, if you look at long-term trends on TB figures for Wales, you will see that the number of cattle slaughtered has fluctuated over the years as we've introduced these more sensitive tests, but everything we're doing, as I say, is aimed at wiping out infection altogether. And I totally agree that the ideal arrangement would be to have fewer cattle slaughtered, which is part of our aim and part of what success looks like, along with fewer farms caught up with TB, and, again, if you look at the figures over the last 10, 12 years, you will see there are half as many farms now suffering a TB breakdown than there were when we started this process. Of course, if you are one of those farms, one of those 600 farms that's having a breakdown right now, that is cold comfort, and so what we've got to do is stop the introduction of disease across the board. But this is a complicated and a very long-term journey. We recognise that.

Thank you for that explanation, and sharing a dashboard with the committee would be very, very useful, so thanks very much for that. If I can now bring in Vikki Howells to ask a set of questions. Vikki.

Thanks again, Chair. Minister, some questions on the animal welfare plan for Wales, which I very much welcome. There's a whole range of commitments in that plan, isn't there, so could you outline for us how they will be funded?

So, I've allocated £4.8 million to support the animal health and welfare programme for government commitments from my 5 per cent revenue budget increase. That's on top of the baseline of £23 million that already contributes to the commitments that have been made in the animal welfare plan. So, the additional funding will enable us to continue to raise standards of animal health and welfare, and obviously deliver quite a few programme for government commitments. I thought it was helpful working with Christianne and the team to have that five-year plan to set out what we wanted to achieve over the five years of Government. We've made some really significant progress on animal health and welfare, I believe, over the past—well, since devolution, really. But there is a lot to do. And we all know, don't we, as Members of the Senedd—? I always say, people prefer animals to humans, and whenever there's an animal health or welfare issue, our postbag's really filled up. So, they're a great team and I think we've come up with a really good plan, which will take the whole five years to bring forward.

Thank you. And those animal welfare regulations are, as you said, important to so many people, but in order to actually enforce them, it's to local authorities, isn't it, that the burden falls almost completely within that? And in our previous work, stakeholders have called for more funding for local authorities to ensure that they're able to actually enforce those measures. Is that something that you've considered within these budget allocations?

Yes. As you know, we've got the local authority enforcement project. In fact it was just on Tuesday, I think it was, I met with the lead authority, Monmouthshire, who have been leading on this, and the two officials who have been heading up that project. And again, great progress has been made. So, we gave funding for three years—I think we're actually in the third year now—so, certainly, when that funding finishes, I will need to look at whether we can continue to do it.

I do think a significant proportion of our programme for government commitments in relation to animal health and welfare can be achieved if we continue to build on that project, because I think, as I said, it's made great progress, and that additional enforcement support has certainly helped bring about improvements. We've now got a centralised online support information system, but we will have to look at how we can continue to support the project, because it would be a huge shame if we threw away the good work that's been done.

I think what we need is support right across Wales, and I mentioned Monmouthshire are the lead local authority, and they are going out right across Wales, but we just need to think a bit more flexibility around enforcement, but it is, again—. Somebody said before, it's okay having the strategies and the policies, but if the enforcement doesn't work, then you're not going to make any progress, are you? So, we'll certainly—. That was the very long answer. Yes, we will certainly see what we can do to carry on with this project.

Thank you, Chair.

Thank you, Vikki. Before I bring in Luke Fletcher, I can see that Sam Kurtz wants to just come back in on this. Sam.

Just a very small question, if I may, Chair. With regard to enforcement, Minister: RSPCA—are they someone that you would be looking to work with in regard to the enforcement element?

Yes. So, we've been doing that now for a couple of years. They were looking—. I don't know, I'm sure colleagues will have been—. I've been out with the RSPCA and you can see how, if they had greater enforcement powers, they could do work that the police currently have to do, for instance. So, that is something that we have been looking at, yes.

Okay, thank you. If I can now bring in Luke Fletcher. Luke.

Diolch, Gadeirydd. Just one question on the animal welfare plan, to begin with. I'm keen to understand how greyhound welfare has been taken into consideration in the funding for the animal welfare plan. I'm sure the Minister isn't surprised to hear me ask about greyhounds, but I think this is a particularly important issue, specifically in light of the likely intensification of greyhound racing that we're about to see here in Wales.

This is something we are looking at. In fact, Christianne and I were talking about it yesterday, and I've asked if officials can work very closely to see what extra work we may need to do in this area. Obviously, greyhound racing is already covered by the Animal Welfare Act 2006, but, as you say, you're not the only person to raise with me concerns. I think you were part of the project to bring greyhounds—. They were outside the Senedd a couple of weeks ago with Jane Dodds. Again, it's a big part of the correspondence I do receive. But I think what we really need to do is explore what else can be done, and I have committed to doing that.

Brilliant. Thank you, Minister. If I can move my questions on to fisheries now. I've been looking at the budget expenditure line for marine and fisheries, and I was wondering if some clarity could be provided on how much is allocated to this expenditure line and what will it fund? I can see from the papers that have been provided that £3.1 million has been allocated for 2022-23. This includes a £124,000 transfer to this expenditure line from the rural affairs main expenditure group. However, looking at the Minister's papers there, it shows an allocation of only £3 million, so no £124,000 transfer has been included in that. I'm just wondering if you could provide some clarity.

So, the line for marine and fisheries is £4.5 million. That includes £2.1 million for EU replacement funding. As you know, we're in the process of developing a replacement scheme for the European maritime and fisheries fund, so the rest of the budget—. I have a lot of statutory duties within fisheries—so, control and enforcement; we have to have fisheries digital systems, for instance; a domestic fisheries policy; fisheries evidence requirement; fisheries trade. That £4.5 million covers all of those things.

Okay. I was wondering if you could, coming back to the European maritime and fisheries fund and the replacement scheme, provide some further details on that. It was my understanding that there was no budgetary allocation for a funding scheme, and we know, of course, that the maritime and fisheries sector is likely to be particularly vulnerable to changes as a result of Brexit.

So, really, that's just core policy, so it's work that we're doing at the moment. You may have seen I put out a written statement on Tuesday, I think it was, about the joint fisheries statement that all four UK countries are working on. The work that we do in relation to future fisheries policy and the future scheme will be done from within that BEL. The main cost of work, really, in this area, as we develop a fisheries—. We will need a fisheries Bill in this term of Government. We need, as I say, the new scheme.

The big cost there is, really, staff, and, obviously, that's covered separately. So, the core policy, really, we're doing already, and, obviously, as we go through the term, I will be making a statement on a strategic approach to fisheries and aquaculture later this term—when I say 'this term', I mean not the whole term of Government, but this term we're in at the moment. We'll need to have a clear plan for investment in our seafood sector. As you know and we've discussed previously, they've been very hard hit by leaving the European Union particularly, and the pandemic as well. That's why we need to look at the support that we do give in the new EMFF replacement scheme.

Okay, thank you for that. Just one final question: has any additional funding allocation been given, then, for delivering secondary legislation or for the development of the future fisheries policies, and, actually, the Welsh fisheries Bill that you mentioned, which, of course, the Welsh Government has committed to? And if it has, how will the cost of this work affect other activities under the fisheries budget area?

As I say, really, it's just core policy that we're working on at the current time. Legislation, that comes from within the core budget that we have, and, as I say, the majority of the work that's done is just really staff time and resources, which come from a different pot of money.

The work that we've been doing on the joint fisheries statement and the fisheries management plans, that's given us the basis for the new scheme and the new policies going forward. We went out to consultation in the previous term of government around the new fisheries Bill, so we'll be using that to take forward the Bill. I don't need to bring a fisheries Bill forward as quickly as I did an agricultural Bill, because, obviously, I had a sunset clause in the UK Government agricultural Bill, so in order to pay our farmers, we need an agricultural Bill in the first year of this term of government. So, for the fisheries Bill, we have a bit more time because we don't have a sunset clause there. Currently, it's very early stages in relation to the new scheme, because we've still got money flowing, pardon the pun, from the EU and the old EMFF existing scheme. That money is still coming in. So, it is very early stages.

Diolch.

Thank you, Luke. If I can now bring in Sarah Murphy. Sarah.

Thank you, Chair, and thank you, Minister, for being here this morning with us. I'm going to ask some questions now about the climate and nature emergencies, because, sadly, they are becoming inevitable parts of life for people in Wales. [Inaudible.]—declared a climate emergency in Wales. So, I just wanted to ask, Minister, how you have considered the climate and nature emergencies in your budget allocation.

Thank you, Sarah. So, obviously, it's built into all of our policies and schemes right from the start; it's not a separate thing, it runs absolutely through everything. And we talked about the budget for the climate change portfolio before and how we work closely together. We've really got to ensure that our response to the climate and nature emergency is embedded in everything that we do. So, for me, I suppose, getting that right scheme, the sustainable farming scheme, absolutely has to be right to support our farmers through the transition of a decarbonised food system, really ensuring that their land is fit for the future, making sure they've got the right support there, because they are absolutely part of the solution to the climate emergency, our farmers, and I absolutely recognise that.

Food is one of the foundational sectors of our economy, and our climate's better suited than many other parts of the world to producing sustainable and high-quality red meat, for instance. So, again, making sure that that sustainable farming scheme supports our farmers to produce food in a way that has a low carbon footprint. I think we could become, and perhaps we are already, one of the best countries in the world for sustainable farming; I think we're really well suited for that. We don't want to be offshoring food production to countries with lower standards, and I'm very keen that the trade agreements that the UK Government has make sure that they don't undermine that. It's really important that we don't lower our environmental standards, or our animal health and welfare standards either.

So, much of the support provided to our farmers and to our food chain is directly contributing to tackling nature and climate emergencies. There are lots of schemes to help reduce flood risk in river catchments. We're looking at schemes to preserve and enhance habitats. I've got lots of schemes—if you look at my Glastir schemes—to support tree planting. So, all of these support farming, but at the same time, they're explicitly there to deliver climate and nature objectives as well. And, of course, the rural development plan really has played a massive role in supporting Welsh Government and Wales to protect and enhance our natural resources.

Thank you, Minister. The Future Generations Commissioner for Wales's office has emphasised the importance of preventative spending, as have many others. How have you applied the prevention definition in a systematic and robust manner in the budget allocation to address the climate and nature emergencies?

I just gave some examples around Glastir, and, obviously, we're looking at the sustainable farming scheme, the design of that, to make sure that fits in. We've extended Glastir, so that contributes to our aims of conserving and enhancing wildlife and biodiversity; it's really important that we improve our water and soil qualities. Funding has gone into restoring peatland; that's another area where we've taken some significant action. And of course, we're looking at how we decarbonise Welsh agriculture, working very closely with our farmers there. So, I think those are some of the main areas.

This is my last question. It was just something that you said earlier on about the relationship that you now have with Natural Resources Wales and how that's changed, because they have more of a relationship with the climate change department now. I suppose my question is—. Because obviously, this is all about preventative action, it is about the nature emergencies that do fall to them. They do come under a lot of criticism, and I think that relationship is being explored on a wider level with Welsh Government. But just in your opinion—I know it's early days—do you think it's working? And do you think it could be done better, really, I suppose? Do you think it's working where you now see them less, and that's with climate change? And thinking about the sustainable farming and everything, do you think it's working that way, that you've kind of stepped back from them? Do you think it could work better?

It's just that they obviously sit within the Minister for Climate Change's portfolio. But I still have a relationship with them. I used to meet them once a month then, and I'm sure Julie James does, because it is really important they are there, as you say, for enforcement purposes. So, it's just a different relationship now. It doesn't mean that I don't meet with them; I just don't meet with them as regularly as I did. But I think for me, Natural Resources Wales—. I heard a lot of criticism of them when I was the Minister with responsibility for them, but if you look at what they do, we saw significant flooding a couple of years ago, and they are out there doing all they can with the communities. I think it took a while for them to come together. It was three bodies that came together, and I think it's taken them a while to get the right sort of fit, if you like. I just think they are sometimes undervalued by some of our colleagues.

Thank you very much. Thank you, Chair.

Thank you, Sarah. If I can bring in Hefin David. Hefin.

I wanted to thank you, Minister, for the discussion we've had about flood erosion, river erosion and water erosion that can lead longer term to flooding but isn't covered currently by flooding funding for home owners and tenants and anyone who uses land. Do you think there's an invest-to-save opportunity possibly here?

Certainly there could be. I'm trying to think if, when I was responsible for that, we looked at invest-to-save. I think, sometimes, invest-to-save—. I always felt local authorities were best at invest to save; they sort of ran away with it. Health, perhaps, was second. But I think, certainly, we can look. Going back to what Sarah was saying about prevention, I think anything that we can use preventatively is really good, and I think flooding is an area where the cost—and I don't just mean financial cost, I mean human cost and the distress it causes—. It's an area where we could do that. So, I think, yes, it's something that certainly could be explored.

My feeling is that the understanding of the consequences of erosion that will be happening over the next 10 years is limited. Do you think that there is a need for perhaps a UK-wide budget that then is Barnettised for these issues, and would that be helpful in your portfolio?

Any additional funding is always welcomed. I can honestly say it's not something I've discussed at a four-nation level, to look at such a funding pot, but again, it's something that could be explored.

My feeling is that as we're dealing with the consequences of flooding today, they will be caused in the future by things that are happening right now that we don't fully understand the consequences of, and wouldn't have happened in the past because we wouldn't have had the same level of water in the river. So, I just feel that there could be a piece of work to look at that kind of consequence and perhaps that being filtered into future budgets to deal with the consequences of erosion.

We've certainly done it with coastal erosion, so it certainly could be something that we could look at with river erosion.

Okay. Thank you, Chair.

Thank you, Hefin. Minister, can I just bring you back to our initial discussion today with regard to agricultural support? Can you tell us how you're assessing any shortcomings of the RDP, such as those highlighted by Audit Wales, to ensure best practice for the sustainable farming scheme going forward? Do you think an independent review of the RDP would be beneficial at this stage?

The answer to your last question, I think, is probably 'no'. It would be a retrospective one now, wouldn't it, as it's just about to finish at the end of this month, whilst I appreciate we've still got funding into next year. But I think probably not. Obviously, officials have had to look very carefully at appraisals of projects and learn lessons, I think that's fair to say. But I don't think an independent inquiry would be helpful, no.

And on my first question with regard to the shortcomings of the RDP?

As I say, officials have recognised that perhaps there hadn't been some monitoring that was required, and lessons have been learnt to make sure that that doesn't happen again. It's really important that all applications are subject to very comprehensive due diligence. We're very keen to make sure that, as I say, lessons were learnt. They went in front of the Public Accounts Committee; there was a very thorough inquiry, which is why I said I didn't think an independent inquiry was needed. But I think it is important that, as we bring forward a domestic RDP, for want of a better word—and I'm currently looking at advice from officials to see what we can bring forward—systems and policies from before, good ones, best practice, are absolutely embedded into our business as usual. And that's not just for RDP replacement, it's right across my rural affairs portfolio. So, yes, I think that monitoring is required, obviously.

Okay. Thanks for that. Again, just coming back to replacement EU funding, obviously, the dispute between you as a Government and the UK Government now is well known. Do you think as a Government you will look to invoke the dispute resolution process to actually contest the UK Government's replacement EU funding for agriculture? Is that something that you as a Government are now looking at?

It's certainly something that we could do. I have had discussions. Probably, the final decision would be with the Minister for Finance and Local Government, and it's something that we could explore. We've certainly had discussions about it. I have to say, in the inter-ministerial, inter-governmental meetings that, as you know, I hold regularly with the Department for Environment, Food and Rural Affairs Secretary of State and the Scottish and Northern Ireland agricultural Ministers, I think we all recognise that we have had a shortfall in our funding. We in Wales have been impacted the most, probably Scotland are behind us there. So, I haven't given up; I'm determined to keep pushing to say to the UK Government, 'You promised us we would not lose a penny if we left the European Union, you should stay true to that'. So, I haven't given up. We're still pushing. The dispute lever could be used and, as I say, I have had initial discussions with the Minister for finance about it.

So, invoking the dispute resolution process is absolutely the last resort from your perspective.

From my perspective, I prefer to have discussions. It's quite difficult, isn't it? Certainly, DEFRA recognise it, and I would say the Secretary of State has tried to help me with the Treasury. I think what would help is if the Treasury Minister came along to our inter-ministerial groups, because then you could have those discussions. I appreciate the Minister for finance has her quadrilaterals, but I just think it would be really helpful. But it doesn't matter how hard we try—and we've all tried, and that includes DEFRA as well—we just are unable to get a Minister there. It would be the first time we've used that dispute resolution, so it's high currency, and you have to think very carefully. But, equally, if we're short-changed to £106 million, that's a huge impact on our rural communities.

And one final question from me, given that we're discussing EU funding: how is the Welsh Government going to have oversight of post-EU transition going forward? Because the indicative budget shows removal of funding for the rural affairs monitoring and EU exit strategy from 2023-24 onwards. So, how will you continue to have oversight of post-EU transition going forward, Minister?

For me, we're out of EU transition now; we're in, as I say, this new world, this new way of working, and we really are out of EU transition. What we will continue to do is work on our common frameworks, and I think we've been an exemplary group of Ministers who've worked together across the four nations in relation to bringing common frameworks through. I think other portfolios have looked on us for best practice. We've got new systems and processes in place, and we will continue to develop those common frameworks. That gives us the oversight that we need and management of policy divergence between the four countries that were previously covered by EU law. That EU strategy BEL will continue to provide revenue funding to support our monitoring, so that we can ensure that we develop evidence-based policy going forward. So, that funding will be focused on evidence work rather than anything directly linked to EU transition, because, really, for me, we're out of there now and we're working in that new way.

Okay. Thank you. Are there any other questions Members wish to ask? No. Well, therefore, Minister, our session has come to an end. Can I take the opportunity on behalf of the committee to thank you and your team for giving up your time this morning, for being with us? It's been very, very useful and very, very helpful in the scrutiny of your budget. Obviously, we'll be sending you a transcript of today's proceedings for accuracy purposes. If there are any issues, then please let us know. But, once again, thank you very much indeed for being with us this morning.

Thank you very much.

Thank you. Now we'll take a short break to prepare for the next session. Thank you very much indeed.

Welcome back to this meeting of the Economy, Trade, and Rural Affairs Committee, and we'll move now to item 4 on our agenda today, namely the evidence session with the Minister for Economy regarding the Welsh Government draft budget 2022-23. A very warm welcome to the Minister and his team, and may I thank him also for the paper he has submitted beforehand? Before we start our session, perhaps he and his team would be so kind as to introduce themselves for the Record. Minister.

Thank you. I'm Vaughan Gething, I'm the Minister for the Economy. I'll hand now to Dean Medcraft.

Good morning, everybody. My name is Dean Medcraft, director of finance and operations, economy, skills and natural resources group.

Huw Morris.

Hi, I'm Huw Morris, I'm the director for skills, higher education and lifelong learning.

And I hope we'll be joined shortly, as soon as IT allows, by Sioned Evans, who's director for business and regions.

Thank you very much indeed for those introductions, and perhaps I can just kick off with a few questions, and just a general question to start off with, Minister. Are you confident that the money allocated in this budget is sufficient to support your priorities, going forward?

The budget is a challenging one, and I think it's important to see the budget we have within this part of the Government within the overall context. We've got a budget settlement that's been provided, largely frontloaded in the first of three years, but it's a good thing to have a multi-year budget to allow us, but also other bodies we provide funding to, to manage over that three-year period. But the overall budget priorities of putting more money into health and local government mean that there is much more challenge in other areas where the Government spends money as well. If you think it is right to be investing in health and local government, with all the pressure that we know is coming their way, then that means there are unavoidably difficult choices.

We also have inflationary pressures that have accelerated since the budget was set, and I'm afraid that most of us are going to spend a lot of time talking about the cost-of-living crisis in the months ahead, because it's going to affect lots and lots of our constituents, regardless of where they live in Wales.

We also have the continuing challenge of EU replacement funds. That's a particular issue within this part of the Government, because lots of the measures that I'm sure we'll talk about today about skills, about research and innovation—a lot of those areas, including our mainstream business support measures and the development bank, former EU funds were a significant part of how we resourced those, so it does mean that we've got particular challenges. Now, the difficulty now is, of course, that we're still not certain what the future means for providing replacement funds is going to be and whether it's going to match the same sorts of areas where we've used that money in the past. We still don't know yet whether the current funding envelope for replacement funds is going to be as it is, where it's a significant reduction in Wales and UK terms, or whether that will change as well. And it's perhaps worth pointing out that the Committee for Education in Northern Ireland met earlier this week and they too are running through significant challenges they have on skills delivery and innovation in particular. So, that's part of the settlement.

So, in what we've set out with the priority areas in the programme for government, then, yes, I am confident that we can deliver against those, but it does mean that in later years we're going to need to move slightly faster in some of the areas of delivery through the rest of this term. But I think we're presenting to you a budget that is honest and reasonable in terms of our ability to match the commitments that we've made. As ever, though, we could always do more and move faster if we had more resources.

How will you be monitoring the effectiveness of this budget? What outcomes will you want to see? How will you know that this budget has been successful and has actually met your objectives?

Well, we've got headline objectives in the programme for government. So, the young person's guarantee, and, I guess, apprenticeship numbers are the ones that are most obvious, but we have some broader objectives. So, our ability to support businesses generally—. We'd be able to do more if we had more resource, and actually that will be more challenging. Research and innovation will be more challenging. I still think we'll make progress, but, as I say, we may not move at the pace that I would otherwise want to. But, in the programme for government, we've got a range of areas that we say we want to make progress on, and we're still going to be tested against what the programme for government says, and not just in this committee, where, I think, we actually get through perhaps more constructive detail than we sometimes get in the Chamber, but actually we're going to need to be able to set out what we've done and how we've met the aspirations in the programme for government as well as dealing with events.

That's one of the risks we carry in that our ability to have, if you like, more fat to deal with events is reduced. So, for example, the work that is going on around Baglan, where it's in the public domain, there's a directions hearing today for the injunction that we've issued together with other parties. If we don't succeed and the private wire network connection fails, then there's going to be a significant impact on jobs in that area as well as a significant flood risk and waste water risk as well. So, not acting there would crystallise the risk to lots and lots of people, and Welsh Water think that there are tens of thousands of homes that would be at flood risk if power fails. So, that's a call where we've invested millions of pounds of Welsh Government money to regularise the network, and we're having to spend more resource on preventing the power supply from going off. Multiple events like that are a challenge that you don't have a strict budget line for, but it does mean you need to reprioritise resources. So, that's one example of several million pounds of expenditure that we hadn't anticipated a few months ago. So, as you'll know—that phrase about 'events, dear boy'—those things happen, and the Government can't simply pretend that they won't happen or refuse to react to them.

And can you tell us whether you'll be setting financial targets within your portfolio alongside your priorities to ensure you are on track to achieve what you actually want to achieve as a Minister, and indeed as a Government?

Well, we've got profiles of spend. So, for example, when we talk about employability and skills, we know we've got profiles of spend there to support the work around the young person's guarantee—how we make progress on supporting people who are not in education, employment or training. So, we've got profiles of spend that will help us, and it is then about how we understand the impact of what we're doing. So, whether it's on the work we're doing alongside exporting businesses—we think that our export action plan will help those businesses to carry on exporting, but we don't have a hard and fast target of how much more money we think we're going to generate for the Welsh economy as a result of that, but we can be confident that, if we don't support exporting businesses, there is a significant deficit that is going to result in our ability to be successful economically. And it comes down to this challenge, I know, in scrutiny terms: having lots of targets means it's easier to say, 'Here is your target—have you reached it?' The challenge, though, is that sometimes you have targets that don't reflect the real-world position and, actually, in looking to support the choices that businesses themselves are making. Because, as you know, we don't have a command-and-control economy where we get to direct people about what they must do, and we're still needing to work alongside businesses and what they are going to do and where they're looking to expand and where we have real strengths. So, we're looking at building on areas of strength as well as looking to fill some of the gaps and challenges that we have, and that takes in a range of partners. But, as and where we are successful or otherwise, I still expect there will be plenty of information to allow yourselves in this committee and indeed in the Chamber to scrutinise us properly and effectively.

Okay, thank you very much indeed for that. If I can now bring Hefin David in to ask a set of questions. Hefin.

Okay, so I'd like to ask specifically first about the degree apprenticeship ambitions. Degree apprenticeships are using the same funding mechanism as they have in the past, and currently we've got two programmes. The Welsh Government, or the Welsh Labour manifesto, pledged to expand these. How are you going to expand them? And how are you going to fund that expansion?

I'll ask Huw to set out how we're moving forward with that. And, again, this is an area where, bearing in mind my earlier answers, I'm confident, with more resources, we could move faster. We're still going to move and be able to expand degree apprenticeships, but it's the pace of what we're going to be able to do. But Huw can explain to you how we're going about that and, if you like, what we're doing to build on the pilot phase.

Thanks very much, Minister. Yes, as you say, we're intending to mainstream these programmes. We're coming towards the end of the pilot phase and there is an evaluation planned in coming months. At the moment, we have £5 million allocated within the education budget, which was a previous MEG-to-MEG transfer from economy. Dependent on the scale of the provision in the next financial year, we will transfer more money across to support that activity. We haven't made that transfer in advance because we're unsure what the volumes will be. Last year there were slightly lower than expected volumes because of some of the challenges providers faced in the context of COVID and in terms of applications to those programmes. So, there is an intention to expand, and money would be transferred within the financial year to support that.

So, there's an intention to expand, but you don't know what that's going to be yet.

There's an intention to expand, but, because of the financial constraints on the funding body, it only being allowed to spend money within the year it's allocated, we haven't sought to transfer money because we don't know that the scale of that demand is going to be. Last year, regrettably, the funding council had to give us money back because the anticipated scale of demand, because of COVID, was not as great as had been hoped.

Okay. So, are you anticipating an ability to expand degree apprenticeships then?

Well, there's certainly—. If you believe the press reports, which I do, there's a lot of employer demand for these and also a demand from young people, particularly in high-skill, hard-to-fill vacancy areas of the sort that we've prioritised for the degree apprenticeship pilots.

Okay. I think if I pursue this any further we'll move away from budget scrutiny into more about degree apprenticeships, but it's certainly something I'd like to discuss with you and the Minister in the future.

Of course.

With regard to the importance of regional skills partnerships, including apprenticeships and personal learning accounts, there hasn't been additional funding for a central research capacity. Can you just outline why?

Again, I'll ask Huw to colour in some of the detail, but we are looking to support the ability to understand what's happening within their local labour markets to do just that, and regional skills partnerships are a crucial building block, we think, for understanding the needs of the economy in different parts of Wales and then trying to make sure that we have the skills funding that can follow to actually make sure you can train people to the right level and in the right sectors. And, again, it's an area directly affected by EU replacement funding. But, Huw, do you want to run through the work that I've already agreed to help fill in this area?

Yes, thank you, Minister. As you say, actually, the level of support for regional skills partnerships has increased in recent times. Last year, we significantly increased the budget to provide for a fourth regional skills partnership in mid and west Wales. In the coming year, we're about to embark on a procurement programme, we hope, to enable regional skills partners to benefit from an IT platform that will provide them with local labour market data down to ward level, to enable them to do that analysis for themselves without necessarily having to refer everything to a central unit, and we have plans to expand the number of staff allocated to that central support.

Okay. So, you're taking a devolved approach to the research capacity.

Yes, because I think experience has revealed that the skills needs in different parts of Wales are quite different, even down to a micro level.

I think, actually, that can be helpful when it comes to—. If there's going to be a proper process for EU replacement funds, and skills are going to be part of it, then actually understanding and having an objective basis to look at what the skills needs are with regional skills partnerships, with the tools we're going to help to put in place, I think will be generally helpful in how to make the best use of public money to then support the needs of individual learners, workers and indeed businesses.

And that comes back to the question of: how are you making up that gap between the end of EU funding and what you want to do? You've partially answered that, but is there anything further you want to say there?

Yes, we're having to reallocate money. So, if we want to maintain apprenticeships in line with our programme for government commitment, we've got to find resources to fill in, because we can't be confident we're going to get that money from EU replacement funds. So, things like what we then do, and other areas of spend within this portfolio, we then have to tighten what we're doing. Now, that isn't a comfortable choice, but it comes from a direct sense of prioritisation. And in terms of my prioritisation within the department, the young person's guarantee is our headline commitment, and that goes alongside apprenticeships, and that means we're now having to make some quite uncomfortable choices, but necessary choices, to make sure we don't run out of money. Now, within the three years of this budget, I think we've got enough provision to keep us on track to fulfil the whole term of Government commitment on apprenticeships, but it will mean we'll still need to prioritise money throughout these three years and the remaining two years to make sure that we are in a position where we can fulfil the target that we set.

Okay. And you've allocated an extra £20 million to the employability budget to support an expected increase in the cohort not in education, employment or training. What is the size of that cohort likely to be? How will the allocation to the employability budget support that?

Well, we think it's quite a large cohort, and again, Huw will want to say something about this. We think the cohort's around about 50,000. That may increase. We think we're going to be able to get to a percentage of those, and our challenge is that we think we can get to over 3,000 of those in addition to what we're already doing with our programmes. The real difficulty will be getting engagement with those people, so that they actually take up the offers of support that are available, and that's one of the challenges, because you can't force people to do so. But we do think we're going to be able to provide a range of offers in different areas of Wales as well, and of course part of this will be what we're doing not just in the Welsh Government areas of activity, but the employability strategy we're reviewing and the work with the DWP. I've said this before, but typically the DWP intervene closer to the labour market, so people who are much more job and training ready. That means that if we're going to add genuine additional value, we're likely to need to intervene further from the labour market, which means our interventions will be more costly per head. But we know that there is a significant cost paid in those individuals and more generally if we can't support people to enter the labour market, education or training.

I think that's fine, Chair, thank you.

Thank you, Hefin. If I can now ask Luke Fletcher to come in to ask a set of questions. Luke.

Diolch, Gadeirydd. The Welsh Government has committed to pressing the UK Government for their share of research and development investment for Wales and to create an innovation strategy. This of course was reiterated as part of the co-operation agreement between Plaid Cymru and Welsh Government, which I welcome. Our predecessor committee and the higher education sector called, and still call, for the funding of the Reid review recommendations to help Wales win its fair share. Despite this commitment, the review is not funded again. I was wondering if you could set out the rationale for this, please, Minister.

I'll ask Huw to come back on where we are on the Reid review, and in particular the points around quality of research, because I actually think we're beyond that. But, again, this is an area where there's a direct impact from EU replacement funds in science, research and innovation, and there was a streamline of that. Higher and further education received over £400 million in the last funding period, and at the moment there's no mechanism for them to apply and for them then to replace that funding source. It's also the case—and this was an important part of Reid and the general context in which we were having the conversation—that Wales doesn't do very well out of UK-wide funding pots for research, development and innovation. And actually it isn't just that Wales doesn't do well; actually, within England, the region that does best is the golden triangle around Oxbridge and London, and other regions of England don't do particularly well. Parts of Scotland do well, though.

And when you then look at Innovate UK's funding, actually we only gain about 2 per cent of that funding, and it's largely based around Cardiff and Swansea. Now, that doesn't mean there isn't excellent research around Cardiff and Swansea, but we do think that the way that they look at that research and the research base we have and the science base doesn't take proper account of the excellence in research, development and innovation across the rest of Wales, which is objectively supported by analysis done by the chief scientific officer in the Welsh Government, showing there is a high quality of research in many, many parts of Wales, not just Cardiff and Swansea. So, we're not looking to take money away from those Cardiff and Swansea-based projects; we're actually looking to win a much better share of funding from Innovate UK. And that's a conversation that I've had already, it's a conversation that takes place at ministerial level and directly with Innovate UK.

This is important, because whilst there's been a bit of rowing back on the amount of innovation spend the UK Government announced, there's still a significant pot, around £20 billion of research spending, that is going to be provided, supposedly on a UK basis. So, for me, it's really important that we gain a proper share of that and, actually, if you believe that levelling up is real, then you would expect that Wales would do better out of that share as well. It would be good to see some proper metrics around that to understand the objective criteria for that.

But, Huw, do you want to run through the points about the Reid review, and we may want to clarify this in writing as well, and where we are on quality research in particular?

Yes, thanks very much, Minister. So, to support what you've said, there have been two Reid reviews, one sponsored by Welsh Government and another sponsored by Universities Wales. But the first of those, the 2018 review, produced three recommendations. The first recommendation was to open a London office. That commitment was fulfilled and was curtailed partly due to COVID. The second was about increasing quality research allocations. There have been increases in QR allocations. Another component of the second recommendation was to increase competitive bidding, as the Minister has outlined. Last week, the Minister for education announced a £10 million additional allocation for QR to the funding council for universities, and that includes £2 million for the Wales innovation network, specifically guided to increase that bidding activity. So, I think it might be helpful if we write and give you further details, but there is work being done there.

Thank you for that, Huw, and Minister. I'd be very much interested in having that written evidence with the further detail. I would be very interested to see where we're at with this.

On the innovation strategy specifically, Welsh Government's paper to the committee addresses the innovation strategy, however it doesn't include any details of resourcing or what the missions it would be centred on will be. I was wondering if you could provide some further detail to this end. So, for example, when we could expect to see the strategy being completed and how it will be resourced.

Okay, so, on the whole-Government innovation strategy, yes, I expect us to be able to provide that through the end of the spring, early summer. I'm looking to make sure that's completed in a way that gives us something that every department buys into. And that should not just help the Government but actually our partners outside Government as well. And then in terms of the resourcing, we have an honest challenge about innovation spend. It's one of the areas where we're not going to do as well as we would have wanted to, and that is a direct consequence of the budget choices that have been made, it's a direct consequence of that loss of EU funding as well, and we haven't been able to make up the deficit in EU funding. So, we're going to need to be even more targeted in what we do with our resources.

It also, though, really highlights the importance of getting more money out of those UK-wide funding pots for Wales. And there's a difficult conversation to have about our willingness to work with the UK Government—and I want to be careful about this, because I don't want to be unproductive in what I'm saying. So, there are devolved responsibilities here, but we want to make sure that, if we're going to go and have a conversation with the UK Government about the fact that we are under-resourced in this area, about what form of collaboration can take place where there's genuine co-decision making and a proper role for devolved decision making within that. Because the risk otherwise is that we offer up and say we're not going to be active in this area, which I don't think would be acceptable, or we say that we'll simply agree to any choices made somewhere else. So, it's a direct consequence of funding choices made at UK level, but I do think that the willingness of us to have collaboration across the UK is a feature of innovation and research within the UK in any event, but I'd want to make sure that there's a grown-up conversation at a Government level, as well, as I say, about that crucial point about ensuring that we do much better out of UK funding sources.

Diolch, Cadeirydd.

Diolch, Luke. If I can now bring in Sam Kurtz to ask a set of questions. Sam.

Diolch, Cadeirydd, and good morning, Minister. On 23 December, it was announced that the £35 million business support fund would be withdrawn as a result of the emergency support package for business. Given your original intention that this fund would support businesses into 2022-23, do you plan to reintroduce this business support fund at a later date to support economic recovery in Wales?

I don't think it's going to be possible to simply reinvent and reproduce the business development and recovery fund. It's partly because we had to reallocate money to go into the emergency response. What we have done, though, is we've made clear that those businesses that were already in productive conversations with their local authority about accessing the fund, those conversations can carry on to conclude, and we'll have the budget cover for them to be able to do so. But actually, in withdrawing the package, which local government agreed was the right thing to do, they wouldn't have had the resource to carry on doing that work as well as the work they've had to pivot to do on the non-domestic rates relief, and also the discretionary fund. And I should say that I'm grateful to local authorities of all political shades for the way in which they have gone about that work. It's been a key feature of the pandemic, and again, now. So, that was the reason: they had to pivot to do the emergency funding.

And into the next year, we don't have the extra resource available to say we've got £35 million we're going to spend in the next year. Our ability to invest more in business support services is really constrained by the funding settlement we've had and, in particular, the points about EU funding. So, this is part of the area where Sioned's team operates. There are difficult choices to make about the criteria we set for supporting businesses, and the number of businesses we could productively support. So, that's one of the honest challenges we're going to face. We need to make sure that every pound we spend works even harder, as well as thinking about what we can do in being more creative in other areas as well. So, it's part of the conversation we're having with the development bank about the resources they have, and whether we can make even greater use of financial transactions capital as well. It's an uncomfortable position, but it's an honest one and, like I say, Sioned and I and the teams are going to need to be more creative and more demanding in how Welsh public money is spent to support the economy.

So, given—

Sorry, Sam. Before you go on, I know that Hefin would like to come in just on a supplementary on this particular point. Hefin.

Yes, I totally hear what you're saying, Minister, and I understand the difficulties and pressures. I just wanted to represent to you a round-table I had yesterday with a group of businesses that were unaffected, or nominally unaffected by the level 2 restrictions. They were hair and beauty businesses and events businesses, and they didn't have to close, but what they saw in December and January was a devastating fall in their custom that will have consequential effects, and, indeed, the whole pandemic will have consequential effects for them for months to come. And I just think that further conversations need to be had with regard to this budget as to what can be provided to them in the future. I think that pressure will come from Members in the Chamber, I think it will come from this committee, and I think that discussion—. That answer you just gave gives us an indication that within your means, you would be willing to be open to those discussions, I would understand.

So, the events sector should be able to get some support from the cultural recovery fund if they meet the criteria, and hair and beauty would be non-essential retail. So, actually, some of the support we've provided should be available to them, particularly if they pay business rates on their hair and beauty business. Now, not every hair and beauty business does because they're organised in different ways, but, actually, there should be support that's available. So, I really want people to maximise the support that is already available, as well as looking at the confidence we can have—cautious optimism, but confidence nevertheless—that trading conditions will improve. And actually, in the hair and beauty business, for example, where close contact is unavoidable—I'm going to have my hair cut in a local barber on the weekend, and I'm sure everyone will comment on my nice sharp lines when I've had said haircut—but, actually, you can't have a haircut without having close contact with people. And there will be some people who will have cancelled or moved their appointment because of the concerns that there have understandably been. So, I'm hoping that we'll see a rebuilding of consumer confidence but also the confidence of businesses to invest in their own futures as well. Because some businesses are cash restrained, others have put off choices, and it's about giving them the confidence to make those choices and how we can work alongside them—that's the sort of environment we want to create for businesses to succeed in every part.

Can I just say very quickly, Chair, I agree with that. I had my hair cut on Monday in a local business, and that's how I found out, and we arranged a round-table very quickly on the basis of that, actually. But the concern they've got is—. One of the people I spoke to didn't take a salary for themselves. The business owner didn't take a salary for himself this month. These are the kind of constraints they're facing. They feel that there will be longer term implications. I just feel that keeping that dialogue open with you and your ministerial team would be very, very helpful to us.

And to be fair, we do regularly listen to and talk with businesses in all sectors. I've been at the shadow social partnership council today—business voices there, together with trade unions and others. Yesterday, I had a meeting with people across businesses, trade unions, and indeed a particular meeting in the retail sector. So, there are meetings that I regularly engage in, and there's also the work that my officials do, and I want to make sure there is an open dialogue. One of the upsides of the pandemic is we now have a better and better-informed relationship with businesses as a result of the work we have had to do together over these last two years, with I think more openness and people sharing their position and more trust in that as well. But even as we move out into what I hope will be a much better phase in the pandemic, and I'd love to see the end of it, we're still going to need to make use of those close relationships to support businesses, and of course the people who work in them.

Before I come back to you, Sam, I think Luke just wants to come in very, very quickly on this very specific point. Luke.

Apologies, Chair, I can see, looking ahead, that Vikki has potentially some questions on hospitality, so I might hold my supplementary back until that point, just in case there's a bit of cross-over, if that's okay.

Okay, there we are, thanks. Back to you then, Sam.

Thank you, Chair. Thank you, Minister, for the answer. Coming back to that, then, with regard to your answer that it would be very difficult to find that £35 million again for a business support fund, what support is the Welsh Government offering via its budget, then, in terms of helping businesses in this latter phase of the pandemic to reopen and to re-establish? There's been obviously the support for businesses over the Christmas period who saw a reduction of up to 50 per cent or 50 per cent of their takings, but what support is there through the budget, through your portfolio, to help the economy recover post pandemic?

Well, outside my portfolio, because the finance Minister makes the choice, there is the continuing business rate relief. So, we've matched what's going to be on offer in England—that's an extra £160 million that should support a wide range of businesses with their costs, and we're continuing to find money to keep Business Wales going. Actually, Business Wales is a genuine success story, I think. When you look at the recent evaluation done by Cardiff Business School of the money that goes into Business Wales, there is a significant rate of return on that as well. And again, we've found money to do that with some of the pressures we have around EU funding. We've still got some run-off money, so we've managed to find that to make sure that the service carries on. But in the middle of this Senedd term, there'll be more questions if we don't have clarity on successor EU funding or increases in the overall Welsh Government budget. There could be more difficult choices there as well.

I met the Development Bank of Wales earlier this week. So, again, we've been talking with them about what they are going to do to support businesses to try to succeed and flourish, and every Member will have businesses in your consistency or region where the development bank has supported them to either grow or to maintain their workforce. So, all of these things are important in what we're going to be able to do to support the economy in its wider sense, as well as—. I talked earlier about exporting businesses and some of the challenges around trade as well.

Thank you, Chair. I'm content with the answers given because I'm about the stray, like Luke was, into Vikki's questioning on hospitality, and I wouldn't want to do that, so I'm happy to go back to you, Chair.

Okay, thanks, Sam. Before I bring Sarah Murphy in, I just want to build on the question that Sam Kurtz was just asking you, Minister. Obviously, many businesses will still feel the effects of COVID-19 well into the next financial year, so they will need substantial and significant support going forward, and I know you said earlier on that you want to look at creative ways of supporting businesses in the future because of your limited budget, but what consideration have you given to establishing a business COVID recovery fund, specifically to support businesses going forward, instead of having, perhaps, different pots of funding? What consideration have you given to setting up a specific COVID recovery fund?

Well, I think the challenge about a COVID recovery fund is what the parameters are. Is it sector agnostic, or is it essentially something like a broad-based non-domestic rates support, where you can provide grants and money to people regardless of their sector, or potentially have to the sector? Or do you have an application-based process, and do you then try to say, 'Here are the sectors that are most impacted'? So, in this round of the economic resilience fund, we're looking to support particular sectors and their supply chains. And the difficulty, I think, is that that actually takes quite a lot of work to do and to get up and running. And what we're looking to do is to support businesses in both the advice we provide, and in the capital we can provide to help to co-invest with those businesses, and we're also looking to support them in investing in skills. The two things that I'm really struck by that virtually every sector says is they want as much certainty as possible about where we're going with the pandemic, and that, of course, is true for all of us. I'd like to talk about the pandemic as history as opposed to things we're still dealing with. And so the certainty in trading conditions is an important part where we can have proper optimism about the rest of spring and the summer, but we can't give absolutely cast-iron guarantees.

The other point is skills investment. And it's why the conversation around EU funding, regardless of which party you're in, is so important, because skills funding has been so reliant on EU funds in the past. And the replacement for those—. And every single sector talks about skills—the ability to keep their workforce, to re-skill, upskill their workforce to be more productive, and what that actually means in terms of acquiring and keeping staff as well, because the labour market is a different challenge to what we anticipated, largely because we've seen people leave the labour market—people who've gone back to European countries and are unlikely to return, as well as older workers, typically, who have left the labour market earlier than we would have expected. Now, that means we're seeing a loss of some of our more experienced end of the labour market too. That means we've got fewer workers, more competition for jobs, and actually, then, the quality of your labour becomes even more important, as well as what we're able to do to properly skill young people coming in to the labour market as well.

Now, I think those are the right priorities. I'd want to see what the evidence base is that spending our money in a general COVID recovery fund would be a better use of the limited resources we have, rather than on the work we're committed to do around skills and improvement, and the way we'll still continue to support businesses who have ambitions and proper plans to maintain good-quality employment, as well as to grow. And so the economic contract will still be relevant to the choices we make within the Government, and what our expectation is for businesses that have public support.

Thanks for that. If I can now bring in Sarah Murphy. Sarah.

Thank you, Chair. Thank you, Minister, for being here today. As we've already touched on a little bit about business support, we're going to drill down a little bit more now to hospitality, tourism and retail. And in your own paper, you have acknowledged that businesses in the visitor economy have faced unprecedented and extreme challenges from the pandemic, and the downturn in the sector stands to have serious social, cultural and economic impacts. So, just to give a bit more of an insight into this, how has this context guided specific allocations in the draft budget for 2022-23?

Well, actually, it's about trying to deliver and get back to our plan in 'Let's Shape the Future' and have a robust recovery for our tourism and visitor economy in Wales. And the support we're providing now is really important to maintain businesses that are still able to trade and look forward to next year. I know this came up in the Chamber yesterday, in the way that things often do in the Chamber, but the reality is that some parts of the tourism economy did very well this year. The events sector was much more tightly constrained because a number of events businesses couldn't operate for the full year, and then people's confidence about returning to events-based businesses has been different depending on where you are.

If you think about the International Convention Centre Wales, we think that has a good, positive future, but the reality is that it's been a sector that hasn't been able to operate in the way that it would have wanted to, and it's about the confidence to not just have bookings that have already been made, but to keep future business as well. So, it's a real challenge for us in making public health choices about where we want to be in the future.

So, I want to see these sectors able to trade with confidence in their future, and to get on with, from a tourism point of view, shape the future, extend the season which is what we've always wanted to do, and then to try to make sure that we have that in a way that is successful and balances some of the challenges in areas where there is a significant tourism industry. You want good jobs for local people, but to understand the pressure that creates on some local communities as well.

So, I'm optimistic for the future in this sector, and it still goes into what we're able to do. We've got a Wales tourism investment fund, which has been managed by the Development Bank of Wales, which has a mix of grants and loans to support them. We've also used former European funds, of course, to invest in the tourism sector as well. So, we've still got specific funding pots, but a lot of it is actually about the broader conditions and business support that we're able to do, and obviously the strategy that we have and I want to get back to.

Thank you, Minister. And we're probably going to be asking you more questions about this as our inquiry is going to be looking at tourism.

Excellent.

Thank you for that. Luke, I think you want to come in on this specific issue.

Yes. Thank you, Chair. Obviously, the focus on business support is right, as businesses have struggled through the pandemic. But thinking about hospitality and tourism, and those who work in those sectors, in particular, I was wondering what considerations had been given to supporting those workers? And I'm thinking about this in the context of, for example, the Christmas that's just been now, when we saw the cancellations in hospitality. I think Bar 44 in Cardiff, off the top of my head, had about 3,000 cancellations in December. A lot of those cancellations would have also then passed on to the workers, who are more often than not on zero-hours contracts. So, what would have ended up happening is that, likely, the management of that restaurant would have called them, and said, 'You're not needed today', and cancelled their shift, and so they would lose, obviously, a day's pay. I was just wondering whether the Minister has considered how those people in those sorts of situations could be supported.

It's been really difficult, because we did give—. It was a very difficult conversation internally, as well as with stakeholders, about our ability to provide more money from a resource point of view, but then about trying to make sure that, if we could we do something, did we have access to the information, and equally could we be certain that money would get to workers' pockets? And it was actually very, very difficult, and we couldn't find a way to surmount each of those particular challenges. It's why the lack of furlough support was so very important. And I mentioned yesterday that, again, Cardiff Business School did a survey of businesses, and they said that the Welsh Government support was as important as furlough for them—the two combined—in their continuing. The challenge is that, when furlough wasn't there, and the only support they had was from us, that created additional pressure on each of those businesses, and in particular on workers. And even if we'd been able to find the resource, and we would have run out of money very quickly, then the challenge was to have the information to direct the money into workers' pockets. And actually, that was really, really challenging.

It's part of the reason why we've made the overall support more generous. We've changed the threshold for the ERF. Also, we slightly increased the amount in non-domestic rates-based support grants as well. But it's also why it's such good news that we're able to move out of the alert level 2 protection, and have a pathway to returning to trade. Now, we always have a challenge of where there are straightforward UK responsibilities around benefits and other support, and how far we can mitigate into where we think there's a gap in that support. But here we didn't have the means in financial terms, and we didn't have the information to be able to do so, and then the payments systems to be able to direct that money to where it would otherwise have been. And that's a difficult conversation that I've had, both internally with the advice I've received from civil servants, as well as directly with the sector in the regular engagements I've had with them as well.

Okay, thank you. Back to you, Sarah.

Thank you. So, just to touch on retail, Minister, when we spoke to you last, I asked you about our retail strategy, the sector strategy, and I know that that's now forthcoming. So, are there any specific allocations in the budget to support this delivery, and could you just tell us a little bit about what that is, I suppose, and how the retail sector have been consulted on this, and how—[Inaudible.]

I don't think I could point to you that there is a pot of money that is deliberately set aside for the retail strategy, but it is about how we use the resources and what it looks like. Because, when you think about where we are with retail, some of it is about what we've done alongside both tourism and retail, and actually trying to promote the sectors as places of employment where there are careers, and not simply seasonal work, and not simply part-time work, to have. We're looking at what we can do alongside them. And we continue to talk with retail businesses and trade unions in the retail sector. I hope that, by spring, we'll be able to launch the strategy. I hope that a spring launch will also be when we are looking forward with greater optimism about trading conditions for the remainder of spring and the summer as well. The partnership approach, I think, will mean that we'll be able to not just say, 'Here are the objectives', but also have a clear understanding of how we're going to use resources. Sometimes the resources are what Ministers say and do with their time, and sometimes it is about money. Every business, I'm sure, would say, 'If you give us money, we could find a good use for it',but it's actually about trying to agree the strategy itself. So, I'd be more than happy—. I'm bound to be making a written statement about it when we launch the strategy, and equally I'd be very comfortable coming back to committee to talk about that, as indeed I'm sure would retail businesses and trade unions, about the conversations we have already had and where we expect to get to once the strategy is launched.

Thank you, Minister. Just one other question. I know this came up as well in the Chamber this week, and it keeps being asked, but I was just wondering what your position is on potential levies—tourism levies—because obviously this is something that could potentially bring money into the industry. I know that we're at the beginning of that journey, and it will come down to local authorities, but what's your view on that?

I'm quite open-minded about a levy and what it could do. I know that there are mixed views, and some Members on this committee don't share my view, but when you look around the world, there are versions of a tourism levy in North America and in Europe. If you travel to Spain for a holiday, you will probably pay a local levy, whether you are going to Barcelona or to Andalusia to lie on a beach, or to visit Spanish cities and towns. And it's the same in many, many European countries. So, when you're the consumer and you're looking to go, you normally look at the whole package: what is the whole cost, and then what you get from it. It will be for local authorities. Pembrokeshire, for example, might make a different choice to Gwynedd or Anglesey about whether they would want to make use of a tourism levy, but then equally where it would choose to invest the returns raised from a levy. I think it's one of those areas—and we regularly have this conversation—where there is a balance between where you need a Wales-wide solution, with choices being made here, and where you need to say that powers will be devolved to be made in regions or local authorities. I think this is one where local authorities are better placed to make those choices. I am looking forward to not just the consultation, but the debate to be had, around what would make sense to help support all the infrastructure around the tourism and visitor economy to make it a more attractive place for visitors, but also for the people who live and work in those local communities as well.

Thank you, Minister. Thank you, Chair.

Thank you, Sarah. If I can now bring in Vikki Howells to ask a set of questions. Vikki.

Thank you, Chair. Good morning, Minister. I've got some questions around regional and economic development. Firstly, this draft budget is the first one I believe that makes allocations for financial years after Wales finishes receiving EU structural funds. So, given your concerns about the level of funding that Wales will receive through the shared prosperity fund and the levelling-up fund, to what extent has the budget actually been able to mitigate the funding gaps for regional and economic development that the Welsh Government and other organisations will face?

I again refer back to the conversations I pointed out about the education committee in Northern Ireland, where they're anticipating a significant gap, and they're saying there are reductions in skills spend, and they think they may need to reduce skills programmes, as well as the challenge they face on innovation spend, where again they're not able to make up all of the deficit. The undeniable truth is that if all of that money had come in and been replaced, and we'd been able to allocate it, you would see it in this budget and you would see larger budget lines. I think that's the honest truth. The difficulty is—and I guess this is an honest challenge from a scrutiny point of view—that it seems to me obvious, because of the statements that have been made about the amounts being allocated, that there is going to be less money coming into Wales, and less say for Welsh Government members, but also less say for Welsh Parliament Members, about how that money is spent and to scrutinise it.

If money is spent directly on an application basis with local authorities or regional groups, then actually there will be a challenge about scrutinising how that public money is spent. Welsh Assembly Members, and now Welsh Parliament Members, have been scrutinising the use of that money for more than 20 years. To be fair, the Chair has actually been part of that scrutiny process and made recommendations to improve the spend of European funds in the past. So, we don't have line of sight over how that money is being spent. We are clear, though, that there is less money that's available, and it will make a difference in the regional economy. The challenge, though, is that when the levelling-up White Paper comes, we'll have a greater idea about what's going to happen, but don't expect there to be a detailed criteria for how allocations can be bid for, and indeed, how they will be scored afterwards. So, there's still a level of uncertainty on the back of how money has been spent and allocated thus far, where we really don't understand how those allocation choices have been made.

I appreciate that. Thank you. If we go back to before the pandemic, your predecessor in this role committed to publishing regional indicative budgets for the regional economic frameworks. Does the Welsh Government still plan to do this, and if so, when do you see that happening?

I don't think we are going to publish regional indicative budgets, because we're in an entirely different world, I'm afraid. Not just because we have less money available, but actually, the money that we would have been allocating and looking to provide, we're not in control of, largely. So, it does provide a very real challenge for us. Whilst we're having to tighten our belts literally in some areas, it gives us less capacity, and we're going to need to have that conversation in more detail. We've got the growth deals that now cover every part of Wales, so there are sums of money that are available for each region to make choices over. We're carrying on with the work with the OECD on what regional economic development should look like, and we're then going to have to make choices through this budget period about how we can support regions to continue to invest in the local regional economy.

It goes back to the questions earlier about skills, because it's possible that skills moneys may go to regions, they may go to local authorities. I'm keen that we try to get as consistent an approach as possible, but that will mean that regions themselves will need to agree the basis on which they're going to bid and to fund, because the risk otherwise is you get a patchwork approach, where you may get seven authorities choosing to bid for a skills project, to support the regional economy or what the regional skills partnerships have identified. Other authorities may choose not to do that, and that will inject greater unevenness into the way that money is spent for the benefit of the regional economy.

Thank you. Definitely one for us as a committee to keep our eye on moving forward, I think.

No doubt.

Moving on to the Well-being of Future Generations (Wales) Act 2015, your paper states that the development of the regional economic frameworks is an essential part of achieving the well-being goals. So, could you set out how the well-being of future generations Act will inform allocations made to the delivery of these frameworks, and any steps taken in the budget to actually move this forward?

Within the well-being goals, of course, economic well-being is one of the significant chunks that we have within the Act, and what we always try to do is to see how we advance the economy nationally and within regions. Thinking about my previous role in the Government, the reality is that the economic well-being of an area makes a huge difference as to health and social care outcomes. Your health, equalities and inequalities are largely driven by your economic and social inequalities and means as well, so it makes a huge difference in how each of the well-being goals, I think, are linked to each other.

In developing the broader frameworks, the regional economic frameworks, the views of young people are actively sought, and will continue to be so, but again, this has been about partnership. For each of the regional economic frameworks we were able to publish, it was about the Welsh Government working alongside regions, and all of us were cognitive of the fact that the well-being goals underpinned lots of what we're trying to do and to achieve. So, it's still the case that we take as a basis for what we're doing what the well-being of future generations Act asks us and requires us to do. I think the goal of a happier and healthier economy, and the healthier part of the economy, and what a well-being economy is, is a really important part of that.

Thank you. And finally, just to hone in on your comment there about tackling poverty, the paper states that supporting stronger local economies will be an essential part of how the Welsh Government plans to tackle poverty, so can you give us some specific examples of how the allocations in this budget will actually look to achieve this?

We're looking at how we can, in each of our areas, look at where economic development is most needed. For example, in the capital region, there are a range of areas we look at. The work I'm particularly looking to do is around the Heads of the Valleys areas to try and understand what is possible, because that's an area where we've seen sustained disadvantage and poverty, and if we can't improve economic outcomes for people there, we're unlikely to see success. So, it's both within the strategic approach and the enterprise hubs we have, but it's actually, frankly, about the commitment of ministerial time and priorities where I think we can make a difference. Because if we don't improve employment outcomes in that particular part of Wales, then we're unlikely to make a difference in terms of turning back the tide of poverty. And the cost-of-living crisis, I think, gives us an even greater imperative to want do so. You don't see all of this in the budget choices, but you will see it in the priorities and what we're prepared to do. It's part of the reason I do place real importance on the work we're doing with the OECD and with regions in Wales to look at what we can do and what we need to do to improve the economy in each region of Wales.

Thank you, Minister. Thanks, Chair.

Thank you, Vikki. Can I bring in Luke Fletcher just to ask a set of questions? Luke.

Diolch, Gadeirydd. If I could touch on the establishment of a community bank first. What specific activities are the revenue and capital allocations in the budget for 2022-23 intended to support?

We've got a development phase revenue funding of £150,000 in the financial year. I'm looking to get the bank established; that's my responsibility as Minister, which is why I delivered the statement and why I've had the initial discussions around this. It'll then move to the Minister for Social Justice once it's established. So, you'll see capital investment in the draft budget plans from the Minister for Social Justice, and at this point in time, from memory, I think that's £4.75 million over three years that will come through the Minister for Social Justice's budget. But those are all things to support the capital plans for establishing the community bank.

Thank you for that, Minister. It's something that I and other Members, I'm sure, will be keeping a close eye on. It's one of those things that has cross-party support, which is always pleasant to see. Looking at employee-owned businesses, according to your paper, there are currently two to three employee buy-out deals completed in Wales each year, but the potential exists for many more and the number of employee-owned businesses already grows by 10 per cent year on year. But there doesn't seem to be any detail given as to the number of employee buy-out deals or new employee-owned businesses the Welsh Government will be seeking to support in 2022-23. Could you provide us with that detail?

We've got a programme for government commitment to double the size of employee-owned businesses across Wales. It was part of a debate in the Chamber, led by Huw Irranca-Davies, about the conversation we need to carry on about how practically it would work alongside Social Business Wales and, indeed, the Wales Co-operative Centre to actually see that commitment realised. So, there wouldn't be a specific target within this year, but we have a whole term of Government commitment to double the size of the sector. And, again, this is an area where former EU funds have been used to provide the specific advice that is often needed to help businesses where there is an opportunity. Often, where there's a family-owned business and people are looking to exit the business, there is an opportunity to see if that can become an employee-owned business as well. That often requires specialist business advice. It's one of our challenges in looking to see how far we can fill the gap that's left by changes to former EU funding.

So, just to clarify, we're not looking at a year-on-year target, we're just looking at the target across this Senedd term, yes?

Yes, and we'll need to see if we're seeing a rate of growth in each of the years. So, of course we'll look at it within each year to see what we've done, but I haven't set a target to say that, within year 1, this is how many additional employee-owned businesses we expect to see. There is some funding we've provided this year to help with that. There was a small £70,000 additional support fund for promoting employee ownership in Wales within this year, but that, I don't think, then, translates into, 'For every pound you spend in support, you can guarantee you'll get X number of new employee-owned businesses.'

Diolch, Gadeirydd.

Diolch, Luke. Minister, I just want to ask you some questions around trade. I know that £4.7 million is allocated to the budget expenditure line on export, trade and inward investment. Can you tell us how much of this is going on work related to exports, trade and inward investment?

For the £4.7 million, it's mostly against the delivery of the export action plan. That's £4.5 million allocated to deliver the export action plan to support businesses to continue exporting, as well as to want to grow Welsh exports in the longer term. You'll appreciate this, I'm sure, but we're looking to have a five-year plan to implement and to look to see the growth in the sector. Now, this does require us to work not just with businesses, but also to ensure that we have a joined-up set of measures and interventions to support businesses in the way that the Department for International Trade within the UK Government is working. And to give you an example of where, sometimes, for all of the difficulty and the disagreements we have in public, there are times where we do manage to find places of agreement, and people do withdraw back from where they were. At one point, the Department for International Trade were talking about having an intervention that sounded very much like Business Wales and we pointed out that (a) Business Wales is in this area as a one-stop shop for support for business, including export businesses, but also the name would cause genuine confusion for businesses. And to be fair, I think there was a constructive conversation around making sure that the names don't confuse businesses about where they can access support, but, equally, to make sure that the support routes are ones that are joined up. So, Business Wales will direct people to support available through the Department for International Trade if that's an additional area of support that is available, rather than saying, 'We don't want you to go over there.' This is all about helping businesses to achieve success and to sustain what they have and to grow it. So, that's where the majority of the money is going and, despite the challenges about our changed relationship with the European Union, we can have some optimism that there are successful Welsh export businesses and we're wanting to promote what they do and encourage others to export successfully in the future as well.

I notice that the budget letter cites the potential impact that the COVID pandemic and a more complex trading relationship with the EU has had on Welsh exports. Do you believe that maintaining the same resource allocation as the previous year's budget will therefore be sufficient to support affected businesses?

We think we've made not just a material contribution and we're confident that we can make it work as much as possible. The challenge, I guess, is what is sufficient, in anyone's terms. Like I said, if we had more money, I'm sure we could do more, but this is the resource that we have available to us and I do think it will help us to support more businesses to be more successful in the future. We've got an area of relative strength in Wales to look for when it comes to trade, but the pandemic has been an ongoing challenge. I was, for example, due to be in Dubai promoting Welsh businesses as part of World Expo in December, but, unsurprisingly, I didn't go to Dubai, but there were still events that were taking place. There's a life sciences promotion taking place in Dubai as part of World Expo at the end of this month as well. So, real and significant strength of activity is continuing, but, with the interruption in our plans, we'll need to revisit, in practical terms, to make sure that the money we are spending—and £4.5 million is not a small amount of money—actually goes on doing the right thing for businesses. And as I say, businesses in every part of Wales should have an opportunity to be successful in this area.

Have the UK's new trade agreements that are expected to be in force in the next financial year been taken into account within your budget planning? And is it possible that additional resource may actually be required to support businesses to respond to those trade agreements?

I think the starting point is that new free trade agreements can provide extra opportunities for Welsh businesses. And so we don't have a—. Our approach is to support new free trade agreements being agreed, but to make sure that Welsh businesses and interests aren't sacrificed, and not just agriculture, which is the one that we are regularly concerned about. The difficulty is that, actually, going from the headline of a free trade agreement to actual implementation takes time. And so I don't think we're going to see lots of detail in those in the next year, for example.

Our challenge will be, where there are opportunities, how well we can support export and import businesses to take up those opportunities. We haven't factored in a specific amount for new free trade agreements, because I genuinely think it is premature to be able to do so. And of course, whilst there are opportunities in areas we trade—India, for example, there are outline talks taking place there; we already have significant cultural and economic links with India, as every Member here I'm sure will know and be able to point to within your own constituency or region—our biggest trading relationships are on our doorstep, and so they're the ones that are still going to take up most of our time.

Okay. Thank you very much indeed for that. If I can now bring in Sam Kurtz. Sam.

Diolch, Cadeirydd. And I'd like to declare an interest on this point, as a border control post has potentially been mooted in my constituency, which also has a port. But, given the evidence you submitted to the committee when you appeared before us in November 2021 that it wasn't yet possible to give an exact figure on the potential running costs of BCPs in Wales, is this still the case? Does that remain, or have draft figures been included in the draft budget proposal?

No, because we're still in the process of building the border control posts. So, I gave a written statement update on where we are recently. The move of sanitary and phytosanitary checks has come to July. We're phasing how those checks take place, so we're going to need temporary facilities in place whilst we're looking to continue and to build. And I've also indicated that I'm expecting to be able to make more concrete—no pun intended—progress on Holyhead within the coming months. I'm looking to confirm the process around that, and then looking to confirm who is the preferred contractor to deliver the permanent process there.

Now, the reason why we haven't been able to have concrete running costs at this point is that (a) we're looking at a model of temporary measures initially, we're then going to have to build the permanent posts, and we still haven't determined what the future model is going to be in south-west Wales for the Pembrokeshire ports, which—. And to be fair, you've acknowledged you've got a port in your constituency, and I know that the Chair has a port in his constituency too as well. So, there are material challenges about the temporary measures, but then also the permanent. And, actually, Pembrokeshire's important because, of course, we don't import livestock from the island of Ireland through Holyhead; they come through Pembrokeshire ports, so there are real challenges that we need to get right. And you'll recall from our previous discussion that there's greater comfort around capital costs, but, at this point in time, the UK Treasury view is that the devolved budgets have to absorb all of the running costs for these new facilities.

So, there's more work to do within the Government, not just about the size of those costs, but where they fall, because I'm the lead Minister in terms of trying to resolve the issue, but lots of Ministers have an interest in this, not just Lesley Griffiths, but a range of others have interests in this area. So, at least four different ministerial portfolios have an interest in this area. No one budget, I think, should be on the hook for the running costs as they come, and we're going to need to agree within the Government how those running costs are spread across the Welsh Government, if the UK Government still insist on transferring the cost of these new measures into the Welsh Government budget. There's certainly no allocation in the UK budget settlement for the increased costs that are inevitable from running border control posts.

So, that's the transferring of the running costs, not the capital infrastructure costs. Because your written statement, which came out yesterday, for the benefit of the committee:

'Since the Spending Review, the UK Government has agreed in principle to fund build costs for both permanent and interim facilities upon submission of a reserve claim',

and then it continues to say,

'While the UK Government has conditionally agreed to fund the construction costs of the BCPs, it has explicitly said it will not meet the operational costs.'

So, isn't that quite a collaborative working between UK and Welsh Government there? They shall invest with the capital build of BCPs, and then it's upon Welsh Government as the devolved nation to run the border control point.

That isn't what the funding statements, the funding principles, actually say. Where there are new costs that arise from choices made by the UK Government, and there are direct and material costs that fall into devolved areas, the UK Government is supposed to make good those additional costs. And, you know, it's good news that there's the conditional agreement on the capital costs. So, that is definitely welcome, as I set out in my statement. But the costs for the running are a direct consequence of the form of leaving the European Union. If a different choice had been made around customs and the single market, then there'd be different measures in place. So, the choice that was made around the form of Brexit—and it doesn't really matter what your view is about the form of Brexit—that's what's happened, and that means there are direct costs that shift in to the Welsh Government that simply weren't there before. And the statement on funding principles was supposed to mean that the UK Government cover that. Now, we still want to carry on having that conversation. I don't think we should give up on actually arguing for what is right and what previous UK Governments have insisted would happen.

I'd hope there could be some cross-party support on this, because it would be a material issue. If we have to absorb costs that are material and potentially in the millions each year, then that means that's money that we can't spend in other areas on all of the subjects we just discussed earlier, from business support to skills to everything else. If we're spending money on running a border control post, then that money can't be spent there, and we can't not spend the money on running a border patrol post, because, otherwise, we effectively ban imports from the island of Ireland. I don't think any Member of any party would say that that would be an acceptable outcome.

So, just to clarify with regard to locations, if I may, which is a step slightly removed from the budget, but I'll bring it back to it. So, am I correct in assuming a location is determined for the Holyhead BCP?

Yes, we have a preferred location.

And with regard to the two ports in west Wales, there was a preferred location put forward. Is that still—? Is that remaining the preferred location?

We're still having conversations with that as our preferred location, but we need to understand whether the reduction in trade is permanent or temporary, because it makes a difference about whether you could site border control facilities within the port area or not, and if there is a permanent or future reduction in trade then it would affect the size of the border control post. So, it wouldn't be a good thing if you could site border control facilities within the Pembrokeshire ports, because you'd then be accepting a permanent loss of trade.

I noticed, this week, Stena Line talking about a new packed vehicle arriving in Cherbourg from the island of Ireland, a new route with trade that would previously have come through Wales. And, again, it doesn't matter what your party politics are, if trade is avoiding the land bridge through Wales then that's a bad thing for the Welsh economy and for jobs that are based here in Wales. So, getting some certainty on this is, I think, really, really important and it helps to explain why we have such a direct interest in the Northern Ireland protocol and trade with Ireland.

Okay. A couple of years back, the Welsh Affairs Select Committee at Westminster, in one of its evidence sessions, determined that there was a potential long-term—. A solution to the issue within south Wales is one port working from Pembrokeshire, so an amalgamation of Fishguard and Pembroke Dock into one central location, be that at Fishguard or Pembroke Dock. Is that a viewpoint that yourself as economy Minister and the Welsh Government share?

I think that it's well beyond the remit of this conversation to talk about whether there should be one port in Pembrokeshire. Regardless of how yourself or Paul Davies might feel about a possible location for a single port, I think it would be really unhelpful for me to start talking about planning to see one port being removed. We'd like to see both ports have a proper future, and it's about a conversation with the operator of those ports, and the broader conditions in which they operate, and I just think today is the wrong time to start kite flying on that issue, although I appreciate why you have given me the generous opportunity to so.

Well, it was to come back to my initial point with regard to the budget. Should a border control point be built for one port, rather than two ports, there would be a financial benefit there such that I would guess that has crossed your desk as economy Minister.

Well, the size and scale of border control posts, we're looking—. The initial plan has been to have a single border control facility for both of the Pembrokeshire ports. The challenge, though, is that, if there is a permanent loss of trade, it affects the size and scale of that border control post, and if that were to undermine or see one of the ports no longer have a viable future, that's a really big problem that goes well beyond the funding model for border control posts. We'd have to look at the loss of jobs, what that means, what interventions we could run, and that's why I think kite flying on whether there should be one port in Pembrokeshire is not something that I am prepared to do today. Every now and again as a Minister, you have to recognise that there are times where you need to draw back and not get involved in trying to speculate on what the future might be. It's dealing with what we know now and trying to make sure that both ports have a proper and viable future to support jobs and trade here in the Welsh economy.

Thank you. Thank you, Chair.

Thank you, Sam. Are there any other questions Members would like to ask the Minister? No. Well, we've therefore come to the end of our session, Minister. Thank you very much indeed for your time this morning. Thank you to your team as well for their attendance. It's been very useful and productive in us scrutinising your budget and the Welsh Government's budget. So, thank you very much indeed. We will be sending you a transcript of today's proceedings, so if there are any issues then please let us know. But, once again, thank you very much indeed for giving up your time today.

You're very welcome. See you soon.

Thank you very much.

We'll move on now, therefore, to item 5 on our agenda, and I propose in accordance with Standing Order 17.42 that the committee resolves to exclude the public from the remainder of this meeting. Are all Members content? I see that all Members are content, so the motion is agreed and we'll move now to our private session.