Finance Committee

Good morning. We're back for our second scrutiny session this morning. We are joined by witnesses from the Welsh Local Government Association. I'd like you just to introduce yourselves and who you represent. If we start in the room.

Jon, start with you?

Yes. Good morning, Chair. My name's Jon Rae. I'm director of resources at the WLGA.

And then on the screen, who have I got? Lis.

Bore da. I'm Lis Burnett. I'm leader of the Vale of Glamorgan Council and speaking on behalf of the WLGA as well.

Lovely. Anthony.

Bore da. It's Anthony Hunt. I'm leader of Torfaen County Borough Council and also the WLGA finance spokesperson.

Thank you, Anthony. And Llinos.

Good morning. Llinos Medi, leader of Isle of Anglesey County Council and here on behalf of the WLGA.

You're welcome to respond in English or Welsh. We'll move on straight away to the questions.

As I said in the previous session, if we could keep our questions brief, so that we can hear from our witnesses, then that would be wonderful. I'd like to start to understand the level of financial pressure local authorities are experiencing now and face in future years. The Welsh Government says it's tried to prioritise public services within this budget. Your consultation response from November says that pressures in the system were starting to look catastrophic. To what extent does this budget adequately protect public services? If we start with Jon in the room, and then if anybody wants to answer.

Yes. Thank you very much, Chair. I'll let my political masters come in, really, on some of the political responses, but, generally, there was a positive response from the WLGA to the settlement. At the time we put the evidence in, obviously we didn't really know what was in the UK budget or what was going to be in the Welsh Government budget, so, by the time we got to the Welsh Government budget announcement on 13 December, I think our response through the press, from the WLGA leadership, showed that we were quite pleased with the outcome and the way that it also prioritised local public services.

Okay. Maybe to Anthony, who has the lead on finance.

Thank you. The provisional settlement was certainly welcomed and shows, I think, that the Welsh Government are trying their best to prioritise public services. The pressures on us are huge, so it doesn't mean it's going to be easy setting budgets. We estimated around £784 million of pressures by the end of the next financial year. That's a huge amount of pressure. In my own council, for example, our energy bill's going up by £4 million, our social care contracting bill by £4 million, our pay bill by just over £7 million. So, there are huge pressures in the system, but I think the settlement that we've got enables us to have a fighting chance of at least trying to address those pressures so that they don't become catastrophic for the future of the services that we provide.

Great. Thank you. Do either of the other two want to come in? Lis.

Diolch. My afternoon is going to be spent, actually, taking our budget proposals to cabinet. I think, as Anthony said, when we were discussing it—. We were working on shifting sands before the settlement announcement; we didn't know what was coming down from UK Government down to Welsh Government and, as a consequence, we couldn't even second-guess figures. In the Vale, we were looking at a £38 million deficit, and with what was predicted to come through initially, we then were looking at about a £28 million deficit after Welsh Government contributions and what we modelled as council tax. The difference that the actual Welsh Government settlement made is that, now, we're looking at how we manage a £10 million deficit, and so the steps that we're taking are still incredibly difficult, but an awful lot more manageable than the initial £38 or £28 million, depending which way you look at it, that we were dealing with pre Christmas. It remains a difficult situation for local government.

Llinos.

I think we also need to be aware that we're seeing additional pressures on services. So, inflation, as has already been noted, is a pressure, but we're also seeing an increase in the complexity of needs, which is creating pressures. COVID and the impact of COVID is still around us, and the cost-of-living crisis is also creating very fragile circumstances that mean that we are the ones who have to respond to that. It's very difficult for us to anticipate what the impact of that will be on our budgets, and we are aware of the crises that exist in social services at the moment. That all lands on our doorsteps, therefore. For us as leaders—and similarly to Lis, I've just come from our scrutiny committee, where our budget is being discussed—and we clearly—. There are unknowns in terms of the pressures on those services, and we do have to invest in social services. I don't think any leader could say today whether it's enough money that we're investing there, because of these unexpected challenges that we're facing.

Diolch yn fawr. Last year, the Welsh Government indicated an uplift of £177 million for 2023-24. In this draft budget, it's passing a consequential and increasing that to around £400 million in 2023-24. Your evidence sets out £784 million of pressures at the end of 2023-24. How will local authorities bridge that funding gap? I don't know who will start. Llinos.

I can come in there. I think every authority will have to do that in their own way. I can say what's being discussed in scrutiny in Anglesey at the moment, namely, cuts to services, using reserves and raising council tax levels. We went out to consultation with the public at the start of the year regarding the priorities of the authority, and asked how they thought we would fund those. It's come back from the public on Anglesey that they think that that's the most pragmatic way forward. The challenge is that you can only use your reserves once, and it's very important that we note that today. If we use that money this year, we will need to use it again next year, but it doesn't return to our coffers, does it? So, we have to be very mature in our approach, and it's important that we emphasise that not all authorities are in the same place. Some authorities have been lucky, they may have had robust financial governance during the recent period, which means that there is money in reserves to mitigate the impact of inflation, but some authorities are in very vulnerable positions and will have to make greater cuts than others. Clearly, council tax is a tax that we all—. That's the only real income that we have as local authorities that we can rely on, apart from the funding that comes from Government. Every authority has to set that in an appropriate way for them, bearing in mind that every authority pays differently into that as well, which makes that discussion on percentages unfair. Perhaps we need to discuss how much it's going up in financial terms rather than how much it's going up in percentage terms. Thanks.

Lis or Anthony. Anthony.

Yes, I very much agree with the point that Llinos made about reserves. They're unequally spread across Wales. You can also only use them once. It's also very difficult to predict what is an appropriate use of reserves. At the moment, for example, energy costs—no-one seems to know exactly what will happen for energy costs. If there's a spike going on at the moment then it's legitimate to try and use reserves to bridge the difference between when we hope those costs will start falling again. But no-one knows that for sure, so it's a difficult decision for councils to know when they can sustainably use their reserves. Because as Llinos said, once they're gone, they're gone, and they shouldn't be used irresponsibly, otherwise it just stores up problems for the future. We'll all be looking at efficiency programmes, although after a decade of austerity, there's very little juice to squeeze from that particular lemon. I'm trying not to use the 'blood from a stone' analogy. We're looking at things like property rationalisation—how we can use our estate better, how we can adapt to the difference in working patterns post pandemic. But, inevitably, there will be reductions in service levels, there will be headcount reductions, and we'll look to do whatever we can to avoid those through collaboration and through other things, but there's no single silver bullet that can help bridge that gap, but at least because of the settlement being better, we at least have a fighting chance of meeting the gap without measures that will decimate the local services that people rely on.

Thank you. Lis.

Thank you. I just wanted to mention, very much along the same lines as Llinos and Anthony, but I think it's worth saying that the collaborative approach that we have developed in Wales across local government and with the WLGA means that, as leaders, and also whether it be our section 151 officers, et cetera, have been constantly talking. There's been shared learning, there have been, 'Have you tried out such and such an area, what did you find, how did that work for you?' And so, the discussions have been frequent and ongoing across Wales, and it's very reassuring for me when I'm talking to people in my council that I can say, 'Well, actually, feedback from other local authority leaders would suggest that', and it's a much more effective way, rather than just trying to plan in a vacuum.

On that point, Lis, obviously you talk to your colleagues, leaders in other councils. Are you seeing similar themes coming through about where services have been cut already and have been cut further? Are there common areas that you're looking at, so that it's somehow by, not random, but by design that services are cut in a similar way in similar councils? So, for example, if there has been a cut in social services that next door is doing the same as well, so that you don't get that postcode lottery-type of situation, if you're on a boundary of a local authority.

I think there's part of that, but I think where it comes down to is more around agreement on strategic aims, and something, for example, that—. Protecting our most vulnerable. Now, everybody actually would agree that that is a key priority. We might then discuss what different people are doing in order to achieve that. We'll come on later to the social care crisis. That is a point of discussion about what initiatives have been found to work, what initiatives maybe need a bit more tweaking, what is the strategic direction in various councils. So, rather than say, 'We're all going to do the same thing', because our areas are actually diverse and they have different needs. But there is a really constructive dialogue ongoing between local government in Wales.

Sorry, I'll bring Llinos and Anthony in in a second. Is that being driven by the WLGA or is that being assisted by the Minister taking a lead in helping you to navigate through this budget, because, obviously, she's got the position of being the local government Minister as well as the finance Minister? Is she taking an active part in helping you to navigate some of these questions?

I'm sure Anthony will probably come in an awful lot more on this, but, actually, it's both. We're assisted by WLGA, but Ministers have been really productive. It's something that was developed over the pandemic. It was happening to a certain extent before, but since the pandemic, the actual conversations are much more frequent, much more regular, much more in depth, and there is a strong relationship between local government, whether that be officers and leaders, that we are able to go forward and have these conversations.

I'll bring Jon in, and then maybe if one of the other two want to comment briefly.

It was just to say that, over the course of the autumn, I think there were very regular meetings, not just with the finance Minister, but a number of Ministers, around the cost-of-living crisis. These were fortnightly meetings. It wasn't just about pressures for local government, it was about the impact on households as well, so they were really useful meetings. Plus, you would have had the ongoing cycle of WLGA meetings, the executive board meeting regularly—that's all our leaders. We've had special meetings as well. So, for example, the day after the autumn statement, all leaders, chief execs, finance directors, finance cabinet members as well, met up in Pontypridd to discuss the financial challenges. And that's how we're spreading, I suppose, good practice and common approaches. There are a lot of new officers and leaders out there as well, so I think they find that kind of support invaluable.

Llinos, do you wish to say something?

I think a few things have been touched on here, so I want to try to—. I think it's important—. The partnership that Lis was talking about is very strong between us, and probably that's one of the positive things that came out of COVID, if anything did, the way that we have been able to collaborate. And also the former Minister for local government has supported that collaboration, and then that's continued, and it's important to note that.

But you were asking the question about are we aligning our services. Well, what's good about local government is that we are local, and it was seen during COVID the way that we could adapt our services to respond to what was happening at a local level. That has to continue, because demographics are an issue in an area such as Anglesey, with an ageing population, and the figures being high; very clearly, we wouldn't be able to align with Flint, for example. So it is important, but that there's a strategic element, as Lis was talking about, of how we safeguard the most vulnerable in our society—that there is alignment in terms of that. So, it is important that we have that flexibility to do what's required at a local level, but that we unite strategically, and that's what is happening. There is a partnership between us as leaders of understanding the challenges that we face—and it is across borders. We're a tourism area, and there are industrial areas, aren't there? So, that's how we—. But we understand the challenges that we're facing, and we're looking much more strategically, with the support, as Jon was saying, of all the Ministers coming to discuss their fields with us too.

So, therefore, you are looking beyond this financial year; you are coming together to look at budgets for the future, and looking more at what's going to arise in 2024-25, and beyond, to do that strategic work, to see, 'Well, where are we going with this'. And is that collaborative working possibly better because of technology, as we can meet today—you're up in north Wales, and we're down in Cardiff?

It is important. Robust leadership and financial governance is crucial for public services. The strength of local government is that we are elected and that that governance and accountability is in place. And clearly, we take that responsibility, and, led by Anthony in budgetary terms, we have those long-term discussions. But that's perhaps our greatest concern as leaders, because it is fair to say that we have been making cuts for 12 years. Public services aren't where we would want them to be, because of the investment that we would all like to make in improving our roads, properties, and all our services. But we are currently looking at how we are taking those services through the storm, and getting out at the other end at least doing everything that we can under those circumstances. But we all have to be quite honest—we do need huge investment in public services in Wales, and across the UK indeed, in order for us to serve our people as we would like to do. But legally speaking, we have to balance our books, which means therefore that we do have to look at cuts. And that is difficult for us as politicians, obviously, who are trying to find creative ways of keeping our heads above water, and our great concern is that we know that, one day, the cost of rebuilding public services will be huge.

Diolch. Anthony, just on that point, how, as the finance lead, are you looking to help your colleagues in that strategic planning into 2024-25? Is it possible with the settlement that you've got now, and is it something that is happening?

Thank you, Chair. There are three aspects to it. First, it's keeping that dialogue going with Ministers. I think Rebecca, and Julie before her, deserve great credit for the way they've engaged with us. I speak with English leaders quite often over the border, and they don't have that kind of relationship. It doesn't mean the problems go away, but it means we're at least approaching them, in Wales, from an approach of talking to each other, even when those conversations are difficult. So, I think that's an important first aspect.

The work of the WLGA nationally to help councils plan, I think, is an important one too. Jon mentioned the finance summit that we had; I think we need to continue to do that, to bring people together, virtually or in a room, to talk through the different challenges we've got and to try and share common solutions, ideas that we've got, approaches that we can have that we can share and we can help reduce the problem. And also the regional work we do. In Gwent, certainly, and across south-east Wales, I'm speaking to lots of our neighbours on how we can do things differently. If we have a shortage of staff in one area, for example engineering, we've talked to some of our neighbours, who may be able to help us, and that reciprocal help arrangement is something that can bring good value, can help us to make those plans for the long term.

But what I would say is that this settlement at least gives us a chance to focus on the long term and not have all our bandwidth taken up with firefighting, and that's important, because—. You know, it's very important, I think, that we do plan for the long term, that we don't make cuts that have long-term implications. And we've seen this elsewhere in the UK, where lots of the services that are the fabric of early intervention and prevention in our communities have been stripped away, and then, lo and behold, in 10 years' time—. Let's say you cut all youth services, and then, in 10 years' time, you wonder why you've got a youth offending problem. You cut away some of the preventative social care services, and then, in 10 years' time, you wonder why the NHS is overwhelmed by people who haven't had that help further up the stream and end up falling into the river. Sorry, I've really ruined the Desmond Tutu quote there, but you know what I mean. We need to make sure that we take long-term decisions along the lines of the Well-being of Future Generations (Wales) Act 2015 that make sure that we can do things long term. That's only possible if we have the settlements that are needed to be able to put us into that space and not continually having to firefight.

We heard from the NHS earlier; it's having that stability to be able to do it in—. And we've just had so much churn and instability over the last few years, let alone the last 12 months. So, it's hoping to steer us into possibly a little bit of calmer water, so that we could actually do some of the stuff that you're saying. I'll bring Mike in.

First of all, can I thank you for what you're all doing to provide local services in very difficult times? I, and I'm sure most colleagues, really do appreciate it. I want to talk about capital expenditure. How has the provisional settlement affected your capital plans? I know capital costs are going up. What's your estimate of them? Are you seeing delays? There are easy delays, where you just pay for a school over two years rather than paying for it over one year, so all that happens is it opens two months later, but that has a knock-on effect, doesn't it, on further capital expenditure. And how are you getting on with capital receipts? That used to be—. I mentioned that to the NHS, and they looked at me blank. But that used to be very much a source of money for paying for important things, like selling off unused land—land that hasn't been used for a long time, especially in areas where house prices are high.

Who wants to go first? Anthony.

I'm happy to, if you want me to. The return to the historic levels of capital funding is welcome. Obviously, that's just one source of funding that we use for our capital projects. As Mike hinted in the question, the challenge that we have with the capital approach is the huge increase in costs for many of the capital projects that we need to do to improve our public services. Our school building costs have gone up massively, for example. In Torfaen, we don't have a lot of land to sell, unfortunately, that's in our ownership. I think a wider piece of work across the public sector needs to be driven forward on that, because I think other public sector organisations do have more land that can be used. Every penny of receipts that we've got from our capital receipts have gone back into our twenty-first century schools programme, because we think that's the right priority, but there is huge pressure on capital projects because of the inflation of construction costs in particular.

As Anthony said, we do appreciate that the capital budget has gone up, but its value has disappeared. We do find the capital budget more frustrating than the revenue budget in terms of delivery; it's very restrictive in terms of what we can do. You asked earlier about long-term planning and that capital funding that's necessary in order to put those long-term plans in place. So, it is very frustrating that we are looking at the capital budget this year and only doing the basics, because things such as the disabled facilities grant is included, it includes maintaining highways, so it's very restrictive indeed. And, as was noted, the capital budgets of schools, the costs have gone up too, and now we have to balance the impact of interest on the revenue budget. And then, it's not as cost-effective for us to be moving forward with plans such as these because of the revenue budget and the impact it has there. So, that is very challenging indeed as we move forward.

On the comment on sale of assets, well, we've done that; we've sold a great deal off over the past 10 years in order to survive, if we're perfectly honest. We also have to be very careful of the market. We do have a capital strategy in terms of sales here to ensure that we don't flood the market. We need to ensure that we get the best value for money into the council coffers when we do sell assets, and we have been careful in terms of selling in a timely manner. For example, if we close a school and open a new one, that those sites are drip fed into the market, if you like.

Also, I should note that any building we have, we do provide that internal offer, because we don't want to sell something off and then see that we need that building two years later. So, we do ask internal departments about their strategic plans and whether they have any requirements before we dispose of any property. So, it is more complex, as you can imagine, as we try to implement this in terms of capital. But, certainly, there isn't much left in the bank now for us to be making further sales of assets. I am concerned about our ability to forward plan without more investment in capital.

Jon, you indicated that you wanted to come in.

Yes, thank you, just to put some figures on what Councillor Medi was saying there. I think, before the financial crisis, going back before 2008, capital receipts were probably raising in excess of maybe £100 million a year. It took a while for that to recover, I think. The most recent high would have been around about 2013-14 or 2014-15, when it got back to about £80 million. But I think for the latest year for which we have data available, StatsWales shows that capital receipts are raising something like £30 million. So, it's certainly not as lucrative a source of funding as it used to be, Mike.

And Lis, if you want to come in briefly.

Diolch. I think it's quite interesting. Everyone always talks about capital receipts, but I think the problem over the years is that so much has been sold off that it's very difficult in terms of investment and growth going forward. As Llinos said, the market is low at the moment, and, from that perspective, what we have to look at is: is it better to mothball expensive buildings at the moment, rather than sell them off, so that we can consider what we do with them in the future? And that's something that we're looking at.

In terms of capital projects, we can't ignore the local economic benefit from capital programmes, and particularly, community benefits programmes that come alongside—local procurement, that sort of thing. So, that is really, really important, going forward. But if we borrow to undertake capital projects, we have to be mindful that there are revenue costs to capital borrowing, which then can cause problems.

And I suppose the only other thing that I would add is that there is evidence that, in the current situation, a number of building contractors across Wales have gone into administration, and we've just had a situation where a contractor has failed. It's a fairly small-scale development—it's 54 council properties that were being delivered. What we've had to do, because we know that, if we re-tendered for that programme, because it's probably about two thirds built at the moment, the cost would go up again. So, we've actually taken on all of the subcontractors and we are delivering that programme ourselves to keep it within an affordable range. But, if you add on decarbonisation, which is essential, if you add on sustainable drainage initiatives, and then you add on inflation, one of our new schools has doubled in price to get it off the drawing board. So, these are things that we are actually having to manage at the moment. Diolch.

Well, just following on from what you were talking about—borrowing—I'll tell you what I know, but everything is say is 13 years out of date, so tell me if it's still correct. You used to borrow from the Public Works Loan Board, and you used to borrow over 30 years. And for housing, you used to borrow over 60 years. What I'm asking is: are you going to increase the level of the borrowing planned this year and next year? And, isn't hindsight of wonderful thing—wouldn't it have been better if all of us had borrowed a lot more two years ago, before interest rates went up? What's the current Public Works Loan Board rate? And, is borrowing this year better than borrowing next year? Are you fearful that the Public Works Loan Board rate is going to go higher?

Anthony.

I think it's around 5 per cent at the moment—the Public Works Loan Board rate—although there is a lot of volatility, up and down, as you say. With a crystal ball and a time machine, I think we'd all buy a few lottery tickets to help fund our council services as well as putting some more borrowing. Now, obviously, all borrowing has to be appropriate for a purpose that's sustainable and prudent as well. Borrowing alone, I don't think, is the solution because, of course, it has to be paid off, but it's one of the mechanisms that councils have been able to use to fund work, and will continue to be so. The volatility doesn't help at the moment, because, of course, rates could go up as well as down, as the adverts always have to say, so it's a difficult calculation to make.

Thankfully, unlike England, you haven't been borrowing to buy shopping centres and leaving yourselves in very serious financial positions. Congratulations on that.

Llinos would like to come in.

Can I just finish this?

Of course.

The prudent way that you've borrowed has been very, very good. The question is: have you scaled back your borrowing for this year with interest rates having gone up to 5 per cent?

Llinos.

Just quickly, can I just say 'thank you' for that comment, because I've sat with Audit Wales where they’ve been saying, 'Are you commercial enough?’ and trying to get them to understand that Ynys Môn is struggling to keep a corner shop open, let alone a shopping mall? So can I say ‘thank you’ because, obviously, our ability to manage public money and trying to do that in a safe way and not knowing what austerity was going to look like, let alone knowing that a world pandemic was on the way and then this? So, thank you for those comments.

I would say that the borrowing, at the moment, we were all in our plans—. The election also happened, didn't it, for us. So, we've been in that stagnant period of time where we were bringing our plans to an end and restarting our council plans, our strategic view, and all those strategic plans. But, now, as we're all tidying those up, I think the conversation is going to be around what we are able to achieve, and, then, the cost of borrowing on top of that. For us, here in Ynys Môn, we'd already made those decisions around schools and so on, but we have had to add money into our twenty-first century schools and so on. And we're actually looking, creatively, at extra care here in Ynys Môn, and being maybe the first that the housing revenue account is going to fund. So, looking at a way of using those sorts of funds that we have in a more creative way as well.

But, definitely, the borrowing one is going to be a discussion on the table, and it's the risk appetite, but, also, the recognition that we never know what's coming our way around revenue and service pressures. So, that's the challenge that we have to balance, and it's always around our treasury management plan as well. Diolch.

And, I think, finally from me—. You've also got council tax, fees and charges. I'm not going to ask you to tell us your council budget now—first, you wouldn't, and, secondly, it would be wrong for you to do so. But, are you giving serious consideration to the increases in fees and charges, and are you giving serious consideration to what level of council tax is affordable and needed? And the affordable and needed might not be equal.

Lis, to start with.

Diolch. I think therein lies the nub of the query. It is those balances that we are constantly trying to achieve. As I said, I've got a fees and charges report going to cabinet this afternoon. And, I think, what you have to work out are the underlying principles that you're going to adhere to, and, for us, non-statutory provisions, where they aren't aligned to the corporate plan, where they're not a priority for the council's corporate plan, we need to move them to cost neutral. So, we will be looking at full cost recovery—not all in one step—but we will be looking towards those.

Where they are provisions such as, say, adult community learning that helps people to get back on track in terms of employment or something, then we would be subsidising those. And the whole thing is about having the underlying principles and working. It might be: what do we do with certain car parking in light of decarbonisation? And, in terms of moving to a carbon-zero position, are there things that we should be doing? But, as I said, covering our costs, because we can't afford to subsidise areas. You've either got a choice that you stop doing it, or you have to find a way of it being cost neutral. And that is a big one, and it's also a very difficult conversation to have with residents. But, the question is: what else would you cut if you had to fund this?

Llinos.

Just quickly, the fees is an interesting point, and this is something that we have a challenge with. And, even though I was saying earlier that we weren't looking at shops, for example, because of the situation, market failure is responsible for some things in Ynys Môn, and we have to plug that gap as well. So, we have to be very careful, and there is an economic impact on some of the services we provide, and leisure is one of those. Clearly, in disadvantaged areas, we want to keep those costs low in order to ensure that the use is there, the preventative use, the community use, and get people through the doors, not just young people, but amongst the older generation, it's important that we keep those open. But, also, because we're looking at that cost-neutral element, we find that we're making a loss in some of those areas.

And, also, there are fees that we can't touch, for example, planning. And I challenge this a little, because, if you put planning applications in, and you're willing to spend tens of thousands of pounds on planning and building, we're restricted on some of those in terms of the fees that we can charge, and you could argue, perhaps, that that's something that needs to be looked at. So, it is a very complex field, and we can't look at it as one. And, also, the impact, perhaps, of raising 3 per cent on the service users, in comparison with 5 per cent in council tax—perhaps it would be cheaper to raise the 5 per cent on council tax rather than that 3 per cent on the use of services, for families and so on. So, just the complexity of the conversation is something that I'm trying to highlight here, and that those conversations are happening in 22 authorities, because they understand their areas and the impact on their areas.

Just from what you've said there, these are questions where I'm asking you do something—I was happier on your side than I am on this. The question is: why don't the WLGA make representation to have planning charges set by local authorities? It's something I've argued for in the past, and been told that local authorities aren't that interested in it. So, if you were to push for that, it would be very helpful. And my question to Lis is: adult education—why are you providing it, not Cardiff and Vale College? I think, sometimes, local authorities in general need to look at whether somebody else who is being funded differently could provide some of these services. I don't know if you have anything to add to that; I was just throwing that out as an idea.

Actually, I will answer it. Cardiff and Vale College do deliver some, and we deliver some, because sometimes, provision is better delivered within communities where people live, particularly in disadvantaged communities where people feel safe and confident in their own community, to get them to access that sort of support. They won't travel. They don't feel confident enough. So, we work very closely with Cardiff and Vale College on provision of services, and each one of us works to our strengths, really.

But there's no reason why Cardiff and Vale can't do outreach in any village or town, or anywhere else. It's your budget—I'm just trying to be helpful—but if somebody else can do the work and they're getting funded for it, are you making the right decision to fund it yourself? It's your decision, not mine. I'm just asking you to think about it.

Well, the types of ones that, currently, we're looking at, in terms of cost neutral, are—. As I said, for the get-back-on-track stuff, we get support from Welsh Government, so that's reduced. But, in terms of the other ones, it might be learn painting, make a felt rabbit, or learn woodwork-type stuff, which, in effect, are more of a pastime provision, that's very good for social isolation and those sorts of things, but actually, they're the types of things that we really can't afford to completely fund, so we have to look at fees on areas like that. Those sorts of things, it would be unlikely, within their strategic plan, that Cardiff and Vale College would deliver.

Thank you. I'll bring Peter in now. Welcome, Peter.

Good morning, all. Good to see you. Good to be amongst friends. Sorry that I wasn't here at the start of your session.

I'm sure that Mike might have touched on it, but I just want to touch briefly, Chair, on reserves, because I know that Andrew Morgan suggested that authorities are going to be drawing down on reserves. I think all would agree that the period we're in now and the next couple of years are likely to be an exceptional period, with, hopefully, a return to some stability afterwards. Now, we know that the use of reserves shouldn't be used for recurring expenses; it should be used for non-recurring expenses, really, or for transformational change. However, I think if there is a benefit that came out of COVID, and there aren't many, it's that it allowed authorities to accrue more reserves over the last couple of years. So, I think, looking through all of the councils'—or those who have produced them—draft statements of accounts for 2022, I see a significant increase in earmarked and usable reserves—somewhere approaching a 30-odd per cent increase, a nearly £600 million increase.

So, I think the useable reserves, which we know include general reserves, school balances, some capital, and earmarked reserves, is somewhere near £2.75 billion. I know that some authorities are better heeled than others, but don't you think that, through a time of such significant pressure on the cost-of-living crisis and on individuals, some of those reserves, where can be afforded—and some can do it more than others—should be mobilised to actually remove the need for council tax increases on some? I won't name specific authorities, but you'll know that there are authorities with circa £200 million-worth of usable reserves. Now, I know as well as you do that earmarked reserves are for that purpose—earmarked projects. But, sometimes, if they have not been drawn on or there's no pressure to draw on them, or there is an opportunity to hold back those investments, that money can be mobilised because it has the same status as a general reserve. I just wondered what—. At this time, such a challenging time, it would be totally appropriate to use more of those reserves. What are your views on that?

I'll bring Anthony in on that one.

Yes, I'm happy to come in first. Hello, Peter. Nice to see you again. Yes, it is an appropriate time to use reserves in an appropriate way. I talked earlier about energy costs, for example, and what of those energy costs could be considered a spike where we can try to bridge the gap with some reserve funding, and what other reserves can we use. We've got very limited reserves to use, and we do have to be very careful that we don't store up problems by using them for issues that are going to become recurring. One of the great challenges facing us is the unpredictability of what's going to happen over the next few years, for example with energy costs, and what of that will be a sustained increase and what of it will be a spike in costs. So, we will continue to use reserves for specific reasons and to try to bridge some of the gap, but we can't be overly reliant on reserves, otherwise we'll store up problems for the future.

Lis, anything to add? I know you had your hand up, but whether or not you've got anything further to add that's—. I'm just looking at the time, that's all.

Diolch, and thank you, Peter. Yes, I echo Anthony, so I won't repeat that. It's something that we have been called on to do every year for as long as I can remember, whenever we've been—'Oh, use the reserves.' And I wonder, if we had used the reserves all those years, where we would be now. There is a general lack of understanding about the different categories of reserves—which you would understand, obviously—in terms of, as you mentioned, general funds versus unrestricted, restricted, earmarked et cetera. And every year, to try and go through those categories of reserves in terms of what's available—.

Our reserves normally are around the Chartered Institute of Public Finance and Accountancy-advised 5 per cent of our budget. We are planning to use—I'm just looking at my notes for this afternoon—about 3.2 per cent this year, but that, as Anthony said, is going to be to smooth out spikes in energy costs, it's going to be in terms of invest-to-save. So, an example might be to develop children's social care facilities, which will not only improve the outcomes for children but will save us the costs of children going out of county. So, those are the types of things that we do.

In terms of chucking it into the mix to bolster up council tax, that is not a productive use, because, next year, when our costs have gone even higher, the ask is even bigger and the reserve is gone. So, it's an easy political fix, but, actually, if we're going to try and be prudent and sensible politicians, helping our local authorities through this challenge, just chucking in n number of million from reserves is not going to be helpful.

I'm conscious we've only got about 15 minutes left. It's fascinating, but we've got to cover social care and we've got to cover education. So, if we could move on.

Yes, we'll move on. It's a shame that, perhaps, the local government family can't mobilise some of the reserves it has got to create a floor that enables all authorities to protect citizens from the highest of council taxes. Anyway, I'll move on.

So, local authorities have access to other sources of funding, and the WLGA provided evidence to the committee inquiry into post-EU funding. The shared prosperity fund allocations were agreed in December. How are those plans being impacted by the pressures local authority budgets are coming under now?

Lis.

Diolch. I think that the biggest impact we've got is that we don't have any laid out terms and conditions, so, if we were going to try and spend at the moment, it would be at risk, and that would be an impossible position for any local authority. You can talk about, as we go forward, trying to take on short-term staff—the timescales are very restricted on this. But the biggest thing is that we have plans, we know the way that we want to go forward, but, for some strange reason, we can't get the final sign-off, and so, to move ahead in funding, the first year of which is supposed to be spent by about March of this year, is pretty well impossible.

Okay. Thanks, Lis, for that. Just to explore a little bit more the pressures highlighted by yourselves, including social care and staff pay, in your evidence, you talk about the impact of the pandemic on existing challenges within social care, and I totally can see those. Pressures in the NHS are also being widely reported and, last week, Andrew Morgan said that local authorities are bending over backwards to support the health service. So, how are the challenges in social care manifesting themselves and does this budget do anything to alleviate some of those issues you're facing?

Shall we go to Llinos first?

Yes, I will come in, thank you. The challenges have always been there, and, as Peter is aware, as we all know, social services have been a huge challenge for us as local authorities for many years. We do see the current situation within this year's budget as being challenging, so, as authorities at the moment, we don't know how much of the reserves, as noted earlier, won't be there by the beginning of the next financial year, and it's important that we note that.

We're seeing an increase in pressures. We have, as Andrew Morgan said, gone as far as we can in terms of releasing people from hospital when it's safe to do that, but, in doing that, we've increased the costs upon ourselves. We're pleased that the Welsh Government has transported the additional funding that they've received in terms of social services to us as councils, but we are all aware from the recent census that the age demographic is changing and our needs are intensifying.

So, we, at the moment, have no assurance that our budget for next year will respond to the challenge that we're actually facing in social services for adults or children. But it's important to note that we have no assurance that this year's budget will be—. Because this year is a huge challenge for us, and, as Lis said, we are fortunate that we acted wisely and that we do have reserves in order to pay for what's required this year, never mind what'll be required in two years' time.

Anthony or Lis—anything to add? No.

Thank you, Llinos, and it's not always a money issue, is it, either with social care? It's actually finding the human resource to deliver the unmet hours every week, and I recognise the challenge and I feel for you all.

You talk about workforce pressures within social care, both in terms of local authority services and commissioned services: how are providers coping with the current economic climate and what kind of issues are being experienced? I just reflected on that briefly, about staffing.

Llinos, if you want to continue.

Yes, thank you, I'll come back on that. The staffing situation is across the board—it's important that we make that clear. We are facing a challenge in social services, but may I say that we're seeing people trying for their third job with the council now? That's where we are in society. The cost-of-living crisis means that people are looking for work, but what the COVID crisis created was the ability for people to work from rural areas for the cities. So, in areas such as planning—we've been hit badly in the planning area in Anglesey—in economic development, they now can work—. And the private sector can move faster than us in terms of pay and conditions. So, it's important, please, that I note that it's not just social services that are finding recruiting a challenge. Working for local government isn't as attractive as it was years ago, that's fair to say. And as you say, with the private sector, we do find that the private sector's finding it very difficult, and that creates another challenge for us. A number of us have outsourced services, and, if they can't exist, that then that comes back internally, and that creates additional strain on the pressure that we have internally.

So, COVID has come, and, as I said earlier, good things have come out of COVID, and it’s strengthened the relationship with the independent sector, but we cannot—and we provided this as evidence last week—we cannot afford to put in the additional money that the private sector is asking for, and there are discussions ongoing about what's realistic and what's within our means in being able to balance our budget, and, as you’ve said, trying to keep that council tax as low as possible. So, it is a fragile time for everybody, and there isn't a short-term answer; it has to be in the long term and a review of healthcare and how as a society we show the necessary respect to carers, and in their pay and conditions, and that that's equal with the health service.

Lis, do you want to come in briefly, or has Llinos covered most of the points?

Diolch. Yes, she did. It is incredibly difficult trying to take on staff. We've managed to get a 'fast track to care' system where we can take people on and get them Disclosure and Barring Service checked within two weeks, but it's actually finding the people to go through that system now. I think the future is going to be either us working in partnership with private providers—because, normally, they're quite small, local organisations; they aren't hugely resilient—or else we actually have to start looking at social care coming back in-house, but how on earth we manage that at the moment financially, I really don't know.

What I would ask is that we need to start looking at a whole-system approach here between health and social care, because it is so interrelated. I'm currently sharing 24-hour care of an elderly mother; it's impossible. So, we need a whole-system approach to look at where the pinch-points are and where the pressures are, and how we move forward collectively as health boards and local authorities to find a solution to this, and we need some open and constructive conversations between us and with Welsh Government as well.

A final point from me, and I'll keep it short. It's about the wider workforce and the National Joint Council pay offer for 2022-23. I just wondered what impact that agreement is having on local authorities, and what assumptions have you made in terms of the 2023 pay claim.

Anthony, I don't know if you're able to give an overview of the impact on all local authorities.

Yes, sure. I think the impact—it depends by authority, depending on your staffing structure. I think it's between 6.5 per cent and around 7.5 per cent of this year's pay claim. Assumptions for next year will be typically between about 4 per cent and 6 per cent, I think. But, of course, there's a degree of volatility; we don't know where inflation's going to be, and we don't know where the negotiation position's going to be, but that's one of the uncertainties that we have to try and take account of in the budgets that we set, so that we don't set two low a presumption that then impacts on our budget in-year, and of course we don't set too high a presumption that would make for real, difficult cuts in other areas of the budget, because, of course, pay is a large proportion of our expenditure. I think every percentage of the pay settlement in Torfaen, for example, costs us well over £1 million, so we have to be cognisant of that balancing act, really, and to get the right kind of predictions.

Okay. Jon, did you want to come in briefly on this?

Very quickly, yes. The pay agreement for this year was agreed earlier than it was in the previous year, which was welcome, but it was still agreed in July this year, which is obviously a number of months after the start of the financial year. So, as Councillor Hunt pointed out, I think our assumptions, at the time budgets were set this time last year, were probably about 4 per cent, and then the pressure ended up being about 6.5, 7.5 per cent. So, it was significantly above assumptions, and it was the first indication we had, I suppose, that a lot of our assumptions that were built into budgets this year just weren't adequate, and it's led to the data that I've put in the evidence paper here, showing that there is a potential overspend for this financial year of about £260 million, of which about £100 million is accounted for by pay. So, that's just to put some numbers around that.

Thank you. I'm going to move on to Rhianon. The clock is beating us, but there are some very important questions that we need to ask, so I beg your indulgence for a few minutes. I know, Lis, if you have to shoot off to a cabinet meeting, I understand.

Thank you, and I also want to echo my colleagues' comments in regard to appreciation for the really difficult work that you're undertaking on the public's behalf. I'm going to talk specifically around pressures in terms of education and school budgets. So, in terms of the Minister's statement around consequentials associated with education spend in England that are passed on, obviously, through the settlement and the education budget, is it the intention of local authorities to—[Inaudible.]—to education and schools? I was going to ask you whether it's enough to fund the pressures, but you've already highlighted this in some depth. I don't know who'd like to take that. Jon, do you want to start?

Certainly, if that's okay. In the Minister's letter that she traditionally sends out to leaders on the publication of the settlement, she highlighted the consequential for education, and, actually, there was some discussion with Councillor Hunt and other leaders—Councillor Hunt's our finance spokesperson. We made it clear in our response that we would prioritise education. It's a little bit difficult, but I've no doubt that the consequential and some will find its way into education budgets, and, obviously, we'll have to wait for the publication of those budgets—

Sorry to interrupt you, so, the answer is—

Yes.

—'yes' or 'no', are you going to be passing that on in full?

Yes, but bear in mind that the pressure in education itself, according to the information in the evidence papers, was around about £170 million, so it still falls short.

Okay. Thank you. Any other further comments, very briefly, or is that—? Llinos.

I think it's fair to note that every authority will be doing—. It'll be difficult for us to say what every single authority will do, because we're not in their position in terms of budget setting. There are some authorities, such as us in Anglesey, that have protected education throughout the period of cuts, so schools are in different positions across Wales. So, I think asking us what every authority will do is very difficult for us in responding specifically. What I would say is leaders have agreed that education is a priority of ours and we want to safeguard it. But, clearly, I'm not in a position where I can say that to you as leader of Anglesey, when there are some leaders in far more difficult positions than us financially.

Okay. Thank you. In terms of inflationary pressures, which have more than tripled from £49 million to £161 million, what does this mean in terms of schools and education services?

Llinos, if you want.

So, we've been out recently with transport contracts for schools. The impact of inflation on that is immense. We've seen a significant increase there. Clearly, we're all aware of gas and electricity and all of those costs in education too. The education sector is also seeing a recruitment challenge in education. So, everything that we've said already regarding the situation for councils also impacts individual organisations such as schools. I'm the chair of a governing body of a secondary school, so the discussion that I have as the chair of a body, just at a smaller scale, is exactly the same as the discussion that one has within the authority. So, there are the same pressures there.

We're also aware that these special children and young people that we have coming through our doors have been through a very difficult period and we need to provide them with additional well-being support. That is also a challenge for us, and we're trying to invest in that, and that makes it even more difficult in terms of trying to get these young people back to where they were pre COVID and ready to learn, and also the new curriculum that will be in front of them in the classroom.

Lis, did you want to come in on one of those points?

Diolch. I just wanted to raise the issue, as Llinos did mention home-to-school transport, particularly home-to-school transport for children with additional learning needs. Quite often, they need specialised care, and the huge cost pressures in that area are phenomenal. Not only the cost pressures, but also finding contractors that will take on that work, because the changeovers tend to be longer, drivers tend to be tied up for longer. Given the chance, they're going to take more profitable routes. We've got one special school with 400 pupils. To try and get all the pupils there is a massive challenge.

And in regard then to—. I mean, it's already happened, but, in regard to potential or actuality of any market failure around that, what mitigations can local authorities do to carry out their statutory responsibilities? How difficult is that, if anyone can speak to that? Anthony, I don't know whether you can give me your opinion on that.

It becomes increasingly difficult not just to discharge our statutory responsibilities, but to do the things that we want to do. We want to prioritise services like social care and schools in all we do. That led to a period of years where, every time I walked into a different department of the council, like public protection or planning or somewhere, they used to wince because they thought I'd be trying to take more money out of them in order to protect the likes of schools and social care. I think the pandemic has shown that lots of those supposedly back-office functions are actually vital for our communities. It does become more difficult as each year goes by. Around 70 per cent of our spending is on social care or schools, so protecting those has a huge impact on everything else that we do, including a lot of valued services. A lot of services that aren't statutory are hugely valued by the public and have a huge role in early intervention and prevention. So, councils increasingly are left with a Hobson's choice or least worst choices, shall we say, and it becomes a very difficult balancing act to make.

Thank you. I'm going to move on to my final question, Chair, if I may, in terms of band B of what used to be twenty-first century schools. It's got another name now, I believe: the sustainable communities for learning. In terms of the number that have already been completed and the success generally of the programme in its previous band, it's almost a third, perhaps a bit more than a third that have been completed that are business planned, but what really is the viability in this current toxic climate for public services across the UK in terms of completion? If we look at availability of contractors, if we look at energy, if we look at workforce, if we look at capacity across both the public and private sectors, and in terms of inflation, can somebody give me a comment on that, please?

Anthony.

I'm happy to. It makes it an increasing challenge, not just because of inflation in the construction sector. As you say, availability of contractors is a real issue. Of course, we have ambition to build net-zero schools as well, which adds to the short-term costs, even if there are long-term cost and environmental benefits to doing so. It all makes for an incredibly challenging situation to continue to build the schools that we want for our learners going forwards. We've spent a huge amount of money, around £100 million, and it's transformed lots of the schools in our borough, but there's a lot more work to do. That is becoming increasingly difficult, not majorly because of the input of funding, but because we're getting so much less for each £1 that we spend because of the inflation in the sector.

Thank you. I'm not sure if Lis wanted to comment briefly.

Lis, did you want to come in on that? You can have the final word.

Actually, Anthony said it all.

Thank you.

Lovely. Thank you.

Thank you very much for your time this morning and thank you for spending a little bit longer with us than we'd originally planned. There will be a transcript provided for you to check that it's correct. Please do so. But, again, just to endorse what other people have said, thank you very much for all the work that you are doing, because it is extremely important in a very challenging time.

We're going to break now before we have the Minister. I propose, in accordance with Standing Order 17.42, that the committee resolves to exclude the public from items 5, 7 and 8 and the next meeting. Is everyone agreed? Yes. Thank you.

Welcome back to the session with the Minister now on the draft budget. A very warm welcome to you to the meeting. We're going to be scrutinising now for about an hour and three quarters. But before we do that—a very warm welcome to you—would you be willing to introduce yourselves and your role? We'll start with the Minister.

We'll start with Rebecca—just introduce yourself and your officials. Or I'll call them—if we start with yourself.

Diolch. Rebecca Evans, Minister for Finance and Local Government.

And then Andrew.

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

Emma.

Prynhawn da. Good afternoon. I'm Emma Watkins, deputy director for budget and Government business in the Welsh Treasury.

Lovely. Croeso cynnes. Obviously, we've had a bit of a curtailed budget scrutiny session, and we've had a few very, very interesting scrutiny sessions with stakeholders. We've got a raft of questions for you, as you'd expect, so we'll move on. Obviously, this is being broadcast on Senedd.tv and a transcript will be available at the end.

I'd like to start with some evidence we had from the Office for Budget Responsibility on the use of income tax powers. Witnesses from Wales Fiscal Analysis and the Institute for Fiscal Studies suggested an addition to the OBR's devolved tax forecasts publication. This would be to include more details on block grant adjustment calculations and the net impact of these adjustments on Wales. Do you think this would be a useful addition to aid public understanding and scrutiny? If so, would it be more cost-effective to incorporate this request into the OBR's agreement, or is it something that could be undertaken by Welsh Government?

Thank you, Chair. I'll ask Andrew to come in on this question as well. You can find the detail of the block grant adjustments for the years covered by the draft budget in chapter 3 of the narrative, and that covers both the adjustments in relation to the years themselves and also the reconciliation amounts relating to previous years. I am, of course, open always to finding more ways in which to be transparent and open with the information that we provide, but I'll perhaps hand over to Andrew at this point.

Thanks. The block grant adjustments are actually calculated jointly by the Welsh Government and the Treasury. We use the OBR's forecasts of the relevant tax bases in the rest of the UK to calculate those block grant adjustments, but they're pretty mechanical, they don't involve the kinds of judgments that the OBR is making in its forecast. It takes the OBR's forecast, applies the agreed methodology to calculate the block grant adjustments, and then the number pops out. So it doesn't require that kind of independent judgment that OBR exercise in relation to the forecast. I suppose that's why it's done by Government officials rather than by the OBR, although the OBR could do it and it wouldn't be a big job for them to do it, so maybe we could look at that. I think the point about putting better—. We could certainly provide more and better information about the block grant adjustment, and it would be useful, perhaps, as part of the committee's report, to hear a bit more about exactly what kind of information you might find useful. We can either put that in the OBR's report or in the budget document or both, perhaps, just to—

I think a comment came that a lot of it was in the appendices in the OBR report, but moving it into the body of the report might aid some of the stakeholders in understanding what was going on, especially Wales Fiscal Analysis. They were saying they were trying to then manually—. As you say, it's a mechanical thing to do, but they were manually doing it. It was just from a transparency point of view, so we'll possibly report back on that in our report.

If I can move on, then, can you outline the reasons for not increasing higher and additional rates of income tax in this budget?

This is something that we thought about long and hard in terms of how we would use Welsh rates of income tax for the draft budget. I know the First Minister was taking some questions on this in First Minister's questions just this week. If you do raise the higher rate and additional rate by one penny then you will raise around £36 million, and in the context of the challenges of our budget that is a very small amount. There were lots of different things that we had to consider at the time. We don't yet know the behavioural impact that raising the higher and additional rates of Welsh rates of income tax might lead to. I know that the previous Finance Committee had taken a great deal of interest in this, and undertaken a piece of research into it. I think there's been research done elsewhere. What that research tells us is that the findings are inconclusive, just because we don't have that evidence base at the moment. It just felt in the cost-of-living crisis that, with all of the challenges that we have, this wasn't the time to experiment. I think that, when we are talking about some of the very highest earners, they do have options that other people don't have, in the sense that many of those people on additional rates might have additional properties elsewhere, and they can change their arrangements so that their permanent or main home is not in Wales, and then they don't end up paying any of their tax here. So those are the kinds of behavioural changes that people might make. But this wouldn't be the time to start testing some of that, I think.

Scotland has the ability to change bands, as well as what we've got here. Would that give you more flexibility to be able to consider tweaking the amounts that you raise in each band? Would that be something that might be of benefit to Wales and your ability to get the best out of the taxpayers that we've got? Understanding your point about protecting the most vulnerable and the people on the lowest income, having a graduated system, similar to what Scotland has got—and they've got some data coming in off the back of that now—would that give you a better model to be able to do something more progressive here?

It would certainly give us more options, and there could be benefits to that. But we also have to look at that alongside the potential risks that there might be as well. Given the nature of our tax base here in Wales, and the fact that we do have more earners generally towards the lower end of the spectrum, there might be some significant downsides to that. And also, Welsh rates of income tax are still fairly new, so they're still bedding in at the moment. I think that any changes that we would make would have to be part of a planned approach that is strategic across our taxes and that looks at all of this within the context of our tax plan—

Obviously, you'd have to balance that and take the public with you. You'd have to have a clear understanding of what you're trying to achieve by doing it as well, I'd imagine.

Absolutely, so that the public could understand the potential benefits and risks. I might as well ask Andrew to come in on this point around the potential risks because of the nature of the tax base.

I suppose—. Sorry, I've got a bit of a frog in my throat. The key thing, I suppose, the key difference between us and Scotland, is that they're exposed to the full income tax base in Scotland; we're only exposed to that chunk that is devolved, so that means our budget is a bit less volatile, a bit less dependent on the way that those revenues change. That could be seen as a negative thing, but it certainly makes—. If we were to be exposed to that much greater tax base risk, we would need better tools to manage the risk, for example, in terms of borrowing and scope to smooth unpredictable changes in the tax base. I think it is a complex picture that would need to be thought through. Yes, you'd get more policy flexibility, but you'd take more risk at the same time, and that balance needs to be thought about.

I think Mike and Rhianon wanted to come in.

The big problem is dividend income. Most rich people don't pay income tax. That's why they rarely complain about it. They get their income by dividend or they get it paid into a third-party organisation somewhere, and therefore they avoid income tax. That's why you always hear rich people complain about two things: rates and council tax. They can't avoid them, therefore they don't like them.

Rhianon, did you want to come in?

In a similar vein in terms of discussing the merits—and I hear what you're saying in terms of risk and the unknown consequences in terms of potentially raising even the top 1 per cent in terms of the £36 million that you've modelled—obviously, that £36 million could go towards something very, very beneficial. But was part of the thinking around that the lack of flexibility and lack of agility around what we've just mentioned, or was there also some element of risk that, actually, that level in terms of income tax payment would just avoid it altogether and we could actually be worse off in terms of not collecting anything from that bracket?

There is a danger. If tax rates are higher for people who are on that additional rate who do have another property in England, then they could make changes whereby they make their home in England their permanent home, and then we would lose out, obviously, on the tax that they paid when their home was in Wales. Those things I think are all part of the picture, really, and we just need to find ways to better understand what people's motivations and responses might be to various different choices that we might make.

Thank you. Just following on from what Mike was talking about in his point around council tax being an extremely regressive tax, have you considered what policies would reduce the burden of using these regressive taxes and use more progressive ones such as income tax? In that balance, it's balancing out what you can do with council tax as opposed to income tax, and whether or not one is less regressive than the other. Council tax, as Mike says, is harder to avoid because the building is there, but then again it hits everybody equally and therefore it's the more vulnerable and the people on lower incomes who are hit disproportionately.

Income tax is a more progressive tax than council tax, and we are concerned that council tax is a regressive tax, and that's why we've got the piece of work that we're undertaking at the moment looking at reforming council tax for the future, to make it fairer for everybody. And of course, this is a piece of work that we're undertaking in partnership, through our co-operation agreement with Plaid Cymru. We've had a phase 1 consultation, which looks at some of the big questions that we will need to explore—so, just setting out that it's not our intention that this exercise should be revenue raising, for example. That's really important, because some members of the public, their initial reaction was one of concern: 'Oh no, this is Welsh Government seeking to take more money'. It's not; the whole exercise is intended to be revenue neutral, it's about sharing that burden more fairly across the picture, in terms of those who are more able to pay. That's been a really important first-phase consultation. It's the intention to launch phase 2 later in 2023, and then we'll be consulting on a bit more of the detail of what we're proposing, having listened to over 1,000 consultation responses in our first phase, which was an incredible level of response.

There will be some really tricky questions for us to explore. Transitional relief, I think, will be one of those. Because, inevitably, when you undertake one of these exercises, there are winners and there are losers, so how do we, potentially, look to smooth things for some of those who will see an increase in their council tax. And again, we'll have to explore very carefully what the impact will be on local government finance through the revenue support grant and councils' ability to raise council tax locally. Again, are transitional arrangements needed in that space? So, it's a very detailed piece of work that we're undertaking. And all of this, of course, relates to the work that the Valuation Office Agency will be doing in terms of the revaluation of all of our properties here in Wales. When we have that detailed work, we will get a much greater and better sense of what the impact will be—on a geographic basis, on an income distribution basis, and looking at various different protected characteristics, and so on. So, it's a huge piece of work. I think that, when people say that revaluation and just potentially adding more bands, at the top or bottom, is a small undertaking, it's not a small undertaking at all, and it will take us this Senedd term, really, to make that kind of adjustment. But it's a big, exciting piece of work.

As part of that work, and in some casework I've been dealing with—and I'm sure it's in all our inboxes, and yours as well, Minister—it's people who are concerned about the cost of living and council tax arrears, and the fact that with council tax arrears, if you miss one payment, you're liable for the lot, and then, potentially, you have debt collectors at the door and some unsavoury practices going on in that field. Is that something that you can look at during the review of council tax and the collection of that, and then give guidance to local authorities as to how best to deal with council tax arrears in a compassionate way? And it might well help with the tax take from that for councils, if it's built into the system—that it's collected in a better way, or understanding what those issues are.

Definitely. The first thing to say, really, is that council tax collection rates are very high, which is a good thing. And also to say that, as part of our work, we're undertaking a review of our council tax premiums, exemptions and discounts. And that will be important in terms of ensuring that all of our support is targeted where it's most needed, and that people who need support aren't missing out. Because our council tax reduction scheme is tremendously successful, I think, in terms of supporting those households that most need it.

The point made about arrears is really important. As you say, if you miss one month, then you become liable for the whole year, and that obviously makes a difficult situation even worse for people. So that's something that we are committed to addressing. It would require legislative change, so I'm exploring how we might go about legislating for that in our future Bills that relate to council tax reform. I had some good discussions about it some time ago now with Citizens Advice. I know they've been very active in campaigning in this space, and we understand the points they make. But as you say, Chair, there are things that local government can also do right now, in terms of taking that person-centred approach to people who are falling behind on their council tax, or finding difficulties in paying bills. We do have a framework agreement, or a process agreement, with local authorities, which sets out ways in which they can identify individuals who are struggling and, rather than taking a punitive approach to them, explore what more they can be doing to help that household. Part of that might be looking, in the first instance, to see if they can access council tax reduction scheme support. We know that, in many cases, households are already missing out on that. If they're missing out on that, are they missing out on other sources of support? So, councils will have welfare advice officers, or they might signpost to Citizens Advice, who can help work with that household to maximise their income, which is really important as well. So, while we don't have the legislation in place at the moment to deal with that arrears issue, which you've rightly raised, we are trying to get that compassionate person-centred approach embedded.

As part of that, I'd encourage you, if you have time, to speak to the enforcement board that has been set up and is trying to regulate bailiffs and that punitive method of collection, which happens, and some of the practices that happen there. I think you'd find it very interesting to have that conversation with them, to see what you could do, using your local authority hat, to see how you can help local authorities, in that field, to make sure that the people who are really struggling aren't being made even worse. But that's a little bit of a segue there, as that certainly adds to the whole cost-of-living crisis.

Just finally from me, before I move on to Mike, on this section, going back to the work you were doing around looking at the income tax bands, would it be something that you might consider, getting the similar devolved powers, similar to Scotland, here in Wales, so that you actually could make those decisions, balance the risks, and do that ourselves here rather than having to follow what Westminster does?

I think that we wouldn't want to consider the future of taxes on that kind of piecemeal basis; we'd have to consider it in the round in terms of our overall approach to tax, through our tax policy framework and our overall strategy for devolved taxes. And also, I think, before we ask for those powers, we would have to do all the ground work in terms of understanding what the impacts would be, what level of risk we're comfortable taking on in this particular space, and do those risks make the benefits worth while? So, we haven't really gone into that kind of depth because, as I say, Welsh rates of income tax are just being embedded at the moment. It's possible for the future, but it depends on the appetite for risk, I think.

It might be worth starting now, because we know how long it takes for vacant land tax to be done. So, give it 10 years, then we might have to do it. But anyway, that being that, I'll go over to Mike.

Thank you. The fiscal framework does appear, to me at least, extremely unfair. There are annual limits on drawdown from the Wales reserve, there's a cap on borrowing. Peter had neither of those when he was leader of Monmouthshire County Council. So, you're under more constraints than the 22 major authorities in Wales. Are you making any progress on changing both those? Certainly, there's no rhyme or reason to have a limit on your drawdown from the money that has already been allocated to you.

I couldn't agree more, and I know that the Institute for Fiscal Studies has agreed with the points that you're making there, in terms of highlighting the case for having those enhanced powers, just to use the money that we are already have in the reserve, let alone having a reserve that is of a size that's appropriate now for the size of our budget. Because, as the First Minister was saying in the Chamber again just this week, the size of our Wales reserve, and the limits that we have on drawdown, haven't changed at all since that reserve was set up. And, at the very least, they should move in line with inflation, let alone the additional responsibilities, and so on, that the Senedd takes on.

I mean, without trying to tell you what do with the Government, wouldn't it be useful to bring a debate into the Senedd, in Government time, asking for all those things and see if we get unanimity amongst the Members here, so you would actually be able to tell the Westminster Government, 'This is what the Senedd collectively thinks, not just what the Government thinks'.

Yes. I would be very happy to do that. I can see Peter sitting next to you, so perhaps some kind of less formal political discussions to tee up that debate would be useful.

I would support more borrowing powers.

Okay. And the next question is on financial transaction capital. We haven't seen them as yet—or I haven't seen them as yet. If they exist, apologies. Do you know which areas roughly they're going to be allocated to when the final budget is published?

So, I might, again, ask Emma or Andrew to come in on this point, but, at the moment, we're still working through those issues relating to the reclassification of the Development Bank of Wales and trying to understand what exactly that means for the FT requirements of the bank, going forward, and that then will determine the level of funding that we have available. We do still intend to make allocations at the final budget in terms of FTs, but we've got an exercise ongoing at the moment looking across different departments for proposals. So, I probably wouldn't want to pre-empt the outcome of that.

But you've always got housing associations that you can give it to, if nothing else.

Yes, housing is one of our big areas for the use of FTs.

Yes. As with last year, actually, we didn't allocate FTs for the draft budget; we're doing it for the final budget. And, as the Minister has just said, we've got a number of proposals that officials are working through at the moment. Housing is, obviously, a key area, and committee members will know about the restrictions placed on this type of capital in terms of who we can give it to, but we've certainly got some very active discussions because it's a really important tool in our armoury. So, you can expect to see those in the final budget.

Do you know what the quantum is of that?

Not off the top of my head, but I can certainly come back to you.

It's about £100 million, isn't it?

Yes, it's about £100 million in each year available to allocate.

Pending the results of the reclassification.

Yes. I mean, I think our current assumption—. We were hoping the budgetary consequences of the reclassification would have been fully worked through by the time that we set FT budgets for future years, but we're still in discussion with Treasury about that, so I think we'll be operating on the old basis still.

Is that £100 million new money, or does it include money that has been paid back from previous financial transaction payments? It's meant to be a loan, isn't it?

Yes. So, it's probably best to think of it as currently unallocated rather than new money. So, there have been some changes in our FT budget, but there is some scope to recycle as well, so we'll try and make all of this as clear as we can, anyway, in the final budget.

What is the limitation on recycling, because I assumed that, when you had it, you could continue to recycle it?

Yes. We have repayment schedules with Treasury, and we have to meet those, but, within those constraints, we can recycle as much as we can, really.

Thank you. Can I ask you about the mutual investment model projects, or three big MIM projects—the A465 dualling, Velindre Cancer Centre and the construction pipeline for schools? I won't go through my view on MIM, because I think that's quite well known, but what is the impact on current and future costs of inflation?

Well, inflation is having a big effect on our investment programme, regardless of how we're financing it. Obviously, it's impacting on capital funding programmes, and it's certainly affecting the price of all infrastructure. So, on the schools, financial closure was reached on a couple of MIM schools projects before Christmas. The final price of those was significantly above the level at the outline business case stage where Ministers first took decisions to proceed. So, we're seeing that across the board, but it's worth reiterating the point that this isn't particularly an issue for MIM schemes; it's an issue for capital schemes more generally. And, I suppose, a point I would add is that the A465 contract, which was signed in October 2020 now—more than two years ago—inflation risk was taken by the contractor at that point. So, there has been significant cost inflation in road construction in the last two years, but that is being absorbed by the contractor because that's what the contract set out. So, we're not seeing price escalation on that project in a way that you would, perhaps, in a capital scheme.

Well, one of two things has happened, then: either the contract had too much money in it, or, secondly, they're going to give the contract back to you and just claim for what they've spent.

Well, neither of those things have happened.

But there are only two possibilities, aren't there? If you set a contract for £100 million, and £20 million has been added to it, and they're absorbing that, either they're being paid so much that they can afford to absorb it and continue to make a profit, or they'll just get ready to hand it back and claim for the work they've already done.

Yes, the margin is being squeezed—that's the first place to go.

Okay.

I think Rhianon wanted to come in.

Okay. I was just going to ask for some clarity, similarly to Mike, in a sense. Once the outline business case has been permitted, and that funding has gone into schools as a base for that, with the new inflationary levels and the impact on that, that doesn't come back to Welsh Government at all then, does it? It's still within the local authority’s mandate. What I'm thinking is: is it going to be a case that some of these projects are going to be absolutely unviable, and will there be some sort of conversation in terms of how they can still go ahead? Because, obviously, they're much, much more expensive than when they went through the outline business case and then the go-ahead was given. I'm just looking for a little bit of clarity, because I don't quite follow the process on that, if that's okay, Chair, very briefly. Because it's about the viability of this band B programme.

Yes, I suppose the key thing to say is that the commitment is made at the point the contract is signed. So, you have various stages prior to that where decisions are made to proceed to the next stage. But it's only at the point where you're signing the contract that you're really committing to spending the money. So, you do have that final decision point before you—. So, the OBCs for the Rhondda Cynon Taf schools and the Flintshire school were considered, I think, in 2021. But the funding was only committed at the point the contract was signed and financial close was achieved in October/November this year [correction: last year]. So, it's at that point you have to accept that the price is worth paying or not, as the case may be. It was very challenging, because the price had gone up a lot for us in the Welsh Government and for RCT and Flintshire for those schools, but, in the end, Ministers and local authorities decided to go ahead with those schemes based on the final price. But, yes, it does have a big effect on affordability.

Okay.

Thank you.

And finally from me, you know how few private finance initiative schemes there were in Wales—thank you very much, Rhodri Morgan. Have you considered paying them off at some stage? And with interest rates going up, I know, from a discussion we had with Anthony Hunt this morning, the Public Works Loan Board is lending at 5 per cent at the moment. Are you borrowing from the Government at exactly the same rate?

Do you want to come in on this one as well?

Yes. So, I think that's a bit higher than the rate we would get. I think we're looking at less than 4 per cent at the moment on—

Just can you write to us?

Yes, sure.

There we are. Peter.

Thank you, Chair. I wouldn't mind exploring budget prioritisation and prevention and how the impacts of the budget are demonstrated. If I could start by—. What are the implications of pausing or reducing revenue spending in areas where you've decided to take this approach?

So, ahead of the publication of the draft budget, one of the pieces of work that we did was to reprioritise funding from some parts of Government towards public services, specifically local government and health and, obviously, we had some interventions that support the cost-of-living crisis and so on as well. So, there were areas where portfolio Ministers agreed to release funding from. So, I'll give you an example, being the prioritisation from within rural affairs. So, that's been limited to farm funding outside of the basic payment scheme, and I know how Mike Hedges will feel about that, so I might wait for him to come in on that. But it did reflect a reduction to the rural economic and sustainability budget expenditure line. So, that main expenditure group has a £63 million uplift through the multi-year settlement in 2022, but that's now been reduced by just under £9 million to £54 million. So, I know that Lesley Griffiths is now working through what that means for the specific things that she'll be able to support through that MEG, and I think that she gave evidence to the environment committee yesterday exploring in a bit more detail some of the difficult choices that she'll have to make in that space. That's just one example.

Yes—

Sorry, Peter, just on that point, which one was the largest-sized reprioritisation that you had? You talked about that one. Was it that one from Lesley Griffiths, or was it—?

Yes, percentage-wise, in terms of the overall MEG, it was the rural economic and sustainability BEL.

And in financial cost, the actual quantum?

I think the biggest area of reprioritisation, just because it's the biggest budget, is within the health MEG.

And was that one thing in particular?

No, it's spread across a lot of different programmes within that.

Okay. Sorry, Peter.

Thanks for giving that example of the one MEG, and that's where it's difficult, when many areas of things are now held or—not deprioritised, but sort of have to be shelved a little. When it's spread over so much, it's very difficult for us to challenge and understand what the actual impacts of that are, and it's something that is a theme, I think, others have felt; it's difficult to track what the implications of that are. And I'm conscious we won't be able to explore that here, but I think it would be helpful for the committee to perhaps get a deeper understanding of the consequences of having to prioritise—what that might have meant for the health MEG for instance. Because it's difficult when you're putting additional consequentials in, but you're taking something out or stopping something. It's difficult to understand the picture of that. So, it might be helpful if we could understand that at some point.

I think the BEL tables are really helpful in showing where money has been moved away from through the budget-setting process. And then every Minister has provided a written paper to committees, and often they tease out and explain some of those things. And also, obviously, each Minister will be discussing the particular movements within their budget within their own committees. But one thing that we have done in recent years is pull together the committee evidence—the papers particularly—and publish them as a single document, so that there's a greater level of transparency. And I think that the third sector, particularly, has found those helpful, so that they're able to see all of the evidence together and then look for those kinds of cross-Government implications of choices that have been made. So, we do make as much of it as accessible as possible.

Because that's the point—it's the implications for health, but it might have an implication, then, on social services, on transport, and it's that overarching—. It's the theme then, and then it's from that that you work out what the implication is to our communities and to our councils, or to whoever that's been targeted to. So, it's welcome to see that sort of work being done, and it is helpful, and more can be done to get into that detail. And the earlier that is able to come out, the better, obviously, for scrutiny sessions, and for being able to respond to budgets and say, 'Well, this is what we would have done if we were in your seat.' But, we're not able to do that, because, sometimes, the transparency isn't there until after the fact. So, it's always a difficult one, isn't it?

Shall I invite Emma to come in on this? But, before she does—and I hope she wasn't going to make the same point—it was around the strategic integrated impact assessments. So, the intention of that is to understand the multiple impacts, the cumulative impacts, of decisions that are made, particularly on people with protected characteristics. So, just understanding that decisions made here, and here, can have, combined, a very large impact on certain groups. So, it's trying to take decisions in a way that aren't isolated—[Inaudible.]

And we've all heard of, and had sessions about, gender budgeting, about all that sort of thing. So, it all feeds into it, so it all helps. But, sorry, Emma.

Just a couple of additional points, if I may, Chair. The Minister talked about the information that's come through the scrutiny committees, and I think the final scrutiny committee is perhaps even today, with the climate change Minister. We'll be publishing the full set of all of those papers, by the end, I think, of this month—we're waiting on a couple of final translations—so, you will have those. But what you're raising there is a really, really important point, which was really critical to the Minister and other Ministers when making some of the decisions around the budget, in terms of reprioritisation. I think Ministers were very conscious that a decision in one part of a portfolio couldn't be looked at in isolation from another, so a lot of that trade-off was considered within some of the conversations that were had whilst putting together the budget. And then, clearly, whilst you have the strategic conversations, it's also up to portfolio Ministers to make some of those decisions as well. But I think what you're touching on here is a really important point, which was a really significant one for us as Government, and we absolutely hear what you're saying in terms of your ability to scrutinise some of those, so we'll see what more we can do or what more we can share in that space as well.

Rhianon.

On that particular point, in terms of strategic integrated impact assessments and the establishment of BAGE, it would be very interesting for this committee if we could perhaps be informed as to what impacts that has had in terms of effects on this draft budget. I know that, with the pilots that we've got, there has been some criticism that it is just still very localised in those small pilots. How is it spread macro across the budget-making process? I hope that's acceptable, Chair.

Can I just add, on transparency and the level of information that we provide? We're always trying to provide as much information as we possibly can, and we haven't got the final figure this year, but last year we published more words than there are in The Lord of the Rings: The Two Towers, so it's a pretty hefty read. [Laughter.] I did it; I didn't count them all, but I added them up and I looked for comparable good reads. So, I just—. We do publish a huge amount, and I'm always wondering what more we can publish, or are we just publishing a lot that isn't in the format that people need? So, that kind of thing is really important.

And we're always trying to innovate. So, back in 2018, we published our first budget improvement plan, and I think that every year we're trying to do things differently, to explore new ways of communicating, engaging, assessing our budget. We've done the carbon impact assessments. That was a new innovation. We've done distributional impact assessments, which, again, show the impact of our choices on different groups. Our zero-based review of our capital budget, again that was a big undertaking, which led to a refocusing of our capital budgets towards our programme for government commitments. Gender budgeting—we've heard about that. One year, we did a cross-Government review, where we allocated different topics to Ministers that weren't in their portfolios, and they undertook some cross-Government work on key areas such as housing, early years, biodiversity and decarbonisation and so on. So, we're always trying to find new ways of improving our budget processes. But, again, if there are different things that you want to see us try, even if it's just experimenting for one year, we're very open to that.

If it's okay, just to follow on, you mentioned the reformed BAGE into BIIAG, the budget improvement and impact advisory group. We've had a working group within that group over the last 12 months, looking at specific elements associated with the impact assessments as well. Some improvements were taken forward as a result of this year's budget, but there's a lot more work to do there, and we'd be happy to provide you with a technical briefing or some updated information, to show you that line of sight to where the changes have been made, if helpful.

Thanks. Thanks for that. That was a useful discussion, and it's not only us who are wanting to get a better understanding. It was clear from the evidence session with the future generations commissioner, you know, that—. I think she's recommended to you that more provision of how budgets are shifting from acute actions to preventative measures would be helpful, and it would be helpful to lots of people. It's a theme coming through. You just alluded to how some of that is being played out, but I think the message from here and those who we've consulted is that there needs to be more clarity about how we can track that. We know you've got to make the difficult decisions, but it's important we assess the implications. How do we check the robustness of an equality impact assessment if we don't really know how the money is moved and shifted and things, you know?

Just moving on, further to that, the future generations commissioner identified that a key challenge for the budget team working on the strategic impact assessment was the lack of human resource. They were really struggling to do the work because, as she said, they were constantly responding to crises. To what extent would you agree with that statement?

I saw wry smiles either side of me when you were asking that question, but, yes, absolutely, the team has been extremely stretched over recent years. There was lots of work going on in terms of preparation for Brexit, and then, of course, when the pandemic hit, the work that the team had to undertake to manage the financial response to the budget was absolutely immense, and took its toll, I think. But also, since then, we've got the crisis in terms of responding to the cost of living and, again, that requires a financial response and a lot of work across Government. I know the team is very stretched, but I do think that the quality of the work that they still produce is really good, and I think you can see that in the documentation, and so on. So, I think that any finance Minister would say that they need a bigger team and more resources, both human resources and definitely financial resources as well, but I think with what we've got, we do well.

The budget improvement plan suggests that work on prevention was delayed as work on the strategic integrated impact assessment was undertaken. What can we expect to see once this future work on prevention is undertaken?

So, that's work now that officials are actively considering how we take forward, and it's set out in the budget improvement plan as one of the things that we will be taking forward. The first meeting of the BIIAG, [correction: The first meeting of the BIIAG this year,] which was held earlier this month, included a presentation on prevention, which then will be a springboard for further work in that sense to understand how we can better embed prevention in our budget and tax processes. And obviously, I'd be happy, if it would be helpful, for this committee to have that same presentation at some point, if that's something that you wanted to pursue.

But, I would say as well that there's good work happening on prevention across Government, not all necessarily relating to budget and tax processes, but relating to the work of prevention more widely. So, I know that the work that the health Minister is taking forward is really important in terms of establishing the NHS health inequalities group. So, that was established at the end of last year, and that's jointly between the NHS and Welsh Government, and it's remitted to maximise the impact of NHS Wales in tackling health inequalities in particular areas. So, one of those areas is about resource allocation and utilisation to try to ensure that that's obviously taking on a preventative role, knowing that people in more disadvantaged communities and people with protected characteristics are more likely to experience those health inequalities. So, you can see that work all across Government in different ways, beyond the work that we're doing within the budget.

And I think, actually, a lot of our spend relates to prevention in any case. The money that goes to health, obviously, there's a lot of preventative work going on there, but even when you think about the work that we're doing to support children, to support families in terms of tackling poverty, the free school meals work, the work that we're doing on the universal basic income, childcare support—all of those, if you like, are long-term preventative measures in terms of giving children and young people the best possible start in life. So, prevention comes in many ways, and I think that's one of the challenges, really, in terms of defining it. And also proving what hasn't happened is tricky, sometimes.

Yes. If I could move briefly on to carbon assessments. I know, in December, you said that they remained valid and you were content that they remained valid. I just wonder if you can confirm that you are still satisfied that all of the new actions identified in the budget do contribute to your net zero goals.

Yes, I'm satisfied that we don't need to redo the work that we did last time, because I think it's important, as well, to reflect that, last year, we were scrutinising a three-year budget after we undertook our spending review in response to the three-year budget settlement that we received. So, this budget builds on what we've previously laid. And, as part of the previous budget, we undertook that zero-based review of our capital plans, which meant that we were refocusing our capital spend towards our programme for government commitments, which were heavily leaning towards dealing with the climate and nature emergencies. It was all done through the lens of the climate and nature emergencies and the need to tackle the decarbonisation issues. So, I'm really pleased with that piece of work. If you look at the climate change MEG, it has half [correction: it has more than half] of our capital money within it and I know that that's a shift.

Obviously, there are challenges elsewhere in Government. Health has seen a lower capital budget as a result of that, and obviously, that comes with challenges of its own as well. So, I think that the work we did to do that carbon work still remains valid in the sense that we didn't have any additional capital to allocate this time and we haven't changed our capital plans beyond perhaps not delivering as much as we previously would have because of inflation. I suppose that will have a carbon impact in itself—a negative one.

And just moving on to another environmental theme, there have been challenges in that funding to support biodiversity has been reduced across the piece. I just wondered how you respond to that challenge.

I'll ask Andrew to come in on this.

Yes. I don't think we would recognise that funding for biodiversity has been reduced; it certainly hasn't been increased in line with inflation and maybe that's what is meant by the point. And just going back to that general point, particularly on the capital side—that we just haven't had any additional funding available to allocate. So, as a result, yes, the real value of some of these programmes has fallen a bit. But as the Minister pointed out, these are three-year spending plans set last year and there is growth built into some of those programmes. So, for example, the biodiversity budget line is part of a wider action, which is to deliver nature, conservation and forestry policies and local environmental improvement and the budget for that—the capital budget for that—is rising from £30 million this year to £50 million next year. So, we haven't been able to increase those allocations from last time around, but they are on an upward path.

Mike, I think, wants to come in.

I was going to say that, on biodiversity, not spending money is quite often a benefit. Roundabouts and grass verges, not having them cut down to an eighth of an inch above the ground, but allowing wildlife, including flowers as well as butterflies, et cetera, to spend their time there—. Sometimes, not spending money does more good than spending it, where people want—. One of Peter's colleagues wants us to go back to cutting them as low as possible.

Rhianon, did you want to come in?

Yes, it was just a brief comment on the dialogue around this biodiversity budget line. I think it was the future generations commissioner who said that it was a simple reallocation from other budget lines in terms of coming from funding for nature and natural resources. So, I don't know whether we can get more clarity on this issue of whether or not there's been a cut around this area, because it's not what you were saying—

I think it was more to do with it being a real-terms cut, because it's not keeping—

Oh, it's a flat budget.

So, effectively it's not a cut, as such, it's just more of a real-terms cut because of the inflationary pressure on it and what impact that has, then, on work that's carried out.

Okay, so, there is clarity around that. That's fine.

We have seen that in a number of areas where stakeholders have looked at the budget and seen that we haven't added additional money and then, because it's—

Inflationary.

Yes. Because it's a real-terms cut, if you like, they've interpreted that as a cut, but actually it's a flatline of budget or an unchanged budget. So, people do view things in different ways. You could view it as saying, 'Well, that budget line has been protected from the reprioritisation exercise'. So, there are different ways to look at it, but I can understand stakeholders—

No, that's made it more clear.

Has there been a reduction in the budget for Natural Resources Wales? Because that would have an impact on biodiversity.

[Inaudible.]—putting charges up.

Just looking at the numbers I've got, it's flat, so—

Flat. So, a real-terms cut—

Or protected.

Or protected, or whichever way you want to look at it. [Laughter.]

I suppose, really, just on that theme of meeting net zero objectives; I know, in December, you recognised that, obviously, capital invested in schools is going to deliver less in that regard now. So, do we have to accept that we're not going to meet our net zero objectives as we would have liked?

No, I don't think that we have to accept that, because when you look at the schools that Andrew referred to as having just had financial close, we've got the three to 16 all through Mynydd Isa campus in Flintshire and a batch of three primary schools in Rhondda Cynon Taff and they will all be net zero in operations. And in addition, all new build and major refurbishment projects that are being developed through the sustainable communities for learning programme are required to be delivered as net-zero carbon in operation, to reduce the amount of embodied carbon.

I see. So, in theory then, when local education authorities are looking at amending their schools, they're going to have to do that through other mitigations in their overarching programme, other than hitting anything that can touch net zero. So, you have to do some—what do you call it, something engineering, oh, I don't know what the terminology is for—

Value engineering.

Value engineering. So, so instead of certain wood in the doors, you put a different wood in the doors which is half the money. But net zero across the piece isn't compromised through the challenges around capital.

So, it won't be through our new-build programmes, but of course, I think, inevitably, we will be doing fewer new builds as a result of inflation. So, in that sense, what we will achieve overall will be will be less.

Yes. It's understanding the priority; it's net zero versus quality of physical building, and that's just a decision, isn't it? So, I think that's me covered.

Thank you very much. Rhianon.

My understanding, and forgive me if I'm wrong, is that all the new builds are being built to that requirement in terms of the band B programme from the get-go, so it would have been incorporated within that.

In terms of the vast array of available grants and portfolio of things that are available in the wide ether for our citizens—at least notionally, anyway—is there any update on progress to a more streamlined interface in terms of our devolved support schemes and allowances? I hear the words 'benefits charter' a lot in this regard; we know that they're coming from many different areas across the responsibilities of Government. What is the progress on that in terms of simplification?

Well, we're very committed to exactly what you described in terms of having that single point of contact for people to access the Welsh benefits system, if you like, and officials are working at the moment with the Centre for Digital Public Services to undertake some exploratory work to identify solutions, really, to streamline that process, so that we have a much more cohesive and unified system. And I know that the Bevan Foundation are also leading on some separate research in this space as well, and that looks at what the barriers are to people taking up the Welsh benefits. Because when we introduce schemes, we find that take-up, sometimes, isn't as good as we would have wanted, so we need to understand what's behind all of that as well.

The benefits charter that you referenced is a central element of that, and that will be principles upon which our benefits system is built. And I understand that the Minister for Social Justice is doing some work on that, as we speak, in terms of the income maximisation group and what they are able to offer to that conversation as well. So it's definitely an ongoing piece of work.

We're also exploring with local government as well how we can ensure that access to specific sources of funding, for example, the £200 winter fuel support scheme, is much more streamlined and easily accessible. So, some authorities were able to pay that almost automatically, very simply. With others, there had to be a much more user—. It relied much more on the individual to search out and access that funding instead.

Proactive.

Yes, 'proactive' is the word I was looking for.

Thank you.

Were there any discussions with possibly the Counsel General or the Minister for Social Justice around the general data protection regulation and data sharing across different organisations? Because I think, for me, it's probably one of the key things that unlock some of that benefits charter, so that organisations can talk to each other so that it's not that you have to repeat yourself every time, and it's that no wrong door. We're not going to rehearse those arguments again here, because we're all in that sort of place that understands that, but is that something that you've had conversations with the Counsel General or other Ministers on to see how we work out how we deal with data and the laws around sharing data?

That will definitely be part of the work that Jane Hutt is leading, as well as perceptions around data-sharing rules, as well, because, sometimes, even though data is able to be shared, there's a nervousness among organisations and individuals working in those organisations about sharing that data. And also systems as well—having systems that can talk to each other and share data is really important. All of that is encompassed, really, in the work that we're exploring.

And obviously, the minute you start talking about systems and technology, then there are big prices being bandied around, and that's where, in a constrained budget, we struggle then to marry the two, the investment and where you spend your money when we're struggling financially.

I think that's why it's so important that the Centre for Digital Public Services is so involved in this work as well, because they'll have a particular perspective and some really important expertise that they can share with us.

It would be useful, at some point, if we're updated on that progress and those meetings.

In regard, then, to the importance of improving energy efficiency across homes in Wales, what support will the Welsh Government provide?

You'll remember that we committed to several interventions, allocating over £190 million to eliminate fuel poverty as part of the spending review that was conducted last year. In that, we announced an increase in the Warm Homes programme budget of £5 million, to £35 million in this financial year. The total budget for the three-year spending period up to 2024-25 is £100 million. That's quite a significant intervention in that space. And £70 million is also being provided per year for the optimised retrofit programme to prioritise investment in social housing decarbonisation. That's in 2023-24 and 2024-25 through the Minister for Climate Change's portfolio. Obviously, you'll be aware that, certainly in this financial year, we've had the winter fuel support scheme, which was very successful in being provided to around 290,000 properties.

Thank you very much. We've heard about a number of different key, important schemes and initiatives in terms of assistance that are Wales specific. Education maintenance allowance, obviously, for quite a while has been highlighted as key to our young learners, and it's very much appreciated. In regard to an ability to raise those thresholds, particularly in line with inflation for this group within the draft budget, that wasn't taken. Bearing in mind the importance of it to that cohort, what impact do you think that will have? Obviously, it's a political choice.

I'll ask Emma just to come in in terms of what the modelling would tell us about what the increases might cost for the budget. But, as you say, it really is just a choice that we made within the available budget, and, again, a difficult, difficult choice that had to be made within the education portfolio.

We're maintaining the current budget at that £17.4 million per annum to provide £30 per week of support. When we did the modelling it suggested that about £8.2 million per annum would be needed to increase from £30 to £45 for the existing cohort, and then a further £15 million per annum on top of that to increase the household income thresholds in line with those that the Bevan Foundation have recommended. That is nearly £25 million. We've already talked about some of the difficult decisions that have had to be made, so it's not an insignificant amount that would be needed. But we do recognise the value of that allowance to individuals.

Much as I would like it to go up to £45, I think everybody in the room would, for a 10 per cent increase, which would take it in line with inflation, from the figures you gave me, would that be around £3.5 million?

Potentially, yes. We continue to model the impact. We're not ruling it out altogether, but it's not an easy decision.

It's a decision that's not your decision, it's a political decision, but £3.5 million in a whole lot of other places might be money better saved.

I would say as well, just reflecting on the discussions I've had with the education Minister as we went around setting the draft budget, there are big pressures within that particular budget as well, which I'm very mindful of.

Thank you. Finally, does this budget sufficiently prioritise policies that support protected groups and prevent households and individuals falling into crisis?

I think that you can see through the strategic impact assessment that we've done our best to understand the implications of our budget. One of the things that we're very mindful of in terms of our core reasons for doing the budget is to put our money where it's needed most. I hope we've been able to achieve that. I hope that the documentation really does provide some insight into that as well. Some of the additional funding that we've provided in this particular budget has been very much focused on public services. We know that people with protected characteristics are much more likely to rely on public services, so that in itself is a progressive and appropriate thing to do.

Thank you, Chair.

Thank you. Part of what we do here in this committee is looking at regulatory impact assessments for Bills. What oversight do you have as finance Minister regarding costs included in RIAs and how do these compare to implementation costs?

I regularly attend the Cabinet sub-committee on our legislative programme, and officials are obviously regularly engaged in terms of the development of the Bills. For the RIAs themselves, the responsibility there does lie with the relevant policy department and with the senior responsible officer for the Bill, because those will be the departments that have the detailed knowledge, they'll have the contacts with the stakeholders who might be affected, so they'll have the relationships that are needed to develop that RIA. But we do have the central team of economists within my department, and their role really is to work with those teams to provide technical advice, to guide those policy teams through the process, explaining methodologies where necessary, how to analyse the potential impacts, and also help point in the direction of useful sources of evidence and so on. That's the kind of role that the economists in my department play. It really is the responsibility overall of the policy department and the SRO. Do you want to add anything on the process?

I suppose the only thing to add is just that, where costs are estimated and then they turn out to be higher than expected, the starting point is that that's a risk held by the relevant department, it's not a finance Minister risk to underwrite potential cost—. 'Overruns' is not quite the right word. If you get your RIA wrong, it's not the finance Minister's risk, it's the department's risk. I think that's worth noting.

There's a table in the draft budget, in the narrative, which shows the implementation costs of Acts, and it's significantly higher in a lot of cases than the original budget. I know we've had inflationary costs and that sort of thing, but one of the frustrations of this committee quite often over the last year and a half, since I've been chairing, is that RIAs come in, and either the variance is huge, so you could be plus or minus 50 per cent, or something—you might as well just put a pin in a board, sort of thing—or there's no detail, and it's very hard then for us to do our job of scrutiny on a Bill, from a financial aspect, if there's either no data or that it's so wide you could drive a bus through it. Is there something that you can do with your colleagues in Cabinet to try and get the modelling better for Bills, so that, when we get an RIA, it actually is meaningful and is closer to the implementation, so that we see that the modelling converges on the implementation cost, so that tables like we've seen in the draft budget aren't the norm, that they're actually a lot closer and a lot more fiscally responsible, if you like, and then it doesn't put pressure on department budgets?

I think that there might be some specific reasons why some Bills are wide of the mark on this occasion. I'm thinking of the Public Health (Wales) Act 2017, which was one of the Bills that I took through the Senedd. One of the reasons why the costs have been different in this case is because there's a lot of work that was paused because of the pandemic, so there's catch-up work going on at the moment. That's one of the reasons why. Because, of course, we've got inflationary costs now that weren't known at the time, so that kind of catching up is now making the costs different. I think that's one of the examples. Obviously, the committee could approach various Ministers to comment on why there is a difference within the Bill. But yes, certainly, we'll reflect on your point as to what more we can do.

I think it just helps, from a scrutiny point of view, and from your own budget-setting aspect, if the numbers converge, then you've got a better chance of knowing how much you need to spend to make that Bill or that Act work. It would help with scrutiny, it would help in a lot of different ways, so it's just encouraging you to look at that. I know we have Ministers in here on nearly every single Bill to ask those questions, but it's that narrative, then, across the piece, when they do diverge, then we're not able to—. It's having a little bit more certainty around the figures that we get, or encouraging people to really actually give us information, because, in some cases, it's very scant. Anyway, I'll move on.

We can also explore if there's more we can do to explain why there is a large range in some cases. If we're not explaining adequately to committee why there's a range, then we need to reflect on that as well.

I think, with the education Bill that came before us, it had a very wide range, and when we drilled into it, there were different aspects to that that made sense. But it's encouraging Ministers to come with that forearmed, or to make us aware of it beforehand, so that we don't spend committee time trying to dig into that element—that we actually understand the numbers a bit better. It's just a point to make, really.

Shall I, then, as an action from the committee, at our next Cabinet sub-committee on the legislative programme, just take an opportunity to reflect to colleagues what I've heard from committee today, and then we can explore the issues a bit more?

Thank you, yes, that would be great. I'll go to Mike now.

Thank you, Peredur. It almost sounds like stating the obvious. Local authorities have been affected by inflation, they've been affected by a massive increase in energy prices, they've had pay awards, and all local authorities reported overspends in the current year, and they have got difficulty setting their budgets in future years. Are you concerned about that? Something that Peter and I tend to agree on: do you agree with CIPFA on what the minimum reserves are that local authorities should be keeping, and are you prepared to tell local authorities that that is what you expect?

First of all, just to agree with you in respect of the points about local government being in a very challenging situation at the moment for all of the reasons that you have described, but also to reflect really that we have provided local authorities with the best possible settlement.

We have talked already about quite painful reprioritsation exercises that we took across Government to make sure that we could provide funding for local government and for health, which was over and above the consequential funding that we received in respect of similar things from London. So, I think that that’s been well received, but it doesn’t negate those difficult choices that they will have to make in terms of council tax, in terms of looking to their reserves.

I know that many authorities have needed to use reserves in this financial year, and they intend to do it in the next financial year as well. Also, the fact that reserves across Wales are so varied. Some have significant reserves; some have much more slim reserves as well, on which to draw.

I do think that it’s for local authorities to set their reserves. We have had this discussion in a similar vein, really, about setting council tax within local government. We had that discussion in the Chamber this week as well. I think that it’s an important part of local democracy and holding local authorities to account locally, in terms of these decisions as well, but I’m happy to reflect on this further if the committee has a recommendation.

All I was going to say is that CIPFA are quite happy to have a view on it, and really, all I'm asking you to do is endorse CIPFA's view. Now, I'm sure that you and Andrew will have to go away and have a look at what CIPFA's view on it is, but can I ask you to go away and look at it, and if you're happy with that, to endorse it?

We'll definitely go and have a look at this further and have some further discussions with the local government finance officials as well.

Just linked to that—and I thank Mike for raising it, and I have raised it in the Chamber before now—have you given any consideration—? Mike has made a good point, and there is no criticism of authorities mounting significant reserves. Some have done it through prudence. Some have done it because of the fortunes of the system and how it works. But you can't get away from the fact that there are, in some councils, over £0.25 billion of usable reserves, made up of various elements.

One of the areas that I have focused on in the past is about earmarked reserves, which have the same status as general reserves. They are just earmarked for projects. As a past leader, I know how those reserves are often used. Have you thought about doing any review into earmarked reserves to see how they have been used over previous years, and what the expectation is for them to be used, so that the Government can consider how it mobilises money or adjust the RSG to create some better balance within the financials across the sector?

So, I think that, having reflected on discussions that we've had in the Chamber recently—and I know that the committee is interested in this as well—I might seek to have a discussion in the first instance with the finance sub-group, or ask members of the finance sub-group to go away and provide me with some advice on this particular issue, in terms of reserves.

I'm very glad that local authorities, for the most part, have significant reserves that they can draw on in this financial year and in the next two, because we are entering a very difficult period, likely to get even more difficult after the end of this spending review period. So, the setting of reserves and the agreeing of reserves locally, I think, is an important part of local democracy. Local scrutiny arrangements are really important in this space as well, but I'm happy to have a bit more of an in-depth look at the situation.

Finally from me: education and schools. The education budget's coming under pressure from increasing costs of home-to-school transport. That's not just in our back yard in Swansea, it's right across Wales. Prices have gone up considerably. I'm sure you're aware of it; are you concerned about it?

And the other thing, which again is on schools, is the position of the teachers' pay award. Now, I don't know what the teachers' pay award is eventually going to end up as; neither do you. But if there's a substantial difference between that which local authorities have budgeted for and what the final award is, it's going to have a serious effect on schools' budgets, which will lead to large-scale redundancies.

On the first point about learner travel and the challenges there, I was asked a similar question in the Local Government and Housing Committee last week, and I was able to tell them that the Deputy Minister for Climate Change has this within his portfolio, and was, I think, having some meetings that particular week. I did promise that I would provide a read-out of that meeting to that committee, so I'll make sure that I share it with you as well. But I know that it is an area of concern and something that he's very alive to.

We heard some matters this morning, didn't we, about that in particular? So, we'd be very interested in finding out how that discussion goes.

Yes, it does seem to be a very significant issue in some areas, made worse, I think, by the difficulties in recruiting bus drivers for school transport. That's something I know is of concern.

The concern is recruiting bus drivers per se, as, again, you know from our neck of the woods. I did ask about teachers' pay award.

Yes. The expectation is that teachers' pay will be met from within the settlement that we've provided. I know that Jeremy has been meeting with teachers' unions representatives, today, I believe. So, I haven't had a chance to hear how those meetings have gone, but given that things are quite sensitive at the moment, I probably wouldn't want to go into too much detail today.

I'm not pushing you on how much it's going to be—

Just who's going to pay for it.

If no additional money comes from Westminster, are local authorities on their own, which means schools are on their own, or will there be an opportunity to dip into reserves in order to partly fund it? I know health has its own reserve, which is bigger than yours. I don't think education has its own reserve, does it?

No. So, as I say, when we wrote to local authorities with the proposed settlement, it was clear in that letter that we would expect local authorities to include teachers' pay within that, and we were also clear around some of the other things that we would intend the settlement to deal with, such as the real living wage for social care workers, for example. So, the key issues, really, that local government have been telling us were their key pressures. But given the ongoing negotiations and discussions, I'd probably, Chair, rather not get into too much more detail on teachers' pay.

It just goes to demonstrate the ambiguities that there are for local authorities in this really unprecedented time. And in terms of the varieties of reserves, obviously local government is very, very varied across Wales in terms of the needs that it needs to meet for its population.

So, I'm going to move on to my questions—sorry, Chair. The WLGA told the Local Government and Housing Committee that local authorities were bending over backwards to support the health service. What conversations have taken place between health and local government portfolios to ensure that there's a co-ordinated approach, a holistic approach, to funding social care?

So, in my local government role, I meet regularly with the health Minister to discuss concerns relating to social services, although social services overall are of course the responsibility of the health Minister and the Deputy Minister for Social Services. So, my interest in those meetings, really, is about working with leaders and using that kind of convening role that I have about the regular meetings that I have with local government leaders. So, we've used some of those meetings to invite the health Minister along to speak directly to local government, to hear things from their perspective, because local government will also point to the fact that sometimes it's difficult to get people out of hospital in the first place—so, people who are waiting for prescriptions, for example; there are all kinds of reasons why there are blockages in the system. So, we're looking at it from both ends, really, to see what we can do to better align things and try and make that through-flow of people much more smooth. I think that's one of the big challenges that is facing the NHS at the moment. Also, the health Minister and the Deputy Minister for Social Services meet very regularly with local government social services portfolio holders, again to discuss these same issues in terms of how we can best move people through the system in a smoother way.

Thank you. We had a number of different witnesses earlier discussing around this particular area, particularly the Association of Directors of Social Services, around the pressures that there are. Although there's that welcome uplift of £165 million and the recurrent funding for the real living wage, they actually said that the draft budget is not going to put social care on a path to stability and sustainability, bearing in mind the acute pressures there are across the agenda there. How do you respond to that?

The budget does provide—. And let's remember again, this is part of the three-year spending review, so in the original spending review, we did announce significant additional funding for social care. So, in this budget, we've provided an additional £70 million to address the real living wage issues. I'm more than happy to say that that in itself is not going to address all of the challenges that social care is facing, but trying to create a system where we value properly the people who work in it and make sure they're paid properly, and also to prevent people leaving the service when they're already there. So, these are things that we hope that that £70 million additional funding will help address.

But we know that funding itself isn't everything in that space; it's about kudos, it's about respect for the workforce, ensuring that those who want to have that career progression have it, so all kinds of other issues that play into the workforce issues around social care. But, overall, I think that we've provided significant additional funding last year through the spending review, and particularly in this year as well. And again, if we could provide further funding, of course, it would be a priority area for us, but we're constrained by the resources that we have.

And in regard to the significant holistic pressures there are around retention of staff in social care, that money is obviously very welcome. How do you respond if it was said to be a drop in the ocean as to what is needed? You've mentioned the amount of money that we've got available to us, but—.

So, we definitely see this as being a step on that journey towards sustainability. So, the additional funding that we've provided through the three-year spending review and this year's funding as well. And, as I say, it's not all about funding; it's about addressing some of that churn that we have in the system, some of the difficult pathways that people have. That's part of the challenge, and that's why we've provided £133 million through the regional integration fund. That really is about trying to have a sector that can sustain itself for the future, and that operates in a different way. So, I think that particular fund will, again, be helpful in this regard.

And that leads nicely into my last question, which is quite simple.

Rhianon, could I just come in before you come in on that? With regard to social care, and in particular the services that are provided through the sector organisations and their budgets being funded through tendering processes through local authorities and health authorities, is there—? There's a significant pressure on those front-line workers; they're dealing with people who are very, very vulnerable. They're dealing with quite significant issues and taking that on themselves, and some of them are people who've come through those services themselves, so they're possibly re-living their own experiences going through. The cost-of-living crisis and the pressure of the cost of living on their salaries, the pay rises in local government aren't necessarily being passed on through those contracts into those third sector organisations. Is there anything that's able to be done to bolster those front-line vulnerable people, who are offering a fantastic service? Some of them are now having to find a second job to be able to put food on the table. And bearing in mind where they've come from, you know, mental health charities and also others, like hospices, where they are effectively competing with the NHS, and especially on nurses' pay, and we all know that that's a contentious issue at the moment. So, is there something that you can do that helps those front-line services and those contracts that allows local authorities to pass on extra moneys into those contracts, to make sure they get a decent pay rise and that it's not just that they only get extra money if they contract for extra work, or having to re—? You know, if something ain't broke, don't fix it. If they're delivering a service, but it comes to the end of a contract, and they have to re-tender but come up with some other new fandangled way of doing it, whereas, actually, it works perfectly well—. Is there something that you can do, or you can think of, that can help those processes?

So, two things to say there, the first being that I met with a group of five different organisations working in the children and young people sector—and, having heard your description of the issues, I think that perhaps we've met and spoken to the same people—they were making that case, really, in terms of the contracts and how they felt disadvantaged as compared to perhaps local government, who are offering the same service but on different conditions, and so on. So, although that's in the portfolio of the Deputy Minister for Social Services, I did commit, following that meeting, to taking it away. I know that she's very much alive to those issues, so I don't know if that's something that committee would want to write to her about for an update. But, I did respond and take back those concerns that I heard, which are the same that you did.

And then, the overall point on the time of contracts is really important as well, because we've known for a long time that the third sector has being concerned that, when contracts are given—you know, perhaps on a one-year basis—then they can't recruit the right staff, necessarily, in the first instance, and when they do, by the time the contract's half done, the person's looking to check if they can get a new job at the end of it, and so on. So, we've undertaken some work through our third sector group, which has been led by the third sector itself, and we've come now to a new process for contracts. I can provide committee with a written note on this, but, essentially, it allows us to offer contracts over a longer period, and those contracts can be renewed if the terms of the contract have been agreed and if it's satisfactorily benchmarked against the performance of other similar organisations. So, that's something that we've done recently. So, those are for Welsh Government contracts that we have, and we've encouraged local government to look at the work that we've done and try and embed that into their processes for longer term contracts. So, contracts can now be up to five years, for example, which makes a heck of a lot of difference to those local authorities, and the ability to roll those forward, I think, has helped a lot.

Because I've heard talk of being on a hamster wheel—that you're constantly having to reapply and then you're not getting the work done, and, at the end of the day, the service users struggle at the end of it. Anyway, sorry, Rhianon. I'll come across.

No, no, that's fine. Thank you. Finally from me, with regard to all of the holistic pressures in terms of inflation, in terms of wage, in terms of energy, workforce capacity, retention and all the rest of the cost-of-living pressures, is funding in 2023-24 sufficient in order to be able to invest in infrastructure and integration, let alone transformation?

So, I think that transformation has to be part of our core work, because we always need to be moving forward. So, I know that the Minister for Health and Social Services will be really keen to talk to her committee about the transformation programme. I think it's a budget of around £150 million that goes towards that, which will be important. I think that we have to transform. I don't think that it's either/or. It's not just business as usual. We have to be transforming if we are to relieve some of the pressures that we have in the system.

So, is the budget sufficient?

It has to be, because that's the budget. We could always do more more quickly, we could provide more services, we could provide better services, we could provide quicker services if we did have additional funding. We've spoken lots of times about how, over the course of this three-year period, the budget itself will fall, and that was even before we've talked about the impacts of inflation, and so on. We've talked about the lack of capital funding—that's really important for transformation as well. And just, overall, the fact that, had our budget risen in line with inflation since 2010, we would have billions of pounds more to be investing, but that's not the case. So, we absolutely have to focus the funding that we do have on the things that really matter.

Okay. Thank you.

Peter.

Thank you. We had an evidence session this morning with the Welsh NHS Confederation and ADSS Cymru, and what came through loud and clear was that the main issue around workforce was retention. That is the massive issue, especially if you think of, in social care, the challenges we have going ahead. I'm wondering, recognising those messages—you're hearing them all the time—can we expect any amendments in the final budget to look at recognising that situation, as it's so fundamental to unblocking the crisis that we have in the healthcare system here?

So, you will have seen the statement by the Minister for Health and Social Services yesterday agreeing Health Education and Improvement Wales's education and training plan 2023-24 for healthcare professionals in Wales. There will be a £17.8 million increase in funding—that's an 8 per cent increase—for 2023-24 for education and training in the NHS. That's the largest ever investment in workforce development. It's the ninth consecutive year in which we've had an increase in that budget, and it provides the highest ever number of training places. So, I think that that commitment is really clear.

And then, there will also, of course, be the £7 million towards our commitment to the new medical school in north Wales. That will obviously seek to ensure that we're training people here in Wales and providing opportunities for health professionals across Wales.

I mean, that's really important, and that's great that that's going ahead, because recruitment is really important. But, the focus today was on retention—holding on to those people. So, we can spend a huge amount of money getting people through the system and trained, and we've got to do that as well, but how do we hold that expertise in the system that we have? I don't know what the answers are, but it was a plea, certainly, that flowed this morning. So, any further consideration of that would be, I know, very much welcome.

If I can just move on quickly, just on the same subject, we know the immediate pressures that we're dealing with now. It's horrendous, it's challenging, and there are difficult decisions to be made. But, that doesn't stop longer term planning from taking place. So, is the Government looking at a long-term plan for funding health and social care? And, is there one, or will there be one shortly, so that we can see how we're going to climb out of this issue, from a workforce perspective, in due course?

Andrew's going to start on this one.

Yes. I mean, I suppose the most relevant bit of work that we're doing, which the FM has talked about, again, more recently, is the way that we pay for social care. Where, in the previous Senedd term, we did a lot of work on the potential for some kind of social care levy to fund the rising costs of social care provision, which are partly due to inflationary pressures but also demand pressures driven by demographics, and those long-term issues that you're talking about. We kind of set that to one side because the UK Government was planning on increasing UK taxes to increase funding. But things have played out a bit differently, perhaps, than were expected. So, that's an area that we're going to be picking up again. Yes. So, that's probably the most relevant area.

Yes, I think we look forward to seeing that; it gives everybody confidence, doesn't it, and the public as well.

The last question from me is about NHS overspend and financial discipline. We know that all but one of our local health boards are projecting a deficit position. Are you confident in that situation that the final performance of our NHS organisations isn't compromised?

So, we're closely monitoring NHS financial positions, and we do that on a monthly basis. That's done through the Minister for Health and Social Services, because, obviously, she has her own team of finance officials within the department, and that's done, as I say, through the NHS finance delivery unit.

They undertook detailed mid-year reviews with each organisation to confirm their expected outturn, and those meetings, then, were followed up by formal accounting officer letters submitted by the chief executives to Judith Paget, as the NHS Wales chief exec. And, so, you'll be aware, then, of the outcome of those letters, and, I think, that I perhaps will ask the Minister for Health and Social Services just to write to you now with the latest position, because it's something, as I say, that she monitors closely with her finance officials within the department. Unless there's anything further to add from Andrew.

The only thing to add is that our supplementary budget will be published in a few weeks' time and that will reflect any changes to the budgets in year.

Okay. Thank you.

Just finally, a couple of questions from me. We heard earlier, and we've heard from yourselves that you've got your priority areas, and you've outlined the priority areas. And we heard in evidence that, if everything's a priority, nothing's a priority, and, possibly, within the NHS, everything is a priority. But, could you give any insight into what has been deprioritised within the health budget to focus in on those real crisis issues that are—? We can name them; I don't need to name them now, but nurses' pay and all the things that we rehearsed in the Chamber yesterday in the debate. So, could you explain what are the things that have been deprioritised within the health budget?

So, I will, perhaps, again, ask the health Minister to include that in her response to you, but what I will say is that she has written to all the health boards, setting out her priorities over the coming three years. And she's very clear in that letter that it will involve the setting of a smaller number of key priorities within health. So, that will include, as the priorities: developing a closer relationship with local government in order to tackle the issues of delayed transfers of care, so speaking very much to the points that Rhianon was making earlier. And then, she says that primary and community care must focus on improved access across general practice, dentistry, optometry and pharmacy, so, again, that's responding to issues that come up frequently on the floor of the Senedd. And she says that urgent and emergency care must focus on implementing a seven-day service for same-day emergency care, and implement the 111 press 2 for mental health by January of this year. And planned care and recovery is being led by the national recovery programme, and that will set specific requirements for local health boards, and must be included in the submitted template that she sent out, and, again, she reinforces that that must be a priority for all health boards. And, then, just a couple of others, of course, one being cancer services—that they must work to enact the quality statement on cancer, and ensure that there's a reduction in the backlog of patients waiting too long on their cancer pathways; and mental health and child and adolescent mental health services must integrate improvements across all age services, and provide equity and parity between physical and mental health services.

So, she set out those as her priorities for the NHS, but, then, in addition, in an overarching way, really, asked for increased focus on developing the use of digital technology to transform the way that care is provided, and also focus on innovation, partnering with industry and academia. So, I think that, in focusing on those particular areas, she set out quite a clear agenda for the NHS.

So, do you believe that you've given sufficient funding in the budget process to be able to deliver all that?

Again, if there was more funding to provide, we obviously would look to do that, because public services are our priority for the budget, but I think that we've again provided the best possible settlement for the health service that we could, in the conditions that we find ourselves in. That doesn't mean it's not going to be difficult—and, as I say, with more money we could always do more more quickly, and so on—but under the circumstances it's certainly the best that we could possibly do.

Okay. I've got two questions—I'm just looking at the time—if you're okay for two more minutes. The Institute for Fiscal Studies told us that it would be worthwhile doing more analysis of what can be done to improve the efficiency of the NHS, and in particular learning not just from England but learning from within Wales on best practice and then from other parts of the UK and elsewhere in the world. Is that something that you would agree?

Learning from best practice is always something that we would want to encourage, but the health Minister will be closer to the systems that they have in place for sharing best practice, so, when she writes on the other issues, I'll make sure that everything is picked up.

And Mike, I think, wanted to come in on that.

This is definitely for you—invest-to-save. Will invest-to-save money be made available to health boards so that they can control, using a thermostat, the temperature in hospitals, they can bring in LED lighting, which has previously been used, and so that they can actually contact people by e-mail and text, rather than sending the millions of letters they send out currently?

So, the invest-to-save programme has been refocused towards children leaving care, so there are specific programmes looking to support those, so that's our focus now of the invest-to-save programme. That's not to say that health boards can't see the benefit from investing in those kinds of things that Mike Hedges has described. We've also provided funding for Ystadau Cymru. Ystadau Cymru is looking to see how it can work with the public sector estate to address, particularly, decarbonisation, so that's a piece of work that is going on there. So, there are other ways to achieve the things that Mike Hedges set out, whilst we're refocusing our efforts at the moment through invest-to-save on children leaving care, or young people leaving care.

There are specific funds for energy efficiency and invest-to-save kind of propositions, so it's worth noting that.

Could you write to us—through you, Chair—and tell us which health boards have taken them up?

Finally, you mentioned The Lord of the Rings earlier; the smallest people or the smallest things can sometimes have the biggest impact. In this budget, is there something small that's going to have a big impact?

I think that the additional funding, I hope, that we're providing to the real living wage within social care will have a big impact, I hope, in terms of recognising that workforce, because that, obviously, is one of our key areas of concern at the moment. But I was waiting for your last question, Chair—I was trying to anticipate what it would be, but I wasn't expecting a The Lord of the Rings one. [Laughter.]

There we are. Thank you very much for your time. Obviously, that was a little bit lighthearted, but obviously they're very difficult decisions you've had to make, and thank you for your time, as always, coming here and giving evidence. We'll mull over what we've heard and obviously produce a report, and then we'll have the debate in the Chamber. There'll be, as I said, a transcript available for you to check for accuracy. Thank you again for making your time available. Can we now go into private, please?