Finance Committee

So, we'll move on to item 3.

So, we'll move on to item 3, and we've got the Minister with us this morning on the supplementary budget. It's the first supplementary budget that we've got this morning. I wonder if you would, for the record, just introduce yourself and your officials, please. Diolch.

Yes, I'm Rebecca Evans. I'm the Minister for Finance and Local Government, and I'll ask the officials to introduce themselves.

Bore da. Good morning. I'm Emma Watkins. I'm deputy director for budget and government business in the Welsh Treasury.

Bore da. I'm Sharon Bounds. I'm the deputy director for financial controls in the Welsh Government.

Lovely. Thank you so much for attending this morning. I think we've got an hour or so to go through the supplementary budget. Obviously, we've heard on the news this morning about inflation staying static and there's talk of the Bank of England base rate changing tomorrow as well, so that has a bit of a bearing around the context of this morning.

I'd like to start by examining how the economic situation is impacting on affordability of the current budget and how you're planning to respond to some of the pressures. So, obviously, we're hearing about forecasts and, indeed, the announcements that inflation is going to be a persistent problem, and wage inflation and interest rates will be higher than anticipated. What assessment have you made, then, of how this will impact on how the revenue and capital allocations for the financial year can meet your objectives and deliver your plans?

Thank you, and good morning, Chair and committee. So, I think I'll just first reflect on how you can see the impact of inflation within the first supplementary budget. I suppose the key place where you would see that is in the £28 million that has been drawn down from the Wales reserve and allocated to the education and Welsh language main expenditure group, and that is for the costs of the 2022-23 pay award for teachers in schools and further education for the remainder of the academic year that falls within this financial year. So, I suppose that's where you can probably see it most visibly within the first supplementary budget.

Beyond that, we haven't made changes to our spending plans that you can see within the first supplementary budget because we are still quite early on in the financial year. So, it is a case, at the moment, that colleagues across the different MEGs will be looking to manage their spend within the envelope that they have. That might mean, for some colleagues, that they need to adapt some of their plans, to change some of their plans as the year moves on, just bearing in mind that things just cost more than they did before. And I think you can see that, for example, in what the Minister for housing has said in terms of the ambition for 20,000 net-zero homes. I think that she's been quite clear that she might be looking at some of those homes being not being brand-new build, but actually, for example, converting empty homes up to that standard, to bring them into the social-rented sector. So, I think that is one example. But, that said, I think it does still play a really important contribution more widely in terms of tackling some of the empty homes issues that we're facing as well. So, I think that it does require us to think more creatively about what we deliver. But, as I say, at this stage in the year, it really is about individual Ministers managing their budgets and their plans.

Okay. You talked about the £28 million, and we were talking before the session started, and, Peter, you were questioning that £28 million. I wonder if you wanted to—

I think, Minister, you made it clear—and good morning to you, to start with. Sorry. So, yes, the £28 million—I was wondering if that was going to cover all of the pay awards that are needed. It's covering schools, all school pay, so local authorities are not disadvantaged.

That's right. This allocation is specifically in relation to the teachers' pay deal, but in terms of the funding that falls within this financial year, because, of course, teachers' pay moves over two financial years, just because it operates on the academic year.

So, in any other areas where we've got to pay a pay deal, if there's no extra money flowing from UK Government, is there already contingency thinking about how that might have to come forward in any future supplementary plan?

The pay deal has been agreed in respect of the NHS. At the moment, of course, we're waiting to see how the UK Government has funded its NHS pay deal. We know that—. Well, the latest we would find out about it would be in February of next year, so in the supplementary estimates, and that would be completely unacceptable, because, of course, it means that we're almost budgeting in the dark, because it could be a significant consequential coming towards us. But, equally, they might be able to find it from existing underspends across Government, so we really do need some clarity and transparency on that, just to help us manage our own budgets.

We do have a meeting of the Finance: Interministerial Standing Committee on Thursday—tomorrow—of this week, so again it's an opportunity for both myself and the Minister in Scotland to be pressing those points with the Chief Secretary, and we hope that he'll be able to give us some clarity tomorrow, and, if not, fairly soon after that. We wonder, perhaps, if the UK Government is saving up an announcement to coincide with the seventy-fifth anniversary of the NHS, but the sooner we can get some clarity, the better.

Thank you.

Thank you. You were talking, in the scrutiny last year, and you mentioned managing capital budgets through over-programming and that, given inflation, you would need, nearer to the end, to consider whether projects need to be paused or delayed or even stopped. Which areas of capital investment were paused and reprogrammed towards the end of 2022-23, and have they had a knock-on impact into 2023-24?

We're still finalising our outturn position at the moment, and, obviously, we will write to committee in the normal way. But, to manage the capital position at the end of the last financial year, we did request that Treasury switch a further £7.6 million from revenue to capital. Now, that's in addition to the £57.4 million that was switched at the second supplementary budget, so we were able to scrutinise that in a previous session. That did allow us to proceed with the expenditure up to the forecast levels expected, without us needing to take any action to pause or reprogramme any of our capital investment.

In terms of this financial year, of course, we originally over-programmed by £98.5 million in the final budget, and that was with a view to try to ensure that we maximise the spend and that we didn't find ourselves with significant underspends emerging late on in the year. Now, that's reduced now to £61 million in the first supplementary budget, and that's as a result of the consequentials that came through in the spring budget and the main estimates. At this stage, we consider that level to be a manageable capital pressure, but, obviously, there are tools that we could use as the year goes on, but we're not overly concerned in respect of the £61 million over-programme, if you like, on capital.

It's worth saying as well, just reflecting on your first question, that, of course, within Welsh Treasury, we've got the chief economist and his team. So, we have a really good team who advise Welsh Government. They provide analysis and information constantly across Government. So, they're not just there to support Treasury and to support me; they support the whole Government with advice. So, all Ministers are able to utilise that to help them consider what their plans should be for the year as well.

Okay. Thanks. Mike.

Just two very brief questions on this. I think that, traditionally, capital schemes have drifted during the year because of the difficulty of getting contractors. But you've got then the other side—you've got the increase in costs that are incurred due to contractors charging more, if only because their capital costs have also increased. And the two won't balance out, obviously, because that would just be expecting the impossible. But, on drifting, I've no problem with schemes drifting. April is just a month—nothing actually happens if you're in that month, and if you do something in March or May, in terms of a project, it doesn't really matter, does it? So, the question I'm trying to get round to is: are you expecting some schemes to slow down because of natural events in terms of the cost to contractors, and difficulty getting contractors? I hear people talking in construction about the difficulty of getting contractors, and getting contractors on site at the right time, and getting the full mix of skills on site at the same time. Are you seeing that, and will it have an effect? And just saying what I said earlier, I don't think it matters very much if a building is completed on 31 March or completed on 1 May—no-one's going to worry much about it.

So, it's exactly the kind of situation that Mike is describing that led us to over-programme the capital budget, because, every year actually, we see those kinds of situations that Mike was describing in terms of slippage of projects, in terms of issues with the contractors. Supply chain issues have been a particular challenge in recent years as well. So, those are some of the reasons behind the over-programming on capital, just because we didn't want to get to the end of the year not having managed to deploy all of the capital funding. So, we thought this is a manageable over-programme, and, as I say, we still consider it manageable at this point in the year. But there are choices then at the end of the year—you can potentially slow down programmes to bring capital in where it needs to be.

And just on that, the question around—. Question 5, I think, in your pack, Mike, is probably pertinent at this point as well. So, what it is: the budget documentation notes that the annual draw-down limits for the Wales reserve have been waived for 2023-24. Will that help with regard to capital, because you'd be able to draw more down if you needed to? And we're just wondering what opportunities that creates for you. I know it was a question you were going to ask, Mike, but—

I'll ask the other question on this when you've finished that one.

Yes.

It could help us. I think our real concern this year is around revenue. Obviously, with capital, there's so much more we would like to do if we had more capital available. But I think that some of the big pressures that we're seeing relate to the NHS, for example, and also to public sector pay—that's been a huge pressure, and, of course, that's a revenue pressure. So, really, those discussions that we had with the Chief Secretary were recognising the real pressures that we have on our revenue, rather than capital. But, of course, it's a useful tool on the capital side as well.

And following on from that, are we making any progress on actually doing away with these limits, which are unusual? They exist as a tool to stop the SNP massively overspending and creating a financial crisis, which there's a fear that they would do if they could. But, as a responsible Government, surely we should be looking to get these removed. If Blaenau Gwent council can put whatever it wants in reserves and take whatever it wants out of reserves, why should the Welsh Government be treated less fairly than Blaenau Gwent council? And the question from that is: would it help if we, again, as a committee made representation to the Treasury, asking that those limits are removed and that you can move money in and out as you prudently wish to do so? You may wish to have an auditor agree that what you've done is prudent—but that's possibly one of the Treasury's problems—but it's your money, it's been allocated, why can't you spend it or save it as it suits the Welsh Government? So, two questions. Are they looking to change all of it? Would it help if this committee again made representations asking that we get treated to allow us to use any money that we've been allocated as we wish, whether we want to put it into reserves or whether we want to spend money from reserves?

Yes. So, we've always been really, really grateful to the committee, both in this Senedd and previous Senedds, because this isn't a political issue, it really is just a budget management issue, and I think that that's, to be fair, recognised across the Senedd—that it isn't political in any sense; it is just a managing-our-budget kind of issue. So, I think that that kind of cross-party support has been really, really helpful. We did make a little bit of progress in the supplementary estimates at the end of the last financial year, where there was a very small movement on the part of the Treasury. And of course, we've had a small movement again in terms of allowing us to draw down everything from the Wales reserve.

But I think that the big challenges, really, are the size of the Wales reserve and the amount that we're able to borrow, both annually and in aggregate as well. Those are challenges that continue. They're things that, again, we're going to raise with the Chief Secretary tomorrow. As I say, we have had some incremental movement, and maybe I'll ask Sharon to say a bit more about what happened—

But not substantial movement.

No, and not really enough to even recognise the impact of inflation since the rules were put in place. Even that, I think, would be a good move.

So, the last year the agreement was that we would get an estimate of the changes that we could expect in the supplementary estimate. It came too late. We wanted something, really, before Christmas, because trying to plan that expenditure is obviously quite difficult to do in a short space of time. We didn't receive that. I believe it was January that it came through with an estimate, with the agreement then that when the supplementary estimate was finalised—and that was in February—there would be a tolerance over 10 per cent different we would be allowed to carry forward outside of our Wales reserve agreement arrangements. So, it was a small change. Obviously, it's all welcome, but, really, finding out even at that stage of the year and even with 10 per cent—. Obviously, if it was a large amount, 10 per cent is still quite a lot of a tolerance to try and manage even then, within six weeks of the financial year. But it was a small change that we worked with at the end of last year.

And before—. I'll just bring Peter in, yes.

A quick follow-up. It's good that the limits are off this year, so you can access them more. I would be hopeful if that could be a recurring situation, perhaps, because I'm sure you'll be trying to use the opportunities that this year will unlock so that you could even draw down revenue to pump prime or invest to save or whatever, to try and get things going. I know that's very difficult if it's not a recurring opportunity, though. So, I'm assuming there is some innovative thinking going on about how you can use this window, if you like.

Yes, that is one of the challenges, because, of course, when it's gone, it's gone, and we know that next year is actually going to be another very challenging year, because, when we had the three-year spending review, of course, the bulk of the change was frontloaded into the first year and then small increases in years 2 and 3. So, I'm very mindful of that. But, obviously, we've got these real inflationary challenges to deal with; public sector pay is a huge challenge. So, I think that what I need to do at the moment is to get clarity from the UK Government in terms of the NHS pay and what, if any, additional funding will come to Wales as a result of that. And that will really help in terms of having that clarity as to what our choices are, really, for the rest of the year.

Obviously, they've allowed this relaxation for this year. How did it come about? Was it something that you requested or was it something that was volunteered, or—?

So, I always talk to the Chief Secretary about our need for more flexibility. We had our initial discussion on this particular issue in November 2022, and then I followed that up with a letter in January. And then, through February, the Chief Secretary said that he wanted our officials to work together, because, in the fiscal framework, there's a clause that says that if there’s an exceptional circumstance then you can draw more down from the Wales reserve. So, our officials worked together then on our case, on scrutinising our case, which basically said this is an exceptional circumstance and we do need the extra flexibility. So, again, in February, then, the Chief Secretary said that he was content with the case that we’d made within the fiscal framework and that we could draw down the full amount in this year if we needed to.

So, the chances of it happening next year are limited if it's not another exceptional year.

Yes. We'd have to make a separate case next year, then. But, of course, as we talked about in a different meeting yesterday, every year seems to be exceptional at the moment.

Yes, there we are. I'll get back on track, but thank you. Actually, whilst we're talking about the reserve, obviously subject to audit, what are the provisional figures for the Wales reserve at the moment for 2023-24?

We are still awaiting the final outturn position, so as soon as we have that we'll be able to fully update committee. I'm not sure, Sharon, if there's anything more we can say at this minute.

Not at this stage. It's basically because we have to incorporate the outturns of our arm's-length bodies as well. There are some large arm's-length bodies that we've only recently received the information in from—so, the Development Bank of Wales, Transport for Wales, Natural Resources Wales—there are quite significant amounts in that. They've only recently come in, so we're working through those at the moment. So, once we've done that then we'll be in a position to confirm at least what our provisional outturn is before it goes for the first draft then to audit, and obviously then it will go through the audit process.

We are—

Mike.

I was going to say: can you write to us when you have that information? Because I don't think there wouldn't be any benefit in bringing you in to talk to us, but, writing to us, we'd have that information ready.

We are expecting there to be some underspends last year, but not to breach the reserve, so it's within the reserve.

Thank you. Obviously, we talked earlier about some of the small changes in allocations within the supplementary budget, and many of the challenges that emerge throughout the year. What process do you go through at this stage to assess the affordability of your current plans to meet the objectives, and how then do you reprioritise the existing funds or the limited resources that you do hold in reserve?

Well, we have a monthly exercise right across Government where officials from each of the finance teams within each department will provide a return through the team that Sharon is involved with. So, I have meetings then with Sharon and the finance director and we go through those to understand where there are emerging underspends, where there are pressures and to get underneath those, really, and to work out what is the plan to manage that projected overspend—you know, are these underspends something that we should be concerned about, is there an opportunity to reprioritise that funding? So, we have those discussions on a monthly basis. At the moment, it is still early on in the year, so we just need to bear that in mind when we see different figures coming through, because things do change, sometimes significantly, from a month-to-month basis as well.

And I suppose by monitoring on a monthly basis you enshrine it then within the supplementary budget when it becomes a bit more clear that actually you've got underspends and overspends, and then you reprioritise.

When we're clear as to what the causes are for the potential overspends or the pressures, and then the underspends, sometimes it's a case, depending on the overall Government position, that individual Ministers will just reprioritise underspends within their own main expenditure groups. Now, if there are big pressures across Government then it might be something that I would want to take more of a central control of, but it depends, really, on the overall picture. But, generally, Ministers are often able to reprioritise. So, they might see a pressure in area A but underspend in B, and it just makes sense for them to manage that.

So, with this supplementary budget have you had to have that central view, or has it been more managed within MEGs, and it's just slippage, or whatever it might be, to be able to find that? Or have you actually taken that central control and said, 'Actually, I need more money from you to put here, from A to B'?

No, within the first supplementary budget, the main substance of it relates to the international financial reporting standard 16 reclassification, so that's the big area that you'll see—in terms of numbers at least; it doesn't change our spending power, unfortunately. But I suppose the main thing, really, is the draw-down from the Wales reserve. There are some consequentials from the main estimates and from the spring statement that I'm holding in reserves at the moment, as we see where we go to with those pressures across Government. And then there was £56 million that was the net result of transfers to and from other Government departments. Often it's the case that money will flow directly from the UK Government, such as the health surcharge, for example, directly to the health MEG and then on as necessary. Again, that's not really an active allocation; it's more about a transfer of funding. We transfer funding the other way too. So, we transfer funding to pay for the work that the Office for Budget Responsibility does for us, for example. So, you'll see those kinds of movements in the supplementary budget. But, really, I think the only thing in terms of allocations of note would be the £28 million from the Wales reserve in respect of teachers' pay.

Okay, thank you very much. Mike, over to you.

Donald Rumsfeld talked about known unknowns, and I'm going to talk about the big known unknown, which is pay. You don't know—and that's not a criticism; no-one knows—what a pay review body will produce, whether that would be acceptable, whether that would have to be increased after the pay review body produce their recommendation. These are all known unknowns in there. What flexibility do you have to respond to those recommendations? Would you expect to have consequentials? Because if teachers get a pay increase it'll be an England-and-Wales pay increase, and, therefore, the education budget in England as well as Wales would increase. A concern I have, which you don't share, I don't think, is that money can be moved from transportation, for example, in England, to health, and whether we actually get our consequentials of that, because I've had concerns about that for some time. It's not one you share. Do you still not share that concern?

I do think that there is an acceptable level of transparency in terms of the changes that are made within and between UK Government departments. The issue I have is the timeliness of that transparency. So, it does mean it is often difficult for us to know if an announcement that the UK Government might say has new money attached to it is really new money, because, of course, the money might have already been allocated in its original budget, but it's a new announcement, so it would be described as new money. So, there are those kinds of challenges, and maybe I'll ask Sharon again to talk a bit more about the ways in which we gather information from the UK Government.

A perfect example is the NHS pay issue. I don't want to labour that, but the UK Government went about those negotiations and agreements, I think, without knowing itself how it was going to fund them. Even though those agreements have now been made, it's still not in a position to say how they're going to be funded. I think that's quite an unacceptable position to be in. Again, another example would be the funding that the UK Government has given individual departments the freedom to provide as an uplift or a bonus, if you like, to civil service staff. Again, that was an announcement made with no prior warning to us, so, obviously, there's an expectation then that we take action, so some discussions are going on at the moment with the trade unions. I think those are two really good examples of where earlier and better engagement would help us in terms of making our particular plans.

Peter Walker was brilliant at making the same announcement several times. He'd go up to Merthyr and announce additional money for the south Wales Valleys, then he'd go up to Rhondda and say, 'There's additional money for the south Wales Valleys,' and that additional money he'd already allocated some time previously. So, I think that there is some concern that what is good and spun out to the media is not necessarily actually talking about additional real money. But the point I was trying to make was: money moved within the Government at Westminster from non-devolved or partially devolved areas to fully devolved areas, you're still confident we get our Barnet consequentials for that.

Shall I ask Sharon to say a bit more about the engagement?

I think it's fair to say that the level of transparency that we've had from the Treasury over recent years has certainly increased. We do get quite a lot of detail of each of the movements that are going on that then drive the changes to our budget. So, what should happen in the example that you've just given is, if there was a reduction in one Government department because of an underspend moving to another Government department, we should see that movement, and Barnett should be applied appropriately to both.

It has got quite complex in recent years, because what we've seen is that the Treasury have also looked at when that funding was provided in the first place, because of course, there are these nuances in Barnett that, depending on when you get the consequential, if it's a spending review, they'll add a comparability factor to it; if it's in an estimate, then it's on a programme basis. And they have added those nuances into the way the money has been applied.

So, on face value, and we have to trust, to a degree, this information that's coming through, we do get an opportunity to challenge, but I suppose I should counter that to say there's a lot of information and there's only so much that you can look at, and only so far that you can challenge. We're never going to get all the details of what's going on in UK Government departments, but we do get, I'd say, a reasonable level of transparency to feel assured that we're not losing out or that there was information that at least we'd be able to challenge.

I'll move on to something that is partially devolved, which is transportation. How do they deal with that, because if it is mainline railways, that's not devolved, if it's buses and roads, it is devolved, and how they describe the money being moved there means whether we get a consequential or not, doesn't it?

So, again, it can be complex, depending on when the additional money is going into, in this case, the Department for Transport. If it's happening during a spending review, it would normally be an over or uplift, but comparability factors would be applied, so we wouldn't get the full amount. It wouldn't be 100 per cent. So, you would get—I think in this case, our comparability with the Department of Transport is about 36 per cent, I think is the number, which of course is largely driven because of non-comparability with the rail programmes. If there is a programme funded, so more money going into a particular programme at a statement or an estimate, if that is then designated as anything other than an England-only scheme on which a Barnett would apply, then, you're correct in that there wouldn't be a Barnett consequential coming from that.

And we didn't get our 36 per cent of the big rail schemes, did we? We got zero of that—am I right— because they treat it as rail, which is non-devolved, as opposed to transportation, which as you said, is 36 per cent devolved.

I think if anything—. It's probably worth just checking back on this, but my understanding is that any money that is applied and provided through spending reviews, it's 36 per cent of the entire amount. It depends on the timing of when that additional money goes into the Department for Transport.

So, we got 36 per cent of the £6 billion being spent on the big rail schemes in England. So, somewhere, if I look at our accounts, I'll find roughly £2 billion of capital in there.

Sorry, would you mind repeating that?

You've got the big rail scheme in England.

Is it HS2?

HS2. I was covering HS1 and HS2; I was trying not to be too specific, but the high-speed links. You're saying now that we're getting 36 per cent of the money spent on that. Because we've been told differently in the Chamber—that we're actually getting nothing from that, and we all made a fuss about it, including Peter and his group, that we should be getting our share.

But we're not, are we? There's no consequential on it.

No, because it's an England-and-Wales scheme, so it's designated—

Yes, but we were just told that we get 36 per cent of transport spend.

Only for England projects.

With a project that goes—

I'll leave it to Sharon.

With a project that goes from one place in England to another place in England, cannot be seen as anything but an English project, if they actually nipped across to Wrexham, there might be an argument, but they don't.

Yes. It goes into policy. But it is zero per cent that we're getting.

We agree with the principle of what Mike's saying—

Yes, definitely.

—that Barnett is defined as a Welsh-English project, which is the challengeable point.

Yes. It's more a Westminster policy, probably, rather than for this committee to go into that.

We don't get—.

We don't get it, no.

There's definitely nothing in the supplementary budget. [Laughter.]

No, no. Exactly.

I'll stop here, but although we should get 36 per cent of expenditure, we're not getting that 36 per cent, and I think that's a point that all of us have made at different times, including you, Minister.

So, shall I ask Sharon to say a quick word as well—actually, it used to be over 80 per cent—just to say a little bit about how comparability factors are set at spending reviews and that kind of thing, just for the committee's interest?

Yes. So, it is, I suppose, quite a crude method, essentially, the way that comparability factors are set. They tend to be set at the beginning of each spending review, although that hasn't always been the case if the spending review has only been for one year. But essentially, we'll get sent a list of each UK department's spend, with an assessment then against that spend of whether it is seen to be a devolved programme or not, and that's straight zero or 100 per cent. All of those then are—. The total amount of spend against those programmes, usually in the baseline year, so, that's usually the year before the spending review, is totalled up and then the percentage of those that are 100 per cent will be applied to it, which comes out with a comparability factor. As the Minister said, with transport, before the last, probably few spending reviews now as far as transport is concerned, because of the issue with rail primarily, the comparability factor was around 80 per cent, but then it did drop quite dramatically to the 30 per cent in the last iteration of the spending review calculation.

I wonder, because Barnett is such a key element of what we scrutinise and try to understand, off the top of my head, would it be possible to get a technical briefing on some of this stuff just to understand some of that nuance and some of the real nitty-gritty of how it works? I know that I would benefit from it. I don't know if colleagues would, but if it's something that we could arrange at some point, then I would certainly appreciate that.

Definitely.

Great.

Moving on to something different, new accounting standards for leases. The Minister said something a few moments ago—well, more than a few moments ago, because I went on a bit—that it would not have any effect on spending on services, and that a lot of it is technical and a lot of it doesn't actually include the spending of money, it's just accountancy methodology. Have I got that correct, and does it mean that we're going to have any less money to spend than we thought we did when we set the main budget?

I'm going to turn to Sharon again for this one.

Okay.

'Yes' is the short answer to that. And certainly, for the period of this spending review, this is a new standard, as I've spoken about previously, that was implemented last year. It is very much a technical change about the way that we show leases through the accounts and, therefore, through the budget where we look at leasing arrangements more as if you are investing in an asset rather than paying for a service.

So, yes, the way that the UK Treasury have handled this is that they will apply those changes to our budget in line with what our forecasts are for the changes that were already within our plans. So, we've had to provide information to the UK Treasury about what that means. There are three main adjustments to our budget, one being the additional capital that is driven by leases that we enter into; that's new leases over this three-year period—quite substantial, as you've seen in the supplementary budget.

There are also, then, revenue adjustments, because the actual lease payments that are made, which previously would have required a revenue element to them, are no longer required, so, we get a reduction in our budget. There's £100 million in this supplementary for that. But because we are now treating these leases as capital assets, there is also a depreciation element of that. So, there is a corresponding increase to our ring-fenced revenue departmental expenditure line figure—was it £105 million—in this supplementary budget. So, those are the changes. They are all ring-fenced for the period of this spending review, so we do report back to the Treasury if there are any changes to our plans, but in the case of the capital, for example, which is obviously the most significant element of that, if we didn't enter into the leases that we originally planned to meet that, we couldn't do anything with that remaining capital, because it is ring-fenced just for the purposes of the implementation of the international financial reporting standard 16.

Just very simply, when did IFRS 16 actually come in—not for us, but when was it brought in as an international standard?

I believe—[Inaudible.]—for companies, it was 1 April 2018. The implementation in Government was delayed, I think, a few times, partly because of COVID in those years. So, I believe it was 2018. Obviously, I'm happy to correct that if that does turn out to be wrong. But that's my understanding.

What effect has it had on companies, if any, or is that outside your remit?

I can't answer that, I'm afraid. [Laughter.]

We'll need to ask that of somebody else. Okay.

Yes. I'll pass over to Peter.

Thank you. [Inaudible.]—last one, so I'm clear. So, basically, we saw £99.9 million come in as a consequential and that was to balance the regulation that Mike was just talking about.

Sorry, it's not cash terms. It's just an accounting—

No, no, it's an accounting movement. It's classed, in our briefing, as a consequential that came in, but it's to address this accounting situation. Is that right?

Sorry, I missed the very start of what you said and which figure you're talking about.

So, in our briefing, it talks of a £99.9 million consequential that came in, which I think is contra-ed by the £100.1 million IFRS-whatever—or have I read it all wrong—and they sort of counter themselves out? I may be—. I'm perhaps misunderstanding what I've read here; it's in our pack on page 64:

'Comprised of an additional £99.9m from Barnett consequentials and other UK Departmental net transfers...and a reduction of £100.1 million due to IFRS 16.'

So, it looks like it's an in-out movement.

Is the £99.9 million from Barnett the equivalent, effectively, to the £100 million IFRS 16, or are they two different things?

I think they're two different things, because we have had Barnett consequentials come through in the supplementary as a result of the announcements in the spring statement.

Oh, it's just a coincidence that they're the same size.

Possibly. Yes, obviously, we can't work through all of the numbers, but, yes, there have been consequentials, true consequentials, if you like. We don't necessarily refer to the IFRS 16 adjustments as consequentials, because they're not driven through Barnett.

Oh, I see, right.

So, they have just been allocations based on information that we've provided to the Treasury.

Okay. It was just a coincidence that they were in the same paragraph and they were the same figures; it just looked like it was an accounting exercise. Right, that's great.

I'll move on anyway. Talking about additional money, non-Barnett related capital, there is £58 million coming in to be allocated to growth deals and city deals. Can you give us some indication of what your expectation for that is?

Yes. So, this is the UK Government funding that has come through for the city and growth deals. So, at the point at which we receive that funding from the UK Government, it's moved into the MEG. So, in this case, actually, it's the finance and local government MEG. I should say, though, that the policy responsibility for city and growth deals sits with Vaughan Gething, but the contributions that are made to the city and growth deals, then, move through to the local authorities, and they decide on how best to use that funding. We do release that funding once the annual conditions for the release of funding have been met by the respective deal, and that goes through, then, to the—

So, that £58 million, you might not know at this point which growth deal is having how much of it, or whatever—that will sit under Vaughan Gething who will be overseeing the allocation of that out to the growth deals, I suppose.

So, shall I come in on that one? So, each of the growth deals, as you probably know, has a sort of business plan, a portfolio for expenditure, all at different stages at the moment. So, where that money goes will depend on which stage they're at with their business plan and at what point they need that funding. So, you know, the Cardiff city region one is probably further ahead than, for example, the mid Wales one. But, at an organisational level, to provide assurance to both our Ministers but also UK Government Ministers, we also have a city and growth deals board within the Welsh Government and we have a joint one with the UK Government as well, and each of the chief regional officers and their teams are part of that, in addition to ourselves. So, there's quite tight governance around it, but where it goes will depend on where they are in the business plan.

Obviously, I was involved with the Cardiff capital region city deal and the gateway reviews and the need to hit those before you draw down your next—. Is that the same approach that has to happen with the other three growth deals?

So, I think it's a similar approach across all of them. I'm not close enough to some of the detail, but there'll be those gateway reviews, there'll be portfolio reviews. I know, for example, there's a review of the mid Wales growth deal's overall plan in the next couple of weeks with our board as well.

Okay. Yes, that's great. I'm pretty clear on that. Thank you.

We know in the budget that there was no commitment for the Homes for Ukraine scheme in 2023-24, that you were having to fund our own supersponsor scheme yourselves. Will the announcement of £8 million from the UK Government partly go to funding the existing scheme, or are you going to use it for something else?

So, we've allocated, as colleagues will know, £40 million towards our support for people from Ukraine. The largest bulk of that is for the initial accommodation, food, that kind of wraparound support and the welcome phase of people's arrival here, but then we've also funded 'thank you' payments, top-ups, for hosts, we've got the contact centre, emergency transport, translation costs, pet accommodation costs, and also a data platform. We've got a discretionary fund and also some support for move-on. So, I think that what we have allocated through that £40 million does give a quite comprehensive package of support. So, I think the £40 million seems to be adequate for the plans that we have.

So, the additional £8 million we're having, won't you sort of contra that, or just put that against that £40 million, so that you've only actually had to put £32 million?

I'm not making any funding decisions at the moment until we have some clarity from the UK Government. But looking at the level of spend and the plans, and the fact that, actually, now, the numbers of people arriving from Ukraine have really fallen away, I think that the funding that we have allocated is adequate to the job at the moment. So, I'll obviously keep it under review as well.

And a final question from me, but I think we covered it earlier on: can you give assurances that the education Minister is content that the actions you've taken around pay and things will prevent redundancies in schools, or some of the wider issues, perhaps, that schools have?

I think that the fact that we have allocated funding from reserves towards pay should give some assurance to local authorities and others about the commitment that we have. Ultimately, of course, schools are funded through local government, through the revenue support grant, which I don't need to tell you about, Peter, but it's not a ring-fenced amount of money, and it is for local authorities to determine those plans.

Also, when we've had additional funding from the UK Government recently—so, in the autumn statement, we had £117 million consequentials in relation to education—we've provided that to local authorities and also the additional funding we'd received in respect of social care, and additional funding beyond that as well, having reprioritised across Government. So, we've provided more than the consequentials. So, I think that we've done the best job that we can for local government, and the 7.9 per cent average increase, I think, should help them. I don't want to pretend for a second that they're not facing difficult decisions at the moment as well, given the impact of inflation that we started the session with.

Are you concerned—? Maybe putting your local government hat on rather than your finance hat, are you—? Anecdotally, I've heard of schools running deficit budgets in this year, and obviously that has to be made up within a 12-month period. Is there any concern around loss of jobs and teachers, not just from meeting that pay cap, but, obviously, if they're overspending in one year, they'll have to make it up in the next, and that impact? I wonder if there's anything you'd care to comment on, on that situation, and whether or not there's carrying a deficit forward—that sort of thing isn't allowed, I don't think; I might be wrong—within school budgets and that sort of thing.

Would it be helpful if I just got a short note from the education Minister on that, because he'll be much closer to the detail?

Yes. Probably more on policy, but it was just an interesting side.

Schools can carry forward deficit budgets, so long as they're in agreement, with a recovery plan. So, you might have a three-year recovery plan.

Right. Okay.

As long as the local authority approves it. They can't just say, 'We're going to run a deficit budget.' A number of people have seen the political benefit of running a deficit budget, but the local authority has control over it. There are times when you have to run a deficit budget. What happened in Swansea, in both Glais and Blaen-y-Maes, a number of houses had been constructed out of steel, then they were, effectively, knocked down and replaced, so you'd have a 12-month period when you had no children coming in from 300, 400 houses, and so, consequently, a deficit budget would be expected then. Because, when the houses were rebuilt, you'd expect the children to come back again, so it was just when you had a blip down. But, running—

Yes, I was just thinking, from the £28 million that's been effectively allocated for salaries and that pay award, is it enough to be able to offset some of that stuff? But maybe a note from the Minister might be useful, just to clarify that point. There we are. I think we've come to the end of our questions.

Just to update you on a couple of things, Minister. We're probably going to be writing to you with the responses from our consultation with the rest of the committees around the budget process. There were, effectively, two or three common themes: transparency; quality of evidence; and timeliness with that. I will write to you after this meeting with that and links to those letters, so that you're aware of what it was. But it was very good and, on the record, my thanks to all the committee Chairs for responding to that. So, it hopefully will help us improve the budget process. And I know, in passing, we've spoken about other things, and I think you said you were going to be writing to us on a couple of things. I wondered if you wanted to give us any updates of any letters that you will be sending in the near future.

Yes. I'll write to you very shortly with our plans in terms of when we will lay the draft and final budget for this financial year, so that letter will be with you very soon.

Lovely. Excellent. There we are. I think that's it for us. Thank you very much for your time this morning. I can never remember the—ah, there we are—Standing Order.

Under Standing Order 17.42, I resolve to exclude the public from the remainder of this meeting, if everybody's content. There we are. So, we'll go into private. Thank you.