Finance Committee

So, we'll move on, then, to our substantive item this morning, and that's the scrutiny of the Welsh Government's draft budget for 2024-25. We have our witnesses with us. We have the Minister with us and officials. Would you introduce yourself and your officials for the record, please?

Yes. It's Rebecca Evans, Minister for Finance and Local Government, and I'll ask the team to introduce themselves.

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

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

Okay. Thank you very much. A warm welcome to you.

Thank you for coming in and thank you for, obviously, the documentation on the budget that we had yesterday. So, we've been looking through that and trying to understand a little bit about the decisions that you've made and the impact of those. I'd like to start off by looking at the overall principles that you've undertaken, and the aims underpinning this budget, and how inflation has changed the affordability of the original plans. When you answered questions for us about the in-year changes you were making for 2023-24 to provide additional funding for the NHS and Transport for Wales, you mentioned that this will impact the 2024-25 budget planning process. Can you tell us how those decisions were made, and what—? The financial statement that you obviously put out yesterday—. The budget you put out yesterday, and the financial statement that we had in October has impacted on the budget process and the preparations.

Yes. So, the efforts that we made over the summer to make the statement that we did in October were to address the fact that our budget was worth £900 million less than at the time it was originally set. So, we needed to undertake some action to reprioritise across Government. We worked really closely with every department to look at areas where they could return money to the centre, and obviously remember then we added additional funding to the NHS and also to rail. In the first instance, we looked for areas where we could reassess our assumptions that we'd made for demand-led budgets. So, we were able to release some significant funding in those spaces. And then we looked at other areas where perhaps we could undertake activity over a longer period of time, reprofiling some of that, and then other areas where we could release funding and change our existing plans. Lots of what we did, though, in this financial year, was, in the end, a kind of one-off approach; so, for example, some of the work that we did in terms of revising our assumptions around demand-led budgets, looking at the actual reality of what had happened through the financial year, that allowed us to release significant funding. So that doesn't necessarily affect it next year. But what it did do was allow us to have further information, really, that we could refine our assumptions for next year on, because, remember, our budgets were set as part of our spending review back in 2021. So, for example, student support—we've been able to release £53.7 million [correction: £53.9 million] next year from the student support line. Now, that won't affect the support that students get in any way; it just is a reflection of our revised assumptions around the numbers of new starters.

Okay. So, can you talk us through some of the highlights of this budget? Who are the winners and losers, I suppose, within that?

So, this budget for the next financial year addresses the fact that the budget is worth £1.3 billion less as a result of inflation, and we've had to really focus in where our priority areas are. So, we know that the NHS and front-line core public services are the top priorities for people in Wales, and we wanted to reflect that in our budget. So, we undertook work right across Government, looking at every budget in every department to see what money we could repurpose as we reshaped our budget towards the NHS and to make sure that we could keep our promise to local government of the 3.1 per cent uplift. We were able to do that, reflecting the importance of local services, including schools and social care, but then we were also able to provide an additional £450 million for the NHS. Now, I should say that that doesn't entirely meet the pressures that we know exist within the NHS, so there'll still be some difficult choices for local health boards to be making in the period ahead, but I think it was as far as we could go in terms of the reprioritisation work that we did.

So, in the budget that we published yesterday, you'll see the changes that have taken place. There have been changes across every single department, so every Minister has looked to make changes to their existing plans so that we could reshape the budget towards those front-line core public services. Areas that I know have been of interest have been the rural affairs portfolio. Farmers told us that their No. 1 priority was that we maintained our commitments in respect of the basic payment scheme. That's a really significant amount of money that goes into the pockets of farmers to help them do the important work that they do. The Minister for rural affairs was really, really clear that she wanted to keep that promise as well, so that was the area that was protected within that budget.

It did mean, though, some other difficult choices for the rural affairs Minister. So, she will be releasing £40 million from the rural investment scheme funds. She'll be saying more as we approach the new financial year about the schemes that she will put in place and provide more detail, but there will still be £60 million available for that work to support rural communities. So, that's still, I think, a significant amount of funding. She also had to release some of the funding in relation to the promotion of Welsh food and drink, again, something that she didn't take lightly, and something that, under normal circumstances, you wouldn't want to do, but, given the huge pressures in front-line core public services, those were the choices that she made. So, I think that is the area of Government, percentage wise, where you'd see the largest cut within a single main expenditure group, and something that I know people are very interested in.

Mike Hedges, did you want to come in? If we could unmute Mike for me. There we are; go for it, Mike.

I want to make one comment. You can always reprofile capital, can't you, and you can always drift it on; just drifting it from March to April moves it into a future year. So, I assume that that's going to be happening. There are areas, and you've mentioned basic farm payments, and I remain unconvinced why that gets priority over a whole range of issues that affect people who are poor, but you've got other things that are protected, aren't they? Rail is protected, enterprise zones are protected. I could go on, but how do you decide which areas to protect, because, when you protect them, other areas end up having to find more?

So, overall, we've worked alongside a set of priorities for Government. So, those priorities were about protecting core front-line public services as far as possible, and you'll see funding that is redirected to that, and then delivering the greatest benefit to households that are hardest hit by the cost-of-living crisis, prioritising jobs wherever possible, and then working in partnership with other public sector bodies to face the financial storm together and refocusing spending away from non-devolved areas. So, those were the kinds of core principles, if you like, that guided our work.

Each Minister, though, has a series of programme for government commitments, statutory commitments and other commitments to various sectors that they have to deliver within their portfolios, and everyone is very passionate about everything that they do. So, those choices are difficult, but the rural affairs Minister was really, really clear that her priority was the basic payment scheme, bearing in mind its importance for the sustainability of the farming sector, especially in this period of flux as we move to the new support for farmers as well. So, she was very clear that that was her priority. I should say, though, respecting Mike's different view I know that he expresses in terms of support for the basic payment scheme, there are different choices available, as Mike says.

The point about capital is an important one. Our real pressures, though, that we’ve described in the budget in relation to that £1.3 billion, are on the revenue side, and the refocusing and reshaping of the budget has been on the revenue side. Our plans on capital haven’t changed significantly since we set them at the point at which we undertook our zero-based review, and that was as part of our 2021 spending review, which looked across the next three years. So, we haven’t significantly changed those, although we would hope—as we would hope this year—to be able to potentially switch some capital to revenue.

Just finally on that, the National Farmers Union—the Farmers Union of Wales, to get it right; it's the Farmers Union of Wales—have said that basic farm payments should be capped. Why don’t you agree with them?

So, I’ll leave the detail of the basic farm payment scheme and the scrutiny of that, if I may, to the rural affairs Minister, who’ll be appearing in front of the relevant committee, and she’ll have the full level of detail behind it.

Thanks for that. Rhianon. There we are. Hang on. There we are.

Very briefly, then. It’s just for clarification, if the Chair will let me. In terms of, I believe, the request around the electrification—of HS2 consequentials, sorry, the consequentials that should have come to Wales, have we had any clarification around that in terms of—? I believe the figure is quite considerable—is it about £260 million? Has there been anything back to us on that?

No, there’s been no funding provided to the Welsh Government in respect of the UK Government’s spend thus far on HS2, and, given the changes to the plans for the programme, clearly now it’s never going to be a Wales-and-England project; it’s a purely England project. So, we’ve already lost, as Rhianon says, £260 million in consequentials that should rightfully have come to Wales, and there’s no indication at the moment that the UK Government has any intention of providing that, although we continue, of course, to make the case.

Thank you.

Thanks for that. You talked about the £1.3 billion. Obviously, we’ve talked a lot about the £900 million over the summer as well. Can you talk us through what inflation calculation you used for that, what was the base point and how that looks over time and what the profile looks like going forward beyond this year as well? Because, obviously, we’ve had inflation figures coming today, and it’s dropped again to about 3.9 per cent, I think; I heard something on the radio on the way in. So, maybe, Andrew, do you want to cover that off?

Yes, thanks. So, the £1.3 billion estimate of how much less our budget is worth next year than when the budget was first set in 2021, that’s based on consumer prices index inflation across that period. Normally we use something called the GDP deflator to look at real changes in public spending. GDP deflator is an index that the Office for Budget Responsibility publish, but, across the period that we’re looking at here, there have been various factors that have meant that the GDP deflator doesn’t fully reflect the impact of inflation on public spending pressures. There’s a section about this, actually, in the chief economist’s report that was published yesterday alongside the budget, which I would commend to the committee. On pages 48 and 49 of that report, there’s a bit more detail about how we’ve assessed that inflationary hit on our spending power, and, obviously, if you use different indexes, you get different figures, so we’ve sort of spelt that out in a bit of detail in the paper.

Looking forward, again in the chief economist’s report, there's a chart that shows our projections of what our budget will be worth over the next few years. Obviously, there’s a degree of uncertainty there, because the budgets have not been set yet. That’s based on OBR public spending forecasts published at the autumn statement, and our projections are that the Welsh Government budget will grow only by around 0.5 per cent in real terms a year over the next three or four years, which is obviously a very constrained public spending position for us. It hasn't been as bad as that since back in the early years of the last decade.

Have you calculated the £1.3 billion figure using the deflator and what would that figure be?

So, the £1.3 billion uses the consumer price index. If we were using the GDP deflator it would be more like—it's about £700 million, so it's kind of in that range. We think £1.3 billion is a more accurate reflection than £700 million in terms of the loss of spending power.

Okay. And why do you think that the CPI is more reflective rather than the GDP deflator? Is that because—? Because CPI, obviously, is the pricing index of effectively the things that we buy, isn't it, rather than capital projects and those sorts of things that the deflator might take into account?

Yes, the GDP deflator is generally the right index to use, but there are a couple of things in this period, particularly the impact of the pandemic that had some particular impact on the GDP deflator, which—. We're getting into quite nitty-gritty detail about how the inflation indices work, which we can provide a note to the committee on, if that would be helpful.

That would be useful, yes, because this committee likes nitty-gritty. [Laughter.] Laura Anne wanted to ask a question. Thank you.

Thank you. Just coming back on the Minister saying that she had concerns, obviously, about the amount of money coming from the UK Government. The UK Conservative Government is increasing spending on public services with an extra £8 billion for health and adult social care in 2025 and an additional £2 billion for schools in 2024-25, which will trigger more Barnett consequentials for the Welsh Government. And this Labour Government, obviously, receives on average an additional £3.5 billion, with Wales receiving £1.20 for every £1 spent on health and education in Wales, but we're still not seeing you spending that on those areas. I mean, given your concerns, how is it that you're still finding the significant moneys that we're seeing going into the Senedd expansion?

So, I think the concerns about Senedd reform are a complete red herring, in the sense that when you look at our budget, £1 million is allocated to Senedd reform next year and we've just talked about a gap in our budget of £1.3 billion, and we've talked about funding going towards the basic payment scheme of more than £200 million. So, the amount that is actually for Senedd reform is just a tiny, tiny amount of our budget. And I think—this isn't a scrutiny session on Senedd reform, but the case for Senedd reform I think is well made in terms of the scrutiny power of the Senedd and being able to hold Government to account and the fact that our Senedd is so much smaller than the comparable Parliaments, population-wise, elsewhere. So, we could go on all day having discussions about Senedd reform, but I know that's not why we're here.

But then in terms of the funding for Welsh Government, actually, we only received £165 million [correction: £167 million] in the autumn statement for funding for next year and most of that related to the business rates decisions that were taken across the border, and we've announced our approach to business support alongside the budget yesterday. And when you look at the different approaches that we're taking—the NHS budget in England next year is now due to rise by less an 1 per cent, whereas because of the choices that we've made in our budget, the NHS budget will actually be raised by at least 4 per cent. So, I think that shows a different level of priority that we have on public services here in Wales.

Okay, I'll let Laura Anne come back in and then I know Rhianon wants to come in as well.

You talk of rises in the NHS, which of course, I think, will be welcomed across parties, of course, and everyone in Wales, but when you look at the £500 million that you haven't invested in the past, and being the only county in the UK to cut the health budget, do you think you're just making up for that or are these new moneys going into something else? Because when you look at the actual difference, there's not much in it, is there?

Spend per head in Wales on the NHS is significantly higher—9 per cent higher than across the border in England. And we saw in-year that we had to provide the NHS with an additional £425 million this year, and you've seen the action that we've taken for the budget for next year. And it really does reflect the fact that there is constant rising demand in the NHS. So, one of the figures that I know will be of interest to colleagues is that, of a population of just over 3 million people, 2 million people every month are having contact with the NHS, and that's staggering in terms of our reliance on the NHS and increasing pressure on the NHS. We've got an ageing population, which is obviously a welcome and good thing, but that does bring with it increased pressure on the NHS. And we're still seeing the impacts of the COVID pandemic flowing through the NHS as well. So, demand is very high in that sector, and I think it's right that we reshape our budget towards the NHS to allow it to deal with the existing pressures.

Rhianon.

Thank you. I'm not going to go down that route in terms of today's session, so, just for clarification, we mentioned linkage in terms of inflation, whether it's to the GDP deflator or the consumer price index. My information has got £1.5 billion less, if it's linked to the CPI as an index. I just wanted clarification because we've mentioned numerous times £1.3 billion less in terms of Wales's budget if it had been kept up to date with inflation. So, I just wanted clarity, Chair, on that.

Yes, no problem.

Yes, and I think you're referring to the figures produced by the Wales Fiscal Analysis centre, I think it was last week. I'm not 100 per cent sure why their number is a bit different from ours. It may be that they've done theirs on a difference price base. I think ours is done in 2021-22 prices, and I think theirs might be 2024-25. We're not 100 per cent sure, but—

We can certainly ask that question. I think they're giving evidence to us, so we can certainly ask that question of them to see.

Okay, and perhaps we can liaise directly just to get that clarity for the committee.

Lovely. Thank you very much. Whilst we're talking about the NHS, in your statement in October, obviously, £425 million was given to the NHS, and in this budget there's an extra £450 million. You also talked about cuts within departments. Is the £450 million now the net figure or the gross figure that they're getting, and are they still going to be asked to make cuts within that budget?

So, £450 million is the additional that will be provided in next year's budget, but the NHS still is going to have to make some difficult decisions. So, the health boards themselves will be making difficult decisions, but then there has been a level of reprioritisation within the health main expenditure group itself in order to help make a contribution to the overall pressures. So, there'll be some savings beyond those identified in this financial year that the NHS will be needing to take, and then some specific choices that the health MEG has had to take. So, just as an example, they'll be releasing funding for front-line services by releasing funding from innovation and research, by refocusing some funding from Wales's digital strategy for health and social care, and by holding education and training budgets flat in 2024-25, rather than increasing them, as they'd originally intended, which will mean a reduction in the number of new training places, unfortunately, compared to what we'd originally hoped to achieve for next year. But, of course, there'll still be significant numbers of people entering training.

So, what's the price tag on all those reprioritisations, so that we get the net difference, I suppose?

We could come back on that with the detail.

Because, obviously, you're giving £450 million, and then effectively taking away as well. So, it's where does it end up at the end.

So, £450 million is the net increase in the health and social services MEG budget. So, that's—

So, after taking out all the efficiencies and the savings that the Minister just talked about, then the MEG will—

So, there are some reallocations within the MEG, which will potentially go into the NHS. There are obviously various programmes within the health and social services MEG that aren't direct funding for the NHS, and there are some movements in there. These are detailed in the budget expenditure line tables that were published yesterday. The health board settlements for 2024-25 have not been made yet, so that's still being worked through by the health department. I think it will probably be before Christmas, but they've not been done yet.

Okay. Thank you. And whilst we're talking about this, obviously you're the Minister for local government as well, and social care is a big aspect of working hand in hand with the NHS. By protecting local government to a certain extent—obviously, nowhere near what they would like, but being able to do that—what would you expect to see, working between the two MEGs, effectively, and being able to release some of the pressures on the NHS by social services and social care in particular being boosted? Is there any good news coming in that sense?

I think that there will still be considerable pressures in social care. Even with the 3.1 per cent overall uplift to local government, I know that they're going to have to face an awful lot of difficult decisions themselves, including in how they set rates of council tax and how they look at the other fees and charges they provide, and across the whole range of services they provide as well. So, when we're saying we've protected local government, we've been able to keep our promise of the 3.1 per cent, but we know that local authorities are still going to be finding it very difficult in the period ahead.

Of course, because we know that the housing grant and that sort of thing helps keep people in their homes, which means that they then don't become homeless, that they don't become sicker or that they don't end up in hospital—it's that vicious circle. So, it's how do we break some of those cycles, isn't it, and some of the written evidence that we've had in the consultation talks about catastrophes and 'disastrous' if things aren't maintained, at least, if not being able to find a little bit more money for that.

Yes, and I recognise the pressure that local government is under, that all public services are under, but let's remember again, looking back to the autumn statement, that there was no additional funding at all for public services in the autumn statement, which is why we've had to look at other areas of Government to shift money towards that. And then when we look at the budget previous to that, any funding that was announced for next year was largely, then, in relation to childcare measures, so there's again another budget where the UK Government failed to invest in public services. It really does get to the point where you have to look beyond front-line public services to see what we can move to shift to bolster that. So, it has been a series of really difficult decisions.

Just on the housing support grant, that's an area that's been protected. There have been no reductions to that in the budget this time.

Okay, thank you.

And it's £166.7 million, and that really is a significant amount of money. I know, again, the sector would like to see that uplifted, and this sector does amazing work and really important work, but we have to see it in the overall context of our Welsh Government budget being worth so much less and having to focus in on the NHS and local government. So, just to recognise, really, that what you're being told by various sectors—we understand what their concerns are.

Okay, thank you. Laura Anne, I'll bring you in briefly and then we'll probably have to move on. Thank you.

Sorry, just a technical point. Apparently, this session can't be viewed outside Tŷ Hywel. Sorry, Chair—I just wanted to inform you of that.

Oh, right. Okay, thank you. We'll investigate into that and see what's happening. Okay. Okey-dokes. I believe it's being recorded, though, Laura Anne, so at least it will be available to catch up. That's my understanding, I think. Yes, okay, excellent. Thanks for letting me know. Thank you.

Okay, if we move on to looking at the transparency of UK Government funding. Reflecting on the recent UK statement, what improvements would you like to see from UK Government in terms of timeliness and transparency of communication regarding the significant funding announcements that impact on the budget available? Obviously, we're meeting in recess; it's not ideal by any stretch of the imagination, and we would have liked to have had a debate in the Chamber. We're not going to have that until 9 January now. So, could you reflect a little bit on what you would like to see, in an ideal world?

Yes, and I do recognise the criticism that we've received for publishing the draft budget in recess, but what most people don't appreciate is what sits behind that, that we only find out our budget in—. Well, it was 22 November this year, and that gives us very little time, really, to be able to craft a budget of over £23 billion and do all of the work that is required to do that, and to assure ourselves that we've got things right, to publish the vast range of documentation that goes alongside the budget. We would absolutely love to be able to do it earlier, but three and a half weeks is, I think, the absolute bare minimum that we need to be able to craft a budget.

We know that when the UK Government is considering the timings of its fiscal events, one of the things that they have on their list of considerations is the impact on devolved Governments. They knew the difficulty that this was going to cause us, and cause the Senedd in terms of your scrutiny role, but obviously didn't give that much priority in terms of the timing. That, I think, is concerning. What's always frustrating as well is the level of information that is shared ahead of these events. I had my usual call with the Chief Secretary to the Treasury on the morning of the autumn statement, but those calls are very perfunctory; you are just told your overall increases to the budget, or decreases to the budget. You can ask a series of questions—as I always do—trying to probe what else is in the budget that would have an impact for Wales, what are their tax choices that will have impacts for us, but the information is never forthcoming. So, lots of the announcements we really just see alongside everybody else. That, I think, is frustrating.

And then on the timeliness as well, we find ourselves, sometimes, at supplementary budgets seeing our budget change significantly at the end of the financial year. Our budget could increase significantly at the end of the year, and then we're faced with choices as to how to deploy money very quickly. And also, we could have taken difficult decisions up to that point that we might not needed to have done in the event. Or you can see our budget decrease significantly at the end of the year as well. Again, that's very difficult for us to manage. What we want to see is for the UK Government to put arrangements in place where we can manage those things over financial years, so if, late in the year, we find ourselves with an additional £50 million, for the sake of argument, then we should be allowed, as a matter of course, to take that into the next financial year, outside of the constraints of the Wales reserve. Those are just simple things that the UK Government could do to help us manage our budget more effectively and spend public money more effectively.

Are you confident that a different Chancellor might heed those calls?

I'm definitely confident we would have a different kind of conversation with a different coloured Government in Westminster, because I know that there would be a different approach to devolution. One of the challenges that we get, I think, is a Treasury that is hostile to devolution, and doesn't look for ways in which it can support the Welsh Government to make the best use of money.

One of the things as well I sense with the Treasury is they see everything as a kind of zero-sum game. When I sit down with the Chief Secretary, the conversations I want to be having are around how do we work together to best allow the Welsh Government to use its budget to deliver best for people in Wales. That should be what both sides of the table are coming to. But Treasury approaches things more like a negotiation. So, if we were to have the same borrowing powers, for example, that Scotland's just had as a result of its review of its fiscal framework, or if we were allowed to increase our Wales reserve in line with inflation—those are things that we should be able to have, and they're not consequential to Treasury at all—Treasury, then, would want us to give up something. It shouldn't be that kind of negotiation; it should be two organisations working together to see what they can do that would make things best for Wales.

Thank you. Just on Laura's point just now, I understand that there have been technical issues this morning, which has meant that this meeting is not being broadcast live on Senedd.tv, as it usually is. The public gallery has been open throughout the meeting, so it is a public meeting from that sense of it, for Standing Orders. However, apologies to anybody who's been trying to listen in. But it is being recorded and will be available after the meeting, so at least people will be able to catch up, even if they haven't been able to see it live. The transcript will be available as well later. So, just to point that out. And apologies to everybody who's been waiting with bated breath to watch this live at home. So, that's unfortunate, but there we are.

I'll move on now to Mike Hedges, if I may. Mike, did you want to start with your set of questions?

To me, it appears ridiculous—and I don't know whether the Minister agrees—that we don't have the same powers over borrowing and the same powers over use of reserves that exist with Swansea Council.

Mike Hedges is absolutely right that, actually, councils do have much more flexibility in managing their budgets than we do as the Welsh Government. On borrowing, for example, we're limited to borrowing £150 million a year, and up to £1 billion. Every year since we've had those powers, we've been aiming to borrow the maximum. But I've just spoken about those kinds of year-end issues that arise, and we've found that in previous years—that at the end of the financial year, you have a big lump of capital, and so you don't need to borrow after all. What we do is use our borrowing powers at the very end of the financial year. We plan to borrow, and we do that within our budget, but then only borrow when we actually need to as we get towards the end of the financial year. So, yes, I completely agree with what Mike Hedges has been setting out there.

Do you wish you'd borrowed earlier this time, because, obviously, interest rates have shot up?

We still overprogramme our budget as well to try and make sure that we do make use of that borrowing. Maybe I'll ask Andrew to talk about our existing borrowing and what that means for repayments in future years.

We do, generally, borrow as late as possible in the financial year, for the reasons the Minister has laid out there—things happen late in the year that sometimes mean that we don't need to borrow, if that's the right way of putting it, because it's turned out we've had more money from the UK Government than we were expecting. It makes sense from that standpoint to leave your borrowing as late in the financial year as possible. But, as you say, there's a risk that your interest rate might be lower or higher. You can't control that.

It might be worth just adding that there is a figure in the budget for the costs of borrowing in the next financial year. That figure assumes that we borrow the full £150 million and is based on an interest rate of 4.5 per cent. Obviously, both of those assumptions might turn out to be wrong, if that's the right word. But we base our cost of borrowing in future years on our assumptions about the level of borrowing and the rate of interest that we have to pay on that.

The Office for Budget Responsibility forecasts for devolved Welsh taxes, published alongside the autumn statement, were revised upwards by around £150 million for 2024-25 compared to the March forecast. Do you anticipate any changes to funding due to reconciliations of outturn data for previous years? And has that extra £150 million been put into the budget?

It's a good opportunity here just to mention annex D in the budget document that was published yesterday, which is a new element in the budget that has been put in in response to a recommendation from the Finance Committee last year to provide more clarity about the interaction between tax forecasts and block-grant adjustments and reconciliations. It would be useful to know from the committee in due course whether that annex is helpful in terms of explaining what is a complex part of the overall picture.

There is an amount in the budget next year in relation to a reconciliation from outturn of income tax for 2021-22. There's that lag in terms of getting the outturn for the Welsh rates of income tax, and that means that the reconciliation is applied three financial years after the financial year in question. That's all spelt out in quite a lot of detail, I think, in annex D. The reconciliation this time, for 2021-22, is positive by £107 million. Overall, we've got around about £67 million additional to spend next year in relation to the devolved taxes and block-grant adjustments and reconciliations compared to the position as at the final budget last year. So, that's a positive movement. But hopefully that annex in the budget document helps spell that out as clearly as possible.

If we grow the tax base, then we will have more money, won't we? I'm not sure why we can't have in-year reconciliation, or certainly one-year-later reconciliation. Why do we have to wait three years to get the reconciliation? Have you had this discussion with the Treasury?

It does seem like a long time—well, it is a long time. It's really just a product of how HMRC administers the system. The outturn for 2021-22 was finalised in summer 2023. Partly it relates to the way that the self-assessment income tax part of the system works. People have a bit of time after the end of the financial year to put in their self-assessment returns, and all that works through. It would obviously be preferable to have all of that done quicker than it is, but that's the quickest it can be done at the moment. It's something we'll continue to talk to HMRC about. It's really an HMRC thing rather than a Treasury thing.

But would it not be possible for them to actually say, 'This is what we expect', and to allow you to use that money, but if you don't get all that money in, they take it back off you the following year? So, rather than getting more in the following year, getting it within the year, and if you had too much money, having to pay it back.

I think that's kind of how it works in practice. Basically, the years that you don't have outturn are based on forecasts of the levels, so what the reconciliation really does is adjust for what the actual outturn has been, after the fact. That can be positive or negative, depending on what the error in the forecast has been. In the year ahead, our level of funding is based on a forecast of what income tax receipts will be and what the block-grant adjustment will be, and those are then subsequently adjusted in light of later information.

In most years, the reconciliations are relatively small. Last year, the OBR's suggestion of how much income tax we would have was way out—nothing to do with the OBR, it's just that wages increased much more rapidly than anybody expected, therefore income tax increased more rapidly than anybody expected. I'm not sure why we can't actually have the increase during the year.

Was that statement or a question, Mike?

We'll treat it as a statement. It really is a point I wanted to make.

Has there been any progress in terms of implementing your planned vacant land tax?

'No' is the short answer to that. I met the latest Exchequer Secretary to the Treasury just a couple of weeks ago, and I hoped that we would be able to move things forward. Before the pandemic, I had a meeting with the Minister of the time, Jesse Norman, and we got to the point where it appeared that he was happy to write to colleagues in the UK Government as part of the process, so we were able to take things to the next step. So, that was positive. However, almost immediately after that then, the UK Government started asking us for more and more detailed information about the policy. It really is for the Senedd to be asking us for that information, and for the Senedd to be agreeing what the approach is. We didn't want to continue to provide more and more information. We've provided, I think, so much information, it's just difficult to see what more they want. So, I asked, 'What more do you want?' Now they want to know what the impact would be on taxes in England. Well, there won't be an impact on taxes in England, because the reason we chose a vacant land tax is because it's so narrow; it only relates to properties here in Wales. It's aimed to be a behavioural change tax rather than a revenue-raising tax in any case, so all of those things really won't impact across the border. We're still in a place now of trying to make the case. And I think that if you look at that and compare it to the approach the UK Government's taking in terms of building levies, Scotland has been able to have that power devolved to it almost instantly because it's something that the UK Government is also doing. So, it seems that if the UK Government understands, approves of and agrees with a policy behind devolving a tax, then it's happy to do it, whereas if it's not something the UK Government already intends to do itself in England, then it will just continue to push back. So, the approach isn't very equitable.

My final questions are on interest rates. I'm not asking you to predict interest rates next year. If I'd asked you to do that this time last year, you'd have been just as wrong as I was. So, you're not going to be able to do that. But are you going to look at the timing—? You talked about the timing of borrowing and borrowing towards the end of the year. Do other public sector organisations also do that towards the end of the year? I always think, and talk about—and you don't always agree with me—that there is a major revenue impact of borrowing.

Yes, I agree with that. Borrowing is a lot more expensive now than it was 18 months ago. Whether that's going to go up or the cost is going to go up or down next year is hard to predict. The markets are expecting flattish interest rates next year. As I think I said already, the numbers in the budget in terms of the cost of borrowing for the Welsh Government for the direct borrowing that we do, we're assuming 4.5 per cent as the interest rate. That may well not be right, but that's our expectation. A key point is that that's a lot higher than it was, and that cost has to be funded from revenue budgets, and revenue budgets, as the Minister said, are under massive, massive pressure. So, that changes the context quite significantly compared to where we were 18 months, two years ago, when capital was very, very cheap and borrowing costs were very low.

Thanks. I'm going to bring Laura Anne in in just a second. Just looking at the tax policy report that you've published alongside the budget, could you give us a couple of highlights from that, and what would be your main takeaways from that report—what should we be looking at and what's of interest within that report?

I'm glad you mentioned the report because we do publish an awful lot of documentation alongside the budget, much of which I think doesn't get the attention it deserves, because we do publish, for example, as Andrew mentioned, the chief economist's report. That's always a really, really useful read. The tax policy report, really, looks at some of the progress that we've made on our tax agenda. So, I think one thing that we can look back on over the last year that we've made some real progress on has been the reform of local finance—so, council tax reform and non-domestic rates. We're in the middle of a really important phase of that. And then, also, we've undertaken major consultation and consumer research to assist us with our approach to a visitor levy moving forward as well. So, I think those are two key areas of the report.

The report also refers to the work that we've done to look at the—well, the independent reports that have been done—to look at the implementation of the two fully devolved taxes. That was a commitment to do it within six years of the Bills receiving Royal Assent. And so, we've been able to do that, both of which, again, are really good reads, and also, I think, are really positive in the sense of showing the way in which we've gone about taking on these responsibilities and using those responsibilities in a way that is appropriate for Wales. So, again, those have been really important as well.

The tax report also sets out our tax principles that sit beneath, really, all of the choices that we make in relation to taxes.

You mentioned non-domestic rates there. Obviously, Welsh Government policy is different from what's happening over the border. There's been a little bit of concern by smaller businesses that the relief is going to be less in Wales than it is over the border. Could you talk us through making that decision, because that can't have been easy?

This is one of the difficult choices that we’ve had to make as a result of our focus on core front-line public services, essentially. So, the 75 per cent relief relates to retail, hospitality and leisure businesses, and that was due to end at the end of this financial year, but the UK Government decided to extend it [correction: to extend it in England]. That did mean that there would be consequential funding coming to Wales as a result, and it was also decided to make some changes to the multiplier in England. So, just to take the multiplier first, that gave us consequential funding of £18 million. We used all of that funding to set our multiplier at 5 per cent. It would otherwise be at 6.7 per cent next year. So, every single business that pays rates will benefit from that. And it’s worth also just saying at this point that half of businesses in Wales pay no rates at all, because of the level of support that we provide.

For the retail, hospitality and leisure sector, we’ve decided to set that rate [correction: that relief] at 40 per cent for next year, so essentially tapering down from what was only ever intended to be a short-term relief in any case, but also putting in place a £20 million capital fund so that businesses will be able to look to that fund to provide support for becoming more sustainable in future. Now, we’re still working up the details of that fund, but it might be, for example, around decarbonisation or that kind of work. So, as I say, on that fund, the detail is still being set, but it will be there at £20 million. So, we did take a different approach. It's worth as well just remembering that we spend £384 million a year supporting businesses with their rate relief in Wales, and that’s a really significant investment.

So, with the change from 75 per cent to 40 per cent, how much did that release?

That released £78 million for reprioritisation.

And then you've used £20 million of that, effectively, to create the fund.

No, the £20 million is additional capital that we've been able to find from elsewhere.

Okay. Thank you very much. Laura, your set of questions.

Thank you, Chair, and, just once again, it’s great to be in this committee today and to have the opportunity to help scrutinise the budget. I’m just going to ask you a question. The First Minister told the committee of the First Minister about the tensions when funding is so tight, particularly when supporting existing services and investing in preventative initiatives to reduce funding demand. How have you balanced these considerations, and to what extent is that and its implications described in the budget documentation? As shadow education Minister, I want to give you an example, of course. Something that’s really concerning to me is that the additional learning needs budget has been slashed by 86 per cent. As the Minister might be aware, there are significant rises in ALN presenting across Wales at the moment, and it is the No. 1 concern of schools across Wales. Therefore, I want to know how you balance those concerns that the First Minister outlined when there will be an obvious, significant negative impact of cutting this budget so significantly.

We've set out the impact of our choices in the strategic integrated impact assessment, and that really does look at the kind of choices that we've had to make and where the impacts will fall. Importantly, we look at cumulative impacts both in terms of people and place, so I think those are important. And I'd just stress as well that, at every point in the budget process, we are considering impacts and assessing what the choices might mean for people with protected characteristics or particular areas of Wales.

When I asked colleagues to look at making reductions in their budgets, as part of the thinking that officials would have been doing in terms of presenting options and having discussions with Ministers, they would have included time to think about what the impacts are. It is a real tension in terms of being able to drive that preventative agenda whilst also meeting the existing demand that is in the system at the moment, and you see that in health. So, I talked at the start about how demand on health services is ever growing, but equally how important it is that we maintain investment on the preventative side of things. I’ve seen it reported that there will be reductions in front-line mental health and substance misuse budgets. That’s not the case. Those budgets are maintained, and the NHS will be providing £800 million of support for mental health services, and that’s ring-fenced. That’s the largest ring-fenced area within the NHS. I think that’s important just to set as well, given the interest that there is in that particular area. I think Andrew wants to come in.

Yes, just on the additional learning grant, it's important to make clear that what's happening in education is there's an amalgamation of grants to local authorities for schools—various aspects of schools' funding—and so there'll be more detail on this provided in the evidence paper for the Children, Young People and Education Committee. I'm not sure when that will be sent, but that will be sent shortly, and that will provide a lot more detail on exactly what's happening there in terms of the education grant. But, basically, the ALN grant is being amalgamated into that wider schools grant that's going to be going to local authorities. And, actually, that overall schools grant is increased in 2024-25 compared to the indicative plans for 2024-25 that were published this time last year. But, as I say, there'll be more detail of that in the evidence paper to the children and young people's committee.

And just to say a little bit more about that, one of the things that we've been doing is looking to reduce the administrative burden on local authorities. When we asked local authorities what that would mean to them and what their key concerns are, we were told by local authorities that the administration system, the reporting system and the monitoring system around grants was one of the biggest administrative burdens. We have listened to that and, as a result, in the education portfolio, we'll be providing funding now through four grant elements rather than through—I think there were—twenty-odd, which are being amalgamated now, and they'll be: school standards, equity, reform and 'Cymraeg 2050'. So, we'll be seeing those grants merged and it will allow local authorities a greater level of flexibility. They'll still be looking to deliver on the things that the grants wanted to see delivered, but they'll be able to be more flexible as to how they use the money to deliver that. I know the education Minister will be saying more about that. So, where you look in the budget at different budget lines, you have to understand that, actually, they're being moved into a larger grant rather than being eliminated or cut.

Just before you carry on, Laura, the cynic in me always says that if you put pots together, you make a cut at the same time—it doesn't look the same. Is there a guarantee that the money is still there, and it's just in the administration that you're making the saving?

So, there have been some cuts within the range of grants, but we know that by providing local authorities with greater flexibility and dealing with the administrative burden, that does in itself release funding. And this is something that local government has asked us to be doing. I know the Minister's worked really closely with local government and with the education consortia to develop the approach to these four particular grants. So, there's been full transparency in those meetings about the amounts of money going into those grants, and I know that, in his paper to the education committee, he'll be wanting to set out more detail about that as well.

Yes, there's a detailed reconciliation from the old system to the new system in that paper for the education committee.

We can share it with this committee. I know you'll have a strong interest in that.

Thank you. Laura.

Thank you. Yes, I certainly look forward to those future discussions with the education Minister. You were talking about impact assessments just now. How have you updated impact assessments to inform your decision making? Do you use them for all your decision making across the board, and are those readily available? And in terms of your impact assessments, what did the impact assessments in your department come back with when you factored in the significant impact of cuts to our national cultural institutions, such as the National Library of Wales, the museum, and Sport Wales, which has already been massively underfunded in Wales compared to the rest of the UK? Thank you.

I should say at this point that we have published an updated SIIA in relation to the current financial year. This looks back at the changes that we made in October. That's been published on the Welsh Government website, so you can read the SIIA for the next financial year alongside that one, just so that there's some coherence, really, across the time period. I'll ask Emma to say a bit more about the approach to SIIAs, but I do want to recognise the cuts that have been referred to in some of our arts and culture and sports organisations. So, some of those have seen cuts of 10.5 per cent. But, that said, there is still significant funding available. So, the Arts Council of Wales will still receive more than £30 million of funding; Sport Wales, nearly £21 million; the national library, £11 million; and the national museum, around £25 million. So, there is still significant investment going in there, but I do understand the pressure now that those organisations will be under to make their budgets balance for the next year. So, they will have to take difficult decisions, just as we have had to, just as local government will, just as health will. Unfortunately, the overall position, you know, the budget's worth £1.3 billion less. It does mean that there are difficult choices to be made in every part of Welsh life.

As the committee are aware, we publish a strategic integrated impact assessment as part of our budget documentation. You can find that at annex A of the main budget narrative. And, right from the start of the budget process, when we're working with departments to talk to them about what funding they may need for specific policies and priorities, we ask them to set out the impacts associated with funding reductions or additional allocations. So, we do it right from the beginning of the process. Our work on the SIIA, as well as being underpinned by the principles the Minister talked about for this budget at the start of this committee session, are, of course, underpinned by the principles of the Well-being of Future Generations (Wales) Act 2015. That's set out in our strategic integrated impact assessment. So, we do look at the impacts collectively, accumulatively, individually as well. We pull those together to form the SIIA for the budget. But, of course, individual Ministers also have their own impact assessments of their choices that are being made, and they'll be set out within their evidence papers and, indeed, when they go to scrutiny committees. And you'll see the detail of a lot of the choices that the Government have made within the SIIA, whether it's, for example, around the NHS, but also how we've protected things like the pupil development grant, the basic income pilot, in line with the principles and priorities. But I think we do have to be—. And the Minister has been very open and honest about this, that spending more in some areas means we have had to spend less in other areas and they have been very difficult choices. Obviously, through the impact assessments, Government will seek to try to mitigate those impacts as much as possible, but I think we do have to be realistic about the very challenging nature of this budget and, consequently, of the impacts associated with it.

Thank you. My go, Chair?

Yes. Just—. I don't know if you were going to follow up on this—

I was, yes. Let me go.

—but if I could, with the impact on some of those cultural organisations, like the national library and others. The impact—and you talked about the impact there—the impact of a 10 per cent cut could well be job losses. In rural Wales, in particular, and further west in Ceredigion and that sort of area, where you've got the national library, and then in Carmarthenshire, you've got the botanical gardens, where there are significant cuts, what assessment have you made of the impact on the local economy of those people not being in work and the actual strain it then potentially puts on local government and the broader impact of those, effectively, job losses?

I think it's probably too early to be talking about job losses, because those arm's-length bodies have only had the details of their budgets yesterday, so they'll be working through a series of options. And other organisations, Cadw, for example, will be looking at their charging structures and looking to see what choices that they can make. So, I think it's too early, really, to be talking about job losses at this point. There will be difficult choices to be made across all kinds of organisations in the period ahead. I don't know if Andrew wants to say a bit more about the overall outlook in terms of what's expected for employment figures for next year and so on.

Probably the first thing to say is that, I think, a bit more than 90 per cent of public sector employees work in the NHS and local authorities. Those are the areas where the Government's prioritised funding, but, clearly, there are some areas of the public service that are facing much more challenging budget settlements than others, and so there will be those kinds of uneven impacts potentially. And it's worth adding, I guess, that we are moving into a period when unemployment in Wales is forecast to rise, and so squeezing public sector employment in that context exacerbates the challenges, but I guess the position the Government is in is having to make those judgments, relative judgments. There's less money available overall and choices have had to be made about which areas are protected and which areas are subject to less protection.

Okay. I know that Rhianon wanted to come in just briefly, and then we'll move on with your questions, Laura. Thanks.

Thank you. In a sense, my comment is absolutely connected to the workforce cascade down in this very difficult budget, and I'd just highlight that, overall, in terms of this budget that we're looking at today, yes, we've talked about the big beasts, but I think in terms of how, for instance, some organisations are going to suffer, for instance, National Theatre Wales, and also Mid Wales Opera receive zero funding from the Arts Council of Wales, and there will definitely be job impacts, but that's a matter, obviously, for the Arts Council of Wales, not for today, and I just wanted to flag that up. Sorry, Chair.

Thank you. Laura. There we are.

Thank you, Chair. You talk about the NHS, of course, and we see sticking-plaster solutions for previous cuts to the health budget from this Government, but what is clear is that you're cutting the preventative measures, as has just been outlined in terms of health and well-being. Obviously, we've outlined the cultural aspect, but also Sport Wales. This is going to have a significant impact on future generations, isn't it? And I'm just wondering, within those impact assessments, how you have taken that into account, because what you do now and if you cut those preventative measures, that's going to have a significant impact on the NHS in future.

So, I would start off, of course, by disagreeing that these are sticking-plaster approaches. This is real investment in the NHS, which is the area where the Welsh public tell us that they want to see us investing our funding. And then, I would just make the point that we have to deal with the budget that we have available to us. Now, if there were to be more funding available, of course, there are so many worthy things that happen across Wales all the time that have an important part to play in the preventative agenda, but when you think of the budget overall, and the work that is done in health, lots of that actually is low level and it can prevent people's conditions from becoming worse or more chronic over time as a result of early interventions. That's all part of the important work of the NHS.

Early intervention work is also a really important part of the work of local government as well, and the services that it provides through education, for example, and through social services support to people. So, I think that there are difficult choices to be made. We've set out the impacts of them in the SIIA, but, unfortunately, this budget is a result of the reality of the situation that we're facing, when we have a UK Government that is just not interested in public services and just seems to want to run things into the ground, because it knows it's in its dying days.

Thank you, Minister. It's all about priorities, isn't it? The co-operation agreement has been in place now for two years. Where in this draft budget can we see the impact of the agreement in terms of the allocations, and how did the agreement feed into your decision-making process this year? And has that led you to prioritise Senedd Member expansion over key services, for example, cutting the education budget when we have the lowest Program for International Student Assessment scores in the UK, apprenticeships when we need to improve on our economy, and the tourism sector, which you've said already, which is crying out for help, and yet we're seeing your support dwindle to 40 per cent, whereas the UK Government have decided to keep their support for business rates at 75 per cent?

The first thing to say, really, is just how grateful I am to Siân Gwenllian as the designated Member for the co-operation agreement for her ongoing engagement with the budget. I think the engagement has been really constructive, and I think that, through the designated Member, Plaid Cymru have been very pragmatic, as well, in terms of their approach to the budget, understanding the pressures and understanding that we have a shared priority, I think, in terms of supporting public services and putting more money into the NHS and maintaining our commitments to local government. So, throughout the budget process, I've been engaging with Siân Gwenllian to share information about the budget, share our thinking, and test Plaid Cymru's views on various parts of the budget through Siân Gwenllian, as well.

Some of the areas of the co-operation agreement that have funding relating to them have seen money returned to meet those additional pressures in health and to support local government. So, some of the things that we will be doing through the co-operation agreement now will extend over the three-year period, so they’ll be longer term commitments, even though the co-operation agreement itself only lasts for the three years. So, it’s the intention to work together to provide a kind of mechanism so that we can support that work that has been agreed, which will take place once the co-operation agreement has concluded, to show good faith on both sides, really, for the shared priority areas there.

Laura mentioned apprenticeships: now that’s an area that obviously we’ve supported in the past with funding from the European Union. We haven’t had the funding replaced in full as we had been promised. We were promised we wouldn’t be any worse off as a result of leaving the European Union; that’s not true, and so that means that we’re going to have to take some difficult decisions around apprenticeships that were previously funded through EU funding. That said, we’re still providing a large amount of funding for apprenticeships, but what we haven’t been able to do is increase it by £5 million, as we’d originally hoped to do for next year.

Thank you, Chair. Thank you, Minister. Just quickly—before I ask my other question, which will move on to climate change—just on apprenticeships: we still are far behind the rest of the UK, every corner of the UK, in terms of the apprenticeships that we offer, and obviously that has to change, but maybe that’s a matter of priorities.

Going on to climate change, given the constraints on the available capital in 2024-25, and there being a cut for climate change of £50.1 million when compared to 2023-24, will you need to scale back your previous commitments and aspirations associated with the net-zero plan, either in terms of timing or scope, and is this reflected in the budget documentation? Thank you.

We’ve had to take some difficult decisions across the board, but what I will say is that a significant amount of our response to the climate and nature emergency is through our capital investment, and at the start of the three-year spending review, we undertook a net-zero review of our capital spend, and that was through the lens of the climate and nature emergency. So, at that point, you saw quite a big pivot, if you like, in terms of our capital spend, towards housing, towards transport and towards the other kinds of big levers that we have to be able to address climate change. So, our capital plans haven’t significantly changed as a result of this budget, and there will still be significant investment in that space of climate change.

Carbon reduction is also a really important part of our development of our plans. We’ve got our strategic investment plan, which looks at how we will be deploying funding, and underneath that sits the finance plan, which sets out the particular projects that might be available. That will be published alongside the final budget, but considering the carbon impacts of those proposals is a key part of that work as well. I’ll just pause and check if Emma or Andrew want to add anything else on that.

I don’t think so, no.

Okay, thank you.

Thank you. Okay, moving on to public sector pay, Minister. How have you accounted for increases in public sector pay awards and the real living wage in your budget, compared to the original assumptions back in 2021, and how will you manage the impact if pay awards are in excess of your current plans?

So, in terms of the real living wage, that would be included in the settlement that’s been provided to local government—this is the real living wage for social care workers, which was one of our commitments. There is no specific funding available to support that this year.

In terms of public sector pay, we look ahead to the negotiations. Obviously, we’ll do that continuing to work respectfully with the independent pay review bodies and then also to work in social partnership with our trade union colleagues as well. We have made some assumptions in relation to pay within our budget. Obviously, I’m not in a position to go into the detail on that ahead of any negotiations beginning, but we think we’ve made reasonable assumptions in our budget.

Thank you, Minister. Thank you, Chair.

Thank you. And over to Rhianon. I think we might run over by about five minutes, if that’s okay, Minister.

You'll have to ask the BBC because I'm due there next. [Laughter.] But I'm sure they'll be fine.

I'm sure the BBC can wait. [Laughter.] Rhianon.

Right. We'll try our to best to be quick. I mean, contextually, Minister, it's important to note that, yes, Wales is receiving £1.3 billion less—a country that has increasing needs as a society. But you today, Minister, have stated on a number of occasions that the additional money that has been allocated in this very budget for the NHS—I think £424 million—will not cover off existing pressures within the NHS, and you've been very open and honest about this. But, as other budgets have been reshaped and redirected into this pot, as well as around farm payments, what will then that additionality of money that's been redirected to health spending actually do for the delayed care workforce issues and staffing capacity issues in this sector?

I don't want to overpromise in terms of what the additional funding will deliver within the NHS, because we know that the NHS is still going to be under significant pressure even with the choices that we've made. But what it does do is give the NHS a fighting chance to do what we're asking it to do in terms of looking at those waiting lists and providing timely access to NHS care for the public across Wales. So, prioritising health, I think, both in terms of the in-year work that we've done and also the priority for next year, I think has been important, because I talked at the start about the level of increasing demand that we're seeing, and we need to be able to keep up with and meet that demand.

So, do you expect—? Seeing as we're making that significant investment—the best part of £800 million going into the NHS over the last two announcements—I would think it's reasonable to expect the NHS to improve over time. I'm seeing you nodding, so I'm assuming that you're agreeing that, in making this significant investment, people in our communities would want to be able to see tangible improvements in service.

Yes, and there is specific funding in the NHS budget for planned care transformation, basically to improve people's experience of accessing healthcare in a more timely and efficient manner. What the health Minister will be doing will be setting out her expectations to the individual health boards as part of her next steps, because Andrew set out that the NHS organisations haven’t yet had their budgets set. So, that will be part of the work that she does, and alongside that then will be the expectations for that additional funding.

Rhianon.

Thank you. So, I suppose, given those tensions between supporting those existing services and investing in the future sustainability of services, in a sense I’m going to re-ask the question: what are the expectations regarding the long-discussed transformation in health and social care?

So, the health Minister will set out the level of detail in the evidence that she provides to the health committee in the Senedd, but I know that, in that, she’d want to highlight the planned care transformation budget to support those local and national transformation projects. And part of that budget is being used to staff the planned care programme and the clinical leads who will be responsible for developing the transformation projects and driving that implementation within the NHS, and, in doing so, reflecting national priorities and national guidance as well.

And then I’m sure she’d also want to highlight the health and social services digital priorities investment fund. That’s £43 million revenue and £20 million of capital, and that will be used to fund strategic digital transformation opportunities in the NHS and to support service change priorities through accelerating delivery of informatics improvement. So, that’s another area where I know that she’ll be interested in driving things forward.

And also I know she’s maintaining a £13 million innovation and technology programme budget to support national-level innovation across Wales and, again, that’s something that she’s very keen to promote. And I know that, alongside the Deputy Ministers, they’re reviewing the actions within the 'A Healthier Wales' transformation programme to help make sure that they’re able to drive change now within the revised budget. And that’s within both the health and care system, recognising the synergies across those two things.

So, those are just some of the examples, really, of the work that's going on in the transformation space.

Okay. Thank you. What are your assumptions within the budget, then, regarding social care and schools funding, and what implications does this have on real-terms funding for other local government services, which we've also touched upon this morning?

So, schools funding and social care funding form the two largest parts of the local government budgets, which are set locally in response to those local needs. Those two areas, I think, will continue to be the main areas and I think we need to be realistic that local government may face difficult choices outside of those statutory areas, as we have, in terms of where you're able to look. There is often, for local government and Welsh Government, relatively limited scope to make changes, because so much of what we do is statutory or so much of what we do is about supporting front-line public services. So, they'll be making, I think, some difficult choices there over the coming period. What's important, though, is that they do listen to and consult their local communities to understand the local priorities from people.

Before you move on, Rhianon, I think the local government settlement was announced about half an hour ago. Just shortly, do you want to just let us know what were some of the assumptions you made? You've talked about a floor in the documentation; if you could talk through that for us.

Yes. So, in keeping the commitment to the 3.1 per cent for local government overall, when we ran the figures to see what that would mean locally through the local government funding formula, there were two authorities that fell below 2 per cent, and I thought that that would just be too much of an ask for those authorities. So, we put in a floor, which has been funded by Welsh Government at the cost of £1.3 million, to support those two authorities to bring them up to 2 per cent. So, that was the reason that we took action for those two particular authorities.

And that funding gap has been found from central funds, then, so it hasn't been top-sliced from—.

No, it hasn't been top-sliced. We did look at what that would mean for authorities to see, if we were to take it through the revenue support grant and redistribute in that sense, but, when it came to it, I thought, you know, we've made the commitment about the 3.1 per cent and it just seemed like the right thing to do for local authorities to provide it additional—

And from that fairness point of view, is that something that becomes more of a principle thing, that, going forward—? And local authorities might be seeing even worse, potentially, next year. Would it be something that you'd want to maintain?

So, I wouldn't want this to set a precedent or expectations for the future. I think that the current circumstances are, hopefully, quite unique in terms of the pressures local authorities are facing.

Because some would have had the same situation last year.

So, some authorities—. I don't think any authority was that low last year, and the overall uplift last year was 7.9 per cent. So, we were in a much better place. And I think it was 9.3 per cent the year before. So, each year, that's been baselined into the settlement. But, this year, with the uplift of 3.1 per cent, we knew it was going to be the most difficult of the three-year spending review period anyway, but then, when we ran the figures and saw that some of them were less than 2 per cent, I thought, 'We need to take a bit of action there and support those.' But it shouldn't be considered that that's something that would happen every year; I think it's something that we would only do in exceptional circumstances. And, actually, when we've looked at floors before, they've only ever been in terms of when there have been reductions to budgets. So, that's why we call it a floor, because it's a floor below which an authority won't fall, fall beneath. So, I think it just speaks to the exceptional pressures that there are at the moment because of inflation and so on.

Thank you. Mike. Hang on. There we are. Go for it.

We always talk about percentage increases—always very interesting—but the absolute amount and the per capita amount is much more meaningful. Are you going to publish the per capita amount, because I think you'd find that some authorities will have relatively large or relatively small increases, but the amount per capita in Blaenau Gwent and Merthyr will be at the top, and the amount per capita in Monmouth will be at the bottom? And there are reasons for that, because it is the additional external finance, and it used to be the old rate support grant; it supports the money that comes in from rates. So, a per capita amount would be much more useful for people to see exactly how well or badly they're doing, rather than saying, 'We've got 2 per cent and somebody else has got 2.1 per cent.'

I can certainly explore that with the local government finance officials.

Okay, thank you. Rhianon.

Diolch. Thank you, Chair. Turning to falling incomes and housing, how does this budget, then, address the impact of more recent falls in household income for the public across Wales, particularly for those who are already in poverty or at risk?

So, we've been really careful to maintain our allocation of £38.5 million for the discretionary assistance fund. We know that that helps people across Wales who are facing some quite dire circumstances, and it gives them emergency access to financial support when they need it the most. So, that budget has been maintained. We've also protected some of our other key activities within other budgets, including, for example, the food aid and some funding for emergency fuel support through the Fuel Bank Foundation. So, that's within the supporting communities budget.

We're also looking to continue our important work to implement the child poverty strategy, and have increased the funding available to the basic income pilot by £3.5 million to ensure that we continue to provide the basic income payment without reducing either the amount paid or the length of time it's paid for. That will continue to support more than 600 of the most vulnerable young people across Wales.

Thank you. And in regard to the housing support grant allocation around this, and other things, such as the free school meals in holidays schemes, how have you sought to protect those budgets?

So, the housing support grant has been protected at £166.7 million. I appreciate that's less than the sector would wish. They would be very keen to see an increase. But, as I set out at the start, the particular grant did see a significant increase at the start of the spending review period. We absolutely recognise the huge pressures on that service, though. We have provided an uplift of £2 million to the homelessness prevention budget. We had hoped to be able to uplift that budget by £5 million, but we've only now been able to uplift it by £2 million. But it does show an increase nonetheless.

And then, on free school meals, the work that we did within the holidays was only ever a time-limited intervention in respect of the pandemic. We haven't been able to find the funding to be able to continue it beyond that. I know it's something that the education Minister had very much wanted to be able to do, but we just couldn't make it work, unfortunately. I know that there's a lot of work going on in terms of free school meals, and you'll see the budget protected for that next year. Again, that's an important part of our discussions through the co-operation agreement with Plaid Cymru. I know there's work going on around the rate, for example, and some other decisions that will need to be taken in relation to free school meals, but that budget in itself is protected.

Just before you carry on, Rhianon, one thing that we haven't touched on, and I'm conscious that it's in the public discourse, is the trains, the Transport for Wales funding, compared to buses. Obviously, in a cost-of-living crisis and poverty, people tend to use buses rather than trains, so could you talk about just the—? Why prioritise trains and not buses?

So, a few things, just to say, and just to highlight the distributional impact assessment that's been done of the budget as well, which shows that, overall, the budget is a progressive one and that we do provide the greatest share of our resources towards those people with the lowest incomes. Trains are just by their nature more expensive to run than buses. We're still providing more than £68 million of support to the bus industry. But we see this as part of our stepping stone to the point at which we're able to bring in and implement a bus Bill, which will transform the way in which bus services are commissioned in Wales. So, we absolutely recognise the need to support the sector until we get to that point when it can be more responsive to needs, and hopefully more efficient and reliable and so on as a result. Trains are just more expensive to run, and we've taken on the responsibilities for rail. I'd like to ask Andrew to say a bit more about the additional funding that we've provided, and just something about the service and work that's gone on with colleagues across Government to support the rail industry.

Yes, so you'll recall that there was a significant increase in funding for rail services provided in the current year as part of the announcements made in October, and that's been—. Because those pressures are kind of long-term pressures, really, on the provision of rail services, that increase has been followed through into 2024-25, into the baseline for the climate change MEG. The actual increase in funding for rail next year is lower than it is this year, if that makes sense. So, there are some reductions there in funding for TfW. Given the wider pressures that are being faced, we've had to look across all areas to deliver savings. The bus funding next year is protected at the level of this year. There's no reductions to funding for bus next year, so that's worth adding.

There is a lot of work going on looking at the rail system in the sort of medium to long term, and looking at the level of subsidy that's provided. It is a lot higher now, as a result of the farebox being lower than expected, and the expansion of services, particularly in the Valleys lines. So, TfW are looking at a range of options for delivering more efficient services, maximising fare income, and all that kind of thing, because, yes, the kind of subsidy cost for the rail system is extremely high, and, obviously, much higher than it was before COVID.

So, in the same way as the NHS, if you're putting money into it, you expect to see improvements.

Yes.

Okay. Thank you. Rhianon, with, I think, probably your final question, is it?

My final question, Chair, so I'll try and keep it brief. Obviously, the financial hits to Wales keep coming and are multifaceted. The committee's previously expressed concern over the replacement of EU funding, certainly not a penny less anyway, if that's not political. And we've touched upon apprenticeships briefly. How does this budget, Minister, then mitigate for losses of EU funding, and how, also, does it tie in with the existing UK schemes that are meant to deliver not a penny less for Wales?

Well, we're experiencing a loss in replacement of EU structural and rural funds worth around £1.1 billion. So, there's just no way on earth we can fill that gap in its entirety. We have still tried to maintain our commitment, though, to apprenticeships. So, as I say, we were hoping to invest more in the next financial year than we are in this year, but we haven't been able to do that. But, nonetheless, I think the investment is still quite significant.

We're also working with the meetings that are chaired by Huw Irranca-Davies of the strategic forum for regional investment in Wales. And that's trying to make sure that we share information and learn lessons, and share best practice across Wales. And we're frequently meeting with local government and our Welsh partners to ensure that we avoid duplication in areas as well, so areas where the UK Government, now, will be providing funding through its schemes, to make sure that we're not duplicating, or we're not missing out on opportunities and so on. So, we're making sure that that work takes place as well.

The Minister for education has provided an increase in research funding through the Higher Education Funding Council for Wales and its quality research fund for universities, and we're still trying to work with HEFCW on increasing competitive grant capture in the Welsh research system. So, that's another way in which we're trying to kind of mitigate the consequences of Brexit, really, by putting a kind of focus on what we can do to try and attract research funding to Wales.

Thank you. And finally, Chair, what has been the net impact, in your view, Minister, of the transition from EU to UK funding in 2024-25?

So, overall, we are experiencing a loss worth around £1.1 billion, but we've also had the issues where the UK Government's approach to those tail receipts for EU funding has had an impact on our budgets as well. I know we've had quite extensive discussions, and I think that you've even been liaising with the UK Government to get its view of those events as well. But, overall, it is one of those challenges, and that's an area where we've really felt the pressure—so things that were previously funded by the EU. Areas where we've been investing, which are rightly the responsibility of the UK Government, for example police community support officers—those are areas that we've had to look to, particularly in this budget, unfortunately.

Okay. Thank you.

Thank you very much for appearing before us this morning, and thank you for your time. Again, apologies to those at home who have failed to be able to watch this live, but it will be available to watch back later. But there will also be a transcript available so that you can read through it and check any facts that may need to be changed. Could I just wish you a merry Christmas and a happy new year? We'll see you in the new year.

We'll now go into private session. So, I propose, in accordance with Standing Order 17.42, that the committee resolves to exclude the public from the remainder of this session. Is everyone content? I see that they are. Thank you very much.

Thank you. Merry Christmas.

Merry Christmas.