Finance Committee

We'll move on, then, to our first substantive item this morning, which is the second evidence session on our fiscal inter-governmental relations. This morning, we've got colleagues from the National Audit Office with us—croeso, welcome. Welcome to this meeting and thank you for making yourselves available. I know that we've had a supporting document, the National Audit Office report from 2019, 'Investigation into devolved funding', so we might touch on that as we're going ahead. But, if you wouldn't mind firstly starting by introducing yourselves—so, maybe if we go to Gareth Davies first.

Yes. Good morning. I'm Gareth Davies, I'm the head of the National Audit Office, 'comptroller and auditor general' is the full title. Just to mention, because I think it's relevant to the report that you've just mentioned, I started this job at the beginning of June 2019 and the report that we're talking about this morning was one of the last reports commissioned and published by my predecessor. So, that's partly why I've been joined by Lee Summerfield, who was the director responsible for the report and so has the first-hand information. Clearly, I've been around for everything that's happened since we published that report, but I thought it was useful to clarify that at the outset.

Very much so. Thank you very much. And Lee, would you introduce yourself, as well, please?

Yes. So, Lee Summerfield, I'm a director at the National Audit Office and I was responsible for overseeing the report that you've just mentioned into devolved administrations.

Wonderful. Well, thank you very much for coming and being part of this session today. We're aiming to explore why the National Audit Office undertook the investigation and some of the views on Government relationships and funding to devolved Governments. I'll start and then I'll pass onto Rhianon, then Peter and then Mike. My first question this morning is: can you elaborate on the reasons for undertaking the investigation into devolved funding in 2018-19 and the remit for that work? I don't know if that's more Lee or yourself, Gareth.

I think it's better if Lee answers if that's okay, because he was obviously here for those decisions.

That's fine. No problem.

Okay. Sure. So, as part of our usual programming, we're always looking for responsive pieces of work, so things that we need to react to that have happened in Government. This particular piece of work came on the back of a big announcement in the summer of 2018, where Government had announced additional funding of over £20 billion to the NHS in England. That triggered an interest in how that was going to play through into funding into Scotland, Wales and Northern Ireland, so we undertook this investigation on the back of that, and as you would have read in the report, it did highlight some potential issues in terms of the way in which that funding was allocated out to administrations.

Great. How did you then engage with the devolved Governments and HM Treasury during that investigation? Talk to me about how you went about it and what that engagement looked like.

Sure. Principally, this is, of course, looking at HM Treasury, so the National Audit Office, obviously, will be looking through the lens of Government's actions. We would not be looking at it through the devolved administrations themselves. So, primarily, all of our engagement was through Treasury initially. We did speak to finance officials at each of the devolved administrations, we visited each of the devolved administrations to speak one to one with those officials, and we shared extracts of the report with them, as we would normally do in advance of publication, just to make sure that it was factually correct. It's probably worth saying this was not a value-for-money report; this was a factual investigation, presenting the facts that we found, so we sought not to evaluate any of the policy decisions in this particular report.

Lovely. So, when you were having those interactions, obviously, you'd interact with the Treasury on a regular basis, because of the nature of what you do, and then with the interaction and some of the facts that you gleaned about the relationships between the devolved Governments and the Treasury, what was your impression of what those relationships—? What are they like? You'll have seen by having those discussions. What were your impressions of those relationships? How would you describe them?

So, again, it's probably worth just saying this was a factual report, so we didn't stray into evaluating the relationships particularly. Certainly, you would have read in the report that there were some issues raised with us around the timing of some of the decisions and the announcements. The subsequent Public Accounts Committee hearing on this report picked up again on some of the nuance around the timing of some of the decisions that UK Government was taking, and I guess the transparency around how some of those decisions were going to be funded. Most notably, of course, in our report, we talk about the £20.5 billion of NHS money that I mentioned earlier. What that led to was an increase in the expectation of some of the administrations as to how much money they would be getting through Barnett consequentials. In the end, the way in which Government funded that £20.5 billion, through the transfer of existing funds or the use of existing funds, resulted in slightly less money coming to the administrations than they had first expected. So, some of those time issues were borne out in our report and, subsequently, in that PAC hearing.

Thank you. Maybe going over to Gareth, the committee heard that a key principle of effective inter-governmental relations is parity of esteem between all parties. From your experience now since coming into your role in 2019, do you feel that the relationships between the UK and devolved Governments were or are built on co-operation and equal partnerships?

Obviously, there's a policy dimension to that question that isn't really territory for me as auditor of Government. It's not my role to comment on policy choices made by any of the administrations, including the Westminster Government. Clearly, what our work is mainly focused on is the value for money of implementation of Government policies.

A good example of where, together with our equivalent organisations in the devolved administrations—so that's the Wales Audit Office, Audit Scotland and the Northern Ireland Audit Office—we all had to pay very close interest to the Government response to the COVID-19 pandemic, and that's a good example where we did have to understand the respective roles of the UK Government and the devolved administrations. Some aspects of the COVID response, as you know, were fully controlled at the devolved level. So, there, we did see some of that in action, and, clearly, that was subject to all of the stresses and strains of the pandemic generally, the speed at which decisions were taken, and I think that current inquiries, including the sessions being held in each of the devolved countries, are shedding a lot of light on how that relationship worked, both at official level and at a ministerial level. So, I won't try and summarise that in this way, because those inquiries are obviously going to set that out in a lot of detail, but I think that's probably the most instructive recent case.

I'd also add that a piece of work that we have done jointly as audit offices, which is an unusual thing for us to do, is that we looked at the net zero response across the UK, on the grounds that quite a bit of net zero response doesn't respect borders and has to be a UK-wide response, as well as the bits that vary at a devolved level. So, another example where we have, between us, looked at what's going on in each country and at the UK as a whole, and drawn some conclusions about where the pressure points are and where the need for action is most necessary.

Okay. Thanks for that insight, and a couple of examples there of things for us to maybe review as we're going through in this inquiry.

I'd like to move on to one of the key findings from the report, and maybe Lee can look at how you came to that finding, and then maybe, Gareth, you could look at how going forward. But one of the key ones was that the Barnett formula has no legislative basis. Lee, to start with: how did you come to that conclusion, obviously, and then, what are the potential issues of that, and the benefits? And maybe, Gareth, you could comment afterwards, but, Lee, if you could talk us through that. Obviously, there is no law about Barnett, but it's quite a key finding in your report.

Yes, it's a key finding, and I probably don't need to tell this committee that Barnett was introduced in the late 1970s, I think it was around 1980 that it was applied to Wales, and it was introduced as an interim measure at that point in time. It has obviously continued to be used; it is well established as the method for calculating funding, and that's as far as we can really answer. It doesn't have a legislative base, so it is still, in theory, an interim measure that has been in place for over 40 years now.

And any comments on that, Gareth? Mike would like to—. [Interruption.] Yes, over to you, Gareth, yes.

A brief comment. I mean, I guess, it's a reasonably typical example of the British constitution such as it is, in that we don't have a written constitution and a lot of the ways in which processes work are not set out in formal legislation or constitutions, but have developed over time through custom and practice. There's been a lot of material over the decades about how the Barnett formula evolved and why it's proven to be so long-lasting despite all of its obvious kind of rough edges, and so on.

And probably the simplest observation, without straying into policy territory, is that it works well enough to be better than all the alternatives that have been considered, which clearly, as far as the policymakers are concerned, have their downsides that outweigh the advantages of putting something more legalistic in place. So, it's not for me to comment on the policy decisions, just to observe that it's a fairly typical example of how constitutional matters have developed in the UK over the decades, and it's very striking that the Barnett formula has survived despite the very significant moves on devolution since it was created.

I'll bring Mike in.

My understanding of the Barnett formula—and you can correct me if I'm wrong—is that it's a minimum. Thus Northern Ireland in the early 2010s and Northern Ireland in 2019, and Northern Ireland either this year or last year—I'm confused, because I think it's last year—were given substantial sums over and above what their Barnett share was. And to bring some balance in, we in Wales have a Barnett floor, which means that even if the Barnett formula does produce something that takes money off us, there is a floor below which it can't fall. So, isn't it true that the Barnett formula is something that is used but is quite often circumvented?

That's demonstrably true, isn't it, and I guess true of lots of areas of Government policy, that there's a kind of basic approach that then has to be varied according to circumstances. And, as you say, there are lots of different reasons why Governments have departed from it or have had ad hoc arrangements over the years.

Peter.

Just a little one to add on to that Gareth, and it relates to the floor: so, following the Holtham review, there was a 15 per cent additionality for 'needs-based' attached to Barnett for Wales. From what we've just heard about there not really being a legislative grounding for Barnett, how safe is that floor, or is it at the whims of Ministers and agreements in the future that could alter that? Because it is absolutely fundamental to the future of the funding of Wales that that floor is in place. As an audit office, is it important for you, for the security of devolved nations, that those things are rooted in some way to make them permanent?

Of course, at its heart, that's a policy question that isn't for me, but I would observe that it isn't only with the Barnett formula where there's a lot of concern about the stability of public funding—that applies across the board, including matters in England, outside the whole question of devolved administrations. And so, quite a common plea when it comes to spending review timetables and so on is for a longer term view of the availability of funding so that spend-to-save programmes can be implemented with the confidence that there will be sufficient time to implement them properly and that funding won't be withdrawn part way through.

This is a matter of constant debate, I think, between policy makers on the benefits of giving longer term security on minimum funding levels, but, obviously, against the downside of what Governments have found over the years that they do need to respond quickly to events and developments—and we've just seen some very big ones in recent years—and therefore maintaining flexibility to manage the economy is also a big consideration. So, I agree that for lots of reasons—particularly if you just think about value for money, as we do as auditors—having greater certainty over funding beyond an annual cycle is extremely important, but I also recognise that there are other policy factors that Governments have to take into account and you can't expect them to only focus on the value-for-money question.

Yes, thank you.

Thank you for that, Gareth. My final question before moving on, and I'll bring Rhianon, then, in, is: from your observations of how Barnett works and the funding models by the UK Government to devolved nations, and from your audit work and looking at how that—. Have you been able to form a view on the strengths and weaknesses of the Barnett formula? Because it's not all negative and all positive, but, obviously, when you're looking through and auditing how spend is allocated, have you been able to formulate a view as to what those merits and demerits are of the formula?

I mean, not beyond the—. As Lee has already explained, the review carried out in 2019 was not evaluative—we weren't looking to form a view on strengths and weaknesses with that work. The job there was to provide a clear factual basis for Parliament. And since then, we haven't carried out a separate review. So, it being a strongly evidence-based organisation, I wouldn't want to give you an impressionistic view without having the proper analysis to back it up, which I know is not very helpful to you at the moment. But all I'd say is that I think the obvious point is that it's quite a simple approach and that that probably explains why it's had to be departed from on occasions over the years, because the simpler the methodology, the cruder the outcome, I guess, and therefore the more likely that ad hoc arrangements have to be implemented over time. But, as I say, beyond that, I'd prefer not to give you what would sound like an NAO analysis of strengths and weaknesses without the detailed work to back it up.

Is that detailed work something that your office could undertake and would somebody instruct you to do that, or would it be something that you'd be able to actually do as a piece of work in your capacity?

Yes. A crucial plank of the NAO's existence is our independence from Government, and so Government doesn't instruct me to carry out work and neither does Parliament. I share my plan and programme with Parliament and would listen to their views on it, but it's not something that's determined by anybody other than the National Audit Office. So, that independence is really critical to us, and it's also one of the reasons why we mustn't stray into policy territory, because our reports are respected as rigorous assessments of value for money and performance because we have no view on policy priorities; we are just there to look at value for money and implementation and proper accounting—[Inaudible.]

On the question about whether we could consider further work in this area, particularly something more evaluative, I think if we thought there was evidence of serious impact on value for money of the way that the funding mechanisms were being applied, then that would give us a remit to take that kind of look. And we do consider that when we're thinking about our programmes. At the moment, we haven't found that to be a high enough priority call on our resources, compared to all of the other things that we need to cover, and so the key test when I'm considering the work programme for the National Audit Office is: what is the risk here to public value for money or proper accounting; and would a piece of work from the NAO address one of those high-risk areas in a satisfactory way? So, that's the consideration. So, we would keep this topic under consideration, particularly if there were events or significant changes being applied that had big consequences for value for money, either at a UK-wide level or in a devolved administration. And we would take that into account.

One of the challenges, of course, is that my remit doesn't extend to looking at the value for money of devolved spending in each country. That's clearly the preserve of the Wales audit office, Audit Scotland and so on. So, there may be a question of dialogue between the audit offices if an issue like that arose. It hasn't done in my time in quite that way, but hopefully that's useful in giving you an explanation, a framework for planning our work and the matters we take into account when deciding to do that. If we did look at the operation of the formula, for example, and its impact on value for money, we would still steer clear of the policy questions involved, we would just be looking at implementation.

That's very much food for thought for us as well, and obviously when we scrutinise the auditor general here in Wales, then it's certainly something that we can raise with him, and maybe a joint piece of work across the UK might be something. But food for thought, anyway, and certainly an interesting discussion. I'll pass you on to Rhianon Passmore.

Thank you very much, Chair, and I think I would agree that's very fertile territory, if we can look at that in the future. So, I'm just looking at the key findings, and I'm going to look in this direction:

'It can be unclear whether consequential amounts of funding are due'.

Key finding 5. Key finding 6,

'HM Treasury may allocate direct, special or ad hoc funding without consequential amounts of funding',

which we all know. So, just a very simple question before I go into another area. These are absolutely clear to us, and always have been. In terms of your findings, have you put together any recommendations, or is it just an ability to highlight what the issues are?

Lee may want to add to this, but in this case, the report that my predecessor produced didn't make recommendations. That's our standard approach for a factual investigation of this kind: to set out the facts so that Parliament can use those in scrutinising Government. And so that's what happened with this report. The Public Accounts Committee used the report to take evidence at one of its sessions in 2019 from Treasury and others, and made its own report. Again, this is the way in which we tend to work with the Public Accounts Committee. And so the Public Accounts Committee did make recommendations to the Treasury as a result of that session, and the Treasury responded in writing, as it's required to do, accepting those recommendations. So, in that sense, the report did its job and our report did its job, which was supporting a session of the PAC and allowing them to make their own recommendations.

I understand. That's useful context. I mean, obviously, there are key weaknesses in terms of the principles and rules that HM Treasury over time, as we've discussed, has put into place, because these are key findings and they are issues for us, and I'll come on to a question particularly around HS2 in a moment.

So, you've mentioned in the work that devolved Governments are not invited to formally approve the final version of the SFP, the statement of funding policy, before it is published. So, what feedback, then, did you receive from stakeholders regarding that, please?

Can I ask Lee to comment on that?

Yes. So, I think in the report we do talk about this. It is explicitly the case that the Treasury are responsible for putting together the SFP, and the timing of when they share that was certainly raised with us, and we do feature that in the report, and that was a lengthy discussion at the PAC hearing as well. But I think it's not that they're sharing it for formal clearance or formal agreement, it is for information at that stage. So, certainly, I think one of the recommendations that the PAC made that the Treasury accepted, as Gareth just mentioned, was that they were going to share that earlier, or as early as possible. Our understanding from the Treasury's responses to that PAC hearing is that they have done that, so I think the position possibly has changed since our report. And where that impacted was, and you know, the most obvious example that we use and I've already mentioned, is the NHS money, where, actually, because it was such a significant amount of money, administrations had tried to forecast what that would mean in terms of their budgets and their Barnett consequentials. In the end, the way in which Government funded that—even though, actually, the SFP would have made clear that health is devolved in most administrations, the way it was funded did not then consequently result in as much of an uplift as they were expecting.

So, actually, the SFP, whilst that's out there and there are discussions around that, still doesn't preclude the issues around, actually, the transparency around some of the funding decisions and how they are going to be funded. And certainly, again, one of the recommendations was for the Treasury to try to inform administrations earlier, when big announcements were made, how those announcements were going to be funded, and I think that's still a subject that's probably quite difficult.

I mean, there are major areas of opaqueness around this that—. And I don't expect you to comment, but I would have thought there's no interest from HM Treasury in shedding a light through that opaqueness in terms of that lack of transparency. So, could you, then, a little bit more, expand on the issues the Scottish Government faced in scrutinising the list of programmes and comparability factors before the 2015 spending review?

I'm not sure I'm going to be particularly able to do that, if I'm honest.

Okay. Do—?

I think that's going to be quite difficult. I'm not sure we know specifically the trouble that the Scottish administration had in that regard.

Okay. That's fine.

It might be a question that we might ask the Scottish Minister when she comes—

It's something that we will explore later on in our inquiry, then. Obviously, it's of interest to us in terms of themes around this matter. You've also highlighted the subjectivity of HM Treasury when categorising spending programmes, and I've mentioned HS2 previously and we've talked a little to that—I think Mike referenced something around that—and the Crossrail projects. Obviously, these are examples where it seems highly subjective where Wales received Barnett consequentials for the Crossrail but not for the significant amount of consequentials that would have come to us, it seems, by following the logic, around HS2 due to classification. So, I understand you're not able to talk about policy, but I am talking here in terms of application of the principles and rules that there should be and that there are. What is your view on that as an issue, because it totally exemplifies the almost everyday issues that we face as a devolved administration? And how could that approach to categorising spending programmes be made more transparent and objective, and fairer, because that’s what makes good Government, isn’t it?

Yes, I think, as you say, at the heart of this, these are policy decisions, but, clearly, as an organisation, we are a big lever for greater transparency in public spending, and we’ve played a big role in helping improve transparency over the years. So, as you say, it’s a completely legitimate area to focus on. And, I think, talking to Lee and colleagues, it’s clear that one of the reasons we did this report, just before I took up this post, is that it was a transparency driver that led us to choose to do the work, because putting these facts and examples that you’ve just mentioned in the public domain, so that the Public Accounts Committee could use them to take evidence directly from officials, led to the Public Accounts Committee report and recommendations that we’ve already mentioned. And this is one of the areas that got scrutinised most closely, because my experience, working with the Public Accounts Committee closely for the last five years, in that time, is that it’s always included MPs from the devolved administrations—not every one of those countries all the time, but they’ve all been represented over the time. And this is a hotly debated area every time a new spending announcement is made by the UK Government, and understanding the consequences of that for funding to devolved administrations. So, I’m not surprised the PAC took full advantage of the report that Lee and his team produced in 2019, and probed the Treasury pretty closely on these questions of, 'Why use that categorisation for this policy area when you used a different one for a very similar thing previously?' And I think that point about transparency and consistency was well made in the PAC report.

Okay. Thank you.

Mike.

Transport is partially devolved and partially not devolved. My understanding with Crossrail is that it was treated as a transport project, and, as such, Wales got its transport percentage of it. HS2 is classified as a rail project. Rail is not devolved, therefore we got no benefit from it. The classification itself is the key, isn’t it?

I think that’s right. Lee, I don’t know if you want to add to what the report says.

Yes. So, we present it slightly differently in terms of terminology. So, Crossrail was described as a local project for England, which resulted in the Barnett consequentials for all of the other nations. HS2, on the other hand, was deemed a 'national infrastructure project', which, as you just described, in Wales, some of the transport is reserved. On that basis, it resulted in consequentials for Northern Ireland and Scotland, but not for Wales. So, it was the classification of whether it was a local or national project.

But that isn’t the only one, is it? The Olympics is another example that was classified as a British project, even though it was the London Olympics.

Yes. In our report, we also point out others. So, at the time, of course, there were lots of funding decisions around EU exit, and, at that point, it was quite difficult to disaggregate what was a reserved function versus a devolved function, in the way in which the Treasury was funding different activities.

Okay.

I'll bring Peter Fox in.

Thank you. Looking back at the report, there was a clear statement that it was unclear whether consequential amounts of funding are due to devolved administrations for funding allocated to new services or functions established since the spending review of 2015. I wonder if you could elaborate a little bit more on that finding and—I’m conscious you can’t stray into policy too much—if you noted any challenges that might present to devolved nations.

So, I probably can’t elaborate too much on that now, beyond what we’ve already said. I think this is around—. So, to reuse the example of the announcement around the NHS budgets, I suppose, as I’ve explained already, the consequence of that is the anticipation of forecasting of money coming into the administrations in order for them to plan their own budgets. Where that doesn’t quite align, because of the way in which it’s funded, obviously that will have an impact on those budgets. And, as I probably don’t need to tell you, of course, the money is not ring-fenced when it’s handed over to the devolved administrations for particular services. So, whilst it may be consequential of money coming in for, for example, NHS in England, that doesn't necessarily mean that money has to be spent on the health services in each of the administrations. So, the way in which they're forecasting that income will be impacted depending on some of those new announcements.

As we said earlier, PAC picked up on this and were certainly keen for Treasury to share more information at the outset of when some of those announcements were made as to how the money would be found or how those policy decisions were being funded. But, clearly, the consequence for each of the administrations is it's difficult for them to forecast what their annual budget may be as a consequence of these new changes.

I get that—it's unhypothecated, yes. Thanks for that, Lee. The report also noted, or, rather, you've noted that HM Treasury is able to allocate funds, and Mike touched on it before, across the UK from central reserves without actually triggering Barnett consequentials for the likes of us. Again, this is policy perhaps, but what are your views on this in terms of transparency? And, in your view, should a more formal process be implemented to ensure that Treasury provides credible evidence for using central reserves, particularly when it results, it seems to be, in circumnavigating the Barnett formula?

Maybe one for Gareth, I suppose.

Perhaps that's for Gareth.

I'm not sure we have much to add on that, because it clearly is very political and very policy area. I suppose what I would say is that the examples that the report notes where that has been done were transparent in the sense that it was very clear that that was happening in those cases. I'm thinking of some of the money allocated to Northern Ireland, for example. So, transparent in that sense, but how the decision is taken to use the reserves in those cases, why it's not used for other cases, and the basis for each allocation, I agree that, I think, what the report was pointing out was that that wasn't always clear. But Lee might want to add to that.

Not much to add. Again, I'm sorry, I know we keep mentioning this, but, certainly, PAC were pushing Treasury to be clearer in their information that came out pre-budgets for each of the administrations as to what had driven those decisions of one-off payments outside of the Barnett consequentials, So, again, Treasury accepted that recommendation. We haven't gone back to see how that has been borne out. But, certainly, it was an area of concern for PAC at the time.

Yes. Thanks for that. I'm sorry our questions are probing into policy areas. That's the nature of politicians, I'm afraid—we do want to get stuck into some of that stuff.

Moving on slightly, then, to look at clarity around timeliness and financial implications of spending announcements. You said that, unlike UK Government departments, the devolved administrations are not involved in direct negotiations with the Treasury on their funding settlements. Were you able to determine the rationale for this and what disadvantages this might have for devolved Governments?

Lee, did you want to—?

Yes, I'll pick that one up. So, again, the most obvious example is around the NHS money. It fundamentally comes back the discussion we were having earlier around statement of funding policy that, actually, all of the Barnett consequentials will be driven by that statement of funding policy. That is not a negotiation; that is a document that is shared with each of the administrations for information. Of course, there is a process by which administrations can raise concerns about that. But, fundamentally, that is after the event. So, Treasury will be discussing departmental budgets and negotiating those. The outcome of those is what will drive consequentials, depending on what's come out of those discussions. So, it's a similar theme, in terms of what we've discussed already, in terms of that ability to forecast.

And, of course, there is a further aspect here for some administrations where they have their own revenue-generating activities as well—so, tax, for example, just the very nature of how that is calculated and collected. That will be in arrears, of course, so there is a forecasting and offsetting of expected revenue there as well. So, there are lots of big adjustments that might have to be made during the course of the annual cycle that may not always be as clear until they actually happen.

Thank you.

If I may, Peter—. I'm just interested in that—you mentioned there a process to raise concerns. That would be a Minister-to-Minister type of conversation, I suppose; there's no formal mechanism to follow that from—. An auditor would go in and check that the rules had been followed.

Not that I'm aware of. Certainly, it's at ministerial level, but there are layers before that. These officials—. Certainly, the impression we had from the visits we did, there were conversations very frequently at official level around some of these queries being raised and discussions being had. But, certainly, there was the ability to raise concerns at a ministerial level, should they need to.

And in those visits that you went to, those inter-official relationships, how would you categorise them? What were your—?

Well, it's difficult. I was not, obviously, in—

Oh, you weren't. Right.

—the conversations that individuals had, but, certainly, the impression you had, each recognised they had a role, and there were conversations going on around some of the detail.

Okay. Thank you. Over to Mike.

Can I just carry on from that, because Northern Ireland, on at least three occasions, have had substantial sums of money and been in a position to negotiate with the Treasury over and above the Barnett formula, and my understanding is that Wales and Scotland have not had that opportunity? Am I correct in that, and have you had a view on it?

No, we wouldn't have a view on that, because unless it was covered in the report, we can't really comment on the factual basis for that, and, clearly, that is pure policy territory rather than anything that we would take a view on.

Okay. Thank you.

Rhianon, did you—?

And I totally understand that and I understand why you've responded in that way. Confidence and supply agreements are very useful tools, and we've mentioned previously an ability to be dynamic as a Government, to be able to act proactively and swiftly in regard to emergency scenarios, and that's absolutely right. But, surely, in the context of the current non-transparent system that we have, it's just an addition—and I'm speaking thematically here—it's just an additional issue in terms of muddying the transparency that we all seek.

Well, I mean, as I say, I can't comment on the policy—

No, not the policy; I'm not going there.

—decisions that Governments have made there. The purpose of us reporting in the way that we did in 2019 was to bring some of these points to the attention of Parliament, so that politicians could scrutinise what was being done by the Government, which is, I think, the right place for those policy-level debates to happen, rather than something from the auditor.

Okay. Thank you. Mike.

I'll ask a straightforward question here and then I've got a complicated one afterwards. Do you think the UK Government could provide more timely communication relating to devolved funding around UK fiscal events, and do you have a view of how this could be approached, so that the Government knew what they were having earlier, rather than waiting?

The 2019 report from us didn't make recommendations, but that's exactly one of the recommendations that the Public Accounts Committee did make, having taken evidence on our report from officials, and the recommendation was accepted, as Lee has already mentioned. So, I think, certainly, the UK Parliament agreed with that view and expressed that to the Treasury, and the Treasury agreed to attempt to address it.

Going back to your answer previously, when we were talking about the potential of you inquiring into Barnett and that sort of aspect, from a timeliness and efficiency of Governments having spending decisions and funding decisions made in a timely manner that doesn't force a Government to make quick decisions that could potentially be the wrong decisions, does that give scope to anything that the audit office could look into from an efficiency point of view and making sure that good governance and good decision making is happening across Governments?

I think the answer to that is 'potentially, yes'. If there was clear evidence to us that the way in which decisions were being made was having severe consequences for value for money—wasted money, huge missed opportunities, those kinds of things—then that would be fair territory for an audit examination of how are these spending and funding decisions arrived at and what were the consequences for value for money of doing it that way. Often, for example, if we're looking at major infrastructure programmes being funded by Government, those kinds of questions will come up in our work—what budget was agreed, what was the profile of the funding agreed for the project, did it match a sensible way of spending that money.

We're all familiar with the syndrome in some public organisations of money arriving too late in the financial year to be used intelligently, and either not used at all in the desire not to waste it, or used too quickly and inefficiently as a result. So, these are matters that audits can touch on, it's just that we would need really clear evidence that there was scope for that kind of work from us, as opposed to a more theoretical discussion of a different policy approach to allocating funds.

And I think, potentially, because you'd be looking across all UK Governments, then that's where the other audit functions in the devolved nations would—. It might need to be a collaborative piece of work, rather than a one-office piece of work, if you like.

Experience—and you can see why—says that those are difficult pieces of work to execute, because, as I said at the start, the No. 1 characteristic of all of us as audit offices is our independence, primarily of the Governments that we're auditing, but also of each other, and we are accountable to each of our separate Parliaments and Assemblies as well. So, it might sound like an obvious thing to do, to co-ordinate a piece of work across all four organisations in that way, but, in practice, that's a very big challenge, because we have our own set of priorities, we are responding to very different Assemblies and Parliaments. And so, whilst there may be a rational case for pieces of work like that, they're actually quite difficult to execute without trampling on the independent decisions that my colleagues need to make on spending priorities in each of those countries. So, you can see the challenge that that presents, but it's absolutely something that we consider and discuss.

It's just food for thought, I suppose, and something interesting to come out of this. I'll go back to Mike Hedges. Thanks.

You noted some confusion relating to whether HM Treasury is allocating new funding or diverting funding from spending cuts, which provides uncertainty for devolved Governments when calculating Barnett consequentials. It's easy if it's taking money out of defence—that is 100 per cent not devolved, it has no effect. But if I go back to transport, which is partially devolved, if it takes money out of that, there should be a Barnett consequential, but depending how they allocate it within transport in terms of where it's coming from, it works out whether it is a Barnett consequential or not. I know there are other areas where the departmental responsibilities are partially devolved, which means that it becomes, very often, doesn't it, a choice of how you describe it.

I think so. Even though our report wasn't evaluating all of this, that's the very clear message that comes out of the statement of the facts, isn't it? Some areas, as you say, are very clear, either fully devolved or fully reserved, but there are trickier areas. I think we use the word 'complicated' in the report, and you've mentioned a couple of them there; there are other examples in the report, as Lee has described as well. Clearly, in the interests of transparency and so on, it's minimising those areas of confusion or subjectivity. I think that was the thrust of the Public Accounts Committee recommendations to the Treasury.

You'll remember there were substantial health board write-offs in England. They built up substantial deficits over a long period of time, and then the Treasury decided to write them off. Wales got no consequentials from that. Do you know where they got the money to provide that from?

Obviously, that happened after this report was produced, so it’s not covered in there. So I don’t know the answer to your question, I’m afraid. We can actually check that out, if that would be helpful to the committee. I'm very happy to write with that—

That would be interesting. If you're able to write to us with that information, we'd appreciate it.

That would be very helpful, because one of the things that confuses some of us—or 'confuses me' might be a better way of describing it—is you hear these announcements that x is happening in health in England, and you expect that to have the roughly 5 per cent consequential for Wales, and then it doesn't. Sometimes it's about cutbacks in civil service jobs, for example—something that doesn't affect us in Wales—and they're going to cut back the numbers of civil servants to spend the money on defence. Neither of those are the direct responsibility of the Welsh Government, so that's a clean action only taking place on a British scale. But the same thing could be done in other areas that would have a different effect.

Yes, I think that is one of the areas of complexity here, isn't it? But we can certainly check out your NHS question. I know the case that you're describing, of writing off NHS trust deficits, so we can just check out how that was treated for these purposes.

Thank you very much. That's me finished.

That's you done. Thank you very much. I know we've covered a lot of ground this morning, and I do appreciate that very much. I really appreciate you making the time, both of you, for being with us and being very informative in your answers. Obviously, there will be a transcript available for you to check for accuracy, and we will make that available to you after this meeting. Now we'll take a short break.

Thank you both for coming.

We'll take a short break till a quarter to 11. Diolch yn fawr, thank you very much.

Welcome back to this meeting.

Welcome back. As people may have noticed, Rhianon Passmore has excused herself from this session because she's giving evidence on this topic to another committee of the Senedd. So, she's excused herself, but we are quorate because my fellow Members are here. We've got the Trefnydd and Chief Whip with us, and her official. Would you introduce yourselves for the record, please?

Thank you very much, Chair. I'm Jane Hutt.

I'm the Trefnydd and Chief Whip.

Will Whiteley, deputy director for Senedd reform in the Welsh Government.

Fantastic. It's good to have you with us. Thank you very much for making the time to come and talk to us about this Bill. I think we've got half an hour or so to go through some questions. We've got quite a bit, so brevity I think would be appreciated in questions and in answers this morning. I'd like to just explore the Welsh Government's approach to preparing the regulatory impact assessment, including matters around competence and consequential costs as a result of the subordinate legislation. The Llywydd has said the Bill is not within the legislative competence of the Senedd. If there is disagreement over this and the legislation is challenged, will there be any additional resources or costs associated with that? If so, can you outline what these might potentially be?

Diolch yn fawr, Gadeirydd. Clearly, when we set out our RIAs for all legislation, they are concerned with the impact of implementing the measures provided for by the associated legislation. Therefore, the RIA for this Bill is focused on assessment of implementation costs and savings arising from legislation. So, any sort of costs, as you say, in terms of a challenge—which could be for any Bill; Bills certainly have been in this position before—wouldn't be set out in the RIA. It's not normal practice to anticipate costs for a potential legal challenge.

In a recent letter to the Reform Bill Committee, you confirmed that external legal advice has been sought. Can you outline what the cost of this has been? What are the total anticipated costs of any external legal advice that you may require for the progression of this Bill?

Thank you for that question. I'm pleased you've seen the correspondence in which I responded to the Reform Bill Committee. I can say to the Finance Committee the cost of external legal advice in relation to this Bill has been £38,100. And just to say it's part of usual process for every Bill introduced by the Government that Ministers have the benefit of legal advice, and so the Bill isn't any different in that regard.

And what's the anticipated cost? Is that what you've spent to date or is that the anticipated envelope?

That's the total cost of external legal advice in relation to the Bill to date, which was all prior to the introduction of the Bill. I think in terms of the potential for future costs, as the Trefnydd said in her letter to the Reform Bill Committee, there are only examples that I think we can draw on, and the example that was provided was in relation to the Recovery of Medical Costs for Asbestos Diseases (Wales) Bill, and around £62,000 was spent on the cost of dealing with that matter through the Supreme Court.

Thank you very much. Should this and the related Senedd Cymru (Members and Elections) Bill proceed, the Welsh Government intends to restate the National Assembly for Wales (Representation of the People) Order 2007 as part of a new conduct Order. Can you outline the activity required and any potential costs that might have?

I think that's something that we need to look at carefully in relation to implementing the Bill. I don't know if you want to respond directly to that, Will.

Obviously, this legislation, alongside the implementation of the Members and elections Bill, would be primarily done through what's known as the conduct Order, the Order under section 13, which was the one that you referenced. Contextually, it's worth saying that there is a large project ongoing in relation to remaking that Order and, for the first time, making it bilingual, and that is happening in any event. That main Order will also take account of changes that will be delivered through the Senedd Cymru (Members and Elections) Bill, but also the Elections and Elected Bodies (Wales) Bill. The plan for the implementation of this Bill would be to amend that main Order, in order to give effect to the provisions within the Senedd Cymru (Electoral Candidate Lists) Bill.

So, remaking that Order, is that part of—? Where does that fall within—? From a finance point of view, which department or which—? Where do we find the budget line, effectively, to cover that cost? And if it's not part of the impact of this Bill, and other Bills, how would we track it, and how would we see where—?

Well, I think, as Will has explained, this needs to be seen in terms of the whole Senedd reform programme, in terms of the conduct Order, which is being developed for the whole of Senedd reform, for the Senedd reform Bill in itself, the Members and elections Bill. But I think any costs associated with implementing subordinate legislation would be covered in the RIA for the amending Order, wouldn't it, in terms of when a draft Order is published. So, it's not at this stage; it's when we get to the point of needing to make an amendment to the conduct Order. So, in a sense, the likely costs at this stage, we'd publish an RIA at that stage, wouldn't we? And that's also reflected in the ways in which we're looking at the subordinate legislation as well. Anything else, Will?

Probably just to say that, in the RIA to the Members and elections Bill, we did identify that, within the current financial year of 2024-25, there's £1.2 million that's been allocated to Senedd reform. That is for the programme as a whole, of which—because, of course, the RIA only looks at implementation costs—some of that would be considered to be sunk costs. So, there's £900,000 of that £1.2 million that we would identify as being in relation to implementation. But that is for the programme as a whole; we haven't identified specific elements of it within that, such as the work related to the amending conduct Order for this Bill. I suppose, just to say on the conduct Order as a whole, that is a multi-team exercise currently, across a number of teams within Welsh Government, and the lead for that is the elections division itself within Welsh Government.

Okay. Thank you for that. And finally for now from me, before I bring Mike Hedges in, the Bill contains provisions to make subordinate legislation. Can you outline the extent of that subordinate legislation, and whether there are any likely potential costs associated with it?

Well, I think that is important in terms of the arrangements for the subordinate legislation. But I think, in a way, it is covered in terms of the conduct Order and the amending of the main conduct Order. Of course, as I said, this is very much part of the Members and elections Bill, so the whole Senedd reform arrangements. But I think you will recognise that, just in terms of the statement of policy intent, published alongside the Bill, it does set out what we expect the subordinate legislation to provide for. And perhaps it's just useful to take note of that: the designation of a national nominations compliance officer. That accords with the arrangements for designating returning officers, setting out steps returning officers and the national nominations compliance officer must or may take to enforce the rules, and if necessary to take steps to enable a party to stand candidates in as many constituencies as possible, should a party be found initially to be non-compliant at the horizontal level. It's also setting out how returning officers and the NNCO must respond to an unexpected turn of events, for example, late withdrawal or death of the candidate, and requiring candidates to complete gender statements and setting out appropriate arrangements for inspection of those statements, with relevant safeguards in terms of data protection. But we're very mindful of the need to provide as much time as possible for the electoral community to prepare for the effective delivery of the 2026 Senedd election. Much of that depends on all the underpinning legislation being in place. So, I think the timing of this is very important, isn't it?

Yes.

I mean, these are wider than financial issues, but hopefully it's helpful just to set out what we would be expecting to come through the subordinate legislation.

I think Mike Hedges will probably touch on some of those things in his questions now as well. Thank you.

A duty to carry out a review of the Bill will be placed on the Senedd through the formation of a new committee. What are the potential annual costs associated with this proposal?

Thank you, Mike. As you know, section 2 of the Bill would require the Llywydd to table a motion proposing to establish a committee to undertake a post-implementation review. Of course, it would be for the Senedd to decide at that stage whether or not to support such a motion, but it's in the Bill that a motion should be proposed at that stage. In terms of potential costs associated, as your question asks, relating to discharging that requirement, it's very much dependent on future decisions taken by future Senedds, so that's why we didn't include cost estimates at this stage relating to the review mechanism in the Bill's RIA. It's interesting also, it is going to be very much over to the Llywydd and the Senedd to decide how to handle this review work; at this stage, it wouldn't be—. I mean, obviously, the Senedd and the Commission are regularly looking at this kind of committee role and the costs, but there's nothing that we at this stage have done because it's very much dependent on the future Senedd.

The RIA sets out the role of the national nominations compliance officer. The chair of the Wales Electoral Coordination Board has suggested a deputy for this role. You've decided you don't need one, or you don't think you need one. What happens if the NNCO becomes ill, for example, and is no longer able to be the NNCO? Have you got any view as to how you're going to deal with that and have you got any idea what the potential costs are of having to deal with it?

We are in ongoing discussions about this, recognising and clearly engaging with not just the Welsh Local Government Association working group, but the Association of Electoral Administrators and also the Electoral Commission. So, it's an ongoing discussion. We're now looking at what it could mean to have a deputy NNCO because, as you say, this could be required in terms of, for example, illness of the NNCO. I think that if the decision is taken to have a deputy, they're going to be very modest costs in terms of additional costs. We're anticipating that this could be around £250 per election cycle, because it would be a call-on fee for a deputy NNCO. Any anticipated costs—and I've given £250 as a likely estimation of costs—would be included in the RIA associated with the subordinate legislation, which would be common practice in terms of when you get to subordinate legislation.

If I can come in, Mike?

Go ahead.

With the NNCO and that role, is that designed to be a full-time role, or is it a role that would be allocated to somebody with the competence either within Government or within local government, or—? Could you talk us through briefly what you anticipate that role being? It might give us a better understanding of that call-on fee. If there's a deputy, how do you know there's somebody available to be able to do that? That's from a practical point of view.

Would you like to answer the question?

Of course. Firstly, we currently anticipate that the national nominations compliance officer would be appointed from one of the returning officers within Wales that's not used as a constituency returning officer. In the context of the wider Senedd reform, we'll have 16 Senedd constituencies, so, obviously, there'll be a reduction in the current number of returning officers and, obviously, there wouldn't be any regional returning officers. So, we would anticipate that there would be returning officers that won't be operating in a constituency returning officer capacity during the Senedd election, and that one of those may be appointed as the national nominations compliance officer.

The cost in the RIA, around £1,500, is a best estimate, based on an assessment of the duration of that role and responsibilities—it's very narrow. We anticipate, actually, it would be around about three days within the election timetable and, actually, their responsibilities would only kick in when constituency returning officers will be providing them with the information about the first candidates on each party's constituency list, and resolving that in terms of compliance with the horizontal criteria. As I say, we anticipate that that process would be undertaken and concluded within three days, so it is not a significant role or responsibility, and I think the conversations we had with the working group, via the WLGA, was that, actually, it was a lesser role, just in terms of that breadth of responsibility and the time undertaken, compared with regional returning officers, for which the latest fees were about £2,500. So, it's reflective of that in the context of current fees and charges for returning officers and regional returning officers.

And in that context, you'd have, effectively, 15, potentially, spare ones, if you like. My language isn't great there, but potentially. Because if you've 16 returning officers, and 16 that you're not using, then if you're using one as an NNCO, one of those others potentially could step up, if there was an issue.

Yes. In terms of individuals, sometimes they're undertaking multiple roles, including as a regional returning officer and a constituency returning officer, maybe covering multiple constituencies at the moment—

But there isn't a lack of officers. Somebody could potentially—

—but we anticipate there to be capacity, yes.

I think it is only £1,500 for the 2026 election and £1,500 still anticipated for the 2030 election for the role of the NNCO. So, that's the cost and the cost, obviously, is the issue of your particular concern up to now.

The Senedd Cymru (Members and Elections) Bill estimates an increase of £1,300 in training costs for constituency returning officers' familiarisation with that Bill. Will that £1,300 cover this as well?

Well, that's where the link, obviously, to the Members and elections Bill is crucial. There are no additional costs. The RIA on this Bill needs to be looked at in the context of the Members and elections Bill, because it's seen as the Senedd reform programme as a whole. It includes training and, as I said, that's in the RIA to the Senedd Cymru (Members and Elections) Bill. I think it's important, really, to see also that there are no additional costs needed for training—you've discussed this with WLGA—specifically associated with this legislation, because it will be very much part of the training that they will all—. And, actually, this earlier discussion about the fact that they'll all want to be appraised of and understand, as electoral returning officers, this particular aspect of Senedd reform. We just need to look at this in the context of that, the RIA for the Members and elections Bill, in terms of training costs.

Mike? Okay. Peter.

Good morning, Trefnydd. I understand that there hasn't been any engagement with political parties to understand what the cost implications would be to them. I just wondered if you're planning to engage with political parties to ascertain their views on cost.

Thank you very much, Peter, for that question. There has been engagement with political parties during the development of the Bill, but, as you will be aware, we do have a Senedd political panel, party panel. It's facilitated by the Electoral Commission, and all political parties take part in that—those who are currently represented in the Senedd. So, indeed, all of the Senedd reform—the Members and elections—Bill, as well as this Bill, has been discussed with political parties.

I think, referring back to the RIA, it does recognise that the introduction of quotas could give rise to additional costs, as well as savings for political parties who engage in the electoral process, but we really can’t quantify what those costs—. They would vary between each political party depending on size, depending on also experience in this whole field of work in terms of encouraging and selecting a wider diversity of candidates. It’s interesting, and you probably have already noted this, that there were no specific financial implications raised by political parties who were on that panel who gave evidence to the Senedd Reform Bill Committee on 18 April. But, clearly, we will work, continue to work, with the Electoral Commission and the Senedd political parties panel.

So, we can expect an RIA somewhere along the line to pick up a notional cost if we don't get information on what it might cost parties. I'm assuming that.

If we're able to, I think that's the question. Obviously, the political parties panel that the Minister referenced has the four parties that are represented in the Senedd, but the provisions of the Bill would apply to all registered political parties in Wales that put forward candidate lists, so that there's quite a wide spectrum of implications for different parties.

Thank you.

If I may, have you considered any potential legal challenges, not on the Bill itself, but from potential individuals if decisions are made under this Bill or under this Act, as it will be? Has that been considered at all, whether or not there would be any legal challenges at all to come in? Is that something that would be within the scope of the RIA as an impact of potential financial cost to the Government?

I think, obviously, referring back to your opening questions, Cadeirydd, we’ve stated very clearly that we believe the Bill is within the legislative competence of the Senedd, and that’s on the basis of presenting it to and it being considered and scrutinised through the Senedd. So, I think—. Presumably, in electoral arrangements, there’s always the potential of some challenge for any electoral arrangement that there might be, like not being able to get to your polling station, to challenging something more fundamental. But I don’t know if you can answer that point.

Only so far as, I suppose, there will be considerations that individual political parties will need to give to the actions that they take, including, obviously, their own selection processes. But that will obviously be based on their own individual circumstances and something that parties would need to satisfy themselves about. If you mean in relation to challenges, perhaps, to the actions of parties—

Yes, actions and decisions on who's where on a list, who's selected, who's not selected, potentially, as it is something new—well, something that's being legislated for, rather than something that parties have done voluntarily in the past. It would just be interesting to understand if there was any consideration of that that had been given.

I mean, it hasn't, as we've said, come up—that point hasn't come up—in the political parties panel at all with the Electoral Commission. Clearly, if we go back to the origins or the early days of this Senedd, we had a new electoral system here. That goes very much to how political parties handle and manage and prepare for this, but on a commitment that's been made to open up the democracy of the Senedd and future diversity, being a positive move for the political parties.

A couple of questions on the electoral management system. I notice that it's a relatively small amount in the context of what we do as a Parliament. But there's an £18,000 suggested update cost for the Bill in the RIA. I'm assuming that will be funded—. It's going to be funded by local authorities, but the money will be passed on to, I don't know, whichever local authority is doing it on behalf of everybody, for which I assume there will be a process. And then just noting that the Senedd Cymru (Members and Elections) Bill had a £60,000 cost identified. Is there an interaction between those two costs, or those two systems? Is there some synergy or whatever?

Well, this is something, again, that we're working very closely with the Welsh Local Government Association on, making it very clear—and I can respond to your first question, Peter—that the Welsh Government pays costs associated with the electoral management systems, any changes that derive from primary legislative changes, when necessary. So, the Welsh Government would reimburse the local authorities through standard payment systems, but, obviously, the local authorities manage, with their contracts, the EMS, and you will know that from your leadership role in Monmouthshire. So, EMS providers initially will be paid directly through lead local authorities, but then we would—Welsh Government would—reimburse for the costs incurred. That's always the case and it would be the case for this.

Just in terms of the costs, yes, £18,000 relates to the specific changes to enable information about compliance with the quota rules to be integrated into the system and to be shared with people who need to see the information for enforcement purposes. So, the cost associated with updating the electoral management systems is £18,000 for EMS, for this Bill, and, as you said, £60,000 in terms of the Senedd Cymru (Members and Elections) Bill. And actually, this was developed very much in partnership as well, and I think, in terms of costs. And the WLGA—. And, of course, the RIA is very clear about this for the Senedd Cymru (Members and Elections) Bill. Anything to add, Will?

Only to confirm that, across the two Bills on Senedd reform as a whole, it's up to £78,000.

It's the same system at the end of the day. It's just that—

Yes. Tweaking.

—you've allocated different amounts under different RIAs.

Yes. And there's quite a specific—. I think, in the conversations we've had with electoral administrators, there's quite a specific function that would be needed around this; obviously, a mechanism to enable that information to be shared with the national nominations compliance officer, which would be, obviously, a new role.

Yes, I see. A final question from me, Chair. I note that the Llywydd said that the Government didn't require any additional information on costs from the Commission into the RIA. I wondered what assessment had you made, and what outline costs have you put in, that you would imagine the Commission would incur.

Well, this is something where, again, officials—I'm sure that Will was one of those—engaged very closely with the Senedd Commission on over costs actually relating to the whole Senedd reform programme, prior to taking the decision to move forward with the provisions for gender quotas through a separate Bill. All estimated costs that relate to all Senedd reform are contained in the RIA to the Senedd Cymru (Members and Elections) Bill. I think, you know, there's—. When you look at those costs, and it's interesting—. You'll have seen the letter from the Llywydd, which, I think, is a really helpful letter, in terms of impacts and responses, estimated costs to communicate the changes. That's a crucial role for the Senedd, for the electoral system as a whole. So, we don't consider that there are any direct costs for the Senedd Commission arising from the Bill.

Yes. Thank you. Thank you, that's all from me.

Thank you, Peter. Thank you very much for your time this morning. That brings us to time. Thank you for your answers. Obviously, we'll give you a transcript of proceedings to check for accuracy.

So, we'll now, under Standing Order 17.42, resolve to exclude the public from the remainder of this meeting, if everybody is in agreement. Yes. Thank you very much.

Diolch yn fawr.

Diolch yn fawr iawn.