National Assembly for Wales

I'll kick off, if I may. The budget, of course, is presented, as we know, at a very difficult time and quite an unprecedented time of uncertainty, and I'm wondering, really, how the changed path of the pandemic since the budget was laid will impact on the draft budget, and will your ability to take action be tied to the confirmation of additional policy announcements as happen over the coming weeks and months, and any associated funding consequentials from the UK Government?

Thank you, Chair, and good morning to the committee. As you say, we are operating in extremely uncertain times and, actually, since the publication of the draft budget itself, we've had the growth of the two new strains of the coronavirus, which, of course, does concern. So, I think that that does justify the decision to allocate only a small part of our COVID funding at this initial point in the budget-setting process and to save a significant amount of that COVID-related funding until later—so, be that to allocate at the final budget or even for in-year allocations for the next financial year, for the next Government to determine. So, I think it is important to have that level of flexibility, which we have built in. And I think just how quickly things are moving does vindicate very much that decision.

We've also, though, prioritised our public services in the allocations that we've already made. So, in our core budget, you'll see the significant uplift to the health and social services main expenditure group, and that's very much in recognition of the important role that health plays in this agenda, clearly. And also we've been keen to give local government the best possible settlement as well, so you'll see a £176 million uplift for local government, and that is very much a reflection of the important role that those services play, both in our everyday lives, but also in terms of responding to the pandemic. 

So, I think we've built an appropriate level of flexibility into the draft budget.

Okay. Because you are holding quite considerable reserves in the draft budget, and I think I'm right in understanding that what you suggested in your answer there is that you are expecting to make significant allocations in the final budget from those reserves. And I'm just wondering, really—any thoughts about how you might prioritise those, or is that, again, dependent on the circumstances, I suppose?

So, the majority of the large reserve does relate to residual from the £766 million we've received in consequentials relating to COVID. You'll see £77 million allocated within the draft budget at this point, and those relate to allocations that we felt needed to be made, partly for continuity purposes. So, you'll see some funding there allocated to the test and trace work, for example; it's important that we keep those members of staff in place and that they have the certainty of that work moving forward into the next financial year. So, that's one of the allocations that we made. I'll be certainly looking as to whether further allocations will need to be made in respect of health and local government in particular, as we move forward towards the final budget, and we'll be having some further discussions on the level of funding that we might want to allocate there between now and then, but I would certainly expect to see some additional allocations made.

So, what level of risk is there in relation to the reserves that you're currently holding, as we come to the end of the financial year, that you find that maybe you can't allocate some of the money that you were hoping to allocate in this financial year, or, indeed, that you allocate more than you'd intended and therefore there'll be less for you the other side?

Well, this is a strong argument for the additional flexibilities that we've been seeking from the UK Government in terms of our end-of-year position. We've been asking to carry forward, potentially, if we need to, some of that additional COVID funding into the next financial year. That's one of the flexibilities that we've been seeking. We understand that we will have a decision from the Chief Secretary to the Treasury towards the end of this month on that, as part of the UK Government's supplementary estimates piece of work, so we look forward to that decision. But, that said, we are holding some significant reserves, but we do expect to need to make additional allocations.

So, I've already said that we would look towards a further package of support for business—perhaps more towards the end of this month, depending on, obviously, the situation relating to the pandemic. I'll be expecting to make further allocations in respect of the council tax reduction scheme and the impact that has been felt by local authorities in that respect as a result of the pandemic, and, in terms of local government, collection of council tax as well, because that's clearly been impacted by the pandemic. And it might be the case that we will need to make some additional allocations to the discretionary assistance fund, for example. So, those are areas where I would expect to have to make some further allocations through this financial year. But, as you say, it's unprecedented uncertainty again that we find ourselves in.

Yes, and we understand that. Okay. Alun has indicated that he wishes to come in, and then Mike.

Thank you. Thank you very much, and I'm grateful to you for that, Minister. The UK Secretary of State for Wales this week was saying that the Welsh Government has £1 billion unspent in its budget now. Whilst the level of reserve is always a prudent measure to take—and I've got no issue with what you've said on that—is it true that the funds are up to £1 billion? And secondly, if it is true, what does it consist of and what are your plans for it?

So, the figure that the Secretary of State and then the Prime Minister repeated actually relates to the reserves that we were holding as we came through the second supplementary budget process. Since then we've allocated around £600 million. So, we've had the additional package of £450 million for business support. We've made a further tranche of funding available for the culture fund. Vaccines, of course, we've made allocations of funding towards, and additional funding for contact tracing. We've introduced the statutory sick pay scheme for care workers and also made some additional allocations to rail as well. So, around £600 million has gone out since the secondary supplementary budget, and you'll see that reflected in the third one.

But also since then we've had additional consequentials again coming in from the UK Government. So, the level of reserve currently is around £800 million, but, as I say, there is likelihood that we will have to make some very significant allocations in the coming weeks and months as well.

You said in response—and I think the Minister withdrew his assessment—that I think it was £277 million was provided to you by UK Government in addition to recent funding. Could you explain the background to that? I did a radio programme last night with Nick Ramsay's comrade in Monmouthshire David T.C. Davies, and they were very clear that the Welsh Government—he wasn't clear about the £277 million, actually—has received significant additional funds in terms of consequentials and they remain unspent. So, your position at the moment, if I understand it correctly, is that there's around £800 million there, and that will be allocated in the next supplementary budget.

So, the situation so far is that we have received £5.2 billion of additional funding in respect of COVID allocations as part of our guarantee, which we negotiated with the UK Government, that we would have upfront funding so we didn't have to wait for those additional allocations to be made to England, and we wouldn't have to be working out what the consequential was for each of those individual allocations. And that's been a really useful tool for us, but there has been, I think, a lack of transparency on the part of the UK Government. Again, the supplementary estimate should help us unpick some of that to understand exactly what that £5.2 billion relates to.

But, in respect of the most recent announcement and that £277 million to which you refer, that wasn't new funding. The initial press release from the Treasury was quite misleading in that respect, and they did change that press release then through the course of the day to reflect the fact that, actually, this £277 million wasn't new funding and that it was part of that £5.2 billion guarantee that we had. So, we had had some additional funding before Christmas—£200 million—but nothing since, so that's the factual account of where we are. 

I think Andrew wants to come in as well here. 

Thank you. Yes, I just wanted to confirm that our budget still is not settled for the current financial year until the UK supplementary estimate process completes, which will, as the Minister touched on—we don't know exactly the date that that will be settled, but it will be sometime in the next few weeks. So, it's at that point that our final budgetary position for the current financial year will be set, and the experience of the last month or so is that things are still moving around quite a bit—generally upward, but I think there are still some possibilities of movements in the other direction as UK departments finalise their positions. So, yes, by the time we produce the third supplementary budget, we'll be able to be clear about exactly what our spending limits are, exactly how much we'll be able to carry forward through the Wales reserve, and exactly how much we'll be spending this year on various things. But, yes, it's still a very fluid position, and that's causing confusion, and it's really difficult to try and be as—we're trying to be as clear as we can about all of this stuff, but, given how much is moving around still, it is very, very difficult to be precise about exactly how much money is available and how much money is going to be spent this year.

Okay, thank you. [Interruption.]—yes, sorry. Minister.

I would just remind colleagues as well of our position last year in relation to the supplementary estimates when we had the £100 million reduction in capital—£100 million reduction in financial transactions capital, and then that small increase in revenue right at the end of the financial year. So, there might yet be some big surprises, unfortunately.

Okay, Mike. You've been patient.

Capital is much easier to manage, because you can move it across years anyway.

Two questions, really. We keep on being told how much we're going to get. Why does the Welsh Government not publish their calculation of what they think we should be getting from any budget decisions made at Westminster? We know the percentages we get under each area. If Westminster will not publish it, why won't the Welsh Government publish it, so at least we have a set of figures to argue with them about? 

The second thing is that we do know that the Welsh Government can put money out to anybody who is not part of the Welsh consolidated fund up until the last day of the financial year, to get it out of their budget. So, if they had £100 million that would go back to the Treasury if they didn't spend it, they could just hand it over to local government via a formula and that would be outside the consolidated fund.

In terms of what we would publish, officials do monitor very closely announcements on the part of the UK Government to estimate what our consequential would be of that, but I think that that's more of an internal piece of work rather than something that we would be looking to publish. And also, there is still, as I say, a lack of transparency. When I was before committee before Christmas, I talked about the tables that the UK Government had shared with us, and there were only four lines in those tables. They were very, very broad, relating to transport, health and other aspects of public spending. So, the level of information that we have is low, and I just fear that if we were to publish our estimates of consequentials received from various announcements, it would just add to the confusion, rather than provide more clarity at this point.

What I would say is what it would do is, 'This is what we expected to have, if they're going to send us something different, then they would have to say how they calculated it and what it is'. At the moment, we have two groups of people, both saying what they are saying is right, but nobody providing any numbers, apart from the final number, showing calculations of how they've got there. How am I meant to understand when you say, 'Oh, we should have another £100 million' and the Treasury say you should have another £20 million? How am I to know which one of you is right if neither of you publish any calculations of how you got there? You wouldn't mark a piece of mathematics, would you, in school with just the final answer.

I think, for us to be in a position to provide that level of information, we do need the detailed information from the UK Government, and what the supplementary estimates will provide is that more granular breakdown of the allocations that have been made, so then we can test as to whether or not we believe that we have been fairly treated, if you like.

Will you share that with us?

I think these are all publicly available documents, but when we do have them, then we'll be sure to share them with the committee.

Thank you. On we go now, then, to Rhianon Passmore.

Thank you very much. Before I do go into the line of questioning on the land transaction tax, I'm glad that you cleared up the issue around the £227 million double accounting, because I was very concerned about that, and that was quite clear in what you said. But, just briefly, if I may, Chair, in regard to the provision of the UK's supplementary estimates and the last iteration's downward movement and reduction, is it possible to say, further than the ambiguity and not knowing, how disabling that is in terms of planning the Welsh spend and also what the solution to that would be? Is it a simple one, as you've just indicated? I mean, what would be the remedy to that ambiguity, not knowing and lack of transparency?

I think further and greater detail as we go from the UK Government would be useful. It is difficult in terms of the supplementary estimates, because we don't know to what extent there might be underspends in UK Government departments and we don't have a proper line of sight across that. And, obviously, if there is money being returned, it will have an impact on us and our budgets, so that's where, I think, the confusion and the difficulty is in terms of reductions of budgets. Greater sharing of information, I think, would be useful. We try to be as transparent as we can in terms of our budget, and we need to be, but I think that some reciprocal sharing of greater information would be—

Okay. I think that's clear. Thank you for that—

Sorry, Chair, I think Andrew Jeffreys just wanted to add something on this before we move on.

It just highlights how incredibly complex our funding system is at the best of times. I think this year has seen a level of in-year changes in funding levels—and not just volume, but lots and lots and lots of decisions contributing. It's not just one or two big changes. We're talking about, through the year, probably three figures of [correction: over 100] changes made to budgets and in consequential for us. I think the system has been under an incredible strain with all of that going on, and I think there are some important questions to be asked as to whether the system that we've got is robust enough to deal with the circumstances that we've been in this year. 'Probably not' is the answer to the question. Reforming the system in the current context probably is not a today thing, but I think it raises a lot of very important questions. 

Okay. Thank you for that. Moving on to land transaction tax rates and how they fit in with our often-stated tax principles, both in terms of changes to the rates and the legislation around tax avoidance, can you set those changes out for us in terms of the proposals around land transaction tax rates, briefly?

With regard to land transaction tax, there were two major decisions at this draft budget. The first was to increase the rates of tax paid on transactions liable to the higher residential rates in order to generate additional funding, recurring revenues, to help us fund further spending, particularly in housing, for example. And then also the decision was taken to reduce the amount of tax payable on non-residential transactions, and that will provide some support to businesses as they emerge from the pandemic and the restrictions that have been placed on them. I think particularly, of course, it will be useful to small businesses. So, those are the two decisions reflected in this draft budget. 

It is important to recognise that, in terms of our principles, these rates do remain progressive. So, those people who are buying those more expensive properties will continue to pay more tax and at higher rates. The increase in the higher residential rates also increased the differential between, broadly speaking, people who are buying that home to live in and people who are acquiring second or further residential properties. 

In terms of the question you raised about tax avoidance, there's nothing in these two specific measures relating to tax avoidance, but that's because the Welsh tax Acts contain already a number of existing anti-avoidance measures, including a general anti-avoidance rule that applies to both land transaction tax and our landfill disposals tax as well. 

Thank you, and thank you for bringing that up with regard to enforcement around tax avoidance and deterrence, although I hope that that is sufficient in terms of the general guidance that's there at the moment. With regard to the timing of this announcement, and bearing in mind the current flux, is there any response to the noise with regard to criticism around that, and do you feel that there are any unintended consequences with regard to increasing the additional rate of land transaction tax?

Well, I think it's desirable, where possible, to make announcements relating to tax as part of the draft budget, because, of course, they're linked to the spending commitments that are made in the budget. I do recognise that the timing of the draft budget overall wasn't ideal, and that, of course, is a reflection of the fact that there was the cancellation of another planned UK budget in the autumn. We have the one-year spending review, rather than the comprehensive spending review that we had been expecting. And of course we had to fashion, then, our budget within a four-week period. So, none of this really is ideal in terms of timing. 

Of course, we announced that the changes would come into effect the following day. I think that's a perfectly legitimate thing to do because it does prevent people bringing forward transactions in order to try to avoid paying, or trying not to pay that additional percentage point at a later point. I do understand, of course, that it makes things more difficult for some of the parties involved, but that's why we've put the transitional rules in place. So, for those individuals who have entered into contracts to purchase properties, where the exchange has been made but they haven't completed, they will still pay the rates that they assumed they would be paying when they exchanged those contracts. So, we do have that transitional support, if you like, in place. And also there is precedent for making tax changes in this way in Wales previously in terms of some of the decisions that have been taken as far back as 2012, but also again in 2015.

In regard, then, to your confidence or otherwise in regard to ensuring that revenue from the land transaction tax and landlords' income is being consistently included in tax calculations, what would your comment be around that?

I think that we can be confident on that. I will invite Anna in on this particular point, because she does lead on our tax policies.

Thank you. The question was about whether we're including landlord income—sorry, can you just repeat the question?

It's just really in regard to assurance that we're using all that information that we have in terms of ensuring that we maximise revenue from land transaction tax, and also income from landlords to be consistently or properly included in the overall tax calculation.

Thank you. We do and we will continue to make sure that we're working with the Welsh Revenue Authority and Her Majesty's Revenue and Customs to make sure all of these things are included. I know it came up a little bit when we had Finance Committee on the day of the budget, the idea of making sure that it was linked to Rent Smart Wales, and I know the Minister is going to be writing to the Treasury to make sure that that data is fully shared, to make sure all of these things are included. We are fairly confident that these things are being included, but it's always worth us continuing to make sure all the data is being shared. WRA and HMRC already have really strong relationships where they do communicate really frequently, so we are fairly confident, but it's always worth us keeping going; if there's any opportunity to make sure that we're maximising our revenues, we will continue to do so.

And it would be very good if that could come back to us as a Finance Committee as well, obviously, in terms of our interest—

Sorry, Rhianon. Before we move on, Andrew wants to come in as well.

It's a really good question, because I think landlord income is an income tax issue, really, rather than a land transaction tax issue—I think that's what you're getting at. I know that, for HMRC, it's one of their key areas of compliance. The sums per taxpayer tend to be small, but you're talking about a lot of potential cases where income is not as obvious, perhaps, as it is in some areas of the tax system. So, it is certainly an area that I know HMRC put a lot of focus on in their compliance activity, and there are always ways of improving the flow of information to try and ensure that income is being properly recorded and tax is being paid in the proper way on that. 

Okay. Thanks for that. My final question pertains to income tax revenue and population growth being slower in Wales relative to the UK. So, firstly, will this in your view have a significant impact on future Welsh budgets, and what improvements have been made in terms of new and emerging sources of Welsh data to support the confidence in our devolved forecasts?

Over this year and the next, the Office for Budget Responsibility's latest forecast shows revenues from the Welsh rates of income tax growing a little more slowly than the equivalent revenues in England and Northern Ireland, and that's because the COVID recession is expected to have a slightly bigger impact here in Wales. However, over the subsequent four years, Welsh rates of income tax revenues are forecast to grow more quickly than equivalent revenues elsewhere, and that of course takes into account population projections from the ONS.

It's worth saying, though, that all of this is surrounded in such great uncertainty in terms of the relative impact of the pandemic on Wales and elsewhere. In terms of the latest forecast, though, for Welsh rates of income tax in 2021-22, that stands at £2.064 billion, and that's £35 million lower than the associated block grant adjustment, which is based on those revenue forecasts for England and Northern Ireland. That's that question that you were asking about specifically. But of course, we do benefit from the fiscal framework more generally, because the needs-based factor has of course delivered around £600 million in additional funding for Wales over the period since 2018-19, so that more than offsets that particular difference, I think.

Then you asked about the importance of ensuring that we do have good and accurate and timely and relevant data. I think that it is the case that data availability is now improving. The Office for National Statistics is now publishing monthly earnings and employment statistics using pay-as-you-earn real-time information. That's been really helpful. In addition, HMRC supplies Welsh Government and the Office for Budget Responsibility with indicative monthly information relating to income tax in Wales—and that information is then still in development, but it is becoming more timely. Our Welsh Government officials are working really closely on an income tax working group, which looks at tax data particularly, and they're working alongside the OBR, HMRC, Scottish Government and the Scottish Fiscal Commission to improve the kind of data that we're receiving. So, there are still opportunities for further work, I think, in that area. We've talked before about the constraints around taxpayer confidentiality being something that we need to work through further, but I know that our working group is making some progress there as well.

Okay. I'll allow Andrew to come in again—I think he's indicated—and then we'll move on to Siân.

Thank you. Just to go back to the point about relative population growth, that is one of the key tax base risks that we have, and obviously committee has looked at that in the past. It's a kind of longer term challenge, that, and if we do see the divergence in population growth between Wales and England in particular that some of the projections suggest, that would potentially have a big impact on our income tax base relative to the UK. So, that is certainly a medium to longer term issue that we're concerned about. To an extent, population growth is beyond your control as a Government, but there are policy implications, potentially, of things that you can do in a policy sense that make Wales a more attractive place to live, and that kind of thing. So, the moving population around the UK is an issue that we need consider from a policy perspective, but those kind of issues don't really affect the forecast in the immediate period, this year, next year, the year after—those are things like employment, changes in the employment rate more directly.

Okay. Diolch, Andrew.

Could I ask that the income tax working group results are fed back to this committee, in regard to those last two points?

Yes, we would be happy to provide a fuller update on the work of that group.

Thank you.

In my mind, I split up the non-domestic rates support into the normal support that we offer to businesses and then the specific, COVID-related support. So, we do provide over £230 million of statutory reliefs every year. We have £125 million of small business rates relief in normal times, if you like, so half of all businesses applicable to that won't pay any rates at all. We also have our charitable rate relief scheme, which provides over £65 million of support for charities and community amateur sports clubs. They will receive between 80 per cent and 100 per cent reduction off their bills. And of course we have our empty properties rate relief, and that provides an initial period of exemption from rates after a property becomes unoccupied, and that relief totals around £30 million. So, all of those are important, and all of them are fully funded and will continue into 2021-22.

But beside that, then, we've had the COVID-related support specifically for the retail, leisure and hospitality sectors in this financial year. A scheme of that size puts a huge pressure on the budget, so the UK Government has said that it will say something early on in this calendar year about its plans for the next financial year, and when we do have an understanding of any additional support that might be made and the consequentials available to us then, then we'll be able to make a decision on that. I would be keen, obviously, to provide support, but I think that when we reflect on the fact that we've had only £766 million for COVID for next year, as compared to the £5.2 billion this year, any scheme that really looks to support these sectors with rate relief would take out, really, that funding that we've had for all of COVID for next year. So, we await keenly the UK Government's decision as soon as possible.

Well, without support from the UK Government in terms of consequentials, I think it would be unaffordable for us to do so. The scheme at the moment, this year, is costing around £300 million, and as I say, we've only had £776 million [correction: £766 million] in respect of COVID for next year. But that said, the UK Government has said that this is an area where they will be making some kind of announcement, so I hope that they would potentially look to the same kind of scheme as they've put in place this year, or at the very least that kind of phased approach that you've described there. So, I'm very keen to hear more from the Chancellor on that. They have said 'early in this calendar year', so as early as possible, I think, would be good for all of us, but more importantly for those businesses that are relying on timely information.

So, the next revaluation will take place in 2023, and that will be consistently applied across Wales and England. So, throughout 2021-22, extensive work will have to be carried out in terms of the preparatory work necessary for that to take effect from 2023, so it will mean that all non-domestic properties will need to be re-assessed and assigned a new rateable value based on the updated information, including market conditions, and of course I think that the pandemic is going to have an impact there. We have yet to grasp exactly what that might look like, but I think it would be difficult to say that there won't be some kind of impact of it. So, obviously, we'll now need to be considering our longer term policy in terms of the length between each revaluation and the options for NDR appeals as well, so that's some of the work that we'll be doing, and also our work will include a consultation on setting the decapitalisation rates for properties without a market rental value, and we've planned that to take place in the spring. And then, towards the end of the year, then, we understand that we'll need to take some further preparatory work to examine the potential impact of the tax base on revaluation, and that will factor in, then, the impact of COVID on the tax base as well. So, lots of work for us to be getting on with in the coming year on that.

No, because I think things have already been delayed to a considerable extent, so the discussions that we've had with UK Government and the Valuation Office Agency have alighted on 2023 as the next date for the revaluation. I don't know if any officials who were involved in those discussions want to add a bit more.

Andrew.

There's a history of dates being moved for revaluations. There's no intention at the moment of moving away from the date the Minister has specified. It's really tricky, because whenever you do one of these things, it's a snapshot of the property market at that particular time, and it seems like every time you're planning on doing one of these things, there's something big going on that is, in a way, distorting property values. And it's worth reminding ourselves that we're looking at—the real thing that you're looking at in a revaluation is relative movements between different areas, so the intention of the revaluation is to maintain the overall tax base, but redistribute it in line with changes in relative property values between different parts of the country. And at times, those shifts can be very significant, and I think the impact of COVID on the property market, the commercial property that we're talking about here, is potentially very, very significant, and potentially operating in a different way from trends in recent years. So, in recent years, the trend has been for property values in places like Cardiff to go up and property values in other parts of Wales to go down, relative to those values. But, you might well see a very significant shift back the other way, given the specific impact of COVID on shopping in big urban centres. So, I think we haven't yet had a chance to properly look at any of those issues, but they'll certainly raise some difficult issues, I think.

Nick, you wanted to come in.

Yes. I think I just re-muted myself then, so I hope you can hear me.

Just on this issue—I know I've got some questions later—of the changes in the higher rate of the stamp duty, I've asked the Minister before about keeping this under review along the border areas;  I know that not everywhere in Wales is near the border, so it doesn't apply universally, but is there an assessment being made about those higher rates of land transaction tax and the differential now between my area, for instance, and across the border in Hereford, and how that might impact in the longer term on sales of those properties?

Well, we always keep our rates and bands under constant review, as Nick Ramsay knows, so obviously, we'll be looking at the data as it comes in, but I do recognise that there are cross-border issues, both in south Wales and north Wales. In south Wales, we have a different situation, actually, to north Wales, where the price of property is actually much cheaper on the Welsh side of the border. So, I'm very alive to these cross-border issues and the challenges that they might provide to those border communities, but I think it's important to recognise that, on the whole, our system is very progressive in the sense that, until recently, we were the only part of the UK where the average price of a house was within the band before which you start paying tax, which I think is important to recognise, and also the fact that we don't just have our relief for first-time buyers; actually, it's for all buyers. So, on the whole, looking at the Wales picture, we have a very progressive approach, but that said, there are some border sensitivities that we must be alive to.

Mike wants to come in briefly, and then back to Siân, and then we'll have to move on.

It's on something Andrew Jeffreys just said. My memory of the last revaluation is that places like Cowbridge, Abergavenny and Narberth had fairly substantial increases, not just Cardiff.

That's correct, yes.

Yes. Okay, fine, thanks Mike. Siân.

In terms of the vacant land tax, that still remains extremely painful. We've felt that we've been making some really good progress and relationships at official level are very good and helpful, but it is very much, I think, a political decision not to allow those natural next steps for the vacant land tax devolution to take place. 

We're currently considering whether there is a case now for some kind of third-party assessment of the information that we provide to support a proposal for the devolution of tax powers, to have that kind of independent view and oversight of it, because the situation at the moment feels very, very lopsided towards the UK Government in terms of the devolution of further taxes. It's very difficult to see how we would get anywhere at the moment, and this is a fairly non-controversial area of tax. So, we're considering whether that kind of third-party view would be helpful, and also exploring with colleagues in Scotland as to whether or not that's the kind of proposal that they would also think would be helpful and would support. So, I think that that will potentially be our next step, if you like, to push for that kind of independent view on whether or not we've provided the information as set out in the Act, which we believe that we have.

And would there be any case studies from other countries or other states, showing that that can work, or is that just a bit of pie in the sky, and the long-term answer is what I would say is the long-term answer to this problem?

[Laughter.] I think respect between the administrations really, for me, is the answer here, and also respect for the system that we set out in law. These steps have been set out and agreed jointly between the UK Government and the Welsh Government. Anna's been leading on some of the work in relation to the vacant land tax, or the seeking of the power to introduce a vacant land tax. I don't know if she's got some reflections on what we've learnt from elsewhere.

We have been looking at international examples about how this tends to work, and it's quite difficult because I think the way that fiscal devolution is set up, and particularly this process of gaining tax competence, is a little different from many of the other processes around the world. And I think, as the Minister said, one of the things that has become really clear in the process is that we provide information to the UK Government and the challenge is that they have to determine whether that is sufficient and there is no other sort of—. We would argue what we've provided is sufficient at this stage, and there is a question about whether the UK Government deems that sufficient, and there is no sort of neutral arbitrator of that process.

I think part of the conversation is, 'How would we ever know whether we've got to that point or not?' There's a question about the impact on the rest of the UK Government's taxes. So, if we created a new tax in Wales, would it have a negative impact on the rest of the UK taxes? And at what degree do you determine that that would have a negative impact on the rest of UK Government taxes, because you could always argue that any slight change in tax will impact the UK Government too? So, I think we're kind of in that really, really tricky grey area where it's really difficult to see a path forward until we look at the process, change the process. 

The Minister has pointed out that one of the things that we've really worked hard at is developing a stronger relationship at official level to see where we can share information, be really open and transparent with each other. And one of the things we did with the land transaction tax changes this year was actually give advance notice to officials in the UK Government, HM Treasury, the Scottish Government and Northern Ireland, in the process of saying, 'Look, we want that same respect from you that we are giving, and so, here we are, we'll tell you in advance that this is what we're going to do.' Because we struggled a lot this summer when we didn't know in advance that they were making changes to the stamp duty, and we had to quickly scramble and determine what we wanted to do and it really impacted us significantly, and Scotland. So, we deliberately made that decision this year that we will be open and transparent with them about the changes we are making.

I think that kind of developing these relationships and these trust relationships is helpful because we can be a bit more open. Unfortunately, it hasn't changed significantly yet in terms of the outcome that we're getting, but I think that's general positive stuff. If we can be more open, we can be more transparent, we can be willing to share policy discussions, we can maybe find opportunities to work together in a more collaborative way. We've got fairly strong relationships with colleagues in Scotland too, so we're thinking of opportunities where we could work jointly. But, yes, we do look at international examples. Our structure is a little different from many other countries, and so it makes it even harder, but we are doing that work.

As to our cumulative financial transactions capital allocations of £1.5 billion, they are, as you know, invested in a wide variety of schemes and projects across Wales. The large majority of that, which is £1.1 billion, is managed by the Development Bank of Wales, and whenever allocations are made and appropriate repayment profiles agreed from the very start of that investment with a view to making the most of that funding, the process involves policy officials working closely with officials in finance and strategic budgeting to work out that appropriate profile for that funding, which I think is an important part of the process.

Of course, in some of the schemes, the money can be recycled a number of times. We manage all of the risks involved by ensuring that we do have those important business cases set out and that they're developed with monitoring in place. That monitoring is in place in both the department and central finance and, of course, at the development bank as well. So, I think that we have robust processes in place there.

At Welsh Government level, the annual repayment profile is also provided to HMT and that sets out when the 80 per cent that we're expected to return will be made. So far we've repaid £5.4 million. The statement of funding policy, which includes the UK Government repayment conditions, has recently been updated. So, officials are working with officials in HMT to work through any issues that there might be in regards to that at the moment.

I said to Finance Committee on 16 December that I'd provide an updated breakdown of financial transactions capital that has been allocated, up to the very most recent monitoring exercise that officials have undertaken, and we're working on providing that as soon as we can. And then, just in the documentation that you'll see for the budget, tables 7.3 and 7.4 illustrate how the Welsh Government budgets for the debt associated with our planned capital borrowing, as well as the management and repayment of that debt, so both the principal and the interest. Those tables show the planned aggregate capital borrowing at 31 March 2022 as £341 million, with repayments of £6.9 million of principal and £3.6 million of interest due in 2021-22. So, I hope that we're fully transparent in terms of the information that we've provided, both through the draft budget, but then the additional monitoring that we'll provide to the committee as well.

Thank you very much, and I'm grateful to you for that. I must say that I was fascinated by the conversation earlier, Minister, with Siân Gwenllian and Anna Adams about the conversations taking place between yourself and the Treasury on tax policy. It would be worth, I think, us giving some consideration to that at some point. I keep saying these things and we've got no time left before dissolution, but it's a fascinating subject, and I think, as we do move towards an election, the structures of governance are an issue that we need to address, and I would be interested if we could find time to look at that, particularly if dissolution is delayed in any way.

But in terms of where we are now, it seems to me that the last year has been pretty chaotic in terms of the pandemic and the impact on our ability to plan finances, and I think that's fair enough—nobody plans a pandemic; nobody knows what's going to happen next month. I hear all these people talking about when the vaccination process will be finished. I don't even know if they know how many vaccines they've got. So, it's difficult to plan ahead. And it's particularly difficult to plan ahead, I guess—and this is my question to you, Minister—when you don't have a structured annual financial system in the sense of knowing when different fiscal events will happen, so that you can work towards planning different areas. I think one of the interesting conversations we've had with the Institute for Fiscal Studies over the last couple of years has been the impact of that on your ability as a Government to plan. So, it would be useful for us, I think, as a committee, to understand, not just ask a question, answer the question, but if you could characterise how you've been able to look ahead and plan ahead through the current financial year, through the last calendar year, and how that's impacted your ability to put together a budget, and how it's affected Ministers'—spending Ministers particularly—ability to plan spending.

I think the work that we undertook, which that Jeremy led on, but I worked really closely with him on, in terms of the work that was needed for reconstruction and recovery, has been extremely useful, both in term of our in-year response to the pandemic—. So, you'll remember that we looked across Government at what we could repurpose, and £49 million was available for repurposing for capital plans, and then we were able to announce that £340 million [correction: £320 million] recovery package earlier in the year. So, that piece of work, I think, has been really important in understanding where the impact of COVID is being felt, so beyond the health service, when we're talking about the impact on high streets, on black, Asian and minority ethnic communities, and so forth. So, that wider look at the impact of the pandemic. That piece of work then was also really useful because we only had four weeks to fashion the draft budget. So, we were able to spend the summer looking at these big questions about where we needed to focus support in future, but then also spent a great deal of time having bilaterals with Ministers. So, I had at least two with every Minister, and then we had Cabinet-wide discussions on our priorities. So, when we were in the position to have that allocation from the UK Government, we could move really quickly in order to fashion a draft budget that reflected all of those concerns.

So, I think one thing that has been helpful has just been the structures that we have put in place throughout the year in order to respond to the pandemic, both the work Jeremy led on, but then also the work that I led on in terms of our financial response. So, we set up a committee really early on in the pandemic. At one point, we were meeting at least once a day to manage our financial response to the crisis, and that was about creating in the first instance that large COVID reserve, but then exploring all of those allocations and requests for funding to ensure that we took a coherent cross-Government response and that it wasn't chaotic in terms of making allocations without having that wider oversight. So, the structures have been useful, not only for managing in year, but also then for helping us prepare a budget really rapidly, which, I think, we couldn't have done without all of that preparatory work and the processes in place.

Margaret wants to come in as well, I think.

Thank you, Chair. Thank you, Minister. So, just to say, obviously, the Minister's described the structure that was put in place at a ministerial level, but at official level as well we've also been holding weekly meetings with the heads of finance across the organisation, probably from the very start of the outset of the pandemic, and I think that's given us the overview of actually what is happening on the ground within the portfolios, that we're able to bring that evidence together to be able to inform the wider ministerial discussions. I think that's something that we'll take from this in terms of having that regular dialogue and engagement continuously throughout a budget planning process.

And Matt as well before we go back to Alun.

Thank you, Chair. So, I think the other point to raise is that we're always looking at the range of evidence and information that's available to us, in looking at what the evidence is showing us for the future, and actually, for this pandemic, we've been very grateful for third sector organisations and other entities who are providing that live management information match [correction: that live management information] or information on the ground, where official sources have had time lags. So, as ever, we'll look at a whole range of other sources of information as well to provide us with that best assessment of likely trajectories that may influence spending. Of course, as well as that we work with departments to understand how existing plans have been impacted, or how, on capital plans, what's happening in those spaces, where it's within our gift to look at what we can do in terms of our own budgets when we're forward planning. So, we look at a whole range of information, and again, this is captured in the budget documentation.

Thank you. I'm grateful to you for that. Those are all very, very full answers. 'So, what's changed, then?' is the question that comes from that. Because it appears to me that there are advantages to having a very formal, structured financial year, aren't there, particularly across different Governments, because you've got a level of understanding between those Governments about what's being planned and in what way those plans are going to be timetabled. And when you break that, of course, a number of things can happen. There can certainly be uncertainty, and I think we've certainly seen that this year, but there can also be creativity, of course, and that sort of disconnect can be a very creative process as well as being a very uncertain process. So, Minister, to what extent has this discontinuity this year led to a different budget to the one that you might have been presenting, had we not been through 2020?

Well, this budget is very different to the one last year in one important way, which, I think, actually, has its roots in what you're describing about that creativity and the different processes we've put in place this year. And that's because last year you'll have seen that I just gave a general uplift to all departments, and I did so, reflecting on the discussions I'd had with each Minister about the pressures and the priorities that they were facing within their portfolio. But I haven't done that this year; I've instead made individual specific allocations to particular schemes and projects and priorities, which is a more centralised approach, if you like, but we were able to do that just because of the level of information and detail that we have had throughout that reconstruction work, throughout all those discussions I've had with colleagues. So, a much deeper understanding of the possibilities and the potential schemes that colleagues will bring forward, and to bring forward a package, then, that speaks to all of those eight priority areas in our reconstruction plan, which also keeps its eye on the ball completely in terms of our climate change response as well. Because I was really keen that we didn't let off the gas, if you like, off the renewable energy in that respect. [Laughter.] But then, also, look to protect public services and all the things that you would normally expect us to do as well. So, it is a very different budget in terms of allocations rather than general uplifts as a result, I think, of the work we've done this year.

Matt wishes to add something as well, I think.

Thank you. And just to build on the Minister's points there; we also built on the foundations of the last budget too. The Minister illustrated climate change. The Minister was able to protect the majority of the £140 million that went in last year, which enabled us to go further in this budget. So, it was also not forgetting the lessons of the last budget, trying to build on those, trying to drive forward progress, and I'm sure later we'll discuss the budget improvement plan too, where, alongside the pandemic, we were able to protect certain improvement work despite all of the other circumstances.

Thank you very much. Well, I'm delighted to hear about this democratic centralism being introduced into the Welsh Government. That's not something I anticipated.

But in terms of your role now then, Minister, because what you've said is quite an interesting thing, actually, because you said you've allocated particular funds to particular Ministers in order to deliver a particular outcome of that. My two questions are: how will people here in Tredegar, where I am at the moment, down the street from where I'm sitting, see the difference? What difference will it make to the people who I represent and others here on the committee represent? And secondly, how are you going to hold Ministers to account for that? Because my experience of Welsh Government is—this is not a personal point, Minister, but the finance Minister tends to take a hands-off approach to delivery, that money is provided to the spending Ministers and then they go off and basically do whatever they like. That's essentially been my experience of Government. We haven't had a Gordon Brown figure before who has allocated not just funding to Ministers but accountability to Ministers. So, how will you, and how will Welsh Government ensure that the different way, which I'm very strongly supportive of, that you structure this budget will actually be delivered in the financial year that's coming?

Well, should I be in the position to do so, or whoever's in the position to do so, they will be, I think, able to clearly understand what's expected in terms of the allocations that have been made. So, the additional funding for social housing, for example, that's been increased to £200 million, and that's very, very clearly, then, linked to the expectation that that will deliver 3,500 additional new homes. There's a very, very clear link there between an allocation that has been made, and then the outcome that is expected. And you'll see that across the entire budget in various ways, so I think that it is possible to link allocations with those outcomes, and to be able to monitor them in a very clear and transparent way, both for Government, committee, and, I think, for your constituents as well. 

Thank you. I'm all done.

Diolch, Cadeirydd. Minister, in terms of the distributional analysis of public spending, which you've spoken about before, and that's published at the same time as the budget, what lessons have been learnt from that, and how is it influencing decision making in the Welsh Government's draft budgetary process?

Well, I'm really pleased that we've been able to make progress on some of the budget improvement work that we've been committed to delivering. I think that the fact that even when COVID has been so all-consuming, the fact that we have been able to make progress in these areas, I think, has been really impressive, and I'm grateful for the work that everyone has done to enable us to get to this point. So, specifically, the distributional impact of spending is a new area of analysis, as you say, for the Welsh Government. It is being increasingly used by other Governments elsewhere, so I know officials have been keen to understand the work that's gone on in other countries, so that we can learn from that. The analysis does show that devolved public spending in Wales on health, education and social care provision is progressive with respect to income. That's what you would expect to find, and you would hope to find. The pattern and the degree of progressivity does vary across the public services, and that's understandable too because the socioeconomic profile of service users varies, and also some elements of service provision do have those income-related eligibility requirements attached to them. So, that, I think, is useful in terms of understanding what's been done.

As I say, this is really an initial exercise for us to put our toes in the water to test what can be done in this area, but it has been a really useful piece of work. I think that we can go further and do more in future. So you'll see in this budget that we've allocated some additional funding to boost the family resources survey in Wales, and that will provide us, then, with a greater level of rich data in order to understand distributional impacts in other areas in future. So, tackling poverty, childcare, local taxation, for example, could all be areas where we expand this work in future. But, I think, as a first foray into this kind of work, it's been really useful.

Has it been distorted at all by the COVID crisis? Would you rather be instigating this in more normal times, or has it been actually quite helpful with the pandemic?

I think that it probably has been useful doing this within the pandemic because it does reflect the current situation we're in, but I suppose—. When we undertake any of this work, and do so over a period of years, we'll have that benefit then of looking back to previous pieces of work to understand the differences. But, as I say, this is just a first initial exercise to see what is possible in this area really, and I think it's been quite useful. 

Great. And can I turn to gender? I don't think anybody's asked about gender impact yet. What progress has been made in terms of understanding and tailoring the polices in the draft budget to ensure that gender impact is properly taken into account?

So, again, this is something that we committed to doing last year, and this is building on the work that we've done to better understand gender budgeting in Iceland and elsewhere, and to see what we can learn from it and adapt to our needs here in Wales. So, in the first instance, we have done this as part of our approach to the personal learning accounts pilot, which launched on 16 September back in 2019, and that work, as I say, formed part of our response to the Welsh Government's gender equality review. It's actually been quite an interesting piece of work, and some of the things that we've learned from it have surprised us, in the sense that there was a gender bias seen for the engineering and construction sectors, as you probably would have expected. But, actually, 60 per cent of learners taking up ICT courses were female, and over 80 per cent of learners taking up a professional sector course, including accounting qualifications, for example, were also women, whereas over 70 per cent of those learners taking up a care-related course were male.

So, some of that, I think, is probably counterintuitive to where we thought we'd be, and that has been useful for the personal learning account project in order to ensure that we are actually tailoring our messages effectively and opening up opportunities to people. It's one of the reasons that I've allocated an additional £5.4 million within this budget to support the personal learning accounts, which we know will become increasingly important as we move out of the pandemic given the economic crisis that has come about as a result of the pandemic, and this does allow people to maximise their income and their earning potential and move up that ladder within the working environment. So, I think it's a really positive scheme, and the gender impact work that we've done has been incredibly interesting.

And are you doing similar work on—

Sorry, Nick. Margaret wants to add something as well, before we move on.

Thank you, Chair. It was just to say that there is an exercise ongoing at the moment to gather information from all colleges on the impact of the personal learning accounts. So, that is something that we can share, potentially, with the committee at the point that that information is available, then there'll be some analysis of that carried out, so that's something that we can share in due course, if that would be helpful.

That would be useful, yes, thank you. Sorry, Nick, back to you.

That's all right. I just wondered: has similar work been done on black, Asian, minority ethnic groups to see how the budget is impacting on those groups, aside from the—obviously, there's work in terms of COVID and the high likelihood of COVID infections in certain areas. So, has similar work been done?

Well, the Deputy Minister and Chief Whip is currently leading on a wider piece of work to develop a race equality action plan for Wales, and I'll be meeting with her shortly to better understand what contribution we can be making from a finance perspective. That will build on the work that the First Minister's COVID-19 BAME socioeconomic group report has done to highlight the impact of the COVID crisis on the BAME community.

You'll see already some of the allocations that we've made within this draft budget to try and respond to that report and the concerns that we all have in this area. So, you'll see an additional £1.1 million in the draft budget to take forward the actions on the race equality plan, and also investing £100,000 to improve diversity and inclusion in public appointments. I'm allocating £0.6 million to support a range of actions to better reflect black, Asian and minority ethnic history in our cultural sector, and that will seek to help to redress some of the structural inequalities that we have in Welsh society. I'm also increasing the funding for the minority ethnic and Gypsy, Roma, Traveller grant by £1 million. That brings that total for the next financial year to £11 million. I think that's important, because we understand from the research and the evidence that the pandemic is having a particularly negative effect on children from that community, and they've very much been disproportionately affected. So, we're trying to respond within this budget to some of the wider research that we've been doing, so it's not quite the same as the gender budgeting work, but it takes that wider body of research that we have access to and responds to that.

Thanks, Minister. Finally from me, this is the second year that a budget improvement plan has been published. Is this achieving what you hoped? Is it driving improvement and achieving objectives?

Again, this is something that I'm really pleased we have been able to continue to develop over the course of this year, despite everything else that's been going on. Part of the budget improvement plan—well, we've already talked about some of the things that it's already delivered this year, so that distributional impact model. But then also we've asked the Welsh Economy Research Unit at Cardiff University to undertake some work to estimate the greenhouse gas emissions associated with our Welsh Government spending. Again, this is part of our budget improvement plan and, again, it's something that we're doing for the first time here in Wales. And again, I think that's something that we can develop in future years. So, I'm really pleased with the progress that we've managed to make this year, but on lots of these things I think there's a lot more to do now. We've taken the first important step, but we'll need to build on these things. 

Can I just say, Cadeirydd, that I'm pleased to hear about the last aspect that you said there about carbon footprint? Because I don't think, in the past—we talk the talk about combating climate change, but I think if Wales can be one of the first nations to put that carbon measure, if you like, of the carbon footprint into budgeting, then I think that would be a huge step forward. But I don't underestimate how difficult and challenging that must be.

Yes, it is really challenging, and you'll see from the report that this approach does have some limitations. We've looked in the first instance at just the health and social services main expenditure group for the draft budget, although we're working closely with Cardiff University now to be in a position to look at the whole budget and provide further detail when we publish the final budget, which will be useful. Again, this is a first step in this area, because committee and others have been really keen for us to do more in terms of assessing the carbon impact of our spending. So, we've tried to make some progress on that this year, and I'm really pleased that we have, but there are limitations and there is still lots more to do in this area, I think.

So, just for clarity, you are planning to extend those kinds of analyses to other areas, yes?

Yes. The carbon, or greenhouse gas emissions work at the draft budget is only the health and social services MEG, but we aim to publish for the other MEGs at the final budget. I can see Margaret wanting to— 

Well, Matt indicated as well before, if that's okay. Matt can come in first and then Margaret, but both very briefly please, because we still have a lot of areas we wish to cover. 

Thank you, Cadeirydd. The other thing to bear in mind, on the point that Nick Ramsay made about limitations, is that this is only looking at the construction effects of the expenditure. So, it's only looking at the effects of building things, for example, it's not looking at the policy effects. So, if you built a windfarm, you would hope it would have a positive effect in reducing carbon. This analysis only captures the emissions, if you like, of building that asset, not the reduction. This is building on the approach Scotland have taken. So, it's a first step in that direction, but it really does highlight some of the challenges of undertaking this kind of approach.  

Thank you, Matt. Margaret.

Very briefly; thank you. It was just to highlight that the data was based on the 2019-20 budget, so hopefully—. Sorry, 2020-21. I may have been mistaken there; Matt will correct me. Sorry. It's 2020-21. I'm getting my years confused. But hopefully, by the time of the final budget, we may be in a position to update it to reflect the 2021-22 budget. That's the ambition. 

Okay. There we are. Thank you. Thank you, Nick. We move on now to Mike Hedges. 

Diolch, Cadeirydd. The first question I want to ask is about prevention and sustainability. Now, everybody supports prevention and sustainability. Like motherhood and apple pie, people like it. My question, really, is: what are we doing to improve health? We know that, pre-COVID, we had a situation where life expectancy was reducing. We also know that the health service is not really a health service, it's an illness service, or a sickness service. What are we doing in this to try to improve life expectancy and improve health? And the same with the economy, what are we doing to develop our economy? It's easy to bribe companies to bring their branch factories here for a few years and then they move on to somewhere else, but what are we doing to try to use this money for sustainability to build companies that are sustainable and will stay here, as opposed to those who bring a branch factory until somebody else offers them more money to move there? And finally on this, I believe, and I'm not sure if others do, that the most important part of economic development is educational attainment. 

Thank you, Chair. So, the first part of the question related to health, and particularly the preventative agenda within health. You'll see that there is a £420 million uplift to the health MEG in this upcoming budget, but part of that is very much about the transformation of services to continue the investment in preventative services particularly. So, there's £25 million within that allocation specifically to support that. The role of good mental health in prevention is also well understood, so we're providing an additional £20 million [correction: £42 million] in the budget to increase mental health support across a range of areas, and also, really importantly, an [correction: this includes an] additional £4 million to support the roll-out of CAMHS in the schools in-reach pilot across Wales. We want to expand that because of the importance of that low-level support for children's mental health. The way in which that promotes positive well-being is an important preventative step. That's some of the work that we're undertaking specifically from a health perspective.

As Mike says, education absolutely is the key to a good and healthy economy, and this actually takes us full circle almost, back to those discussions we had right at the start of the session today about the importance of the tax base. Investing in children's education now does help us to address some of those challenges that Andrew Jeffreys was setting out. Among the investments that we're making, we're providing an additional £21.7 million to recognise what we expect to be an increase in the demographic of 16 to 19-year-olds in sixth forms and further education. We understand that lots of young people are making now that really positive choice to stay on in school or enter further education, when they previously might have gone out in search of work. Reflecting the difficulties within the market at the moment, they've decided to stay on, learn more and get more skills. So, I think that's really positive and I'm really pleased that we've been able to increase the budget for that kind of work. And again, that's preventative in its widest sense, in terms of preventing unemployment and maximising people's own earning potential as well.

I may have missed it—and I apologise if I have—in your papers, but what assumptions have you made, following the announcement of a pay freeze in many areas of the public sector, on public sector pay and pensions within the amount of money you've provided to the different parts of the economy?

This was one of the more difficult parts of the Chancellor's announcement recently in terms of the allocation of funding for next year. We do welcome the Chancellor's commitment to implement the pay review body advice to increase pay for NHS workers, although obviously, very disappointed that he took the decision to freeze pay for other public sector workers who've obviously also done so much to help us respond to the crisis. We're not able to recognise a pay increase elsewhere within the budget, so you won't see additional funding passed on to the local government settlement specifically for pay—teachers' pay, for example—because we don't have that funding to pass on. So, local authorities will be in a difficult position and potentially have difficult decisions to make, should they decide to increase teachers' pay. I should add, though, that teachers' pay works on a different cycle to the financial year, so within the budget, we have allocated funding to recognise the decisions made on the 2020-21 teachers' pay deal. So, there is funding specifically allocated for that. But more generally, there hasn't been anything to pass on, unfortunately.

What about pensions?

On pensions, I will ask, I think, Margaret or Andrew to remind us where we are on that.

Andrew.

There haven't been any significant changes in pension costs between this year and next year that we've had to consider as part of the budget. So, in the normal way, the allocations that we've provided are going to need to cover pension obligations that employers have. But there haven't been any big shifts in the way that perhaps we've had in some previous budgets, for example where the discount rate has been changed and things like that. So, there hasn't been anything particularly significant on that score this time.

And that means that the full-year effect of increases in teachers' pension contributions by local authorities has actually been taken into account previously.

I'm not sure I understand the question entirely. Perhaps that's something we could follow up with—

I'll try and make it clearer. We know that teachers' pay and pensions work on a different cycle to the Welsh Government. There were changes last year to teachers' pensions. I was asking about the full-year effect, because some of this year's teachers' pay and pensions is in next year's Senedd budget.

Okay. So, yes, the allocations in respect of the financial year 2021-22 include funding that relates to the academic year pay settlement September 2020 to September 2021.

And finally from me, as people are well aware here, I'm very keen on action taken regarding poverty. There are a very large number of very poor people in my constituency, and, I would say to the Minister, in parts of hers as well, as we abut each other. The question I've got is: we know, and I very much welcome the fact, that we're going to provide free school meals for the year, not just for term times, and that will have a huge effect on some very poor people who fear when the schools aren't meeting because they have to find two extra meals a day per child. But is there any additional money within this to deal with some of the poorest people, who really are finding life very difficult, and COVID has only made matters worse?

You'll see funding within the budget, for example the additional funding for the childcare offer, to try and expand that to more families to help them have support in finding childcare, which then enables employment wherever possible. In terms of the work that we're doing for the foundational economy, we've invested a further £3 million to support the rapid spreading and scaling of good practice, and that's about providing jobs at the heart of local communities, and particularly communities that currently face higher levels of unemployment. We're likely to see more of that, as well. And the personal learning account's additional £5.4 million, I think, will be really important in helping people upskill to be able to enter or move up in employment as well. So, there are several important allocations made across the budget in that regard, and lots of additional support for housing as well, because good housing is the bedrock of a good life, isn't it?

If you've read any of the things I've written, they normally start off by saying how important housing is.

The childcare allowance is really useful, and very popular, but it doesn't, unless I'm missing something, seem to get to those in the lowest deciles of poverty. It's very useful for getting people into reasonably well-paid work. The problem is with people who work—and I won't say zero-hours contracts, because that's just shorthand—on variable-hours contracts, which can vary from five hours a week to 40 hours a week, and they just don't know what they're going to be working day by day, never mind week by week. How are we going to try and help those people, who are far too many of my constituents?

I know that the Deputy Minister for Health and Social Services is currently exploring the next step for the childcare offer in particular, to explore whether and how it might be expanded to reach more people who are in need of that kind of support.

Okay. Thank you, Mike.

Please. Just a quick question following Mike's questioning.

Yes, I'll certainly look to see what more information we can share with committee. I know we have done some work looking at various different scenarios, and I'll speak to officials to see what we have available.

That would be very useful if you were able to share that information with us, I'm sure.

Okay. I just wanted to ask, then, a little bit more broadly, really, around the COVID economic reconstruction priority that you have, obviously moving forward from where we are. Can you tell us a bit, maybe, about how those priorities might be reflected in your budget, and I'm thinking particularly about sectors that have been especially impacted? Town centres, obviously, is one area, I'm sure, that you wish to focus on—maybe tourism and hospitality as well.

Yes. So, as we talked about earlier in the session, those eight priority areas that were identified as really important for the reconstruction work have been quite central in terms of informing this budget. So, I can give you some examples. I won't go on for too long. One of those areas was employment and the labour market. We've already talked about the personal learning accounts, and obviously there's the additional £15 million for the childcare offer to enable more families that ability to access employment. The other area was young people, disadvantaged groups and education, and I've talked about the additional funding for the demographic pressures for FE, but also there's additional funding for HE to recognise that more students might be considering taking up a university course, which they might not have done otherwise. And there's £8.3 million for curriculum reform, which is really important in terms of supporting young people as well. I've talked about the additional £9 million for—sorry, that total of £9 million for—the whole school system approach to mental health, and there's £23.3 million of COVID funding to extend free school meals, which we've talked about as well.

Housing—that was really important. So, I've mentioned some of the work that we're doing on the housing support grant and the social housing grant, and you mentioned particularly town centres, which came through really strongly as one of our reconstruction priorities. So, in the budget there's an additional £3 million to support high streets and town and city centres, to recognise their important economic role, but also the huge pressures that any of us who've been to a town centre in recent months would have seen quite starkly, I think—quite shocking. A town centre first approach is driving some of the work that we're also doing. So, we're allocating £1.4 million to run a pilot project there, and there's an additional £5 million to support regeneration through the town centre loans programme, and that's about bringing some of those underused and underutilised buildings back into use. 

I won't talk too much about the NHS, because we've already—

Yes, we have.

—[Inaudible.]—with that. And then just—. I've talked about the foundational economy as well. But then on climate, land and natural resources, we're allocating an addition £5 million for biodiversity, and of course the national forest work, which is exciting, and an extra £26.6 million for the circular economy, to improve recycling. And then, finally, on work and travel, there's an additional £20 million for active travel projects. And you'll also see that we've provided £275 million to support the delivery of the south and north Wales metros, alongside the other rail work as well.

So, those are the eight priority areas and a flavour of what we're trying to do there.

Sure. Thank you for that. I was looking as well for something around digital infrastructure, because clearly there's a greater emphasis now on remote working, and that isn't equally an option across Wales, really, and I'm just wondering where the focus is in that respect, when it comes to—[Inaudible.]

So, I think we have to start from the recognition that responsibility for telecommunications does lie with the UK Government, and we don't get any funding in our settlement in that regard, but in Wales there are still around 70,000 premises that are unable to access superfast speeds. The average price for a single premises, I think, is around £1,300, and we have the maximum funding per premises available under the universal service obligation set at £3,400. So, we estimate the cost of enabling all of those 70,000 properties to be within a range of £91 million to £238 million. Obviously, that's a significant amount of funding. We're continuing to push the UK Government to recognise broadband as a universal service nowadays—just as we would have recognised, or we do recognise, the postal service to be one—because it's just so critical to every aspect of the way in which we live our lives. So, there's work going on to press on that as well. And then, within our own responsibilities, we have work going on in terms of digital exclusion and the Centre for Digital Public Services, which is a new investment within this budget as well.

Thank you. And it isn't just, of course, homeworking. As many parents are experiencing at the moment, you can't join Zoom lessons for home learning, you can't stream pre-recorded lessons, and, you know, there are longer term implications involved, of course, and I know that you're aware of that.

Yes, and, as part of the COVID response, we've invested in a large number of MiFi devices to try and enable some of those young people who don't have access at the moment, but I do recognise that there are premises issues as well as financial issues that face families.

Indeed. Indeed. Can I just move the focus on, then, to the impact of moving to post-EU, post-Brexit, trading arrangements? I'm just wondering how your budget and the funding available in the proposed budget is going to mitigate the risks and help businesses to adapt to the new trading position that we're now facing.

So, in the—. When I published the draft budget, I said that I would be, potentially, looking to make some further allocations in respect of EU transition, or life immediately following our exit from the EU, in the light of the situation at the time. So, at the time, we hadn't come to that deal with the EU; now we do, so we better understand the issues and challenges there. So, I might be looking to make some further allocations now between the draft and the final budget in respect of these particular immediate challenges that we're facing. But of course, longer term, you'll have seen, from the chief economist's report, the expected impact of our new relationship in terms of the challenges that were placed on the economy, and you'll see our response to that throughout the draft budget in terms of our work on skills and training, for example.

Okay. Given, of course, that there is a shortfall in funding support for farmers, which has been, clearly, discussed previously, I’m wondering what additional support you're providing the agriculture sector to make up for that.

So, in the budget, I’ve allocated the full £224 million [correction: £242 million] funding that was provided in the spending review to the environment, energy and rural affairs main expenditure group in relation to the replacement of the common agricultural policy. And on the same day as we published the draft budget, the Minister announced that she would be prioritising this funding for farmers in the light of the dual challenges faced in terms of both Brexit and COVID. So, she has confirmed that she's setting a total direct payment ceiling of £238 million to provide the same level of direct payments to farmers in 2021 as was provided in 2020. What it does mean, of course, is that our wider work in terms of rural support and projects will be dramatically impacted as a result.

The shortfall in funding partly relates to the £42 million pillar transfer. Now, our decision in December 2019 to make that 15 per cent per transfer for rural development was on the basis that the UK Government would then provide the full replacement funding to us, and we haven't had that transfer of £42 million available to us in the next budget. We think that was wrongly withheld from us. When I spoke to this committee before Christmas, I reflected on a discussion I’d had earlier that week with the Chief Secretary to the Treasury, who promised that he would respond to my letter to him on this specific issue early the next week. As of yet, we still haven't had a response. So, clearly, this is something that we’re continuing to press on in terms of return of that £42 million pillar transfer, which I think—there's absolutely no justification for not returning that.

So, just to be clear, then, the confirmation that the Minister gave before Christmas that the direct payments would be retained at their current levels means that money from the broader rural development funding available will be lower as a result, because it's being moved across to direct payments. So, it's not additional money found from reserves or somewhere outside of the department; it's money that she's actually moving from within her own department. 

Yes. So, the £242 million is the full allocation that we received from the Treasury in respect of farm funding for the review, and I've passported that directly to the Minister. And, as I say, she has allocated £238 million, and that provides the same level of direct payments. I can see Andrew wanting to provide some detail. 

Yes, just to say that probably the best way of understanding this is that the UK Government's decision means that there's significantly less available for rural development activity next year than perhaps we were expecting previously. But, as the Minister said, we're still having a discussion with the Treasury about this and about whether there's some other way of getting access to that £42 million. 

So, has there been any consideration of sourcing that money from outside of the department, from reserves or any other sources of funding that you might have as a Government more widely?

There's not an awful lot of room, of places to go, in respect of that funding, given just how much funding we had from the European Union previously in that respect. But, as I say, we're hoping to make some progress on that £42 million, which is a significant, I think—or reasonable—amount of money. 

Okay. Thank you. And we can't let another meeting pass without mentioning the shared prosperity fund. And I suspect I know the answer, but I'm wondering whether you could give us a steer on when funding might be available and what more you know maybe that we don't already know. 

I think that you know as much as I do, Chair, in terms of the announcements that were made by the Chancellor back in December [correction: November]. The figure of £220 million was the one which was given, and that's for a UK-wide pilot. And when I was here in front of committee last time we talked about how the time for pilots has long gone. I did inform the Finance Committee at the time as well that the Secretary of State for Wales indicated to Jeremy Miles on 25 November that he would shortly be invited to a meeting with the UK communities and pension Secretaries to discuss investment priorities and delivery structures for that shared prosperity fund, but a date for that meeting still hasn't been confirmed. 

Okay. Thank you. Rhianon, you've been very patient; I think you're indicating to come in. 

Thank you. I was going to talk about gender budget sensitive work in terms of Welsh Government, but I'm going to leave that. Can I just ask then what the narrative is in regard to this seemingly iterative process about finances and the missing money in regard to the £42 million? What is the narrative and explanation from the UK Government as to why it isn't as it should be?

So, the £42 million was funding that we have been doing for a number of years now in terms of the CAP funding that we receive. So, we take 15 per cent of the pillar 1 funding transfer across to pillar 2 for rural development priorities. So, it was our intention to do so again on the understanding that the UK Government would keep its promise that we would have the same amount of funding. Clearly, that promise has been broken. So, we're looking now to have that £42 million returned to us, and I hope that we can come to committee with some more positive news on that as soon as possible. But, more widely, UK Government has admitted really that it's using existing European funding that is still coming down the line as we come towards the end of the programmes to top up its manifesto pledge to ensure that we weren't worse off in terms of that rural funding. 

So, just to be clear then, if you were to receive that money that many of us believe is owed to the Welsh Government from the UK Government, then that would go straight into the agriculture budget for the Minister to use as would have been originally intended had we not had this whole episode.

I think that would be the intention. We haven't had a final opportunity to review that, because we haven't had the money, but that funding clearly was intended for rural development, so it would be a logical place to go. But we'd review where we got to with additional funding that might be in the budget, but that seems reasonable. 

Okay. Well, thank you, Minister. Before we finish, I know that on paper there is another item to discuss, which is statutory instruments, and we have spoken quite considerably about those. I just wanted to check whether Members have any specific questions to ask around those. I have one question. I don't see anybody indicating—oh, go on then Mike; yes, sorry, Mike.

Questions I tend to ask fairly regularly: we have the higher band, but then we stop there. I'm looking here: 'Non-residential property transactions...£1,000,000'. Effectively, for £1 million, you're buying something relatively small, and it doesn't go beyond that. We have shopping centres worth £20 million, £30 million, £40 million and £50 million, and this idea of stopping at such a relatively low figure, what is the logic behind that?

So, non-residential land transaction tax, we've actually had lots of debates with, in fact, some members of the Finance Committee about where we properly set that percentage point. It had been suggested previously that the fact that we do charge a higher rate here in Wales more generally would put off businesses, but actually it's not the case and that's not the evidence that we're receiving, but, as I say, we constantly keep these things under review.

Yes, well, it will never have an effect on—. It'll affect value, but if you charge 50 per cent, then that would come off the amount that the purchaser would be prepared to pay. It's like people buying houses: stamp duty is calculated into how much you have to pay and, however much it is, then you come up with your final figure. What I'm saying is: why do you stop at such a low level? I mean, looking here:

'Non-residential property transactions...Third tax band: More than £1,000,000'.

There's an awful lot of non-residential property transactions available at substantially more than that. I mean, what is the logic behind stopping at £1 million rather than having £10 million and £20 million figures?

I think that the approach we have at the moment is a proportionate one in terms of supporting business transactions and business activities whilst also bringing in significant revenue to Wales. I might invite Anna in just to reflect on some of the discussions that we have with stakeholders in regard to land transaction tax, particularly for the non-residential sector.

Yes, we've been looking to—. Just to make sure that I'm clear on the question—so, the question is: should we have another, a higher band, an even greater band? We can look into the number of transactions that would be affected by that. I think we only had about 300 transactions at over £1 million. But I'll go back and have a look and see exactly how much that would generate and if we could do some impact assessment on that. I don't think we have a significant number on an annual basis of transactions above £1 million, but we'll go back and look.

But one transaction of £20 million is equivalent to 20 transactions of £1 million, so it might be a smaller number, but the value can be substantially higher.

Yes, we can look into that and look at the range of what those prices are and then we can get back to you on that.

That would be useful. We'd appreciate that and, of course, we are debating the regs on 2 February as well, so I'm sure that Members will wish to bring some of these points up at that opportunity. 

I did have a question as well and we'll conclude with this, Minister, and it's a rather technical one really. It's in relation to the land transaction tax and the tax bands and tax rates regulations. The power for the Welsh Ministers to specify the tax bands and percentage rates in the case of chargeable consideration that consists of rent, but for non-residential or mixed leases, is not cited in the preamble. Now, I understand that we're awaiting a formal Government response on this matter, but are you able to give your view as to whether not citing this enabling power impacts the validity of the regulations, and how does the Government intend to rectify that?

Yes, thank you. So, I've had the letter that I think you've also had from the Legislation, Justice and Constitution Committee, outlining their observations on this particular area. My understanding, from the advice that I have received, is that it doesn't impact on the validity of what we've laid and what we're seeking to achieve.

Okay, because there may be a difference of opinion on that matter, but that's something that we need to—

Sorry, Chair, shall I invite Anna in again, because I know she's been liaising with lawyers on this particular point?

Just to say, I don't think we are aware of a letter from the LJC committee by the way.

Okay. They wrote to me, but I assumed that you had also—

And we will get a response to you. I know the committee has sent us, and so we're going to respond, hopefully, this afternoon, to you on this issue.

We have been in conversations with lawyers and making sure that we understand everything that we need to do. The Government's opinion is that it does not affect the validity of the whole instrument and that the error in the preamble shouldn't impact the rest of the regulations, but we'll get more detail to you this afternoon in the response to the committees.

There we are. Thank you. Because that, obviously, will influence our deliberations on the regulations. There we are.

Okay, well, can I thank you, Minister, and your officials for joining us? It's been a very, very informative session, as always, and we appreciate your presence. We'll be looking forward to receiving further evidence from other stakeholders and eventually reporting on our views. There will be a copy of the transcript, as always, available for you to check for accuracy as well. But with that, can I thank you for joining us this morning?