National Assembly for Wales

Thank you, Chair, and good morning to the committee. Well, I look forward to publishing our draft budget next Monday, and I'm sure that I'll be in front of committee again, then, following that, for some scrutiny of the provisions that we're making within the draft budget. But, in terms of the spending review, our core resource departmental expenditure limit rose by £694 million in 2021-22, and that's an increase of 4.6 per cent in cash terms. But it still means that our core budget for day-to-day spending per person in 2021-22 will remain more than 3 per cent lower than it was in real terms in 2010-11. So, I think that just demonstrates the scale of the challenge that we have and the fact that this follows a decade of austerity. So, I don't think that the spending review settlement really recognises or does justice to the level of challenge that we face ahead, unfortunately. And I should add also that, on the capital side, we had an increase of £60 million in our general capital, but then a reduction of £191 million in financial transactions capital. So, overall, our capital is down by £131 million. That's a year-on-year reduction of 5 per cent, so that doesn't speak to that kind of ambitious levelling-up agenda that the UK Government has been talking about. 

So, in relation to infrastructure investment, clearly there's a big political narrative around infrastructure investment and the need for that. What you're telling us here is that what you're being given will not be sufficient, obviously, to deliver what you feel is necessary. 

It's very different to what we would have expected from what the Chancellor said in the March budget in 2020. That budget showed an increase in the UK general capital departmental expenditure limit of 19 per cent between 2020-21 and 2021-22. A proportionate share of that would have meant an additional £400 million of capital coming to Wales. Clearly, then you can start thinking about some ambitious infrastructure projects, but we haven't yet seen any announcements of that kind of scale. In fact, we've got, as I say, a year-on-year reduction.

Okay. The spending review also, of course, identifies £766 million of COVID-19 funding for Wales. To what extent are you in a position to say whether that funding meets your expectations?

Well, again, that's significantly less than the £5 billion that we received in this current year. It is possible, I think, that the Chancellor will make some further announcements in-year in relation to COVID funding, because the Chancellor announced in the spending review £55 billion of funding for COVID next year, but only actually allocated £31 billion. So, there is the potential that we would have some additional funding in-year. However, that said, we do understand that some of that funding will be for UK-wide measures, such as aspects of the track and trace system, for example. So, we can't necessarily bank on that. So, it's certainly less than we've had this year. What I do intend to do at the draft budget is make a number of allocations in relation to COVID, but then consider how the pandemic progresses between draft and final and make some further allocations there, with the potential, of course, to hold some back for a future Government to allocate in-year.

Okay. Because those allocations that you refer to—very often they are disputed, aren't they? The UK Government gives us one version, and yourselves a very different version in terms of what consequentials mean for Wales. Has there been any improvement in transparency around that? Because, clearly, it's something that we, as a committee, have been concerned about for a long time.

I'm afraid that I can't say that there's been any improvement in terms of transparency, because we've had real difficulty in terms of reconciling the guarantee funding with the allocations in England. I've, as you know, Chair, repeatedly asked for a greater level of clarity from the UK Government on that. In fact, when I last appeared before this committee, I said that the Chief Secretary did intend to provide a greater level of clarity, but all we've received is a very, very broad picture of the allocations—so, health allocations, transport allocations—rather than anything more detailed that we can really get into in terms of understanding where those consequentials have come from. So, unfortunately, I don't think that we're likely to see much more now before the UK Government's supplementary estimates process. Potentially, we will have some more—. Well, I'm fairly confident that we'll have some more detail at that point, but, unfortunately, transparency is still quite poor.

Okay. Well, that's disappointing. I'll bring Alun Davies in here, then, and then we'll move on to Mike Hedges. Alun.

I'm grateful to you, Llyr—diolch yn fawr iti. It's very unsatisfactory, isn't it, to be in this situation. I look at some of the commentary around this, and I can't decide whether the current UK Government is one of the most dishonest Governments that I have experienced, or whether it's simply incompetent. I think it's unclear.

Perhaps it would help the committee, Minister, were you able to outline to us, or describe to us, the process that has led up to the spending review. I'm presuming that the Treasury were in touch with your officials, that you had conversations with Treasury Ministers, that there was—you'd hope—a very rich exchange of views. You'd hope that there would be a debate or a discussion, and then that the spending review would crystallise those matters. Could you describe that process for us?

Yes. You would hope all of those things but, unfortunately, the kind of process you described hasn't taken place. At a ministerial level, I think the engagement has been very poor, in terms of the spending review. Whilst engagement has improved dramatically through the crisis in terms of the response to COVID, actually, in terms of the spending review itself, it's been poor. There have been a lot of discussions at official level, which I might ask Andrew Jeffreys just to reflect on, because there were lots of discussions there in terms of the comparability factors and so forth. But, at ministerial level, it was poor. Obviously, we set out our expectations in writing ahead of the spending review, talking about the things that we see as being important to Wales: investment in infrastructure—I mentioned specifically the potential for marine technology—and investment in research and development; needing to ensure that the welfare system still meets the needs of people—so, that additional £20 a week that the poorest families have been benefiting from, seeking a commitment to retain that. We didn't see any of those things reflected in the spending review, unfortunately. But I will, if you don't mind, invite Andrew Jeffreys just to reflect on the official-level engagement. 

Andrew.

Thank you. Yes, there is quite a lot of official-to-official discussion around—well, all the time, I suppose, with the Treasury, but around the spending review. But I suppose most of it is pretty technical, as opposed to substantive what you might think of as negotiation. So, things like comparability factors, changes to the statement of funding policy. There were some more issues this time around because of the ending of European funding, so there were quite a lot of substantive discussions on things like farm funding and fisheries, matters of that nature. But I think it's probably quite—. As I say, the engagement is largely technical as opposed to substantive, and, quite often, the mode is Welsh Government presenting its arguments to Treasury, Treasury listening and going away and coming back with a settlement a few weeks later that doesn't really reflect our concerns.

So, in many ways, it's an unsatisfactory process from our perspective. I would imagine many Whitehall departments say the same thing about their relationship with the Treasury in a spending review. It's probably not unique to us.

Okay. Thank you very much. 

Of course, Welsh Government isn't a department of state in Whitehall. It's a national Government within the United Kingdom, and one would anticipate and expect there to have been a richer conversation, because those Secretaries of State, of course, will sit around the cabinet table; the First Minister doesn't. Whether he should or not is a different question. So, I would have anticipated that there would be a process that isn't simply the technical one of crossing the t's, dotting the i's, that you've described. And I don't have an issue with that; my concern is a policy process that leads to a richer debate between the different Governments in the United Kingdom, and, if that didn't happen, then I think, Chair, that's something we really need to begin to address in more detail. 

Okay. Rhianon is keen to come in. Very briefly, if you would, Rhianon. 

It's a very simple question, and I've asked this before. In regard to our expectations, and our extrapolations of the finances as you've outlined—and I won't go through everything that was said in regard to the funding guarantee—it doesn't sound much of a funding guarantee. So, how can we come to very different conclusions as to what consequentials Wales should receive compared to the UK Treasury, and, as there is such a distinct difference, how incompetent and useless is the guarantee?

I think the guarantee in itself has been important, and it was important that we were able to negotiate it at the start, because, when we first entered the crisis, it really was a case of UK Government making announcements on COVID spend, and then Welsh Government officials quickly looking at the announcements, working out what our consequential would be as a result of that, and then we were able to factor that money into our response to the crisis as well. And that was definitely not a satisfactory way in which to operate.

So, it was important that we did agree the guarantee, but what has followed has not been satisfactory in terms of the transparency. So, when we have the table from the UK Government, there are only four lines really in the table, and those are 'health', 'local authorities', 'transport services' and 'other', and those are huge blocks of funding that we have been allocated funding against, and what we don't have then is what sits underneath that. So, in health, what has the UK Government allocated to respiratory equipment or field hospitals or vaccines, all of the other things that we've had to do? And to have that more rich picture I think would have been much more useful to help us understand where we are along that trajectory—is there additional funding coming down the line—and just to better understand the differences in approaches between the nations. So, a better level of detail would have been useful. It is, I think, what we had been expecting to receive, so when the table did arrive, it was extremely disappointing. 

Okay. Thank you. We'll move on to Mike Hedges, then. Mike. 

Diolch, Cadeirydd. Can I just say, of course, that you get that information, but you get it late? Because you get it when the accounts are published. I've got two questions. One is on capital. Now, it's my understanding—please correct me if I'm wrong—that financial transactions capital cannot be used on all capital projects. And, secondly, would it be possible for you to send us a note—and if you've sent it to us, I'm sorry, I missed it—listing what financial transactions capital has been spent on this year, and what you intend to spend it on next year? 

Yes, of course. We'll send a list of what has been spent this year, and we'll be setting out the proposals for next year on Monday in the draft budget as well, so you'll see some further information at that point. But I'm very happy to share that information with the committee. Yes, it's the case that Welsh Government would normally spend financial transactions capital through, for example, residential landlords and so forth, in terms of some of the work we're able to do there. Is it helpful if I invite one of the officials in to give a bit more of a detailed overview on financial transactions capital? 

Andrew. 

Financial transactions capital can only be used for loans and equity investments. It can't be used for funding the construction of new assets, which is what we use our straight capital budget for. 

Thank you. You could have just said 'yes' to my question, actually. But, if I move on, one of the problems we have, and other bodies have, is one-year budgets. Have you made any progress on discussing with the Treasury having indicative budgets over three years? If you do make any progress, will you, then, commit to giving indicative budgets to bodies that are funded over three years? 

No, we haven't had any progress in regard to multi-year settlements. And, of course, last year, we were promised a spending review. We had that one-year spending round and the same thing has happened again this year. So, that's deeply unsatisfactory. But it's even worse because the Chancellor was able to give multi-year settlements to some parts of the budget in England. So, that, clearly, was very unsatisfactory, and it does put us at a disadvantage, because we don't have that look across several years. So, health and schools, for example, in England, do have multi-year settlements. 

If health and schools have multi-year settlements, then that should come through, shouldn't it, in the Barnett consequentials. And, as such, can't we make predictions on how much we would expect on the Barnett consequentials just for those two areas? 

We could, but I don't know how helpful that would be just knowing those two areas when we don't see the entire budget in the round. So, we could have those figures and we can work out what to expect, but that is only part of the picture. And we don't know whether other budgets will be cut in order to provide that additional funding to health, for example. It's part of the picture, but it's nothing we can really work with.  

It might be part, but it's a 70 per cent part, isn't it? 

I think Andrew wants to come in. 

I just thought I'd mention that when we publish the budget next week, alongside the budget we publish the chief economist's report, which shows our projections of the Welsh Government's budget over the next few years, based on the information the UK Government has provided. That's our best assessment, but the margin for error is pretty wide. As the Minister says, we've only got part of the information we need to provide that analysis. So, those numbers need to be treated with quite a lot of caution, but we do publish that next week. 

Okay. Rhianon. 

Is there any narrative as to why health and schools in England can have a multi-year approach, and that there's nothing that comes to Wales? Is there any explanation for this? Because there's an awful lot of discussion and need around this, as everybody is aware.

I just think the UK Government is taking advantage of the levers it has at its disposal without considering the impact on the devolved nations. We have asked, for example, for longer term funding in some specific areas, including coal tip remediation, for example. The UK Government had a really good opportunity at the spending review to set out long-term funding in this really important area, but failed to take that opportunity.

Okay. Thank you. We will move on to Mark Reckless, then. You need to be unmuted, Mark.

Pardon me. Good morning, Minister. The Chancellor announced the establishment of a UK infrastructure bank at the spending review. Has the Welsh Government had any engagement on this subject, and do you think, at least in principle, that it's something that could complement the work of the Wales development bank?

Well, there has been, again unfortunately, a disappointing lack of engagement with the Welsh Government from the UK Government on the proposed bank. We know that there are claims that it will channel billions of pounds into capital projects as part of the UK Government's levelling-up agenda, and although it's expected to be based in northern England, operational by the spring, we do understand that it would be a source of finance for infrastructure projects in Wales. Therefore, I think engagement is vitally important. 

The UK Government has repeatedly stated that there should be a continuing arrangement with the European Investment Bank. We're still waiting for the UK Government to make a statement on the future relationship with the EIB, but we've always been very keen that Wales should be able to benefit from that, because it invested in the UK an average of £5.4 billion in the decade running up to the referendum, peaking at £7.8 billion in 2015. We are yet to know whether the UK Government intends to inject a similar level of capital through the bank, but certainly we're keen to engage on it and see what it can do for Wales.

And given that it's an infrastructure bank operating at the UK level, would you expect it to fund projects irrespective of whether, to date, they've been in devolved or non-devolved areas, e.g. road versus rail infrastructure? Is it, for instance, something that could fund an M4 relief road and push ahead with that?

Well, it certainly couldn't fund an M4 relief road under the current Government because the First Minister has been very clear that it's not something that he has support for. But on that broader point, yes, I would expect Wales to be able to benefit from the bank, as we have done from the European Investment Bank. And in terms of the European Investment Bank, we actually benefited in much broader terms as well from the expertise that we were able to access there. So, it remains to be seen whether there's any kind of level of expertise that we will be able to engage with here. But I am keen that we develop as strong a relationship as possible to ensure that we benefit as much as possible.

Wales Fiscal Analysis have suggested that the Welsh Government has around £829 million of COVID-19 allocation uncommitted this year. Firstly, do you recognise that figure, and are you able to update us on any discussions with the Treasury or otherwise around potential end-of-year flexibility on that?

We continue to make the case for end-of-year flexibility and we've talked before about the various things that we would like to see. I'm particularly interested in what we can do with the COVID funding, as to whether or not we're able to carry some of that forward to next year. Of course, a lot depends on how the course of the pandemic goes in the weeks and months ahead. I think we would expect a response in January in terms of the position the UK Government takes on that and then I would hope to be in a position to update the committee as part of our third supplementary budget in terms of the response that we get from the UK Government on that.

And just one question on agriculture funding from me. National Farmers Union Cymru suggested that funding for agriculture—initially, at least, this was their understanding—would be £95 million below the anticipated level following the spending review, although I understand the UK Government has suggested that funding can be made up from ongoing EU rural development payments. Is that also your understanding, and could that be an appropriate way of dealing with the funding in this area?

There are a couple of things there. I think the situation's even worse than the one you described, because we can't forget that the UK Government has also failed to provide the £42 million pillar transfer funding that we were expecting to receive in 2021-22, so that actually leaves a total shortfall of £137 million. So, it's quite understandable why the farming community and rural community more widely would be extremely angry about the situation there. As well as using ongoing EU funding to top up their manifesto commitment, essentially, the netting off of the EU receipts will mean that the funding is lost to Wales, which wouldn't have been the case if we remained in the EU. So, the situation is clearly unsatisfactory. I spoke to the Chief Secretary to the Treasury last week about the issue of farm funding and that £42 million that I have just referenced. He did say that he would write to me with a decision, early this week, as to whether or not we will be able to recoup that particular funding from the Treasury. I haven't had a response yet, but clearly, one should be imminent. I'm happy to share that information with the committee as soon as we get it.

But, just to be clear, there's no further discussion happening around the rest of that shortfall—the £93 million, £95 million or £97 million.

No. The UK Government has dug its heels in, if you like, and is very clear on its interpretation of the situation.

Okay. Thank you. Alun.

Sorry, I thought Nick Ramsay wanted to come in.

Sorry, yes. Okay, Nick, you did indicate. My apologies.

I've been waving furiously. Picking up on what the Minister said about the European Investment Bank, I remember raising this issue some years back, when you didn't hear the EIB mentioned so much. I was concerned at the time that you look at other European countries such as—I think Spain over the years has accessed a fair amount of funding from that for infrastructure projects and road and rail projects. So, from what you're saying, we are in discussions with the EIB. Are you confident that, even beyond Brexit at the end of this month, perhaps there's scope for us to still continue to access some funding from that bank, or for it to work with our own development bank? I think there are opportunities there, which, if we could make the most of—I know it's difficult at the moment—but if we could, then that would be good for the Welsh Government coffers.

It certainly would be our preference that the EIB continues to be able to operate in Wales. The UK Government has said very little on the issue of the European Investment Bank. I would hope that it would have more to say imminently on that, but, as yet, we have yet to have an announcement. But I think this seems like an area where the UK Government should be putting its focus, and I would hope that they would come up with a sensible approach on a way forward.

Okay. Thank you. Thank you, Nick. Alun.

Thank you very much for that, Minister. If I can take you back to the issue of rural payments. Now, I know from bitter personal experience that the farming unions know far more about farming funding than any Minister, either here or across in London, so I'm always inclined to believe them when they talk about these matters. The committee's received a long piece of correspondence from the Secretary of State for Wales, which seeks to outline how the UK Government's come to its position on agricultural support. I think it would be useful for the committee, Minister, if you were able to set out, perhaps in response to that correspondence, the Welsh Government's position on this. Because we've heard your analysis in this session, and I have to say I tend to agree with you; I think the UK Government is short-changing Welsh farmers, and I think they are breaking a manifesto commitment and breaking a promise on these matters. And, certainly, the way they seem to have calculated things, it smells of cooking the books, quite frankly. So, it'd be useful to understand the Welsh Government's position on that, and if you could alert the committee when you get your correspondence from the Chief Secretary, that would be also very useful.

But, in terms of where we are today, we know that we've got these issues taking place, but we also know that there's been a White Paper, there's potential for legislation after the next election. So, what happens to farming over the next few years? How are we going to support it? I'm particularly concerned about the sheep farming sector, which is especially fragile, farming in some of the most difficult parts of the country, and without the sort of support that it's being receiving from the European Union, I really don't see a future for this sector. So, how are we going to support them in the future?

Well, a couple of important issues there, including, of course, the fact that we have yet to reach a deal with the European Union—

I accept that.

—and all of those additional challenges that a potential 'no deal' Brexit would mean, particularly for the sheep farming sector in Wales. I know that the Minister for Environment, Energy and Rural Affair is very much engaged with the UK Government on what kind of package of support might be needed for that particular sector. I think that things are going to be very difficult in future in terms of rural funding and in terms of funding those regional programmes and local programmes that we've previously funded through European funds as well. Obviously, I'll be publishing the budget on Monday, so I don't want to say too much ahead of that, but I think that difficult choices will be facing the Government in terms of allocating what are more scarce resources. 

Okay, well, you're teasing us there, Minister. We'll have to wait for that on Monday. 

Sorry, if I may, Alun, just for clarity, then, are we likely to find out in the draft budget on Monday whether the BPS for next year is going to be retained at its current level?

I'll just check with officials how much we are saying on Monday in terms of this.

I'll come in on that one. So, what you will expect to see in the budget next week is a figure for what the value of the basic payment scheme will be in the next financial year. But the rural development funding continues to be—. We'll continue to receive rural development funding from the EU for the next couple of years at least, so that isn't in the budget in the same way.

Okay, thank you. Sorry, diolch, Alun.

Let me just finish on one point about the shared prosperity fund. I know that Siân Gwenllian wants to come in on this as well, so I'll try to be brief. When I was a Minister for European programmes, debating and discussing structural funds, we had statements in the Chamber, we had debates, we had conversations about budget levels, we had conversations about the law, we had conversations about eligibility criteria or we had conversations—all of this in public—about the way in which the structural programmes would feature in wider Government investment and the rest of it. The shared prosperity fund, starkly, is very, very different, and I'm hoping, Minister, that you know more about this than we do. It's difficult to see how any levels of democratic accountability or scrutiny are being exercised at the moment, because the shared prosperity fund remains shrouded in mystery. The two questions I have for you, Minister, are these: first of all, have there been any discussions between the Welsh Government and the UK Treasury, or any other UK department for that matter, about the structure of the shared prosperity fund? And secondly, have there been any conversations about the budget attached to this? Now, we know that the UK Government are trying to break the settlement through the internal market Bill, and I don't think we need to go into that this morning, but do we know whether the UK Government—it's broken its word to farmers, it's broken its promises to the agricultural community—is going to break its promise to my constituency, which was promised not a penny less of funding to follow the EU structural funds? 

Well, I'm afraid I think it's very likely that they will, and I say that because, at the spending review, the UK Government confirmed a really small pot of money, worth £220 million, for the whole of the UK from April 2021 to March 2022, and that's to support the piloting of new programmes and approaches, and I think that we can all probably agree that the time for piloting was probably a couple of years ago, and that level of funding is far below what we would have expected from the European Union had we remained in it.

I think that the approach that the UK Government and the Welsh Government have taken in regard to this couldn't be more different, because Welsh Government set up a steering group, chaired by Huw Irranca-Davies, and it involved a wide range of stakeholders from local government, members of the public, higher education, further education, the private sector, the third sector. It engaged with literally hundreds of people on what a future programme should look like here in Wales, and we've done that in a very co-operative, open and inclusive way, whereas UK Government have said almost nothing at all on the issue of the shared prosperity fund and shared no meaningful information with the Welsh Government. Jeremy Miles was informed by the Secretary of State for Wales on 25 November that an invitation would be issued to him to meet with the UK communities and pensions Secretaries to discuss the plans for this pilot fund and our areas of concern, which we've been very clear with them about. No such invitation has been forthcoming yet, and that was clearly a few weeks back now, so we can see the level of priority that the UK Government attaches to this.

'Funding for the UKSPF will ramp up so that total domestic UK-wide funding will at least match receipts from EU structural funds'.

Yes. So, the Secretary of State, for example, has suggested that the amount of funding flowing into Wales next year would be noticeably higher than in previous years, but I think that that is, frankly, misleading. The reality is that, had we remained in the EU, we would have had both a full year's financial allocation for many new programmes for 2021, irrespective of the level of payments due from the EU funding programmes that are just ending, because, of course, you can have two sets running at the same time, and those European structural investment programmes are worth £375 million annually to Wales. So, I think that we can see the level of funding that would have come to Wales, and so I think it is quite disingenuous to suggest that that isn't the situation and that you wouldn't have the two programmes running alongside each other.

Well, if we were to have a Barnett share of it, it would be around £12 million. Compare that to £375 million and I think that we can see just how different the situation is. But there's no suggestion or guarantee that we would have a Barnett share of it, and all of this, again, goes into the discussions as to the impact of the internal market Bill, what the programme will look like, whether it's something the Secretary of State will be involved in, something that the Welsh Government is carved out of. But that's just an illustrative figure if it was to be a Barnett share.

I still think that that appears to be the UK Government's intention, and, again, as I mentioned to Alun Davies, the approaches by the two Governments couldn't be more different. We've been really inclusive, we've tried to seek expertise from elsewhere and so we worked with the Organisation for Economic Co-operation and Development for two years on our future programmes as well. So, we took this whole agenda extremely seriously, and it's important that we don't lose the value of the work that Huw Irranca-Davies led. I'm really keen that we consider how we can use that in any future programme that we may be developing in future. But we want local authorities to play an even greater role in the delivery of future services—or future regional investment, I should say, here in Wales. We can see those ambitions set out in the economic action plan, for example, and then also the framework for regional investment, which we published last month. And you can see the role that we would see for the corporate joint committees, for example, and a far greater local role in terms of making decisions about how funds are spent. I think that devolving of decisions down to the more local level is an important part of this agenda, which I don't think the UK Government is best placed to engage with, given that it is further away from the communities in Wales. 

That's right—it would mean that you potentially have two different sets of priorities, which might rub up against each other. Equally, you could be spending money on similar purposes locally as well, which wouldn't necessarily give you the best use and value for money for the spend either. So, it's fraught with all kinds of challenges. 

But if it's only £12 million, it's not going to make much difference anyway, is it, whether or not you've got it or the local authorities have it?

But we have to still continue to try to hold the UK Government to the pledge that they made, that Wales wouldn't be a penny worse off. I do understand this is supposed to be a pilot scheme, but once they move beyond that pilot scheme, it's important that we hold them to that promise. 

Thank you, Chair. Just very quickly on that particular point—I've been trying to stay off it and stay with my themes, but I can't resist—with regard to the mantra 'not a penny less', do we have any fiscal mechanism of how we hold them to account in that regard, or is this just a generic term?

There's nothing in place at the moment. You can escalate things through the Joint Ministerial Committee, for example, but then that's not a satisfactory way to do it, because the UK Government then, essentially, becomes the judge and jury on the issue, which I think just isn't an appropriate way forward. So, Welsh Government has set out its ambitions to have a more independent arbitrator of these disagreements that might come forward between Governments. I think that would be, definitely, an improvement and a more appropriate way forward. 

Yes, because otherwise we're going to be in exactly the same scenario that we are now, which is that we are interpreting our data and they are just interpreting the way they wish it to be. So, those mechanisms are going to be really important, aren't they?

With regard, then, to the questions that I have to ask you this morning, I'm still slightly at odds with the National Audit Office's interpretation of HS2 devolved funding, in that it noted that rail infrastructure is devolved, but not to Wales, meaning both nations would receive additional funding through consequentials, but Wales would not. In the letter to us, we clearly heard from the UK Treasury that the Welsh Government has received £170 million in its 2021 capital budget related to HS2. So, who is right on that particular point? 

In previous years, the 2015 spending review set capital plans up until 2021, and given that the UK Government's comparability factor at that point with the Department for Transport was 80.9 per cent, it did receive a substantial increase as a result of the increases to the DfT budget at that spending review, so that's correct, but that was up until 2021. It's worth noting, of course, that those increases announced at the time of that spending review came on the back of very large reductions in capital budgets over the previous five years to that, and our capital budget in 2015-16 was 30 per cent lower than it was in 2010-11 in real terms, and it's only just recovered to the sort of levels that we saw a decade ago.

So, in that sense, it is correct in terms of up to 2021, but things have changed now in this spending review, in the sense that the comparability factor for DfT is reduced from 80.9 per cent to 36.6 per cent. Clearly, that then greatly reduces the amount of consequentials that the block grant receives in relation to the DfT's settlement at the time of the spending review.

Thanks. And it does clearly state that there is a £500 million missing amount in that regard. So, to what extent are the Welsh Government aware of the change to the comparability factors you mentioned around HS2 and Network Rail prior to the lead up? And coming back to communications again, prior to the spending review, in regard to the fact that we're dealing with big sums of money, what can you add in terms of additionality to what we know around that?

Well, we have been aware for some time that if the UK maintained its position that rail infrastructure projects shouldn't attract consequentials in Wales, then our comparability factor would reduce substantially, and that was something that we have been in discussion with the UK Government about, and it did become clear in the run-up to the spending review that with the recalculation of the comparability factors, the UK Government wasn't going to change its position on this issue.

Clearly, we have vigorously made the case that there should be comparability with rail infrastructure programmes, particularly in the light of the transfer of the core Valleys lines, and also, the fact that in the aggregate, HS2 provides no benefit to Wales; in fact, UK Government's own analysis suggests it could come at a cost to Wales of £150 million a year, and most of that will be felt in south-west Wales, when areas beyond Bridgend, Swansea and so on become less attractive to investors. So, all of these issues provide us with cause to believe that it's just inappropriate, really, to reduce the factor to 36.6 per cent.

Thank you. And in that regard, that's a real hit to us in Wales, because it all sounds very lovely when we're told that we're going to receive £170 million, but it's like Peter and Paul; it's all very well to say that we're going to have an amount of money, but if another amount is taken away in a bigger scale somewhere else, it's not the same. I know that's very simplistic.

My final question: is the Welsh Government likely to challenge the new comparability factor around HS2 and Network Rail based on everything you've just said around the benefits to Wales and any disadvantage in particular to the south?

We're continuing to raise this issue with the UK Government and considering what options are available to us in terms of challenging, and of course, we've just talked about how unsatisfactory the process for challenging decisions is, but clearly, this will have long-lasting implications for the Welsh Government's budget, and it's something that we need to challenge as strongly as we possibly can.

Thank you.

Thank you, Rhianon. Right, on we go to Nick Ramsay.

Diolch, Cadeirydd. Good morning, Minister. Following on from Rhianon Passmore's questions in terms of funding outside the Barnett formula, you mentioned earlier discussions about comparability factors. Are there any areas that you were particularly happy or happy with, with the discussion on the comparability factors and what's going to be applied?

Obviously, the deep unhappiness and the big ticket item, really, is the DfT and the rail comparability factors. The other changes are generally fairly small and they don't have a major impact on the Welsh Government's settlement. One area that is, as I say, small, but I was pleased that we do have now some comparability is with HMRC, and this does recognise the Welsh Government's role now in terms of tax collection here in Wales. I think it was important that that was recognised through the comparability factors—in fact, it was something I raised with Rishi Sunak, probably a couple of years ago now, in terms of what we'd like to see from the spending review. So, I think that's positive.

There's also a reduction of around 9 percentage points in the DCMS factor, and that's driven by a range of factors across various programmes within the DCMS budget. But as I say, beyond rail, the other changes are relatively small.

Relatively minor. Okay. And when you discussed the fiscal framework with us in November, you said that the Welsh Government was seeking funding for certain things outside of the Barnett formula. I think flooding and coal tip safety were among some of the things you mentioned back then, but there were probably others. Have you received any of those, any assurances in the spending review, that funding will come your way from—?

Not in the spending review. As I mentioned earlier, the spending review would have been a really good opportunity for the UK Government to give some long-term clarity and confidence to communities affected by coal tips. We have 40 per cent of the coal tips in the UK here in Wales, so clearly, we're proportionally much more impacted by that particular legacy, and it's very clearly a sensitive issue for us here in Wales. So, I was disappointed not to see anything in the spending review related to that.

Outside of the spending review discussions, I did have a meeting last week with the Chief Secretary to the Treasury to discuss funding for flooding and also coal tip remediation. On flooding, I was able to secure funding worth £31 million in this financial year to help us address those immediate impacts of the floods back in February of this year, and at the time, Welsh Government said to local authorities, 'Look, get on with the work. We want to give you that confidence that you don't have to wait for UK Government to come to a decision on funding. We just need you to get on and make these things safe', which is what they did, and they worked very hard on that. So, we were very pleased to get the £31 million for this year. It's rare, actually, that the UK Government does recognise a call on reserves in year, so I think that this is a success, and I'm grateful to the UK Government for the way in which it's worked with us on this. However, where things are less happy are for future years. So, there was, I think, a flat 'no' for future funding next year to address the ongoing impact of the flooding this year, and that's disappointing because we know it will take at least two, maybe even three financial years to address all of those impacts, given how badly some of the communities were affected. We really haven't made any progress on the issue of coal tip remediation.

UK Government, in the form of the Secretary of State for Wales, jointly chairs with the First Minister a group that relates to coal tip safety here in Wales, and of course the coal authority is reserved to the UK Government. So, I think that a reasonable approach would be for us to come up with an England and Wales approach to the issue of coal tip remediation. I haven't managed to get an agreement from the UK Government on that yet, but that feels like a fair way forward, and one that recognises that Wales is more significantly impacted than other parts of the UK, and would have to have the necessary funding alongside that. But I think that Welsh Government would be able to make a contribution as well. I'm not suggesting that this isn't something that we wouldn't be willing to play our part in.

Fingers crossed we don't have similar flooding issues next month, otherwise you're going to have a double drain on your resources. I suppose, on the other hand, it would probably stop people travelling, but the thought of funding the pandemic and funding flooding would be—.

And I'm sure there was no pun intended when you said 'drain' on resources in relation to floods.

It's how my mind works, Cadeirydd.

Mike Hedges has indicated he wants to come in. 

Two very brief questions. Would it be possible for you to turn these percentages into numbers? So, exactly how much they are in monetary terms rather than percentages of 0.1, et cetera. Obviously a written answer for that would be very helpful. And the second question is that Barnett is only a minimum. Northern Ireland has consistently been funded in different areas well above the Barnett formula, because they were allowed to fund it above the minimum. Is it possible for us to get an agreement on a percentage for the total transport budget? On transport, it just depends on how they—[correction: how they badge it.] If they call it 'rail', we get nothing, or virtually nothing. If, however, they call it 'transportation', we get a much larger percentage. Is it possible to get an agreement on the percentage of the total transportation budget, rather than having a situation where it all depends on what they call it?

Of course, Mike Hedges is right that Barnett is the minimum, and the statement of funding policy does include the opportunity to have funding outside of that, particularly when there are issues that are exceptional, as I think the flooding has been, and as our understanding now of the coal tips in Wales demonstrates—that, you know, we are exceptionally exposed to that as well. If I might, Chair, I will ask officials to liaise with the clerk of the committee to ensure that you have the figures that Mike Hedges is seeking.

So, this was one of the real disappointments of the spending review, in the sense that the UK Government has said that there will be some increases for some parts of the public sector—for example, in health—but not in others. I think that's really unfortunate because it does pit some parts of the public sector against others in some ways.

People across all kinds of parts of the public sector have made extraordinary efforts in terms of the response to the pandemic, and people in the private sector also have gone above and beyond in so many ways as well. Again, this pits private sector against public sector, which I think is just really unhealthy because, you know, it's an ecosystem, isn't it? We all need each other in various different ways. So, I think that this has been really disappointing. Of course, it provides the Welsh Government then with some really difficult dilemmas in terms of how we are able to respond to that.