Pwyllgor yr Economi, Masnach a Materion Gwledig
Economy, Trade, and Rural Affairs Committee07/12/2022
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Hefin David MS|
|Luke Fletcher MS|
|Paul Davies MS||Cadeirydd y Pwyllgor|
|Samuel Kurtz MS|
|Sarah Murphy MS|
|Vikki Howells MS|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Andrew Gwatkin||Llywodraeth Cymru|
|David Chapman||UK Hospitality Cymru|
|UK Hospitality Cymru|
|Duncan Hamer||Llywodraeth Cymru|
|Gwyneth Sweatman||Ffederasiwn Busnesau Bach|
|Federation of Small Businesses|
|Helen John||Llywodraeth Cymru|
|Leighton Jenkins||Cydffederasiwn Diwydiant Prydain Cymru|
|Confederation of British Industry Cymru|
|Sara Jones||Consortiwm Manwerthu Cymru|
|Wales Retail Consortium|
|Sioned Evans||Llywodraeth Cymru|
|Vaughan Gething MS||Gweinidog yr Economi|
|Minister for Economy|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Aled Evans||Cynghorydd Cyfreithiol|
|Gareth David Thomas||Ymchwilydd|
|Sarah Bartlett||Dirprwy Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.
Dechreuodd y cyfarfod am 09:32.
The committee met in the Senedd and by video-conference.
The meeting began at 09:32.
Croeso, bawb, i'r cyfarfod hwn o Bwyllgor yr Economi, Masnach a Materion Gweldig. Dwi ddim wedi derbyn unrhyw ymddiheuriadau y bore yma. A oes yna unrhyw fuddiannau yr hoffai Aelodau eu datgan o gwbl? Nac oes.
Welcome, everyone, to this meeting of the Economy, Trade, and Rural Affairs Committee. I haven't received any apologies this morning. Are there any declarations of interest that Members would like to make at all? No.
Symudwn ni ymlaen ymlaen, felly, i eitem 2, sef papurau i'w nodi. Mae yna nifer o bapurau i'w nodi. A oes yna unrhyw faterion yr hoffai Aelodau eu codi o'r papurau yma o gwbl? Nac oes.
We'll move on, therefore, to item 2, which is papers to note. There are a number of papers to note. Are there any issues that Members would like to raise in relation to these papers? No.
Symudwn ni ymlaen, felly, at eitem 3, sef craffu cyffredinol ar waith y Gweinidog. Heddiw, mae gennym ni sesiwn graffu cyffredinol gyda Gweinidog yr Economi. Dyma gyfle i ni graffu ar waith y Gweinidog o ran unrhyw agwedd o'i gyfrifoldebau sy'n dod o fewn cylch gwaith ein pwyllgor ni. Gaf i felly groesawu'r Gweinidog a'i swyddogion i'r sesiwn yma? Cyn ein bod ni yn symud yn syth i gwestiynau, gaf i ofyn iddo fe gyflwyno ei hun a'i swyddogion i'r record? Gweinidog.
We'll move on, therefore, to item 3, which is general ministerial scrutiny on the work of the Minister for Economy. Today we have a general scrutiny session with the Minister for Economy. This is our opportunity to scrutinise any elements of his responsibilities that lie within the remit of our committee. Can I welcome the Minister and his officials to this session? Before we move straight into questions, can I ask him to please introduce himself and his officials for the record? Minister.
I'm Vaughan Gething, I'm the Minister for Economy. Do you want me to go round and I think officials can introduce themselves? I'll start with Andrew.
Bore da, good morning. Andrew Gwatkin, director of international relations and trade.
Bore da, good morning. Duncan Hamer, director of operations.
Bore da, good morning. Sioned Evans, director of business and regions.
Thank you very much indeed for those introductions. Perhaps I can just kick off this general scrutiny session, Minister, by asking you to obviously look at the—. When you look at the young person's guarantee, there are a variety of support schemes when it comes to supporting young people into training, so how do you know if those programmes are effective, and in light of the current economic challenges, what needs to change in your view?
Well, it's part of the reason why I need to maintain some flexibility in the programmes under the guarantee. So, the guarantee covers a wide span of interventions. We've got those people who are successfully supported post 16 in our school and further education system. Part of our challenge is how we improve the support that's available as well, and we've had interventions we've invested in, for example, the employment bureaux, which are called different things in different colleges, but are about helping people to have practical experiences, together with employers, to help them into work. We've then got people where we've adapted the Jobs Growth Wales programme, Jobs Growth Wales+, and you'll know about ReAct+ as well for people at risk of redundancy. The challenge in each of these is the monitoring we get back through Working Wales, with the numbers of people that are coming through, and then the post monitoring of how successful they are, in the sense of not just completing the interventions, but their outcomes.
That's part of the reason why I think, when we get to the first annual report, you'll get to see some of what's happened, not just in volumes, but the start of what the impact is for those young people. And I think because almost every economic commentator, and indeed the Chancellor of the Exchequer, accepts that we're in a recession that is likely to last a long time, we're going to have to think, as we go through this, if we're going to need to shift the patterns of support that we have available.
At the start of this term, we thought the young person's guarantee would deal with the likelihood of higher unemployment immediately post pandemic, and actually we found quite an amount of resilience. And, actually, the challenge was not having enough people—a labour shortage, rather than actually having young people not getting into work. What we find now is that there are still shortages in some areas, but we're expecting unemployment to rise. There are different estimates, depending on who you listen to. The Bank of England predicts a 2.5 per cent rise. That's 40,000 to 45,000 extra unemployed people, and you can expect young people to be part of that. The Office for Budget Responsibility estimate is more optimistic at about 1.5 per cent, but still 20,000 to 25,000 people, so lots of risk of people being unemployed.
And actually, we're also having to navigate the reality that, for young people in particular, there have been significant mental health impacts from the pandemic as well. So, we're going to need to adapt and flex what's coming in our programme to understand what interventions are working well, and, equally, if we need to change them as well. It's often more uncomfortable saying, 'We have an intervention, we can let it roll out.' Actually, we're going to need to continue to look at the evidence as it comes through about how successful we're being, and be prepared to listen to young people, which is why the conversations we're having with them are really important in what we're doing. I don't know if you want to get into more detail about how we're trying to listen to the voices of young people, and the fact that's going to have to affect not just what comes after the budget with our programmes, but then what we're still looking practically to deliver alongside partners, as we get into what I'm afraid is going to be a very difficult 12 months ahead.
Obviously, you referred to some evidence there. Now, according to your young person's guarantee impact assessment in September, there's a new team to track the data to understand how Working Wales is being used, and, presumably, the effect it's having. What specific data gaps then were identified by your department that led to this change, and what else needs to be done to understand how effective Government support is, in your view?
I wouldn't say there were data gaps. What I'd say is that we always intended to have a system—and I announced this when I first introduced a statement and when I came to this committee to talk about the guarantee as well—about wanting to have reporting that would tell us what was happening in the guarantee, and then to continue to look at, 'Are we still doing the right thing? Have we got enough feedback now the guarantee's been in place for a while to understand where those interventions work, how they're working?', and, as I've said, if there are things we need to do differently. So, it's actually still part of us looking to understand the data and what it tells us, if we're getting to the right people, and part of our challenge always is that for those people who aren't in education, employment or training, how early we can support them.
One of the things we have learnt is—and it builds on previous work—the earlier we can intervene, the better. So, work in schools before people get to 16 is really important to identify people with a real prospect of ending up not being in education, employment or training, and so it is more and more about how we can gather and corral people together. That isn't necessarily a data gap, but it is an understanding that you need people to be able to share data and information, because often you're talking about individuals, you're talking about small clusters of people in different settings. And that's some of the work we are doing, in trying to see how far we can go to address the data-sharing issues to try to make sure we have more positive support around young people.
Now, obviously, there's a different end. You've got the work we're doing on traineeships and apprenticeships, and broader skills provision. Our apprenticeship programme isn't just for young people, but that's under pressure with the reality of inflation and the new frameworks we've got that are more expensive. So, there are some difficult choices that are going to be ahead, but we still need to address one of the things that isn't just about young people—it's more generally about who we are getting into different sectors of the economy. As I say, you have this picture of—. It isn't a uniform picture where every area is shedding jobs. You've still got areas where people want people with skills and abilities to go into those areas of work, and there are still opportunities to grow even through the next 12 months, and other areas that are much more likely to be vulnerable—those areas that are much more reliant on discretionary spend, areas where people have real challenges in getting through bill payments as well. So, you've got some churn, and the unevenness will make our job in terms of our interventions more difficult, and that's why it's even more important to be nimble.
You referred to schools. The young person's guarantee impact assessment says that a stakeholder advisory group has brought together a wide range of partners and employers to work on the guarantee. What role did schools have in this advisory group and how are you working with schools, and, indeed, Careers Wales, to ensure teachers understand and communicate the options available under the young person's guarantee?
I think there are two things to say here. One is that schools are represented through local authorities—the overwhelming majority of schools have a local authority relationship. If we want to get individual school representatives, there's always a challenge in how you choose the individual schools and school leaders. But our local authorities have a significant interest as the standards body for schools locally. The second point is that we always, I think, would be looking for ways to improve the relationship between schools, the careers service, and young people, and the options available. That's not a point of criticism; it's a point that you always need to think about what's the appropriate option for a young person—is it a continuation of school, is it further education, is it something different? And so it's one of the things, through Careers Wales and Working Wales and the link between them, to understand whether we're getting far enough into the advice we want to provide for young people.
I wouldn't sit around saying everything is perfect. What I would say is that the stakeholder group is really important, to understand where we're reaching people and where we're not, and what improvement can look like. Because if we try to say, 'I've made my decision, and this is the answer', well, you're closing off opportunities to improve, which will end up letting down young people. We know that teachers, broadly, want to support young people to reach their best outcomes, and it may be that's in school, it may be that's outside school as well. Llike I say, I'm really keen that we work alongside employers too in highlighting different career opportunities. We still have lots of working patterns where we don't succeed in getting either people of colour or women to consider those as careers for them, and that's not just a loss of opportunity for those people, it's a loss of talent and opportunity for employers and the economy, and what it means more generally. So, it isn't just diversity as an ethically sound perspective to take, it's actually the right thing to do for the future of the economy.
In the paper you submitted to us as a committee, you state that the Welsh Government has established a Cabinet sub-committee to discuss cost-of-living pressures. Can you tell us who is on that sub-committee? Does this work include specific support for young people in training or low-paying jobs, and, if so, what might that support look like?
There's a core membership, which includes me, the Minister for justice, the education Minister, but actually members are able to attend across the Government. It's very difficult, because having the cost-of-living Cabinet sub-committee has been quite painful to hear directly from people. We have a pattern of a meeting where there are just Ministers, looking to make decisions and understand what's coming to us, and then we have stakeholders coming to us. Recently, we did have presentations from groups of young people. It brings into focus the reality that a number of the interventions relate to the benefits system and UK Government choices. It's then about what support we provide alongside that. A number of young people were very clear about the difficulties they face. Like I said, a number of them did come through from the benefits system. But we have provided £380 million in support direct to people, and that's more than any consequential we've received. So, we've gathered together more money from our budgets to put in, to try to support families and households.
Our challenge though is, having listened to young people, how we then match up our interventions. And that's why, just to go back to where we started, we're going to need to continue to listen, to understand the voices of young people and to understand what the numbers tell us as well, and whether our interventions are making a big enough difference, and whether we're actually maximising the difference they can make. Because there is always going to be a limit, in the sense of the budget we have and the reach we have, and the fact that we're not in control of all the choices made within the benefits system. If you want to get deeper into this, then, actually, I think you need not just a young person's conversation but a range of other people we're working with, to have a board for young people around what we're doing—the youth engagement board. We're working with Children in Wales to try to organise that, to set it up. I would have thought that some of that feedback would be interesting for the committee, if you were interested to have a deeper view into the young person's guarantee. When we get to our next annual report, the report we're going to publish in the new year, I'm more than happy for my officials to work with yours, to try to make sure you can understand how we're going about that and what their perspective is, and the message they're giving direct to us as well.
Yes, that would be very useful, Minister. On this point, Hefin David would like to come in.
It is very important to talk about skills at the beginning of a vocational or academic career, but one of the things that builds in success longer term is the academic and vocational career pathway that's open to students. The Minister has previously spoken about the value of degree apprenticeships and that it's still Welsh Government policy to support degree apprenticeships. One of the things that's coming across to me is that degree apprenticeships need to be broadened out. I know there's good work going on between Transport for Wales and the University of South Wales and Coleg y Cymoedd regarding rail engineering apprenticeships, in a hub that is developing in that location, but what about broadening it out into, for example, the public sector, like social care, healthcare, with employers part-funding apprenticeships? And if the private sector is able to do that, that also answers a funding question for the Welsh Government. Have you done any work in that area, and if so, can you just outline what's being done and what's planned?
Our commitment to continue to expand degree apprenticeships is there; I'm keen that we don't try to cap off or end degree apprenticeships. Because what we've seen over a couple of different Senedd terms is you've seen us not just achieve significant numbers of apprenticeships, but, actually, the evidence has mounted that the higher level apprenticeships provide greater return for the individual and economically as well, and for the businesses too. I think Hefin David's point about sharing, co-investing, is a point that Ken Skates made back in the day when he was skills Minister and Edwina Hart was still in this place. Actually, it's still about that path of what we'll need to do to be clear about the benefit to the employer, whether in the public or the private sector, and the benefit to the individual and the funding that we provide, from public money, and what we'll then expect. The work that's being done in some areas of the public sector is relevant, but also there are some degree apprenticeships within the private sector too.
What I think might be helpful is if, as a follow-up—I'd be happy to send a note to the committee; I know that Hefin is particularly interested, but this is a committee session—I send a note to the committee about the current work we're doing with degree apprenticeships and to set out when I think we're going to need to make more choices. I think that'll be best done after the budget, because the budget will always help to determine some of the reach of what we can do. But, whatever the budget settlement, there is still—I think this is the point that Hefin is making—a path through to look at what does co-investment look like, and if there are exemplars in the public sector, they're good examples of what could work in the private sector too. Because a range of private sector businesses and sectors are very keen to get higher level apprenticeships in, and see them as a real benefit to them. And as I say, they almost always end up having a decent rate of return for the individual as well, which is why we continue to invest in them.
Thank you, Hefin. Luke Fletcher would like to come in on this point as well.
Diolch, Cadeirydd. I just wanted to be clear on this point: have any adjustments been made to the young person's guarantee at all in its first year? In terms of how it operates, in terms of the support available.
We've listened to how we present some of the work. We've also made changes to ReAct Plus before it started. We've also made some changes to Jobs Growth Wales+ before it started. That directly comes from feedback that we've received. Some of this is in the delivery phase, in the sense of you've got to listen to what people on the ground are telling you. So, you won't have seen necessarily programmes in terms of—. 'The curriculum' is the wrong phrase for it, but it's about how we successfully get the provision to people who need it that I think is our bigger challenge. We've not yet completed all the work with the youth engagement board. I attended one of the sessions and listened to young people who are care experienced, to try to understand how we get interventions to build up some trust for some of those people. So, we're going to be thinking about whether there's more that we can do to make sure that we're successful for different cohorts of people. I don't think it's quite as easy as saying, 'Here are three things we've deliberately changed', but I think you will get more from that when we have the report we're going to publish next year, and the figures we'll have, and then to look at what we'll need to do. Because it is an iterative process in some of it; it's not quite as simple as saying, 'Here are three to five things we've definitely changed.'
I look forward to that report when it comes out. I'm particularly interested in that preparation for the current cost-of-living crisis because, I hope that you would agree, there are some constants when it comes to economic downturns in terms of their effect on young people. You only have to look at the COVID pandemic and the 2008 financial crash as well to see that young people are disproportionately affected. And now, of course, we've got the challenge of high inflation as well, again disproportionately affecting young people, because, more often than not, young people are in low-paying jobs. For me, I think we can see a lot of this coming down the line, and I'm just trying to ascertain or work out what was done in preparation for the cost-of-living crisis, because those constants do exist across all financial crashes.
The cross-Government youth engagement framework—the Minister for mental health, the education Minister and myself jointly launched that in September. That is about building on the experience from previous times. Again, it goes back to the point I was making about trying to look earlier on about how we can support people to try to avoid them becoming a young person who isn't in education, employment or training.
Also, I think, what is clearer this time than in previous downturns is the understanding of the impact on the mental health and well-being of young people, and that work, education or training are protective factors. And so, actually, there's both a significant challenge if you can't get people into education, employment or training to engage in that. And once you do get people in and sustain them successfully, it's protective for their mental health and well-being. That comes on the back of the harm that was done through the pandemic as well. So, we know that we've got a different order of challenging problems.
It's part of the reason why I've had direct conversations with the Deputy Minister for mental health about what we're doing. She's also taking an interest in the engagement with young people around that to try to understand how we marry what we're doing on this side with skills and the economy and training, and to make sure that that is linked into what we're trying to do on the mental health side and to understand that the two sides are talking to each other.
So, in that sense, compared to 2008, I think you should be able to detect that there is a much clearer join-up between different parts of Government and an understanding of the consequences of choices made in different parts of Government and how effectively we support people as well. We are definitely trying to take that through in what we're doing. And then there's the advice and how we're equipping staff who are giving that advice as well, whether that's in a school or whether it's through Careers Wales.
Diolch, Luke. I now bring in Sarah Murphy.
Thank you, Chair. Thank you for being here this morning, Minister. I'm going to ask some questions on trade. The UK Government has undertaken a series of trade negotiations since the UK's exit from the European Union. This included has, obviously, Australia and New Zealand. There are currently more negotiations going on with India, Israel, Canada, Mexico et cetera. But the UK Government is also in discussions to join the comprehensive and progressive trans-Pacific partnership. That would be a free trade agreement between 11 countries around the Pacific rim, including Australia and New Zealand. The Welsh Government has said that, as the UK will be joining the CPTPP, it cannot negotiate the terms and will only be able to seek exemptions in some areas. What representations has the Welsh Government made to the UK Government during the negotiations on general exclusions and exempions to the comprehensive and progressive trans-Pacific partnership provisions?
If you don't mind, I'll refer to it as CPTPP. I'm afraid I'm going to have to play a straight bat and not get into all of the detail, because the negotiations are live. There's another round of talks, I think, taking place next week, whilst we continue to make representations more broadly about the fact that we have been on the record in making comments about Australia and New Zealand. Our broader concerns there about opportunities and threats are broadly relevant—I'm not going to try to say we haven't said those things. But in terms our specific representations around CPTPP, the challenge with that is that if we talk about the things we're asking for and then the UK Government go in to have their negotiations looking for additional exemptions, actually, I don't think that's the sort of thing that would be particularly helpful, both in terms of the UK negotiating position and the likely influence that we can have. But I think it's an important distinction to make—rather than free trade agreements that are novel, this is an accession process, so the carve-outs the UK Government will seek will have to be agreed by those people that are already in. Malaysia joined recently as well. So, you'll have to get agreement from a number of other countries to get carve-out, and, then, as well as having that as a baseline, you then have individual negotiations that are still taking place as well.
So, there's broadly good engagement between officials. And the inter-ministerial group on trade is due to meet. I've had a bilateral meeting with Greg Hands recently. He's returned to the trade department, and I've dealt with him before when he was in the trade department. And I would expect that we will have further conversations in that inter-ministerial group about the priorities and our view on the negotiations. But I'm not in a position today to tell the committee, 'These are the things we're definitely asking for', because of the nature of the negotiations and what we're doing. But when we're in a position, I'll be more than happy to set out what they are, and they probably won't be a great surprise to Members sat around this table.
Okay. But just to ask the Welsh Government: you have outlined concerns regarding the cumulative impact of granting increased market access to the UK, especially for the red meat sector. So, can I ask if that is one of the things that you're talking about?
Again, I can't talk specifically about the CPTPP, but we've been clear about our concerns over Australia and New Zealand, and the Australia and New Zealand trade Bill is going through Parliament. It is the deal that's now been agreed. George Eustice, who used to be the Department for Environment, Food and Rural Affairs Secretary of State, has made a series of comments about the pace of negotiations and whether or not a decent balance was struck. The comments that George Eustice has now made were comments that we were making during the time, and we were very clear about. So, that's all on the record, but I don't want to get drawn into the specific points you're making on CPTPP.
But, as I say, those comments about Australia and New Zealand are on the record, and, of course, they're part of the partnership as well. You can always raise the bar, as it were, above the CPTPP, if you have individual bilateral negotiations, but you've got to then get agreement from that individual country about what you're going to do, and that isn't necessarily a straightforward process.
And the broader points that we've made previously about the number of trade negotiations taking place still stand as well. Once you agree a trade agreement, you've got to resolve all the legal side from this end. So, Australia and New Zealand, a deal being announced, you've still got to get that through scrutiny, you've got to pass the law, and then to implement it, there's work to be done. And there is, I think, a challenge, and an honest challenge, about the number of agreements that are made and then the implementation of them, and the ability and the capacity, even of the UK Government, to hold the ring on so many of those agreements, and to be mindful of the cumulative impacts, as you said, of a range of the deals that are done.
There's always a balance in negotiation, isn't there? You can end up having wins on one side and deficits on the other. And it's really about where we see our interests here in Wales, and how the UK Government sees broader UK interests. And, like I say, George Eustice has now said what he said, but, of course, you're not going to get a serving UK Minister saying, 'I agree with George', or, 'I remember him saying that robustly', because that's not the way collective responsibility works. But we were clear about our view at the time, and we were clear in the statements we made, both to this committee and indeed in the Chamber, about those as well.
And, also, in the correspondence that we've had, it said that, previously, with UK Government, it felt as though they were only willing to talk to Welsh Government about areas that were devolved and nothing else. So, have you felt in relation to this trade agreement that that has changed, has improved?
Yes, there has been—. I think there has been a helpful move on, in the sense that, I think, information sharing is now better. Frankly, because—and this goes back to why I've not commented on your polite enquiries about direct representations about CPTPP—some of this is about trust.
And it's about us being able to be part of, not just saying, 'These are our views on the negotiating mandate', but about the fact that, whilst the negotiations are ongoing, we don't then talk about what's in the mandate, the specific representations that we've made. And, so, actually, the trust has been engendered because we haven't been going out and advertising and saying, 'Here are all the things that we have asked for in these negotiations before a certain point is reached', and it does mean that information sharing is practically easier.
But, whilst the engagement is there, there is always a challenge about whether that engagement leads to a shift in the position adopted by the UK Government, and that's what people then have to assess, when you're able to see the whole deal and what's been agreed. So, yes, I think engagement is better still, but like I say, our position on Australia and New Zealand has still been that we would have preferred to see a different balance struck in it, and you'll have heard, no doubt, from stakeholders who have strong views about that too.
That brings me on nicely to: the Welsh Government has previously stated that it was interested in engaging in the governance arrangements for the UK-Australia free trade agreement, but it wasn't clear at the time what the involvement would be. The committee is concerned that uncertainty remains regarding the Welsh Government's role in both the Australia and New Zealand free trade agreements' governance arrangements. Obviously, we did make a recommendation in our letter to you on the UK-Australia free trade agreement, which called for representations to be made to the UK Government to ensure Welsh Government is given a role in those governance arrangements. So, from any further discussions that you've had since then, what impact will the tariff liberalisation provisions included in the UK's recent trade deals with New Zealand and Australia have on the UK's market access negotiations with the CPTPP?
I'm going to ask Andrew Gwatkin to come in, just to explain. I think it would be useful for the committee. The relationship between the bilateral trade deals and CPTPP and how that will then affect how traders can opt in to one or the other—. Without getting drawn into the negotiating mandate and the representations around CPTPP, I think we can talk about Australia and New Zealand, and there is an ongoing discussion with the UK Government around the impact on devolved powers of provisions in the Trade (Australia and New Zealand) Bill as well. We're bound to have a legislative consent memorandum to come before the Senedd, and it's not clear what position we'll reach, but we are trying to engage constructively in finding an answer. Our ambition is to find an answer that respects devolved powers and the responsibilities that we've all been elected to address, but does it in a way where we're mindful of our own responsibilities as an institution to act consistently with international treaty obligations as well. I'll bring Andrew Gwatkin in. I think Andrew may be able to give you a more dispassionate view on how CPTPP interacts with individual bilateral agreements.
Brilliant, thank you.
Thank you, Minister. As you mentioned earlier, Minister, the two are in existence, so it's a case of if, for example, an exporter is looking to export to Australia or New Zealand, and if we had acceded to CPTPP, then you've got those two options: the exporter of a given pallet can send that under the free trade agreement that we have with New Zealand, or, in the future, if the UK accedes to CPTPP, then could choose to do it under the conditions of the CPTPP. But they can't mix and match on any given activity—in this instance, this example, a pallet. So, it does provide an option. It does provide an additional complication in that sense as well, because the paperwork and the administration around that is not always straightforward, but that's the way it would work in practice for a given business or exporter.
To the original question about the implementation and where we stand, we have been in regular contact with the UK Government. As the Minister says, the level of engagement around CPTPP has been good and has been improved, and both at ministerial and official level there is regular contact. When it comes to the implementation of the New Zealand and Australia free trade agreements, as the Minister said, it's still in that implementation phase. We have the Trade (Australia and New Zealand) Bill ongoing at the moment. But we anticipate the ability to be able to attend committees when they are set up, once those free trade agreements have been ratified and are in place. So, there will be a role for us to have involvement in those committees and have an input into those committees, if we so choose.
My last area of questioning is going to be around India. So, the UK started negotiations for the free trade agreement with India in January of this year and, as we know, it is an extremely important trading partner for Wales, with value of goods/trade at around £687 million in the year ending June 2022. India is Wales's sixteenth largest market for exports and fifteenth largest import market. So, in your evidence, you said that Welsh Government welcomes the negotiations with India. However, you also highlighted potential risks, particularly around standards and competition. So, could you outline what opportunities and risks a UK-India trade agreement could present for specific sectors in our Welsh economy? You've also previously highlighted potential risks from a trade deal with India around standards and competition. So, could you expand on what these concerns are and what representations you then made to UK Government on these issues?
So, again, I can talk in general terms. I think the India trade deal is another example of where setting a deadline isn't necessarily helpful. So, the Diwali deadline was never likely to reach a satisfactory conclusion. And it's all that stuff. I don't know if you still watch The Apprentice, but if you turn up at the end of the day and you walk into someone's shop and say, 'I'm desperate to get rid of this stuff, I've got to sell it all by five o'clock', you've kind of undermined your negotiating position. And if you say, 'I'm desperate to do a deal with you and I've got to do it by this deadline that's been publicly announced', then you shouldn't be surprised if that creates a problem. So, actually, it was the right thing from the UK's point of view not to try to force a deal to get it over the line, because I don't think we would have been happy with the end result.
Equally, India, from their own perspective, have a number of interests that they want to pursue. They're interested in the mobility of people and what that means. India is enormous—it's hard to get over the scale. In not too long, it's going to overtake China in population terms, and, economically, it is still growing. And it's also a state that has multiple layers of government: there's a central authority—Prime Minister Modi—and then there are significant powers in each of their regional governments. It's a situation that we are familiar with here, at least in parts of the UK. But the challenge of where the Government sits, who's got the powers in India, who you're negotiating with, what the central authority—the central Government in India—can provide, and then, in terms of some of the opportunities—. There are obvious opportunities in food, in manufacturing—areas where we already have trade with India. So, a whole range of goods and services. India is transitioning, as is most of the rest of the world that is developing, through new forms of technologies. So, they're significantly interested in new ways of generating power and electric propulsion. So, Tata don't just—that group of companies—have an interest in steel making; they are one of, if not the biggest vehicle maker in India as well. So, they're seriously interested in the future of propulsion.
So, I think the opportunities are there. The challenges will come with some of the risks, the broader points about: what does market access look like? Is it equitable? Are we going to sacrifice sectors where, actually, we think there'll be a challenge because there are different labour standards, different animal welfare standards, different sanitary and phytosanitary standards? And, actually, the challenge for us is: will we get an agreement that maintains what we see as high standards so the competition is fair? And that's a point that isn't just made by food and drink producers and farming unions; there's a broader point there. So, that's the point in the balance in the negotiations.
And one thing that isn't just relevant to India—it's relevant to all of the agreements—is: if you agree a trade deal, can you then rely on the enforcement mechanisms, especially around intellectual property? So, if there is a new manufacturing process created in Bridgend, for the sake of argument—
I'd love that.
Well, if a company in Carmarthenshire was trying to set up a process and they'd essentially taken that on board without acknowledging or getting permission on intellectual property grounds, you'd understand that there would be a process to go through. The challenge when you've got transnational arrangements is: will all those things work? Is it a business process? Is it a goods—? So, all those things really matter. And that still goes to the point that that should work on both sides. It's not about saying, 'We are suspicious of other countries.' It's got to be working both ways, so that you can have confidence that IP will be protected where it's generated, and so, you actually get people agreeing to do more work together in a way that, like I say, adds to what you've got, rather than as competition that people see as a bit unfair. And that's one of the challenges we still need to see worked through.
So, it's a balanced picture, but given that we do, as you said, more than two thirds of £1 billion in trade with India, there are obvious opportunities to be able to do more, but it's, as ever, the balance, and some of them are more obvious than others. But that's why we are looking to see what comes from it, and, obviously, we'll always take an interest in whether or not there'll be an interest from other parts of the world on whether they can have access to our NHS in a way that we would find acceptable or not.
So, we've got a number of lines that wouldn't just be relevant to India, but would be relevant to other trade negotiations as well, and we look forward to more engagement around that. It'll be an ongoing part of the conversations we have in the inter-ministerial trade group. And as and when I'm able to update you on what's happening, I'll be more than happy to, whether in this committee, or, indeed, in formal written statements as well.
Thank you. Just my last question, then: obviously, the deadline has been removed now, so do you have any idea of the time frame for this now, going forward?
No, I don't think there's been a specific time frame that's been set, because it really depends on what comes from the negotiations. I think it's a more sensible approach to have a longer-run time frame and to understand what that looks like.
In all the issues that are there, we'll think about climate change, the environment, welfare standards for animals, labour rights standards. All those things should be part of what we are looking to have in any trade agreement, not just with India, but with other parts of the world too, and, on some of that, I think setting an artificial deadline about when you want it happen—. You can have a target, but having a hard deadline is where we get to be problematic. And George Eustice made that point about Australia and New Zealand; we made that point at the time as well, and I think you should learn from what's happened in your recent past—whether it's the young person's guarantee or negotiating trade deals.
Thank you very much, Minister. Thank you, Chair.
Thank you, Sarah. I'll now bring in Sam Kurtz. Sam.
Diolch, Cadeirydd. Morning, Minister.
I'm going to stick with something that I've questioned you before on: border control posts. So, I'm just wondering if we could get an update as a committee as to the progress made regarding BCPs.
Okay. I should point out: not introduced earlier on, but Helen John, who is one of the lead officials in this area, is with us, in case there are technical points to answer. But, in terms of progress, this has been a point of some frustration. Let's be polite: the churn in Ministers in the UK Government hasn't been helpful. That's broadly because it's been a contested area within the UK Government anyway, and there have been two broadly strong lines about what should and shouldn't happen, and it's a bit tied up with European relationships as well. Obviously, we're going to have to have border control posts, because we've left the European Union, and the formal agreement we've got means we're not part of customs or single market arrangements.
Our ability to keep on putting off when we have checks around the borders is limited, but I still think there's goodwill on all sides to want to make the arrangements work. In terms of our own arrangements, we've now had, recently, some helpful steps forward. Previously, I'd written to UK Ministers pointing out our view, our responsibilities, and we couldn't keep on having last-minute changes, which I'd indicated in the Chamber, where we had very last-minute changes, where the UK Government essentially agreed a different position amongst itself and was then telling us, and you're then in a really awkward position of kind of being forced into doing some of that stuff, because you want to have a common regime, if at all possible, particularly—. And it's not just relevant to your part of the world, but all westward-facing ports in the UK, whether at Liverpool, Holyhead or the ports in Pembrokeshire—having a common regime is the most helpful place, so you don't get people looking to divert trade based on whether they think there is an easier or lower standard to meet in a different port. But we do have—. As our departure from the European Union gets further away, there's the potential for more divergence in practice and standards, but also—and I've said this before—our ability to have access to the early warning systems about risks as well.
So, we continue to discuss—in a more positive way now, because I've met Baroness Neville-Rolfe, who has come in to the Government recently, and she's acting in this area, so we've actually had responses, which we haven't had previously; I've written twice formally to the UK Government and not had the courtesy of a response. We have now had two meetings within the last fortnight, because we're looking to find a way through on the variety of challenges we're—. I think we're going to have to roll forward—and I'll ask Helen to come on this—the temporary measures we've got.
The construction of border control posts, though, does rely on access to data, so we know what we're building for. Because we've had some trade diversion, there's less trade going through our west-facing ports, so people are choosing certainty over costs, and that means direct ferry services from the island of Ireland to mainland Europe. So, that's meant that, actually, we think that trade dislocation is likely to be permanent. So, the larger border control post we were looking at in Jonhston, for example—near Johnston—well, we don't think that's likely to be the case. So, we're looking at different options, and still reviewing what will happen there.
Holyhead is in a different position, because there's a lot more trade that goes through there, and Kier, who have won the tender, the procurement, for the border control post in Holyhead—we're expecting something from them early in the new year, so we can then have choices to make about how to take forward the build there. It still, though, relies on access to information about the detail of the build. We may find that, as we get more information, we'll find more trade being diverted between Welsh ports. If you have a small number of items going through Pembrokeshire ports, and you've then got to have a border control post facility to deal with that small number of items, the model for recovering costs may mean it's uneconomic to have a small number of imports going through there, for the business looking to import, whereas, if you have a larger group going through Holyhead, you may find some diversion. That's still unclear as of yet.
I think we are now, finally, going to get access to some of the information we are getting through HMRC about what's coming in. That's imperfect, but it will give us a better idea about what we're going to need to build, and there's likely to be further UK Government engagement this side of recess in terms of where we're going to be on and whether we're going to introduce pre-notification on a range of goods as well. So, I need to make a decision on that, and the reason we're asking for pre-notification is to help us understand what's coming in and where it's going as well.
We still haven't had a final answer on the target operating model that should be common across the UK. I wouldn't anticipate that being live before the end of 2023. There's no prospect of having a permanent facility in place in Holyhead before the end of 2023. The UK Government are aware of that and know it's not a realistic proposition, but we still haven't had all of the proposed answers from previous UK Ministers on how much technology can do, and we still have the same position on that. For some things, you can see how technology could be an answer. It may mean that, for chilled goods, you can have an answer on traceability that satisfies everyone, but, on live imports and exports, whether plants or animals, it's much harder to see how you can do all you'd need to do with technology. But those are definitely ongoing conversations.
Excellent. Thank you, Minister, for that comprehensive answer on that, and you've actually touched on a few of my potential future questions around that. But, sticking with the theme of ports, and knowing that you're one of the four Ministers making a decision around a location for a free port in Wales, and knowing that you can't go into any specifics on that, what would you be looking for in a free port to deliver in Wales? What is it that you're hoping that, with the co-operation of the UK Government and Welsh Government, a free port could inject into the economy of Wales?
What we set out in the prospectus: a plan that could maximise genuine economic growth and do so in a way that is consistent with our objectives and the UK Government's ones. So, for us, fair work is part of what's in the prospectus—so, you need to be able to demonstrate that—and also that it's genuinely additional, and not simply diverting economic activity. So, it really is what we said in the prospectus.
Whatever happens with free ports or not, there are genuine opportunities for investment in our ports infrastructure; the opportunities in the Celtic sea matter in north and south Wales. I know there are other possible bids coming in from other part of Wales too, so whatever happens, I'm looking forward to seeing and assessing with officials from both Governments whether people really have met the brief in the prospectus, and then the difficult choice of, if they all have, how to then assess which one is the best bet and whether or not the UK Government are prepared to fund more than one free port in Wales.
I was going to ask: are you of the understanding that it's only going to be one, or there could be a possibility of two, given our Scottish Celtic cousins have two?
That really depends on whether or not there is going to be funding made available to do that. The current wording is 'at least one'—the possibility of more than one. I think some of that will depend both on the strength of the bids that come in, how compelling they are. And I know that there are elected representatives of more than one party avidly promoting their local bids, as you'd expect—it's still a straight bat to everyone who's trying to persuade me to indicate for one or the other.
That's not what I'm trying to do at all, Minister.
No, no; I know you're not. You had a go at it in the Chamber previously. But it is then a choice about whether there's going to be the funding settlement available for there to be more than one free port. It's really very simple in that sense. In some senses, the fact that Michael Gove has returned to the Department for Levelling Up, Housing and Communities—. Whatever your views on him, within or outside the Conservative Party, the fact that he was there when free ports were considered and as the detail in the policy was generated—I think it does help that he understands how we actually reached the agreement we reached and wanting to have an open-ended question about whether it could be more than one free port.
That was going to be my follow-up question on this. The two Ministers from Welsh Government are yourself and the First Minister, in the decision-making process, and the Secretary of State for Wales and Michael Gove, who you've mentioned, from UK Government. Do you think that is an equitable four that are relevant to making this decision? Do you think those are the best four Ministers that could be making this decision? From Welsh Government side, would you want someone else from Welsh Government involved in that decision-making process and do you think that, from the UK Government side, those two Ministers are the right Ministers to be making these decisions, given that it's a UK Government-Welsh Government joint bid? Well, not joint bid, per se, but joint collaboration.
The prime decision maker from the UK Government side is the levelling-up department. It's a matter for them whether they want to involve another Minister, and they have said that they'll speak with and listen to what the Secretary of State for Wales's office have to say. For the actual, then, decision making, I'm the nominated Minister, as you'd expect. I don't think you need lots more Ministers being involved. The work that my officials will have to do will be about taking into account a range of other policy areas. You'd expect us, for example, to talk to colleagues in climate change and others about what each proposal might mean as part of the assessment. But then I think trying to have a committee of Ministers within the Welsh Government and a larger committee of Ministers in the UK Government may not help with actually getting to a better decision. It is about how joined up we are about getting the right advice to us, and then the conversations that will take place between our officials in the Welsh Government and indeed the UK Government. So, I don't think the structure or the quality of the decision making would necessarily be helped by having other Ministers having a formal role. It's really about us doing what we said we'd do, because we have set out in some detail how we'll go through that decision-making process and the nature of the conversations that will take place between officials, how we'll look to score the bids, and then, ultimately, a conversation around decision making.
I would agree with you on that one.
Sorry, before you go on, Sam, I think Luke just wanted to come in on this specific point.
Diolch, Cadeirydd. I have concerns around free ports. I've expressed them in the Chamber with yourself. Globally, they tend to be a bit of a wild west, especially when it comes to workers' rights. Now, you have mentioned that the Welsh Government have secured concessions around workers' rights for free ports in Wales. Could you outline what those concessions are?
So, everyone has to meet what the prospectus sets out about meeting fair work, and we've got a definition of that from the Welsh Government. Everyone's very clear that fair work is an essential and non-negotiable part of this, because I won't agree to a free port that tries to adopt a wild-west approach to workers' rights. In the structure, we've also got something that looks very much like a works council as part of the governance around free ports as well, and that's quite normal. If you think about multinational companies—big, successful companies like Airbus and others—they're used to having that sort of structure where you do need to have an approach that has elected representatives from the workforce and how they're consulted in how decisions are made as well. It'll come down to the actual bid and how it meets what's in the prospectus, and I will then need to set out to the Senedd how and why I have agreed or not agreed for any of those bids to come forward.
I do understand the concern about adopting a race to the bottom on labour standards and that, actually, there are examples in more than one country, including ours, where profit is driven by squeezing terms and conditions. I understand that, but that's why fair work was a non-negotiable part of where we are with the free port process here in Wales. It is also the case that other proponents of free ports recognise that it's possible to do this without compromising on workers' rights. In a previous leadership manifesto, there was a proposal for free ports in Wales in your own party's leadership contest. And I don't think, when Adam set that out, he was really envisaging a race to the bottom and a wild west, but we were very clear that free ports can't lead to that. And, equally, it was a large part of our concern about the previous plan on investment zones, because it was hard to see how they would generate economic growth without having something that would lead to a very difficult picture, and, of course, that position has changed with the new iteration of the UK Government.
So, could I take it, then, that a company like P&O, for example, would be ruled out of running a free port in Wales, given their track record when it comes to workers' rights and how they treat workers?
Well, I'm not aware that P&O are involved in any of the bids that are coming forward, but we would have to assess the bids as they come in. I understand why you're asking the question, but if I give an indication about a specific company, then I think I'll get myself into difficulty about decision making. Any company will have to meet the requirements—not the suggestions, the requirements—in the prospectus, and that includes a commitment to fair work. And for me, it isn't just that, it's then about how we ensure that the bid matches how people then behave as well, because you can write a great bid and say you'll do the most wonderful things, and then you might choose to behave differently after the event. So, that's important for me too, as well.
But, when it comes to our ports, people working in ports, they don't—. I think people working in ports would say that they pay the living wage and a lot more than it, because of the sort of workers they're looking for, the requirements of skills and who will turn up and do the day's work there. And when you're talking about what we hope will be significant investment plans in any of the bids that are submitted, I would expect that, through our own review on each of those bids, we'll be able to understand whether the commitment to fair work is real or not. As I say, it isn't just the decision on an award, it is then about the mechanisms of what happens afterwards too. It's something I'm very keen on. I think contract compliance is a largely undervalued part in the public debate over how you can achieve proper outcomes, not just in the awarding of the contracts themselves.
So, it's safe to assume, then, that if compliance wasn't up to scratch after the bid, the Welsh Government would step in.
I'd expect that we would have a mechanism for the Government to be able to do something if people did not meet the requirements in the bid. You see that in a whole range of areas. I won't mention some of the current issues, but you know that where people don't meet the requirements of the bid, the UK Government themselves have been taking action. It's whether it's effective or not, and so that's why we'll be looking for the bid, and then what's signed off, to be clear about what those enforcement mechanisms would be. But I am very keen that we do have practical abilities to reach in if people are not doing what they said they'd do, and that always requires a dialogue process; there could be a significant change in the way that ports operate in broader economic conditions that may mean that you've got to think about parts of it, but I don't think that should mean any compromise on fair work.
I was going to go on to question you, Minister, about shared prosperity funding, but given that I think we're going to be doing our own inquiry into that, I'll hold off on that for a future time. So, back to you, Chair.
There we are. Thank you, Sam.
And there's been a press release on that this week.
I saw it yesterday.
I'll bring back Luke Fletcher. Luke.
Diolch, Gadeirydd. Back to me again. I was wondering if you could set out—it was referred to earlier, but you also refer to in your papers—the Cabinet sub-committee's role in helping to develop a coherent response to the impacts of the cost-of-living crisis and the impact that it'll have on Welsh households this winter?
We've already set out the £380 million of support that we're providing direct to households. There's money flowing through local authorities. Most local authorities did a really good job in getting that money out of the door to households in need. Our challenge is always going to be about the shifting nature of the picture. There are, I'm afraid, in each of our constituencies and regions, people facing very real destitution. It's not something that I think anyone in any party would say that they would like to see in twenty-first century Wales.
Now, there’s a range of factors in that. The energy support that’s been provided will help some families, but for others, the fact that the costs in any event have risen means that people in the middle are really feeling the pinch, not just people on lower incomes. The challenge, really, is what we’re able to do continually. Now, the Minister for Finance and Local Government will set out the budget next week, and it will guide some of what we’re able to do, but we are trying to find a way to help people directly. I didn’t think I’d be part of a Government setting out warm hubs where people can have something to eat and go somewhere warm, but it’s part of the necessary response, I think. And we need to make sure that that’s done in a non-stigmatising way, so, actually some of the conversations I’ve had with Sarah Murphy were about how to make sure, for example, there’s decent Wi-Fi, so, for some people, they may have to go there to actually be part of work. There are lots of people we’re talking about with real financial challenges, and they are people with someone in their household in work. So, we’re not talking about a situation where we’re only concerned about people who are unemployed; we’re concerned about people in work and how we continue to support them as well.
And that’s why we continue to listen to our partners; it’s why we have, as I said earlier, the pattern of Ministers meeting in one, and then, for the following meeting, we have partners in to hear directly from them about what’s happening on the ground and some of the potential answers. It’s also why the First Minister spent time with Gordon Brown in Scotland, seeing some of the work that’s being done there. I’m looking at how different parts of the private sector can help, and the need to organise in a different way to support families practically. So, some of this will be about Government money, some of this is about the convening power of Government to get people into the same room to try to agree what they’re going to do, and I have to say that, local authorities of all shades I know are keen to play their part as well.
In terms of the overall cost-of-living support provided by both UK and Welsh Governments, do you think it’s adequate? I imagine, I can guess what the answer will be in terms of the UK Government’s support, but would Welsh Government then be looking to plug the gaps that are in place this winter as a result of the lack of support?
I think the Office for Budget Responsibility estimated that real disposable income will decrease by over 4 per cent, and it’s the biggest fall in living standards and disposable household incomes since the 1950s, so this really is historically significant. I would much rather have seen more support provided in the second autumn statement. Even though benefits have been uprated in this sense, the historical reduction through the period of austerity is still about £500 per household where people aren’t in work in terms of the reduction, in terms of the real spending power, even with the most recent uprating. So, there are very significant challenges and we don’t think that it’s going to protect every family.
The challenge for us, then, is what are we able to do, with the variety of pressures that we have and the responsibilities that we have? We talked at the start of this about the young person’s guarantee. If we put in more money, as we have done, than any consequential amount, that money has to come from somewhere. We'd have to forego an area of work that, people will understand me saying, is of real value to the life of the country as well. So, that’s the reality of where we are, and it will be the reality of the choices that the finance Minister’s going to have to set out in the budget on Tuesday, and I know that you’ll be looking to talk to me about that when it comes to budget scrutiny early in the new year. So, they’re not pleasant choices to have to make, and I was a Minister through some of the first period of austerity as well, and it’s every bit as difficult and unpleasant in choosing what we can do, and in recognising that, in not doing something in one area, we are leaving a gap that we’d much rather see filled.
If I could touch on the consequentials, then, there will be a Barnett consequential from the autumn statement’s announcement of additional UK Government spending on the household support fund in 2023-24. Now, my colleague next to me will likely argue that that’s a substantial amount coming down to Welsh Government; I would probably take the opposite view. But, I’d be interested in knowing if you could confirm how much this is likely to be, and how this will be spent supporting households with cost-of-living pressures.
So, we start from a position where our own Wales fuel support scheme is helping over 250,000 households in Wales. The Barnett consequentials that come from the autumn statement always have to be balanced, because we always find that there is money given in one hand and it can also recede in the other as well. What I can't do is to say, 'Here is the sum of the consequential, here's how it will be used', because that's what the Minister for Finance and Local Government is going to set out on Tuesday, and she will understandably be annoyed if I started freestyling and suggesting what I think you can expect to find in the budget. But you will find in our budget how we've taken account of the funding changes from the second UK Government autumn statement, how we're looking to deploy that money, and the really difficult choices that we're having to make within that, including how we support vulnerable households, who, we all acknowledge, are not responsible and not to blame for the position they find themselves in, but it's how much and how far we can help them and what we're able to do with partners in that sense.
Finally, Minister, I would be interested if you could update the committee on the progress with delivering the Wales fuel support scheme in 2022-23. I would also be interested in knowing to what extent the scheme has seen a higher take-up than the scheme run in the previous winter.
So, the previous scheme supported over 166,000 households. We've widened the eligibility because we listened to the messaging from partners and individuals. We've taken on board some of the comments, so there's a wider cohort of households now eligible. So, households that receive child tax credits, pension credits and others, there are more that are now eligible. The eligibility has risen by—. The estimate is that another 200,000 households are eligible. As of the middle of November, over 260,000 households had received a payment—so nearly 100,000 more than the previous scheme had helped—but there are more households that are eligible. So, the work that Members do here, members at local authorities and other partners do in trying to make sure that people access the support that is available is really important as part of it. So, the scheme is wider and, again, that goes to the point of us providing more support directly to households. More people are accessing it, but we think more are eligible, and we want them to take that up.
Okay. Thank you, Luke. I'll now bring in Vikki Howells. Vikki.
Thank you very much, Chair, and good morning, Minister. I've got some questions around the cost of doing business, which, as we all know, is a huge pressure in all our communities now. Obviously, the UK Government's energy bill relief scheme is due to end in April 2023. So, my first question is: what support do you think businesses will need in response to the rising costs of doing business, particularly after that time?
On the one hand, I can understand why there was shorter term initial help for the energy bill relief scheme. We know that, up to that point, there hadn't been a worked-through plan on how to define businesses in need, how to define energy-intensive businesses. The challenge, though, is that we will need a longer term statement, because businesses can't plan up to April and then shrug their shoulders and think, 'We'll be fine after this', because a number of energy-intensive businesses will still have significant energy costs after that. And for some of them, if they can't see a path through, my concern is that they'll make choices about reducing their costs, and that often means reducing the number of people on the payroll. So, there are, I think, real challenges.
One of the things that we have consistently been saying is that the sooner an announcement is made on the future scheme, the better. We've just responded to the BEIS consultation—that's the Department for Business, Energy and Industrial Strategy of the UK Government—on the scheme and what we'd want to see, and again, we're consistent, as you'd expect, with what we said publicly about wanting a longer term answer, wanting clarity on who is an energy-intensive business, and clarity on when people start to receive money. Because going through the winter and not having received the money, but with the promise you'll get some help, may give you some comfort, but, actually, if you've got bills to pay, you can't always put off those bills by saying at some point, 'We'll get money from the Government to help to cover this as well'. So, cash-distressed businesses really do need the support sooner rather than later. And, even with the support, there's been a significant rise in energy prices for a range of businesses.
I think it's also worth pointing out that this was supposed to help non-domestic customers. Non-domestic customers include schools, the health service, and third sector organisations as well. We're still not entirely clear whether every third sector organisation will be covered; now, that could be the difference between whether an organisation can survive or not. So, businesses have very clear needs, and, in every business survey we do now, it's moved from the availability of labour being the big challenge, to inflation, and energy costs as the biggest part of that, being the biggest concern for businesses in pretty much every sector. The UK Government are very well aware of that too. So, I'm hopeful that we'll see early action, with an announcement to be made, but I can't tell you when that's going to take place, albeit that we have responded to the consultation that BEIS have run, setting out our own view.
And looking at it from a devolved perspective, we understand that the Development Bank of Wales is fast-tracking a scheme to help businesses invest in decarbonisation. It's certainly something that small businesses in my constituency have been raising as an issue with me for quite some time—the need for help to invest in that area. So, I wonder whether you'd be able to give us some more details on this scheme, such as what support will be available, and when, crucially, you expect that scheme to be up and running?
Okay. I think this is a really positive area, where you can decarbonise the way that businesses operate, but actually it's also really important for their bottom line. So, you can do the right thing and help your business to become more efficient and to save resource. Because, of course, gas is now so far ahead and away of both wind and solar generation that there's a proper business imperative to get alternative sources of energy generation where they're possible, as well as other energy efficiency measures.
So, we've already got advice available through Business Wales, about the point about energy efficiency within a business. I'm hoping that we'll be able to launch our decarbonisation business fund; there are some details to be confirmed, but I'm hoping that, early in the new year, we'll be able to launch that.
And indeed, the Development Bank of Wales, which I've indicated previously, I'm expecting that they'll also be launching a new fund in the new year. That's designed to help businesses to get finance to undertake decarbonisation and energy efficiency, energy generation measures. They're looking at a range of loan support to help give people the capital to do that, knowing that they will de-risk and reduce the costs of running their businesses in doing so, from a relatively small level of loans, which could start at around £1,000, to much more significant amounts, which could go up into the hundreds of thousands of pounds, which could be made available.
So, the detail on that scheme, I expect we'll be able to launch that, to have something that works consistently with what we're going to be able to do, alongside the development bank, early in the new year. Before we get to half-term recess, I'd want us to be able to launch that scheme and to give real clarity on what that will look like. And hopefully, we'll have a longer term answer on the energy business relief scheme that the UK Government are running. It might be helpful, when we have got our response in to the consultation being run, to make sure we can share a copy of that with the committee, as well as, of course, when we then do provide the decarbonisation and energy efficiency schemes we'll be running, to make clear, not just in a written statement, but to write directly to the committee to confirm that's available as well.
Thank you. And I'm sure both of those are areas that the committee will keep an eye on in the months to come. Just wondering, within the Welsh Government's budget settlement, if there are any plans to develop further support for businesses, to respond to rising costs, and whether you might be looking at individual sectors there—for example, I know the hospitality sector seems to be the greatest hit currently by the rising energy costs.
So, there's a range of businesses that are certainly hit. So, as well as what we're looking to do, both to help people to decarbonise and to reduce their energy costs, we are then going to be looking, and there'll be more detail in the budget next week about the sort of support that is available for businesses. There's a range of consequentials and measures that have been made in the UK Government's autumn statement; we'll be responding to those on Tuesday. And I do think you will see in that further support for businesses in different sectors, and we're still going to need to work alongside businesses as the picture changes into the new year. A range of the support measures we've got, whether it's ReAct+ and the support that can provide for people, that can also help businesses too, when it comes to having people able to shift and to move into alternative employment, if people do lose their jobs as well. So, we're going to think about how we can shift and support people into new employment opportunities, if they are part of the big range of potentially 20,000 to 45,000 people that the Office for Budget Responsibility and the Bank of England think are going to find themselves losing work of one kind over the next 12 months. As I said earlier, it's relatively uncomfortable to be in a position where you can't set out, 'Here are the three interventions we will have and that will see us through the year.' We're going to need to consider what happens in the economy, with businesses, and whether we've got additional support that we can provide, whether ourselves, and, indeed, working alongside the development bank too.
Thank you. One final question from me, Minister, if I may: we've talked at length about Government interventions or Government plans in this area, but I'm just wondering whether the Welsh Government is working with businesses to help them also develop private sector-led initiatives to support their workforce and customers through the current pressures.
Yes. So, one of the real positives of COVID is that a number of people have had to act very quickly to survive, and so there is still a fair amount of that resilience and people who really don't want to give up and can find different ways to do things. That approach is still very much there, across sectors here in Wales.
It's also the case that a number of businesses are directly supporting their customers and their staff. So, I know that Iceland, for example, are having 10 per cent discounts on Tuesdays for customers aged over 60. I know that a number of large employers, including supermarkets and others, are supporting their staff in different ways, some with potential meal provision, which I know that some people are providing. And I know that, actually, for a number of their staff, that could be the difference between them not skipping a meal at home and actually making sure they can provide more food for their families. So, they're very real examples.
I think I also indicated, given that we've got two Pembrokeshire Members in the room, that Valero are doing a number of things to support their community as well. They're a large employer in Pembrokeshire and they're providing additional support, for example, in supporting their own foodbanks. So, I do know that that is one of the things that a number of businesses are looking to do directly themselves.
I think we're going to need to see more of that as we go through, though, because businesses know that, for them to survive, they need their staff to survive and for their customers to survive as well. It really does depend on how deep and long-running the recession is and what support is made available from the levers that only exist at a UK level. And I should say that it's possible to do this as well. You know that I've been, at times, critical of what the UK Government did during the pandemic, but actually, when you got to a furlough scheme that made a significant difference to businesses surviving, the UK Government has shown that it's able to use levers that are only available at a UK level to make sure that businesses survived, and we were then able to add to that with the levers that we have available to us.
We're in a different time now, because the budget challenges, as we've seen in the last few months, have shifted, with two different autumn fiscal events, but it is still possible for the UK Government to act, and the differences that that makes to our own budget, our own flexibility here, are very real. So, the budget next week, the draft budget, will be important for all of us. It'll set out the range of flexibility we've got, and also the range of flexibility that private sector actors have got as well, as I think you rightly highlight.
Thank you, Chair.
Thank you, Vikki. I'll now bring in Hefin David. Hefin.
Do you think that the overall balance of business rates is right for an economy in recession?
Well, you can expect there—and I'm being very careful—you can expect there to be announcements made about business rates in the budget. There's been lots of lobbying, and I know you've had correspondence from a range of business groups, making an ask around business rates, especially after the second UK Government autumn statement. So, you can expect the finance Minister to set out a response on business rates in the draft budget. I don't think that's giving anything away, because you'd always expect the finance Minister to have something to say about business rates. But I've heard, and the finance Minister has heard, the lobbying around the multiplier rates, around whether rates should be frozen, what help can be provided. Of course, we have a different structure in terms of the fact that there's a higher number of businesses that are taken out of business rates altogether in Wales by the current structure of our scheme.
So, I'm afraid that it's a polite enquiry, I think, to draw me into saying something I shouldn't say before Tuesday, but you can definitely expect there to be an announcement around business rates on Tuesday that I think will help to go some way to answering your question, Hefin. And there's a broader question around business rates reform that I recognise as well.
Yes, I was going to say—. I was going to ask: do you think the business rates regime in Wales is fit for purpose?
Well, the finance Minister is looking at business rates more generally. I don't think it would be helpful for me to say, 'Definitely yes', or, 'Definitely no', when the finance Minister is reviewing our business rates structure and will have some announcements to make on Tuesday about this area and others in setting out the draft budget for the Welsh Government. But I'm sure that between myself and the finance Minister we'll be happy to engage with the committee once the budget is done on the current views on business rates, on the various lobbying and views around that, and equally the work that understandably, as the lead Minister for taxation in Wales, which includes business rates, the view she's taking on that. I'm trying not to be unhelpful, and at the same time I'm trying not to get myself into difficulty with my colleague the finance Minister.
It's fine. I'm not trying to get you into any kind of trouble. But, business rates are here to stay, are they?
Well, certainly you can expect the finance Minister to set out our immediate approach to business rates in the budget on Tuesday, and I'm sure the finance Minister and myself will be happy to engage in the longer term conversation about the future of business rates or any alternative.
I feel like Jeremy Paxman interviewing Michael Howard on that. [Laughter.]
I think I'm being honest about why I'm not going to get into a direct 'yes' or 'no' answer about that.
Yes—[Inaudible.] Okay, that's fair enough.
So, let's zoom outside of business rates and think about the wider economy and the small business economy as well. What analysis is going on in Welsh Government to try and understand the impact of the recession on that wider economy?
Well, both the OBR and the Bank of England analysis, and virtually the consensus around economists, is that the next year will be really difficult right across the UK and that we're in a different position to other G7 countries. The forecasts are that we will go in earlier and harder into recession than anyone else, and our growth prospects are not great across the UK.
The unevenness, I think, is that there are some areas where you will continue to see growth and investment. So, we will probably see continued willingness to invest around ports and significant energy generation opportunities in the Celtic sea, which I think is a good example of where that will still happen. Discretionary spend, though, will be really challenging, and that's hard because a range of those businesses have significant numbers of employment, and, at the same time, you have sectors of the economy, the tech sector, for example, where there are real opportunities for growth, but we actually need to get more people to see that as a career for them.
I think that's particularly important for women in the tech sector. We still see an imbalance in the number of men going into the sector compared to women, and that work can't just be done at age 16 or 18—it's got to happen much earlier. Interestingly, I was at a Confederation of British Industry round-table where tech companies were talking about the challenges they're having on getting people to take up jobs that actually have a good return for individuals. But I'm optimistic that we can, over the next few years, do something about persuading people to see the tech sector as a real opportunity for them.
So, I think you could continue to see investment in some of those sectors whilst, as I say, others will find it more distressing. The OBR said that they expect overall investment to reduce by 4 per cent over the next year. So, less investment—. And that's understandable, and you'll know this, that as you go into challenges and times of difficulty, people often batten down the hatches, are less likely to invest in their future and so we've got to give them some incentive. So, the questions from Vikki Howells and others about what we are going to do to help people to both decarbonise and reduce their own costs are really important in unlocking some investment into their business, but at the same time helping them to reduce their cost base too. So, we will, as ever, continue to need to see what progress we can make on productivity as well.
And with the constitution being in the news at the moment, both at Westminster and coming from Wales, do you think that you are constrained by the devolution settlement in what you would like to do to support businesses? If so, what would you do if you didn't have those constraints? What should be done to help businesses in Wales?
Well, apart from anything else, I think clarity and respect for our arrangements would really help. If you look at Germany as a really obvious example within Europe, you find that, actually, they've got a federal settlement where there are entrenched powers that are respected by federal Government, and you don't find unhelpful competition in those areas. So, we'll come back to the shared prosperity fund at a future date, but that's a deliberate reach into a devolved area, and so you have Governments competing in areas that are plainly devolved. I think that's unhelpful.
When it comes to the share of powers, I would like to see more clarity and greater flexibility about what we can do on borrowing and investment. I think that would be really helpful for what we're able to do in a range of areas. There is plenty of news, because there's the commission that's just producing an interim report today, as well as the Gordon Brown commission, but clarity on what different actors are able to do and respect for what those people are able to do is, I think, really important, because this is the first time, I think, in the history of devolution that a UK Government's tried to run an alternative approach to skills, for example, and it's one of the main levers that we have here to help to do something around productivity and the future of the economy, and finding an alternative approach being taken to us I think is contradictory and unhelpful, and that's before we get into the very specific challenges around Multiply, which has taken 17 per cent to 18 per cent of shared prosperity funding into a scheme that we don't think is going to work. So, yes, I'd welcome a period of not just reforming the powers that we have, but a period of stability and respect for those powers. So, I'm very keen that we properly entrench devolution, because I think that would be really helpful for the way that we can support the economy here in Wales.
Okay, thank you.
Thank you, Hefin. And, finally, one more question from Sam.
I found that quite interesting, listening to you there, Minister. How would you describe yourself then? Are you a federalist? Are you a unionist? A devolutionist? How would you describe yourself in view of the United Kingdom and its set-up?
I believe in the future of the union, but a union that needs to be reformed with entrenched devolution. I think you can see there are some choices where, I think, the UK Government and a UK Parliament should make the choices, and there are others where I think we should be making those choices. We've had two referenda in Wales about powers and we're now seeing a reach into those. The United Kingdom Internal Market Act 2020 is a really big problem. It destabilises the way we work. I do want, though, to see a place where the constitutional future has a greater period of stability around it, respect around it and, for me, that's entrenching devolution so that you can't have different UK Governments and UK Parliaments choosing to override the choices that we have been elected to make.
Okay. Thank you, Sam. I'm afraid time has beaten us. We did have some questions around research and innovation, but we'll forward you those questions, and so I'd be grateful if you'd respond to those questions once you receive them. But, thank you, Minister, and I thank your officials as well, for being with us here this morning. Your evidence, obviously, will be very useful to us as a committee in our work. A copy of today's transcript will be sent to you in due course, so if there are any issues with that, then please let us know. But, once again, thank you for being with us this morning.
We'll now take a short break to prepare for the next session. Thank you.
Gohiriwyd y cyfarfod rhwng 10:59 ac 11:06.
The meeting adjourned between 10:59 and 11:06.
Croeso nôl i gyfarfod o Bwyllgor yr Economi, Masnach a Materion Gwledig. Fe symudwn ni ymlaen nawr i eitem 4, y gost o wneud busnes, a heddiw rŷn ni'n adeiladu ar ein gwaith blaenorol ar gostau byw drwy glywed gan gynrychiolwyr busnes am y gost gynyddol o wneud busnes. A gaf i, felly, groesawu'r tystion i'r sesiwn yma? Cyn inni symud yn syth i gwestiynau, gaf i ofyn iddyn nhw gyflwyno eu hunain i'r record, ac efallai y gallaf i ddechrau gyda Gwyneth Sweatman?
Welcome back to this meeting of the Economy, Trade and Rural Affairs Committee. We will move on now to item 4, the cost of doing business, and today we are building on our previous work on the cost of living by hearing from business representatives about the rising cost of doing business. May I, therefore, welcome our witnesses to this session? Before we move to questions, can I ask them to introduce themselves for the record, and perhaps I could start with Gwyneth Sweatman?
Hi, Gwyneth Sweatman, head of media and communications for the Federation of Small Businesses Wales.
David Chapman, executive director for UKHospitality Cymru.
Hi, I'm Sara Jones, head of the Welsh Retail Consortium.
Leighton Jenkins, head of policy for the Confederation of British Industry in Wales.
Thank you very much indeed for those introductions. Perhaps I can kick off this session by just asking you to give us an overview of the pressures businesses are currently facing from rising costs and, indeed, other challenges such as labour shortages and supply chain issues, and what economic impacts these are having on businesses. Who'd like to start on that? David.
I'm happy to start. We're probably at the hard end of conditions at the moment. I apologise, I've got a chest cold, so I'm croaking a bit today, and I'll probably end up coughing a bit, as well. The obvious is conditions with energy at the moment. That's caused real concern, huge rises for many businesses. I think, when you're looking at—. There's a slight divide between hotels, pubs and restaurants, but let's look across the board really. Most businesses are, certainly in the pub and restaurant area, working on fairly fine margins going back to 2019, and you'll probably be aware of that from knowing of your local premises, where margins were in the single figures or whatever before COVID and other impacts that we had at that time, including the fallout from Brexit. So, when we entered into that period, there was a fragile profit margin area within a lot of pubs and restaurants already, and when you take something like 40 per cent to 150 per cent increases in energy—for instance, a local pub near me has just closed; their hike in energy went from £4,500 to £15,500—that just takes away the margin.
So, what we'll be talking about today in terms of trading footfall is actually a different argument to the underlying cost base, and that's the problem. I think footfall is coming almost back in many of our places to 2019 levels, and it's very good. I think the customers are responding. I think they want to be able to go out and enjoy themselves. I think the socialising element is breaking through again, away from eating and drinking at home. So, I think that side of the business is good. The problem is that underlying cost base, which is soaring, and so energy—. You've also got food and drink inflation to deal with in many of our premises, and on top of that there's been a rapid escalation in wages since the return from COVID, incorporating a lifestyle change that many people want. So, we're trying to address that at the same time as trying to cope with all the other cost base problems. As a result, margins are being hammered, and that then means that there's no investment ability and also that there's a limitation on the product. Very often, you'll see restaurants closing an extra day a week or closing early, and pubs closing early, or chefs having time off within what would normally be a working period, in order to protect them, because the numbers of people in the recruitment area are lower, and we need to make sure that all of our staff are looked after, and that we don't burn them out or that they don't find another job in another area that didn't have the difficulties that we had over COVID.
So, that's the underlying position. I do feel like the bearer of bad news every time I speak to you, and it's not that way in terms of the way that the product is delivered and the way that the public is responding, and also the incredible resilience from the people who work in our industry and who run the businesses, but I think it's just that we've had a wave and a wave and a wave of difficulties, and the current one is going to prove to be very difficult for businesses to see out, particularly in the January and February period, when traditionally things go quieter for us in the hospitality industry.
Yes, okay. Gwyneth.
Yes, I'm happy to go next. We do a quarterly survey of all of our businesses in the UK and, obviously, in Wales as well. What we found, this last quarter, is that 96 per cent of businesses are really concerned about rising costs. So, if you are saying that 99 per cent of businesses in Wales are small businesses, that's a really concerning statistic. We also found that one in seven are considering closing, shutting down, selling, or completely restructuring their business in order to stay afloat, just because of the rising costs. Now, when we asked them that last quarter, that number was one in 11, so that's quite stark and concerning. Obviously, energy bills are a real driver for that. Forty-four per cent of firms are saying their costs have absolutely either doubled, tripled or gone even higher than that in the last year, so that's obviously really concerning. And when we ask those businesses, 'How are you coping with that huge rise in costs?' and they're saying, 'Well, you know, we're going to have to pass that on to the consumers,' that's straight away there linked to consumer inflation. So, for us, the cost-of-living crisis is really underpinned by a cost-of-doing-business crisis, and unfortunately that also means a lot of businesses are also rolling back investment as well.
We found that 8 per cent of businesses are delaying investment in green solutions. Obviously, that's quite frustrating, because that could underpin helping the energy crisis and reverse this problem. In addition, we also found that supply chain issues are a real issue. We spoke to a firm in Cardiff recently who said that the cost of butter for them is more than what they pay for rent. That's quite shocking. And a final thing—because I know we're going to cover a lot of this in the session—one third of businesses we asked, 'What's your biggest barrier to growth?' and in a time when we have such big energy costs, we have a huge cost-of-living crisis, one third of those businesses said access to skills and helping skills growth. That's quite interesting as well. So, labour shortage is obviously very stark.
Okay, thanks. Sam, you wanted just to pick up on a point that Gwyneth mentioned.
Yes, a quick point. The Christmas period is traditionally seen as one of the business—. The 'golden quarter', I think it's been coined in the press. I've been out in the high streets in my constituency, and your McArthurGlens, Cardiff, when I'm up here. I've seen it very busy. I've seen a lot of footfall out there. Have we seen the footfall drop yet, or are people still out there but not buying as much or not spending as much? What's the change? From my perspective, I'm still seeing the high streets as busy as they were six or 12 months ago, and I haven't seen the recession fall-off that we saw in footfall in 2008, for example. So, I just wanted to pick up on your thoughts on that.
I think Sara might have a good answer to that, because I think they just released some figures on footfall.
I'd like to just add that you've hit on a point. I think the spend is less. There are fewer things like banqueting and conferencing going on as well, but also fewer Christmas parties, probably, in the sense of them being business Christmas parties. They're probably more gatherings of people and friends together, but not so much those organised events. And it signifies—. Thinking back to previous times where we were moving towards recession, it signifies that reigning in by the consumer, but the determination to have a regular spot at Christmas time, not giving up the Christmas but doing it in a different way. I think what that tends to herald is that, once it goes past Christmas and the new year, things get very tight, because there's a compensation effect. But footfall at the moment is reasonably good, I think, in most areas.
Okay. I don't know if Sara wants to come back on that.
Unfortunately, we've just lost Sara for technical reasons. Leighton, would you like to come in?
Ah, yes, she is.
—but I can carry on.
Yes, by all means, please carry on and then I can bring Sara in afterwards.
Okay, thank you. In terms of our members, and obviously our members are on the larger side of things, they have reported to us that there are four immediate issues that they're looking at. That is around strikes—obviously, the last few months have been quite busy, but they're telling us that there are 10 reports of industrial action at the moment. Blackouts, particularly around manufacturing—as you'd imagine, members are trying to model what a blackout would look like. So, for example, one company told us that they had a one-second blackout of electricity recently, and that cost them £150,000 in broken equipment. So, there are serious issues there. The third one is around mental health. There are real reports, as you'd imagine, from our HR directors around mental health issues. So, they are rolling out new benefits, such as free gym membership, where they can, and they're really working with staff to understand their needs. And finally around redundancies. Now, we haven't heard of any major redundancies at all yet, however, we are having discussions with large firms as they model what a redundancy would look like. Obviously, they don't want to lose critical staff, so they're modelling what could happen and what the scenarios might be. But it's very much a last resort.
In terms of continued pressure, obviously energy—for our members, for their customers, for their staff and their supply chains—but, as has been said already, capital investment is on hold. Uncertainty is driving inaction, and yet we know that investment in tech, certain tech, could drive resilience. So, it would be good to work with Government to understand how we de-risk that process and Government's role and business's role in that. The supply chain is a really tricky one, because we've had a range of feedback from our members, some saying, frankly, 'I've managed to push the increasing costs down the supply chain'; others have said, 'I can absorb those costs and I have done so.' So, there's a huge, varied impact on supply chains, who obviously are exposed to international issues as well. So, I think they're particularly fragile and they're like dominoes. There's a real, uncertain impact should one major part fall.
In terms of recruitment, our recent employment trends survey found that fewer than half of businesses expect to grow their workforce in the next 12 months, and they do rank access to labour and skills, followed by the cost of living, as their top three priorities. But around 30 per cent have introduced pay increases and a further percentage, 20 per cent, are planning to do so. So, there is movement around employment, which is good news on the cost-of-living front at least.
Okay, thanks for that. I'll now bring in Sara Jones. Sara.
Apologies, Chair; I had a few technical difficulties there. I hope I don't repeat too much in terms of what some of the other panellists have said. Thank you very much for the opportunity. As you can imagine, retail is very much in the eye of the storm once again after the two very difficult trading years during the pandemic; a third year now that's proving equally challenging as we hit very much the all-important festive shopping period. November and December account for a fifth of all retail annual sales, so it's a really critical period for us, because those sales help tide us over in those leaner months, during January and February typically. All indications are that it's not great out there at the moment. Consumer confidence is at the lowest level I think it's ever been since records have been running—even lower than the 2008 recession, and that's obviously filtering through into consumer demand and spending decisions. There's lower footfall and vacancies are certainly up. So, it is a challenging picture for retailers; we're hoping that we can weather the storm with support from, obviously, Government and wider stakeholders.
I think the challenges are focused on four areas, and, again, I imagine this is what's already been covered by previous panellists: global commodity prices; a really tight labour market at the moment and rising wages, because we're having to attract as many people as possible because recruitment and retention issues are really strong at the moment; energy prices are obviously massive, both in terms of supply chain, in terms of, actually, operational for the retailers themselves, but also for our consumers—clearly, when energy costs hit our consumers, it hits their ability to be able to purchase and their disposable income—and then, finally, I'd say transport costs remain a real challenge for the sector. We're doing a huge amount to absorb those cost pressures—by the retailers themselves; they're doing what they can to keep prices low. But with margins of 1 to 2 per cent—they're wafer thin at the moment—inevitably, there are price rises both happening now and also in the pipeline. So, that's a challenge. We'll do everything we can to widen our discount ranges, for example, increase our value offer to customers, and support our employees and colleagues in the workplace, but it remains a really challenging time for Welsh retailers.
Okay. Thank you for that. Now, as someone who represents a rural constituency, I'm just interested to know from you how rural businesses have been affected by developments over recent months, because, as a committee, we did hear that rising costs have been exacerbated for rural businesses. Who'd like to respond to that? Gwyneth.
So, what we've found at the moment, through our research study, is that the thing that people report being a real concern in rising costs, right behind energy, is fuel. And so, we know that, for rural businesses, that disproportionately affects them. They've obviously less access to public transport; they're relying more on fuel and that's a real concern. So, for us, I think that's a disproportionate concern that just faces rural businesses in particular.
Anyone else on this? David.
Only to say that rural pubs are always in a difficult position. I live in the Vale of Glamorgan and I've lived in a village where we've had access to three pubs for 20 years within a two-mile radius, and all three have closed. Two are reopening, but it's the most unstable position that I can remember. And I think the fact is that, first of all, the importance of rural pubs in the community sense became obvious during the COVID crisis and the reasons why they should be encouraged and supported and nurtured as much as they can be. The other thing is, of course, they're a destination, whereas, if you're in, say, Cardiff city centre, you'd be quite likely a stop-off among a variety of different destinations, but, when you're a rural pub, you are the target—people go to you or they don't go to you. And I do fear that many are limping along at the moment, and there is a danger period, as I said earlier, but particularly for rural pubs, in the position just after January, February, before the March period and the summer starts again, and after the new year, when many will be vulnerable.
Anyone else on this? No. Obviously, we've heard also considerable evidence about the impact of the rising cost of living on workers and I'm just interested to know to what extent have businesses been able to support their workers and respond to these challenges.
I'm happy to come in, Chair, if that's okay.
Sara. Yes, of course.
Yes, thank you. I would like to just raise awareness of the British Retail Consortium's own page on this. We've got a landing page on our website that highlights a number of areas or a number of businesses—retailers—and what they're doing to support both colleagues and customers. There is such a huge amount of activity going on and I did have a quick look at it today, just to refresh my mind, and even I was surprised by the amount of activity that our retailers are doing. So, just a snapshot. Whether it be pay increases—that's the obvious one—. Other areas: rental deposit schemes, access to debt advice—that's a really common one; lots of financial and well-being support in the workplace—extension of support groups, so there's physical support groups that offer that peer support. We're extending—. You'll know that many retailers have staff discount schemes; often they're being extended and increased for their staff, which is great. Often, there are one-off payments, financial support payments, to support colleagues with the cost of living, and things that are just subsidised, and free meals in the workplace.
I've just really given you a very small snapshot of what our retailers are doing, but they're very aware that our workforce are our No. 1 asset, and we have to support them. And I think Leighton's point earlier around mental well-being in the workplace, I think that's something we're really cognisant of as well, and the BRC and WRC have got our own mental health toolkit that we work very closely with retailers on to support them around that. So, yes, it's something we're very aware of.
Thank you. I'll now bring in Luke Fletcher. Luke.
Diolch, Cadeirydd. I'm interested in the impact of the cost of doing business on different sectors. If I could start with CBI and FSB: looking at your membership, which sectors are being most impacted by that rising cost of doing business, and what are the challenges they face? Shall I start with Gwyneth and then head over to Leighton?
Yes, sure. So, what we found, which is quite interesting, is, obviously, during the lockdown periods, those businesses in the retail, hospitality and leisure sectors and the tourism sectors really struggled, and we saw that kind of evidence by the Welsh Government giving targeted grant support to that, and, quite recently, we did a deep dive into the businesses that are being really supported by the energy bill relief scheme at the moment. Obviously, we don't know what the replacement for that's going to be next year, but we asked those businesses, 'Where do you see yourself if that scheme comes to an end?' And the businesses in the accommodation and retail sectors said that they would—almost half of them said that they would—have to shut down without that support, or drastically change the model that their business operates under, or sell. So, that's quite telling.
Closely behind them came manufacturing companies as well. So, I think for us, the businesses that, quite unfortunately, just came out of the pandemic, just opened their doors again, are now being forced to really look at closing them if that support from UK Government doesn't come in. Obviously, there are steps that the Welsh Government can do in the interim to help support them as well, and that's really key, making sure we're working together, but I think, for us, it's really stark evidence that it's those small businesses that have already been battered by the pandemic that are back again facing new challenges.
So, do you think it's fair to say, then, that—? If we were to think of a umbrella term for these businesses, do you think the umbrella of 'high-energy-intensive sectors' would be that one? One thing I've always had a bit of an issue with is that, when we talk about high-energy-intensive industries, we automatically think about manufacturing. But, actually, hospitality and retail should come under that as well.
Well, if you think of cafes and the energy that they need to use and the fact that, for a lot of small businesses, moving to become green and rely on green energy sources—only 1 per cent of businesses that we surveyed in the whole of the UK are being protected from the energy cost increases by the green resources that they've been able to invest in.
So, we've really called on the UK Government, when looking at the new energy support scheme, to look at the size of the business, rather than whether or not it's a quote, unquote, 'energy-intense business', because that really depends on so many different factors, and it really depends on the lens that you're looking at the business through.
So, I was on the phone with a small cafe last week, who said, 'We're having to shut because we just can't cope with the energy increases, even with the support.' And that's just as bad as a manufacturer who's telling us, 'Our bills have gone from £10,000 a month to £60,000. We're really having to re-look at how we do business.'
Both of those are really bad, but perhaps someone might look at the manufacturing business and say, 'Okay, well, they're obviously more energy intensive,' but what does that mean for the small cafe owner, who feels just as hard done by by these changes?
Breweries are another fine example of that as well.
Shall I come over to Leighton to see if there's anything you'd like to add to that, Leighton?
Yes. I won't repeat what's been said; just to agree with all of it. I think the No. 1 thing—and we'll come onto it—that is impacting firms right now, or will very soon, is the business rates issue. So, I think that impacts every sector, and that cliff edge is a real uncertainty for firms, and I hope that the Welsh Government can look at that and will look at that.
In terms of sectoral impact, energy-intensive industries, as you'd imagine, I would say we are very worried about them. So far, they've managed to absorb costs, but it won't be something that is sustainable, and there really isn't any support out there or recognised support out there for them. So, I think we need to focus on them very closely. And, obviously, then, there are firms that are just below that energy-intensive level, and they equally need some consideration and that's missing at the moment.
In terms of general impact, manufacturers—our surveys find that 49 per cent say that the cost-of-doing-business crisis will limit output over the next 12 months, and, similarly, 46 per cent of the service sector businesses say the same. We're not seeing a huge drop-off yet of any demand or any output, so these are forecasts and, hopefully, they are inaccurate.
In terms of Welsh Government itself, then, of course, there are some limitations. You mentioned business rates, what would you call on the Welsh Government to do specifically around business rates or anything else?
On business rates, it would be simply: match what the UK Government has recently introduced for England in the autumn statement. I think if they do that, freeze the multiplier, that would help a really significant number of firms who are, otherwise, looking at a 10 per cent increase, which—. Quite a few of our members are paying a multiple of millions in business rates. You do the maths for what that would mean.
I think it would be interesting to look at Scotland—and I can send more information about this—at the emergency budget review that they had recently, it included an economic expert panel that recommended about eight or nine different things that the Scottish Government could do in the short term to help. That seemed quite appealing. Some of them, the Welsh Government are already doing around skills, but it might be worth looking both as a process and at some of the policies that have been recommended.
Can I just add to that—
Yes, of course.
—and say that we really support that idea of reintroducing the 100 per cent business rates relief for businesses in the retail, hospitality and leisure sector? Now, the 50 per cent reduction that they are paying at the moment, that's due to come to an end in April, which is also the time when whatever the new energy bill relief scheme is will also come into play, so we're quite concerned that that could potentially lead to quite a lot of compounding impacts all at once for businesses in April. In addition to that, we think it would be a really good opportunity to look at, perhaps, a hardship scheme, in particular for businesses in rural communities that might need that extra support as well.
Thank you. If I could turn to a more focused look on the hospitality and retail sector, I'd be interested to know if you could set out some of those main challenges facing the sectors at the moment and what impact these are having on businesses. Shall I start with David and then to Sara?
I'll combine it with the previous one, because I think Welsh Government could be really innovative with the business rates position here, not only mirroring what is happening in Westminster, but using their devolved powers to give hospitality an extra leg up in the next year or so, recognising that, going back to 2019, we were an industry that was growing at 10 per cent a year. We were creating jobs in every part of Wales and for local people in every part of Wales and will continue to do that. Now, that's the position I want to come here and talk about, not the last three years, it's the one that we were in before, and what we can do for the economy, not the other way around. We need a leg up to be able to push ourselves back as quickly as possible to providing that growth position for the economy, and I think business rates are a platform for that.
We have worked with Sara in the past, with rate tables, getting across the message about how the bricks versus clicks argument needs to be resolved. The consultation that's just about to close on business rates is a signal that the message is getting across, but this is an opportunity in the very short term to radically change that system and maybe implement something as an interim. And I would hope that we'd be looked on as a case where a small amount of assistance would actually produce a very large return on that.
Looking at our broader picture, we're the people business and, when you mention high energy, obviously, we've got to keep the customers warm, but also, our staff are high-energy performers, that's part of what they do, and we need to protect them and to encourage more to come along. In the last few years, we haven't had the firepower to do that properly because all of the cash reserves have disappeared during COVID. Whereas the support was hugely grateful and we were helpful architects of delivery in that, that was a sustain project rather than a growth or maintenance project. So, we've got to find a way in the next year or so to make sure that the staff are able to work as they want to work within the systems that we have, and to make sure that the businesses can survive while that is happening. So, there's radical change going on inside the industry as well.
It's an exciting time because we have, for instance, real living wage hotels now, we have work-life balance, which the industry always struggled with before. These new changes are coming in and they're making an impact and they're encouraging, hopefully, more younger people to come into it. But, there is a recruitment gap that is causing us problems at the moment. Some hotels, for instance, are running at 60 per cent of their product, and that, economically, is unsustainable. It's a ticking-over position. We need to move it up a gear and we need to move into that next sector. That's what I think the Senedd can help with, is looking innovatively at how we can go from A to Z within two years really efficiently, really quickly, and start contributing back into the economy again.
Sara, any additional comments before I hand back to the Chair?
Yes, thank you, Luke. I do have to just reiterate the business rates point, I'm sorry, but it is the No. 1 issue for us in terms of the immediate challenges coming down the pipeline in the next quarter. Really, we've got a lot of commonality with hospitality in so many different areas, and business rates is one. It really is hitting us hard. We recently wrote to the finance Minister, along with 15 other bodies—those around the table today were part of that letter—calling for, at a minimum, a freeze on business rates. I say 'a minimum' because we want it to be matching what UK Government have proposed, but we would like it to obviously go further, particularly for retail and hospitality.
Beyond that, just to pick up on a couple of points that maybe we haven't covered as much in detail, running on the skills and careers side, retail again is finding it really hard to recruit and retain staff at the moment, despite the fantastic workplace offering and development that they offer their staff. We'd like to see reform of the apprenticeship levy at a UK Government level, because that is not fit for purpose, and we're paying a lot of money into that and getting very little in return, and effectively having to double pay for skills development for our employees.
The other area I think that we need to look at is around regulation and new regulation that's coming in the pipeline. I think anything that's going to increase cost of doing business for us at the moment, inevitably, there's going to be a knock-on consequence, and the ability for retailers to be able to absorb that is going to be increasingly challenging. So, again at a UK Government level, EPR, extended producer responsibility, we think that should be delayed to allow retailers to work out the most cost-effective way to look at packaging, for example. In Wales, we've recently seen the single-use plastics, I think yesterday it got approval—the legislation around that. We need to ensure that there's an adequate timeline for retailers to implement and source alternatives, because if there isn't, then there are real challenges, not just for retailers but for consumers in the next couple of months.
Thank you, Luke. I'll now bring in Sarah Murphy. Sarah.
Thank you, Chair. Thank you all for being here today. We've already touched on it a bit, but I'm just going to drill down a little bit more into the UK Government's energy bill relief scheme. This is for six months and it's for non-domestic energy customers like businesses and charities and public sector organisations, and it will automatically be provided via the energy suppliers applying a reduction to the energy bills, just like with the household ones. So, I know that you've touched a little bit on the cliff edge—and FSB, you particularly said that; there's a cliff edge coming at the end of March—and what happens next. So, can you just all give us an idea, really, of how effectively it is working, and are there any gaps in the schemes that need to be addressed, if it was extended? I'll come to you first, Gwyneth.
We recognise that the scheme is a really big help, so we want to see that continue. We're very interested in making sure that businesses know what's coming next. So, not only do we want the scheme to cover businesses effectively and really support those small businesses, but we also want to make sure that all businesses are aware of what that support's going to look like. It doesn't look like we're going to hear what that's going to be before Christmas, which is quite concerning. Obviously, this is a really important period for businesses, they want to make sure that they can see themselves through the next year, but it really hinders planning—not being able to do that.
One of the big gaps in the scheme is that it's delivered through the energy companies. FSB recently wrote to five big energy companies and Grant Shapps just to reiterate that we need to make sure that businesses know when that support's coming and that they're clear what energy bills they're going to be paying. We only got one response from an energy company, and it was just a basic response. So, we're really quite keen to make sure that it's more clear what support businesses are having. But we really want to reiterate that the scheme just can't leave. We have to have that scheme next year, and we need to know what it's going to be sooner rather than later so that we can prepare.
I just want to quickly say—. The fact that almost half of businesses in accommodation and food sectors would close without the scheme is really quite a stark figure. I can't think about walking down the street and seeing half of my favourite restaurants gone, not being able to stay at hotels—that would just be absolutely heartbreaking. So, the importance of the scheme just can't be overstated.
Okay. Just to clarify, then, with the household version, there was a lump sum, and people knew, then, how much was coming up, but that's not the same, then, for the businesses.
The detail of the scheme is really complex, and I can talk to my colleagues and get you a more detailed answer on that, but the way it works is the energy companies—it feeds through them. So, if they aren't communicating with the businesses about what your bill is going to be, you aren't aware until the last minute. We'll often have businesses calling us saying, 'Oh, my gosh, I just got a really, really big bill that I wasn't aware—. I thought there was Government support for this.' So, there are definitely gaps, and that comes down to how it's delivered, but still having that support is really vital.
Okay. Thank you very much. Who wanted to come in next? Anybody else? No.
I'm happy to come in, Sarah.
Okay. Thank you.
Is that okay?
Yes, of course.
Only just briefly, just to back up what Gwyneth was saying, and also just to say that the scheme itself was hugely welcomed by retailers. The only thing I've got to relay back in terms of the feedback we get from them is that, obviously, we'd like to see it extended. Retail accounts for 70 per cent, I think, of UK building usage, so it's a big user of electricity and energy, and it's something we're working very closely with those businesses on. So, we've developed, again, a checklist to support our members in terms of reducing their energy usage, and that's proved really successful, but it's clearly not going to be able to account for the rises that they're going to anticipate having post March. I think we've calculated that the additional energy cost increases could be about £7.5 billion per annum for retailers UK wide, which is, obviously, huge and a massive dig into profitability. So, yes, it's a really challenging time and we'd just like to see the scheme extended.
Thank you very much. As you said, you mentioned that the UK Government has said that it will review the scheme within three months, but, unfortunately, that's not going to be this side of Christmas, and decisions then will be made on the future of the support, which they've said will be targeted at the most vulnerable non-domestic customers. So, what support will businesses need to help with energy bills when the scheme finishes? You touched on that a little bit. But which sectors do you think the support should be targeted at? Do you think that UK Government is looking in the right direction, the right area? Gwyneth, I'll come to you first.
So, when they talk about moving to energy-intensive sectors, we're quite worried that small businesses will be left out of that conversation, then. So, for us, again, it's those accommodation, food services, it's the small businesses in retail and wholesale—those businesses we're worried are going to be left out of that conversation.
I just wanted to also add that another problem is that, currently, small firms can be disconnected from their energy supply if they aren't paying their bill within 30 days, and that's a protection that consumers have that businesses don't have. So, that's a glaring gap in the system as well. But, yes, for us, it's definitely those retail, leisure and hospitality businesses that just aren't—. They're facing not only the energy support concern, but also business rates going back up again.
Of course. Thank you. Did you want to come in, anybody online?
I think only to add there needs to be a lead time for a lot of businesses, and that's obviously being constricted by the decision being any time up until 31 December for the energy scheme. Tenants have to consider their leases with pubs and other things, and those sorts of questions I think are already impacting on decisions that are being made from the summer onwards. I think there was that sort of gap in knowledge about what relief there would be, and I think some decisions were made at that stage, and will probably carry on.
I think the other thing is that, because business rates are largely based around turnover, certainly for our bigger businesses, like hotels, that creates a sort of false image of where the business is, given what I reported on the cost position underneath and the difficulty with margins, and also the restriction of trading to maybe 60 per cent of the offer. When the new rates have come throug, I know of a hotel that's had a 22 per cent increase, whereas, say, a Tesco Express in the same village is on a 0 per cent increase. That's on a turnover basis, but that doesn't mean to say that that business is doing that well. So, that's another factor to put into the argument for not just tinkering with, but radically changing the business rates position here.
Thank you. And then my last question is around, again, what more can be done, what further support. The Welsh Government, as you've mentioned, provides 50 per cent business rate relief for the retail, leisure and hospitality sectors and provides Business Wales resource efficiency advisers. It has also asked the Development Bank of Wales to fast-track a new scheme to support businesses to decarbonise. FSB Wales, you said that you would like the Welsh Government to reintroduce the 100 per cent business rate relief, but as we've recently heard from the Welsh Government, it doesn't have the firepower to provide a grants-based scheme to reach every part of the economy. The UK Government has also provided additional support for energy-intensive industries—that seems to be the industrial sector—with electricity costs, a one-stop-shop webpage for advice, and a boiler upgrade scheme. So, taking all of that into account, is there any further support the UK Government should provide to help with the rising cost of doing business? Gwyneth.
We've called for 'help to green' vouchers for businesses, to help them on that journey to be more sustainable and to have greener ways of heating. We think that that's a really good option. I just want to reiterate that we are really looking forward to seeing the Development Bank of Wales scheme. I think that loan scheme to help businesses invest in green solutions is really fantastic, and we're really looking forward to learn and see how that grows. I think in addition as well, access to finance is a real issue during this time. I think finance applications that were successful have halved since mid 2020, so we're really also looking at the Development Bank of Wales perhaps to deliver more low-interest loans and that can go hand in hand with the work that they're already doing, which is really fantastic.
Wonderful. Thank you. Would anybody else like to come in? David.
Touching on a point that's just been raised by Gwyneth, the Office for National Statistics produced a report that was released earlier this week that indicated that many of the people in the restaurant sector—and I imagine that would carry on into the pub sector as well, which would be looking at small ownership—have had to contribute much more of their own money to satisfy the needs of whoever their funders would be, and that's gone up quite considerably. I think that's a worry because it's a domino effect in society when personal finance becomes more and more involved in the commercial sector. So, I think that's a worrying sight. If we look at it longer term, I can't see this happening immediately, but we've been pushing for years for a preferential VAT rate for the industry. I think the benefit of seeing concessionary programmes, proposals was seen with the Eat Out to Help Out scheme, and our figures show that, although there is a dip in income for the Treasury at the very beginning, it rises and goes beyond current income over a period of time, if a VAT cut was to be made. I think that could help kick start the economy, and help push job retention and job recruitment up further. So, that would be an ask. We've had some good reaction from Members of the Senedd in helping to promote the argument with Westminster, and I'd hope that that would continue.